-----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, MailDl4PZ5WBPUpG/vkydjq2LHRXWcbVdWawpzj+t/lIApaGCbv0q5Q8so/tPQ1y 7Ab0TaSjIwWPKQa0lokvDQ== /in/edgar/work/0000912057-00-050157/0000912057-00-050157.txt : 20001115 0000912057-00-050157.hdr.sgml : 20001115 ACCESSION NUMBER: 0000912057-00-050157 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADENCE DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000813672 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 770148231 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10606 FILM NUMBER: 768160 BUSINESS ADDRESS: STREET 1: 2655 SEELY ROAD BLDG 5 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 a2029698z10-q.txt 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 SEPTEMBER 30, 2000 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) 2655 SEELY AVENUE, BUILDING 5, SAN 95134 JOSE, CALIFORNIA (Zip Code) (Address of Principal Executive Offices)
(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 November 3, 2000, there were 245,787,927 shares of the registrant's common stock, $0.01 par value, outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CADENCE DESIGN SYSTEMS, INC. INDEX
PAGE -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets: September 30, 2000 and January 1, 2000.................... 3 Condensed Consolidated Statements of Operations: Three and Nine Months Ended September 30, 2000 and October 2, 1999........................................... 4 Condensed Consolidated Statements of Cash Flows: Nine Months Ended September 30, 2000 and October 2, 1999...................................................... 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................... 31 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 35 Item 2. Changes in Securities and Use of Proceeds................... 37 Item 3. Defaults Upon Senior Securities............................. 37 Item 4. Submission of Matters to a Vote of Security Holders......... 37 Item 5. Other Information........................................... 37 Item 6. Exhibits and Reports on Form 8-K............................ 37 Signatures.............................................................. 39
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, JANUARY 1, 2000 2000 ------------- ---------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents................................. $ 122,190 $ 111,401 Short-term investments.................................... 5,788 7,357 Receivables, net.......................................... 256,302 248,034 Inventories, net.......................................... 17,285 19,872 Prepaid expenses and other................................ 87,012 93,248 ---------- ---------- Total current assets.................................... 488,577 479,912 Property, plant, and equipment, net......................... 348,288 330,409 Software development costs, net............................. 10,736 10,692 Acquired intangibles, net................................... 349,158 402,154 Installment contract receivables............................ 40,423 84,160 Other assets................................................ 178,807 152,332 ---------- ---------- $1,415,989 $1,459,659 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current portion of capital leases....... $ 2,651 $ 3,924 Accounts payable and accrued liabilities.................. 250,056 265,518 Deferred revenue.......................................... 194,596 152,116 ---------- ---------- Total current liabilities............................... 447,303 421,558 ---------- ---------- Long-term Liabilities: Long-term notes payable and capital leases................ 3,817 25,024 Other long-term liabilities............................... 47,453 26,928 ---------- ---------- Total long-term liabilities............................. 51,270 51,952 ---------- ---------- Stockholders' Equity: Common stock and capital in excess of par value........... 789,366 857,960 Treasury stock, at cost................................... (221,593) (240,748) Retained earnings......................................... 351,734 344,247 Accumulated other comprehensive income (loss)............. (2,091) 24,690 ---------- ---------- Total stockholders' equity.............................. 917,416 986,149 ---------- ---------- $1,415,989 $1,459,659 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 2000 1999 ------------- ---------- ------------- ---------- Revenue: Product...................................... $165,341 $ 80,658 $411,256 $385,905 Services..................................... 87,320 73,125 243,312 220,542 Maintenance.................................. 79,800 72,114 234,068 218,834 -------- -------- -------- -------- Total revenue.............................. 332,461 225,897 888,636 825,281 -------- -------- -------- -------- Costs and Expenses: Cost of product.............................. 22,931 20,405 63,910 59,005 Cost of services............................. 55,991 47,559 157,174 143,661 Cost of maintenance.......................... 17,183 13,613 46,701 39,443 Amortization of acquired intangibles......... 20,648 16,833 60,182 42,403 Marketing and sales.......................... 97,845 88,203 279,043 251,202 Research and development..................... 66,614 58,447 194,959 159,674 General and administrative................... 24,121 22,449 70,404 64,612 Unusual items................................ 10,101 12,171 10,101 46,011 -------- -------- -------- -------- Total costs and expenses................... 315,434 279,680 882,474 806,011 -------- -------- -------- -------- Income (loss) from operations............ 17,027 (53,783) 6,162 19,270 Other income, net.............................. 1,573 520 4,026 796 -------- -------- -------- -------- Income (loss) before provision (benefit) for income taxes....................... 18,600 (53,263) 10,188 20,066 Provision (benefit) for income taxes........... 4,929 (11,817) 2,700 11,657 -------- -------- -------- -------- Net income (loss)........................ $ 13,671 $(41,446) $ 7,488 $ 8,409 ======== ======== ======== ======== Basic net income (loss) per share.............. $ 0.06 $ (0.17) $ 0.03 $ 0.03 ======== ======== ======== ======== Diluted net income (loss) per share............ $ 0.05 $ (0.17) $ 0.03 $ 0.03 ======== ======== ======== ======== Weighted average common shares outstanding..... 244,597 242,877 244,543 241,643 ======== ======== ======== ======== Weighted average common and potential common shares outstanding-assuming dilution......... 262,823 242,877 261,803 256,046 ======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED ---------------------------- SEPTEMBER 30, OCTOBER 2, 2000 1999 -------------- ----------- Cash and Cash Equivalents at Beginning of Period $111,401 $209,074 -------- -------- Cash Flows from Operating Activities: Net income................................................ 7,488 8,409 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 150,414 117,924 Asset impairment and write-off of equipment and non-current assets.................................... -- 12,744 Deferred income taxes................................... (1,264) 13,529 Net investment gains on sale, equity loss, and write-downs........................................... (7,645) 458 Write-off of acquired in-process technology............. -- 20,700 Minority interest expense (income)...................... 12,209 (126) Provisions for losses on trade accounts receivable...... 1,443 9,114 Changes in operating assets and liabilities, net of effect of acquired businesses: Receivables........................................... (134,588) (99,041) Inventories........................................... (2,875) (2,846) Prepaid expenses and other............................ (35,965) (15,667) Installment contract receivables...................... 79,190 39,328 Accounts payable and accrued liabilities.............. 21,102 (12,574) Income taxes payable.................................. 4,968 (11,590) Deferred revenue...................................... 42,480 25,338 Other long-term liabilities........................... 8,316 (2,568) -------- -------- Net cash provided by operating activities........... 145,273 103,132 -------- -------- Cash Flows from Investing Activities: Maturities of short-term investments-held-to-maturity..... 999 23,591 Purchases of short-term investments-held-to-maturity...... -- (43) Maturities of short-term investments-available-for-sale... 2,621 24,510 Purchases of short-term investments-available-for-sale.... -- (15) Purchases of property, plant, and equipment............... (78,575) (101,347) Capitalization of software development costs.............. (21,428) (19,609) Increase in acquired intangibles and other assets......... (45,586) (1,878) Net investment in venture capital partnership and equity investments............................................. 4,543 (5,925) Cash effect of business acquisitions...................... (4,503) (96,784) Sale of put warrants...................................... 30,163 3,609 Purchase of call options.................................. (30,163) (3,609) -------- -------- Net cash used for investing activities.............. (141,929) (177,500) -------- -------- Cash Flows from Financing Activities: Proceeds from long-term notes payable..................... 38,000 98,544 Principal payments on long-term notes payable and capital leases.................................................. (60,821) (195,204) Proceeds from issuance of common stock.................... 69,298 55,298 Purchases of treasury stock............................... (158,396) (82,223) Proceeds from transfer of financial assets in exchange for cash.................................................... 124,303 102,390 -------- -------- Net cash provided by (used for) financing activities........................................ 12,384 (21,195) -------- -------- Effect of exchange rate changes on cash..................... (4,939) (153) -------- -------- Net increase (decrease) in cash and cash equivalents........ 10,789 (95,716) -------- -------- Cash and Cash Equivalents at End of Period.................. $122,190 $113,358 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by Cadence, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, Cadence 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 consolidated financial statements and the notes thereto included in Cadence's Annual Report on Form 10-K for the fiscal year ended January 1, 2000. 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 condensed consolidated 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts in the condensed consolidated financial statements as of January 1, 2000 and for the three and nine months ended October 2, 1999 have been reclassified to conform with the September 30, 2000 presentation. INVENTORIES Cadence's inventories include high technology parts and components for complex computer systems that emulate the performance and operation of computer chips and electronic systems. A summary of inventories follows:
SEPTEMBER 30, JANUARY 1, 2000 2000 ------------- ---------- (IN THOUSANDS) Raw materials............................................... $15,460 $19,033 Work in process............................................. 1,825 839 ------- ------- Total inventories, net.................................. $17,285 $19,872 ======= =======
RESTRUCTURING Liabilities for excess facilities and other restructuring charges are included in accrued and other long-term liabilities, while severance and benefits liabilities are included in payroll and payroll-related 6 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) accruals. The following table summarizes Cadence's restructuring activity during the nine months ended September 30, 2000:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 ------------------------------------------------------------ SEVERANCE AND EXCESS OTHER BENEFITS FACILITIES RESTRUCTURING ASSETS TOTAL --------- ---------- ------------- -------- -------- (IN THOUSANDS) Balance, January 1, 2000.................... $8,013 $6,464 $ 426 $5,861 $20,764 Non-cash charges.......................... (127) (644) (62) (4,238) (5,071) Cash charges.............................. (4,892) (345) (364) (763) (6,364) ------ ------ ----- ------ ------- Balance, September 30, 2000................. $2,994 $5,475 $ -- $ 860 $ 9,329 ====== ====== ===== ====== =======
CREDIT FACILITIES On September 29, 2000, Cadence entered into two syndicated senior unsecured credit facilities that allow Cadence to borrow up to $350 million, referred to as the 2000 Facilities. The 2000 Facilities replace a prior $355 million revolving credit facility, referred to as the 1998 Facility, of which $177.5 million terminated on September 27, 2000 and $177.5 million was terminated immediately prior to closing of the 2000 Facilities. One of the new 2000 Facilities is a $100 million three-year revolving credit facility, referred to as the Three-Year Facility. The other new facility is a $250 million 364-day revolving credit facility convertible into a two-year term loan, referred to as the 364-Day Facility. The Three-Year Facility terminates on September 29, 2003. The 364-Day Facility will terminate on September 28, 2001, at which time the revolving credit facility may be converted to a two-year term loan with a maturity date of September 29, 2003, or, at the request of Cadence and with the consent of members of the bank group that wish to do so, the termination date of the revolving facility may be extended for one additional 364-day period with respect to the portion of the 364-day Facility that a consenting bank holds. For both the 2000 Facilities, Cadence has the option to pay interest based on LIBOR plus a spread of between 1.25% and 1.50%, based on a pricing grid tied to a financial covenant, or the higher of the (i) Federal Funds Rate plus 0.50% and (ii) prime rate. As a result, Cadence's interest rate expenses associated with this borrowing will vary with market rates. In addition, commitment fees are payable on the unused portion of the Three-Year Facility at rates between 0.25% and 0.34% based on a pricing grid tied to a financial covenant and on the unused portion of the 364-Day Facility at a fixed rate of 0.20%. Cadence may not borrow under the 364-day facility at any time that any portion of the Three-Year Facility remains unused. The 2000 Facilities contain certain financial and other covenants. During the nine months ended September 30, 2000, Cadence repaid all of the $20 million outstanding under the 1998 Facility at January 1, 2000. At September 30, 2000, there were no borrowings outstanding under the 2000 Facilities. 7 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) includes foreign currency translation gains and losses and other unrealized gains and losses that have been previously excluded from net income (loss) and reflected instead in shareholders' equity. A summary of comprehensive income (loss) follows:
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 2000 1999 ------------- ---------- ------------- ---------- (IN THOUSANDS) Net income (loss)............................... $13,671 $(41,446) $ 7,488 $8,409 Translation gain (loss)......................... (2,924) 186 (4,591) (286) Unrealized gain (loss) on investments........... 5,413 (34) (22,190) (190) ------- -------- -------- ------ Comprehensive income (loss)................. $16,160 $(41,294) $(19,293) $7,933 ======= ======== ======== ======
NET INCOME (LOSS) PER SHARE The following is a reconciliation of the weighted average common shares used to calculate basic net income (loss) per share to the weighted average common and potential common shares used to calculate diluted net income (loss) per share:
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 2000 1999 ------------- ---------- ------------- ---------- (IN THOUSANDS) Weighted average common shares used to calculate basic net income (loss) per share............. 244,597 242,877 244,543 241,643 Options....................................... 17,662 -- 16,143 12,488 Warrants and other contingent shares.......... 537 -- 583 301 Puts.......................................... 27 -- 534 1,614 ------- ------- ------- ------- Weighted average common and potential common shares used to calculate diluted net income (loss) per share.............................. 262,823 242,877 261,803 256,046 ======= ======= ======= =======
Had Cadence recorded net income for the three months ended October 2, 1999, dilutive weighted outstanding options would have been 8.7 million and dilutive weighted outstanding warrants, puts, and other contingent shares would have been 2.5 million. CONTINGENCIES Refer to Part II, Item 1 for a description of legal proceedings. PUT WARRANTS AND CALL OPTIONS Cadence has authorized three seasoned systematic stock repurchase programs under which it repurchases common stock to satisfy its estimated requirements for shares to be issued under its Employee Stock Purchase Plan, or ESPP, the 1997 Nonstatutory Stock Option Plan, referred to as the 1997 Plan, and the 2000 Nonstatutory Stock Option Plan, referred to as the 2000 Plan. These repurchases are intended to 8 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) cover Cadence's expected reissuances under the ESPP for the next 12 months and both the 1997 Plan and 2000 Plan for the next 24 months. As part of its authorized repurchase programs, Cadence has sold put warrants through private placements. At September 30, 2000, there were 5 million put warrants outstanding, each of which entitles the holder to sell one share of common stock to Cadence on a specified date and at a specified price ranging from $19.56 to $22.31 per share. Additionally, Cadence purchased call options that entitle Cadence to buy shares of its common stock at a specified price to satisfy anticipated stock repurchase requirements under Cadence's systematic stock repurchase programs. At September 30, 2000, Cadence had 3.6 million call options outstanding at exercise prices ranging from $19.81 to $22.56 per share. The put warrants and call options outstanding at September 30, 2000 are exercisable on various dates through May 2001 and Cadence has the contractual ability to settle the options prior to their maturity. At September 30, 2000, the fair value of the call options was approximately $20.5 million and the fair value of the put warrants was approximately $4.4 million. The fair values of the call options and put warrants were estimated by Cadence's investment bankers. If exercised, Cadence has the right to settle the put warrants with that number of shares of Cadence common stock having a value equal to the difference between the exercise price and the fair value at the date of exercise. Settlement of the put warrants with common stock could cause Cadence to issue a substantial number of shares, depending on the exercise price of the put warrants and the per share fair value of Cadence's common stock at the time of exercise. In addition, settlement of put warrants in common stock could lead to the disposition by put warrant holders of shares of Cadence's common stock that such holders may have accumulated in anticipation of the exercise of the put warrants or call options, which may negatively affect the price of Cadence's common stock. At September 30, 2000, because Cadence had the ability to settle these put warrants with common stock, no amount was classified out of stockholders' equity in the condensed consolidated balance sheets. TALITY CORPORATION On July 17, 2000, Cadence announced its plan to separate its electronics design services group into a new, publicly-traded company named Tality Corporation, or Tality. Tality's separation from Cadence was effective October 4, 2000. Tality's electronic design services business now operates as an indirect subsidiary of Cadence. Tality has filed a registration statement with the Securities and Exchange Commission for Tality's initial public offering, or IPO. On October 9, 2000, Cadence announced that it had postponed Tality's IPO due to unfavorable market conditions. The financial statements and financial information in this Quarterly Report on Form 10-Q do not give effect to the IPO. Immediately following the proposed IPO, Cadence expects that it will own approximately 80% of Tality's equity and will continue to consolidate Tality's financial results so long as Cadence retains voting control over Tality. The full impact of the separation on Cadence's business, operating results, and financial condition cannot be predicted at this time. SEGMENT REPORTING With the separation of Tality, Cadence's business activities are now organized on the basis of four operating segments. The Product segment designs and licenses to customers a variety of electronic design automation products. The Tality segment provides engineering services and intellectual property for the design of complex electronic systems and integrated circuits. The Services segment offers methodology services to assist companies in developing electronic designs. The Maintenance segment is primarily a 9 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) technical support organization, and maintenance agreements are offered to customers either as part of our product license agreements or separately. Cadence does not allocate these segments, except for Tality, below the gross margin level. Cadence's organizational structure reflects this segmentation and segments have not been aggregated for purposes of this disclosure. The following tables present information about reported segments for the three months ended September 30, 2000 and October 2, 1999:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 ----------------------------------------------------------------------- CONSOLIDATED PRODUCT TALITY SERVICES MAINTENANCE OTHER TOTAL -------- -------- -------- ----------- --------- ------------ (IN THOUSANDS) Revenue.............................. $165,341 $ 52,033 $35,287 $79,800 $ -- $332,461 Cost of revenue...................... 22,931 39,650 16,341 17,183 -- 96,105 Amortization of acquired intangibles........................ 16,398 4,074 176 -- -- 20,648 -------- -------- ------- ------- --------- -------- Gross margin....................... 126,012 8,309 18,770 62,617 -- 215,708 Marketing and sales.................. -- (9,274) -- -- (88,571) (97,845) Research and development............. -- (2,871) -- -- (63,743) (66,614) General and administrative........... -- (8,553) -- -- (15,568) (24,121) Unusual items........................ -- (5,349) -- -- (4,752) (10,101) Other income, net.................... -- 411 -- -- 1,162 1,573 -------- -------- ------- ------- --------- -------- Income (loss) before provision (benefit) for income taxes......... $126,012 $(17,327) $18,770 $62,617 $(171,472) $ 18,600 ======== ======== ======= ======= ========= ========
FOR THE THREE MONTHS ENDED OCTOBER 2, 1999 ----------------------------------------------------------------------- CONSOLIDATED PRODUCT TALITY SERVICES MAINTENANCE OTHER TOTAL -------- -------- -------- ----------- --------- ------------ (IN THOUSANDS) Revenue.............................. $ 80,658 $ 33,794 $39,331 $72,114 $ -- $225,897 Cost of revenue...................... 20,405 28,546 19,013 13,613 -- 81,577 Amortization of acquired intangibles........................ 14,960 1,521 352 -- -- 16,833 -------- -------- ------- ------- --------- -------- Gross margin....................... 45,293 3,727 19,966 58,501 -- 127,487 Marketing and sales.................. -- (7,836) -- -- (80,367) (88,203) Research and development............. -- (2,129) -- -- (56,318) (58,447) General and administrative........... -- (7,194) -- -- (15,255) (22,449) Unusual items........................ -- -- -- -- (12,171) (12,171) Other income, net.................... -- (305) -- -- 825 520 -------- -------- ------- ------- --------- -------- Income (loss) before provision (benefit) for income taxes......... $ 45,293 $(13,737) $19,966 $58,501 $(163,286) $(53,263) ======== ======== ======= ======= ========= ========
10 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The following tables present information about reported segments for the nine months ended September 30, 2000 and October 2, 1999:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 ----------------------------------------------------------------------- CONSOLIDATED PRODUCT TALITY SERVICES MAINTENANCE OTHER TOTAL -------- -------- -------- ----------- --------- ------------ (IN THOUSANDS) Revenue............................. $411,256 $142,317 $100,995 $234,068 $ -- $888,636 Cost of revenue..................... 63,910 109,828 47,346 46,701 -- 267,785 Amortization of acquired intangibles....................... 47,499 12,167 516 -- -- 60,182 -------- -------- -------- -------- --------- -------- Gross margin...................... 299,847 20,322 53,133 187,367 -- 560,669 Marketing and sales................. -- (25,943) -- -- (253,100) (279,043) Research and development............ -- (8,668) -- -- (186,291) (194,959) General and administrative.......... -- (24,232) -- -- (46,172) (70,404) Unusual items....................... -- (6,090) -- -- (4,011) (10,101) Other income, net................... -- 1,540 -- -- 2,486 4,026 -------- -------- -------- -------- --------- -------- Income (loss) before provision (benefit) for income taxes........ $299,847 $(43,071) $ 53,133 $187,367 $(487,088) $ 10,188 ======== ======== ======== ======== ========= ========
FOR THE NINE MONTHS ENDED OCTOBER 2, 1999 ----------------------------------------------------------------------- CONSOLIDATED PRODUCT TALITY SERVICES MAINTENANCE OTHER TOTAL -------- -------- -------- ----------- --------- ------------ (IN THOUSANDS) Revenue............................. $385,905 $ 91,314 $129,228 $218,834 $ -- $825,281 Cost of revenue..................... 59,005 83,572 60,089 39,443 -- 242,109 Amortization of acquired intangibles....................... 36,792 4,903 708 -- -- 42,403 -------- -------- -------- -------- --------- -------- Gross margin...................... 290,108 2,839 68,431 179,391 -- 540,769 Marketing and sales................. -- (24,175) -- -- (227,027) (251,202) Research and development............ -- (7,358) -- -- (152,316) (159,674) General and administrative.......... -- (20,601) -- -- (44,011) (64,612) Unusual items....................... -- -- -- -- (46,011) (46,011) Other income, net................... -- (59) -- -- 855 796 -------- -------- -------- -------- --------- -------- Income (loss) before provision (benefit) for income taxes........ $290,108 $(49,354) $ 68,431 $179,391 $(468,510) $ 20,066 ======== ======== ======== ======== ========= ========
NEW ACCOUNTING STANDARDS In September 2000, the Emerging Issues Task Force, or EITF, published their consensus on EITF Issue No. 00-19, "Determination of Whether Share Settlement is Within the Control of the Issuer for Purposes of Applying Issue No. 96-13," which was taken up to address implementation of the EITF's March 2000 final consensus of EITF Issue No. 00-7, "Application of EITF Issue No. 96-13 to Equity Derivative Transactions That Contain Certain Provisions That Require Cash Settlement If Certain Events Occur." The final consensus in Issue 00-7 generally stated that equity derivative contracts that contain provisions that implicitly or explicitly require net cash settlement outside of the control of the company must be treated as assets and liabilities and carried at fair value with changes in fair value recognized in 11 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) earnings rather than equity instruments carried at original cost and reported as part of permanent equity. This interpretation becomes effective June 30, 2001 and is not expected to have a material effect on Cadence's financial position, results of operations, or cash flows. In March 2000, the Financial Accounting Standards Board, or FASB, issued interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation", an interpretation of Accounting Principles Board, or APB, Opinion No. 25. This interpretation provides guidance regarding the application of APB Opinion No. 25 to stock compensation involving employees. This interpretation was effective July 1, 2000 and did not have a material effect on Cadence's financial position, results of operations, or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin, No. 101, "Revenue Recognition in Financial Statements," or SAB 101, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. Cadence must adopt SAB 101 in the fourth quarter of its fiscal 2000. The adoption of this statement is not expected to have a material effect on Cadence's financial position, results of operations, or cash flows. In June 1998, the FASB issued Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. It requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met and that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," was issued. The statement defers the effective date of SFAS No. 133 until the first quarter of fiscal 2001. The adoption of this statement is not expected to have a material effect on Cadence's financial position, results of operations, or cash flows. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q. EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. CADENCE'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE ACTUAL RESULTS OR PERFORMANCE TO DIFFER MATERIALLY OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW IN "RESULTS OF OPERATIONS," "LIQUIDITY AND CAPITAL RESOURCES," "FACTORS THAT MAY AFFECT FUTURE RESULTS," AND "DISCLOSURES ABOUT MARKET RISK." OVERVIEW Cadence Design Systems, Inc., or Cadence, provides comprehensive software and other technology and offers design and methodology services for the product development requirements of the world's leading electronics companies. Cadence licenses its leading-edge electronic design automation, or EDA, software and hardware technology and provides a range of services to companies throughout the world to help its customers optimize their product development processes. Cadence is a supplier of products and services which are used by companies to design and develop complex chips and electronic systems including semiconductors, computer systems and peripherals, telecommunications and networking equipment, mobile and wireless devices, automotive electronics, consumer products, and other advanced electronics. TALITY CORPORATION On July 17, 2000, Cadence announced its plan to separate its electronics design services group into a new, publicly-traded company named Tality Corporation, or Tality. Tality's separation from Cadence was effective on October 4, 2000. Tality's electronic design services business now operates as an indirect subsidiary of Cadence. Tality has filed a registration statement with the Securities and Exchange Commission for Tality's initial public offering, or IPO. On October 9, 2000, Cadence announced that it had postponed Tality's IPO due to unfavorable market conditions. The financial statements and financial information in this Quarterly Report on Form 10-Q do not give effect to the IPO. Immediately following the proposed IPO, Cadence expects that it will own approximately 80% of Tality's equity and will continue to consolidate Tality's financial results so long as Cadence retains voting control over Tality. As a result of the separation and pending IPO, Cadence has incurred and will continue to incur certain incremental costs, primarily for deferred stock compensation, legal and accounting services, strategic business planning, information systems separation, development of compensation and benefits strategies, and recruitment of certain key Tality management. Direct costs of the Tality IPO, such as the underwriters' commissions and legal and accounting fees will be deducted from the proceeds of the offering. The full impact of the separation on Cadence's business, operating results, and financial condition cannot be predicted at this time. 13 RESULTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 % CHANGE 2000 1999 % CHANGE ------------- ---------- -------- ------------- ---------- -------- (IN MILLIONS, EXCEPT PERCENTAGES) REVENUE Product............................. $165.3 $ 80.7 105 % $411.2 $385.9 7 % Tality.............................. 52.0 33.8 54 % 142.3 91.3 56 % Services............................ 35.4 39.3 (10)% 101.0 129.3 (22)% Maintenance......................... 79.8 72.1 11 % 234.1 218.8 7 % ------ ------ ------ ------ Total revenue..................... $332.5 $225.9 47 % $888.6 $825.3 8 % ====== ====== ====== ====== SOURCES OF REVENUE AS A PERCENT OF TOTAL REVENUE Product............................. 50% 36% 46% 47% Tality.............................. 16% 15% 16% 11% Services............................ 11% 17% 11% 16% Maintenance......................... 24% 32% 26% 27%
Product revenue increased $84.7 million and $25.4 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999. The increase in the three months ended September 30, 2000 was primarily due to an overall increase in sales volume of Cadence's software products. The increase in sales volume of products was primarily attributable to increased sales of integrated circuit implementation products, which include place and route, physical design and verification products, intellectual property creation products, which include mixed signal and simulation products, and printed circuit board related products. The increase in the nine months ended September 30, 2000 was primarily due to an increase in intellectual property creation products and printed circuit board related products, partially offset by a decrease in integrated circuit implementation products. Tality revenue increased $18.2 million and $51 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to an increase in demand for Tality's services and billable hours incurred for design services. The increase in Tality revenue was primarily due to an increase in services performed in the wireless communications area and to moderate increases in wired communications, information appliances, and industrial electronics. Services revenue decreased $3.9 million and $28.3 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to a decrease in services engagements due to lower staffing levels. 14 Maintenance revenue increased $7.7 million and $15.2 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to the growth of the installed customer base and the renewal of maintenance and support contracts.
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 % CHANGE 2000 1999 % CHANGE ------------- ---------- -------- ------------- ---------- -------- (IN MILLIONS, EXCEPT PERCENTAGES) REVENUE BY GEOGRAPHY Domestic.............................. $191.6 $120.4 59% $504.3 $397.9 27 % International......................... 140.9 105.5 34% 384.3 427.4 (10)% ------ ------ ------ ------ Total revenue....................... $332.5 $225.9 47% $888.6 $825.3 8 % ====== ====== ====== ====== REVENUE BY GEOGRAPHY AS A PERCENT OF TOTAL REVENUE Domestic.............................. 58% 53% 57% 48% International 42% 47% 43% 52%
International revenue increased $35.3 million and decreased $43.1 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999. The increase in the three months ended September 30, 2000 was primarily due to increases in product and maintenance revenue in all regions, partially offset by a decrease in services revenue in Europe, Japan, and Asia. The decrease in the nine months ended September 30, 2000 was primarily due to a decrease in product and services revenue in Japan and a decrease in services revenue in Europe, partially offset by increases in product and maintenance revenue in Europe. Foreign currency exchange rates negligibly affected revenue for the three months ended September 30, 2000, and positively affected revenue by $4.7 million during the nine months ended September 30, 2000 when compared to the same periods in 1999. The increase during the nine months ended September 30, 2000 was primarily due to the strengthening of the Japanese yen in relation to the U.S. dollar, offset partially by the weakening of the German mark and British pound sterling in relation to the U.S. dollar. Foreign currency exchange rates positively affected revenue by $4.9 million and $12.9 million during the three and nine months ended October 2, 1999, respectively, when compared to the same periods in 1998, primarily due to the strengthening of the Japanese yen in relation to the U.S. dollar.
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 % CHANGE 2000 1999 % CHANGE ------------- ---------- -------- ------------- ---------- -------- (IN MILLIONS, EXCEPT PERCENTAGES) COST OF REVENUE Product............................... $22.9 $20.4 12 % $ 63.9 $59.0 8 % Tality................................ $39.7 $28.5 39 % $109.8 $83.6 31 % Services.............................. $16.3 $19.1 (15)% $ 47.4 $60.1 (21)% Maintenance........................... $17.2 $13.6 26 % $ 46.7 $39.4 19 % COST OF REVENUE AS A PERCENT OF RELATED REVENUE Product............................... 14% 25% 16% 15% Tality................................ 76% 84% 77% 92% Services.............................. 46% 49% 47% 46% Maintenance........................... 22% 19% 20% 18%
15 Cost of product revenue includes costs of production personnel, packaging and documentation, royalties, and amortization of capitalized software development costs for software products. Manufacturing costs associated with hardware emulation system products include materials, labor, and overhead. Cost of product revenue increased $2.5 million and $4.9 million for the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to higher manufacturing costs associated with emulation system products. Because the majority of Cadence's cost of software product revenue does not vary significantly with changes in revenue, product gross margin increased in the three and nine months ended September 30, 2000, when compared to the same period in 1999, primarily due to an increase in sales volume of software products. Cost of Tality revenue includes costs associated with providing electronics design services to customers, including salaries and benefits, cost of software, depreciation, facilities, and project management. Cost of Tality revenue increased $11.1 million and $26.3 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to Tality's addition of design engineers and the acquisition of Diablo Research Company LLC, or Diablo, which was completed in the fourth quarter of 1999. Tality gross margin increased in the three and nine months ended September 30, 2000, when compared to the corresponding periods in 1999, primarily due to improved engineering staff utilization and increased use of reusable intellectual property. Cost of services revenue includes costs associated with providing services to customers, primarily salaries and costs to recruit, develop and retain personnel, and costs to maintain the infrastructure necessary to manage a services organization. Cost of services revenue decreased $2.7 million and $12.7 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to a decrease in services engagements. Services gross margin remained flat in the three and nine months ended September 30, 2000, when compared to the corresponding periods in 1999. Services gross margin has been, and may continue to be, harmed by Cadence's inability to fully utilize its services resources. In addition, services gross margin may continue to be harmed by Cadence's inability to achieve operating efficiencies while implementing a growing number of services offerings. Cost of maintenance revenue includes the cost of customer services, such as hot-line and on-site support, production personnel, packaging, and documentation of maintenance updates. Cost of maintenance revenue increased $3.6 million and $7.3 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, due to increases in employee-related costs and costs to invest in customer service.
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 2000 1999 ------------- ---------- ------------- ---------- (IN MILLIONS) AMORTIZATION OF ACQUIRED INTANGIBLES Amortization of acquired intangibles............ $20.6 $16.8 $60.2 $42.4 AMORTIZATION OF ACQUIRED INTANGIBLES AS A PERCENT OF TOTAL REVENUE Amortization of acquired intangibles............ 6% 7% 7% 5%
Amortization of acquired intangibles increased $3.8 million and $17.8 million in the three and nine months ended September 30, 2000, respectively, when compared with the same periods in 1999, primarily due to the 1999 acquisition of OrCAD and Tality's acquisition of Diablo. 16
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 % CHANGE 2000 1999 % CHANGE ------------- ---------- -------- ------------- ---------- -------- (IN MILLIONS, EXCEPT PERCENTAGES) OPERATING EXPENSES Marketing and sales................... $97.9 $88.2 11% $279.0 $251.2 11% Research and development.............. $66.6 $58.4 14% $195.0 $159.7 22% General and administrative............ $24.1 $22.4 8% $ 70.4 $ 64.6 9% EXPENSES AS A PERCENT OF TOTAL REVENUE Marketing and sales................... 29% 39% 31% 30% Research and development.............. 20% 26% 22% 19% General and administrative............ 7% 10% 8% 8%
Marketing and sales expenses increased $9.6 million and $27.8 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to an increase in employee-related costs and costs associated with the 1999 acquisition of OrCAD for which there were no similar costs in the first seven months of 1999. Cadence's expenses in research and development, prior to the reduction for capitalization of software development costs, were $73.3 million, representing 22% of total revenue, in the three months ended September 30, 2000 and $64.5 million, representing 29% of total revenue, for the three months ended October 2, 1999. For the three and nine months ended September 30, 2000, Cadence capitalized software development costs of $6.7 million and $21.4 million, respectively, representing 9% and 10% of total research and development expenditures, respectively. For the three and nine months ended October 2, 1999, Cadence capitalized software development costs of $6.1 million and $19.6 million, respectively, representing 9% and 11% of total research and development expenditures, respectively. The increase in capitalized software development costs for the three and nine month periods ended September 30, 2000, resulted primarily from increases in hours incurred on new product development and new product releases. In any given period, the amount of capitalized software development costs may vary depending on the exact nature of the development performed. The increase in net research and development expenses of $8.2 million and $35.3 million for the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, was primarily attributable to employee-related costs, consulting costs, and costs associated with the 1999 acquisition of OrCAD for which there were no similar costs in the first seven months of 1999. General and administrative expenses increased $1.7 million and $5.8 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to costs associated with building the infrastructure of the Tality organization. Foreign currency exchange rates positively affected operating expenses by $1.3 million and $1.1 million for the three months and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999. The decrease during these periods ended September 30, 2000 was primarily due to the weakening of the British pound sterling, the French franc, and the German mark in relation to the U.S. dollar, partially offset by the strengthening of the Japanese yen in relation to the U.S. dollar. Foreign currency exchange rates negatively affected operating expenses by $2 million and $3.4 million during the three and nine months ended October 2, 1999, respectively, when compared to the same periods in 1998, primarily due to the weakening of the Japanese yen in relation to the U.S. dollar. 17 UNUSUAL ITEMS The following table presents information regarding unusual items for the three and nine months ended September 30, 2000 and October 2, 1999:
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- ------------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 2000 1999 ------------- ---------- ------------- --------------- (IN MILLIONS) Deferred stock compensation.............. $ 5.2 $ -- $ 5.2 $ -- Separation costs......................... 4.9 -- 4.9 -- Restructuring charges.................... -- 0.4 -- 13.3 Merger costs............................. -- -- -- 8.4 Asset impairment......................... -- -- -- 6.6 Litigation settlement.................... -- -- -- (3.0) Write-off of acquired in-process technology............................. -- 11.8 -- 20.7 ----- ----- ----- ----- Total unusual items...................... $10.1 $12.2 $10.1 $46.0 ===== ===== ===== =====
DEFERRED STOCK COMPENSATION Deferred stock compensation represents the difference between the exercise price of stock option grants and restricted stock grants to employees and the deemed fair value of Tality's common stock at the time of those grants. We recorded deferred stock compensation of $64.7 million for the three and nine months ended September 30, 2000. We are amortizing deferred stock compensation to expense over the period during which the stock options and restricted stock vest, four years and one year, respectively. Accordingly, the compensation expense is recognized over the period during which the services have been provided. Such amortization amounted to $5.2 million for the three and nine months ended September 30, 2000. SEPARATION COSTS In the three and nine months ended September 30, 2000, Cadence recorded $4.9 million in separation costs related to the separation and planned IPO of Tality. These costs include legal and accounting services, strategic business planning, information systems separation, and development of compensation and benefits strategies. RESTRUCTURING In the three months ended July 3, 1999, Cadence recorded $10.7 million in restructuring charges, including severance costs to terminate 49 employees and to consolidate facilities. Severance costs of $8.7 million relate to restructuring plans primarily aimed at reducing costs after Cadence merged with Quickturn, further actions taken to restructure the Cadence services business in Japan, and severance expense resulting from the resignation of Cadence's former Chief Executive Officer. Facilities consolidation charges of $2 million were incurred in connection with the closure of 15 Quickturn facilities, including $1 million to close and exit the excess facilities and $1 million of related leasehold improvement abandonment costs. Closure and exit costs include payments required under lease contracts, less any applicable sublease income, after the properties were abandoned, lease buyout costs, restoration costs associated with certain lease arrangements, and costs to maintain facilities during the period after abandonment. Asset-related costs written-off consist of leasehold improvements for facilities that were abandoned and whose estimated fair market value is zero. As of July 1, 2000, all of the 15 excess Quickturn sites had been vacated. Noncancelable lease payments for vacated facilities will be paid out through 2003. 18 In the three months ended April 3, 1999, Cadence recorded $2.2 million in severance costs to terminate 45 employees. These actions were taken to complete Cadence's restructuring program initiated in the fourth quarter of 1998. The restructuring plan was primarily aimed at reducing the costs of excess personnel in its services business. Actual amounts of termination benefits, facilities, and other restructuring related payments can be found in Notes to Condensed Consolidated Financial Statements under "RESTRUCTURING." MERGER COSTS In connection with the acquisition of Quickturn, Cadence charged to expense $8.4 million representing merger costs in the three month period ended July 3, 1999. These merger costs represented professional fees for financial advisors, attorneys, and accountants. ASSET IMPAIRMENT In the three months ended July 3, 1999, Cadence incurred charges totaling $3.5 million in connection with the cancellation of an information technology services contract with a third party and the abandonment of capitalized software development costs associated with Cadence products that were no longer to be sold. In the three months ended April 3, 1999, Cadence incurred charges totaling $3.1 million in connection with the abandonment of certain third-party software licenses that were no longer to be used by its design services business and capitalized software development costs associated with Cadence products that were no longer to be sold. The impairment losses recorded for the nine months ended October 2, 1999 were the amounts by which the carrying amounts of the intangible assets exceeded their fair market values. LITIGATION SETTLEMENT In June 1999, Cadence and Mentor Graphics Corporation announced the settlement of a patent infringement action pending in the United States District Court for the District of Oregon. As a result, the court entered a judgment declaring that certain Quickturn patents are valid, enforceable, and were infringed by Mentor's sale of SimExpress products in the U.S. Mentor is permanently enjoined from producing, marketing or selling SimExpress emulation systems in the U.S. In connection with the settlement, Mentor paid Cadence $3 million. IN-PROCESS TECHNOLOGY In August 1999, Cadence acquired OrCAD, Inc., a supplier of computer-aided engineering and computer-aided design software and services for the printed circuit board industry, for cash. Cadence acquired all of the outstanding stock of OrCAD and assumed all outstanding OrCAD stock options. The purchase price was $131.4 million and the acquisition was accounted for as a purchase. Upon consummation of the OrCAD acquisition, Cadence immediately charged to expense $11.8 million representing acquired in-process technology that had not yet reached technological feasibility and had no alternative future use. The value assigned to acquired in-process technology was determined by identifying research projects in areas for which technological feasibility had not been established. The value was determined by estimating the costs to develop the acquired in-process technology into commercially viable products, estimating the resulting net cash flows from such projects, and discounting the net cash flows back to their present value. The discount rate included a factor that took into account the uncertainty surrounding the successful development of the acquired in-process technology. Certain of the acquired in-process technology became commercially viable in each of 1999 and 2000. Expenditures to 19 complete this acquired in-process technology did not materially differ from the original cost to complete estimations. To date, OrCAD's results have not differed significantly from the forecast assumptions. In addition, Cadence's research and development expenditures since the acquisition have not differed materially from expectations. Revenue contribution from the acquired technology falls within an acceptable range of plans in its role in Cadence's suite of design systems and tools. The risks associated with this research and development are still considered high and no assurance can be made that these products will meet market expectations. In January 1999, Cadence acquired Design Acceleration, Inc., or DAI, a supplier of design verification technology used in system-on-a-chip, or SOC, design. The total purchase price was $25.7 million and the acquisition was accounted for as a purchase. Upon consummation of the DAI acquisition, Cadence immediately charged to expense $8.9 million representing acquired in-process technology that had not yet reached technological feasibility and had no alternative future use. The value assigned to acquired in-process technology was determined by identifying research projects in areas for which technological feasibility had not been established. The value was determined by estimating the costs to develop the acquired in-process technology into commercially viable products, estimating the resulting net cash flows from such projects, and discounting the net cash flows back to their present value. The discount rate included a factor that took into account the uncertainty surrounding the successful development of the acquired in-process technology. Certain acquired in-process technology under development at the time of acquisition was initially expected to become commercially viable in 1999, but has since been delayed to 2000 and 2001. Expenditures to complete this acquired in-process technology are expected to total approximately $1.5 million. These estimates are subject to change, given the uncertainties of the development process, and no assurance can be given that deviations from these estimates will not occur. Additionally, these projects will require expenditures for additional research and development after they have reached a state of technological and commercial feasibility. To date, DAI's results have not differed significantly from the forecasted assumptions. In addition, Cadence's research and development expenditures since the acquisition have not differed materially from expectations. Revenue contribution from the acquired technology falls within an acceptable range of plans in its role in Cadence's suite of design systems and tools. The risks associated with the research and development are still considered high and no assurance can be made that these future products will meet market expectations. OTHER INCOME AND INCOME TAXES Other income increased $1.1 million and $3.2 million in the three and nine months ended September 30, 2000, respectively, when compared to the same periods in 1999, primarily due to an increase in foreign exchange gains and a decrease in interest income. The decrease in interest income was due to a lower average balance of invested cash and short-term investments. Cadence's estimated effective tax rate for the three and nine months ended September 30, 2000 was 26.5%. The effective tax rate for the three and nine months ended October 2, 1999 was 28.5%, excluding the effect of the write-off of acquired in-process technology of $8.9 million, which is not deductible for income tax purposes. The decrease in the 2000 effective tax rate when compared to 1999 is primarily due to foreign earnings being taxed at a lower rate. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, Cadence's principal sources of liquidity consisted of $128 million of cash and short-term investments, compared to $118.8 million at January 1, 2000, and two senior unsecured credit 20 facilities that allow Cadence to borrow up to $350 million. As of September 30, 2000, Cadence had no outstanding borrowings under these credit facilities. Cash provided by operating activities increased $42.1 million to $145.3 million for the nine months ended September 30, 2000, when compared to the nine months ended October 2, 1999. The increase was primarily due to increases in installment contract receivables, accounts payable and accrued liabilities, depreciation and amortization, and deferred revenue, partially offset by decreases in receivables, prepaid expenses and other, and net income before unusual items. At September 30, 2000, Cadence had net working capital of $41.3 million compared with $58.4 million at January 1, 2000. The working capital decrease was driven primarily by an increase in deferred revenue of $42.5 million, partially offset by a decrease in accounts payable and accrued liabilities of $15.6 million and an increase in cash and cash equivalents of $10.8 million. The increase in deferred revenue was due to increase product sales and maintenance contracts. The decrease in accounts payable and accrued liabilities was primarily due to reductions in accrued employee benefits, accrued consulting service, and accruals for payments to vendors. In addition to its short-term investments, Cadence's primary investing activities consisted of purchases of property, plant, and equipment, capitalization of software development costs, acquired intangibles and other assets, venture capital partnership investments and equity investments, and business acquisitions, which combined represented $145.5 million and $225.5 million of cash used for investing activities in the nine months ended September 30, 2000 and October 2, 1999, respectively. Since 1994, Cadence has sold put warrants and purchased call options through private placements. See "Notes to Condensed Consolidated Financial Statements." At September 30, 2000, Cadence had a maximum potential obligation related to put warrants to repurchase 5 million shares of its common stock at an aggregate price of approximately $104.8 million. The put warrants will expire on various dates through May 2001, and Cadence has the contractual ability to settle the options prior to their maturity. Cadence has the right to settle these put warrants with stock and, therefore, no amount was classified out of stockholders' equity in the condensed consolidated balance sheets. Anticipated cash requirements for the remainder of 2000 include working capital, capital expenditures and payment of operating expenses, including marketing and sales expense, research and development expense, general and administrative expense and potential acquisitions of, or investments in, complementary businesses or technologies, and the purchase of treasury stock through Cadence's stock repurchase programs. As part of its overall investment strategy, Cadence has become a limited partner in a venture capital fund and is committed to invest up to $100 million. As of September 30, 2000, Cadence had contributed approximately $47.0 million to this partnership, which is reflected in other assets in the accompanying condensed consolidated balance sheets, net of operating losses. Cadence anticipates that current cash and short-term investment balances, cash flows from operations, and its two revolving credit facilities that allow borrowings of up to $350 million will be sufficient to meet its working capital requirements on a short-and long-term basis. Cadence will continue to fund Tality's operations, as it has done historically, through the date that Tality receives the net proceeds from its planned IPO. NEW ACCOUNTING STANDARDS In September 2000, the Emerging Issues Task Force, or EITF, published their consensus on EITF Issue No. 00-19, "Determination of Whether Share Settlement is Within the Control of the Issuer for Purposes of Applying Issue No. 96-13," which was taken up to address implementation of the EITF's March 2000 final consensus of EITF Issue No. 00-7, "Application of EITF Issue No. 96-13 to Equity 21 Derivative Transactions That Contain Certain Provisions That Require Cash Settlement If Certain Events Occur." The final consensus in Issue 00-7 generally stated that equity derivative contracts that contain provisions that implicitly or explicitly require net cash settlement outside of the control of the company must be treated as assets and liabilities and carried at fair value with changes in fair value recognized in earnings rather than equity instruments carried at original cost and reported as part of permanent equity. This interpretation becomes effective June 30, 2001 and is not expected to have a material effect on Cadence's financial position, results of operations, or cash flows. In March 2000, the Financial Accounting Standards Board, or FASB, issued interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation", an interpretation of Accounting Principles Board, or APB, Opinion No. 25. This interpretation provides guidance regarding the application of APB Opinion No. 25 to stock compensation involving employees. This interpretation was effective July 1, 2000 and did not have a material effect on Cadence's financial position, results of operations, or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin, No. 101, "Revenue Recognition in Financial Statements," or SAB 101, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. Cadence must adopt SAB 101 in the fourth quarter of its fiscal 2000. The adoption of this statement is not expected to have a material effect on Cadence's financial position, results of operations, or cash flows. In June 1998, the FASB issued Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. It requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met and that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," was issued. The statement defers the effective date of SFAS No. 133 until the first quarter of fiscal 2001. The adoption of this statement is not expected to have a material effect on Cadence's financial position, results of operations, or cash flows. FACTORS THAT MAY AFFECT FUTURE RESULTS The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occurs, our business, operating results, and financial condition could be materially harmed. The risk factors affecting Tality Corporation which, immediately after its initial public offering will remain a subsidiary of Cadence, are described in detail in the Registration Statement on Form S-1 filed by Tality Corporation with the Securities and Exchange Commission on July 17, 2000, as amended. Unless specifically noted, references to Cadence in the discussion below are references to Cadence and its subsidiaries, including Tality Corporation and its subsidiaries. CADENCE HAS REORGANIZED ITS DESIGN SERVICES GROUP AS A SEPARATE COMPANY, WHICH MAY IMPACT ITS FINANCIAL RESULTS Since 1995, Cadence has operated an internal electronics design services group. On July 17, 2000, Cadence announced its plan to separate its design services group into a separate company focused on providing design solutions and proprietary technology to electronics product companies and integrated circuit manufacturers, and announced the planned initial public offering of the separate company. The separation was effective on October 4, 2000. Upon completion of the planned initial public offering of 22 Tality, Cadence expects that it will hold approximately 80% of the voting power of Tality. While Cadence does not currently plan to distribute to Cadence stockholders its equity interests in Tality Corporation or its subsidiaries, it will have the right at any time to sell some or all of these equity interests. Cadence has agreed with the underwriters not to transfer its equity interests in Tality Corporation and limited partnership units in Tality, LP for 180 days after the date of the initial public offering of Tality Corporation, except with the prior written consent of Goldman, Sachs & Co. After the expiration of this 180-day period, Cadence will no longer be restricted from transferring any of its common stock of Tality Corporation or limited partnership units in Tality, LP to the public or its stockholders. Cadence currently expects that the principal factors that it would consider in determining whether and when to exchange, convert, sell or distribute to its stockholders any of its shares or partnership units include: - The relative market prices of Tality's common stock and Cadence's common stock; - The ability of an affiliate of Tality to make sales under Rule 144 of the Securities Act of 1933 or under an effective registration statement covering Cadence's shares of Tality's common stock; - The absence of any court order or other regulation prohibiting or restricting such sales; and - Other conditions affecting Tality's business or Cadence's other businesses. CADENCE HAS AGREED TO GRANT CERTAIN RIGHTS AND PROVIDE CERTAIN SERVICES TO TALITY ON TERMS THAT ARE MORE FAVORABLE TO TALITY THAN TERMS THAT WOULD BE OFFERED TO AN UNRELATED PARTY In connection with the separation of Tality, Cadence entered into a number of agreements governing its business relationships with Tality and Cadence's provision of certain services to Tality, including provision of certain facilities, and accounting, finance, legal, human resources, and other administrative services, on terms that are more favorable to Tality than terms that would be offered to an unrelated entity. As a result, Cadence is obligated to provide certain services to Tality for the periods defined in the various agreements, which may impact our financial results. CADENCE LACKS LONG-TERM EXPERIENCE IN ITS ELECTRONICS DESIGN AND METHODOLOGY SERVICES BUSINESS Cadence has no long-term experience in offering electronics design and methodology services and therefore may not be as experienced in these businesses as others. The market for these services is relatively new and rapidly evolving. Cadence expects the expenses of the design services business to increase substantially in connection with Tality's separation from Cadence and as it continues to expand its operations. The rate of growth of Tality's revenue over prior periods may not continue or increase, and its separation and expansion may prove more expensive than Cadence anticipates. If Tality fails to increase its revenue to offset its expenses, Tality will continue to experience losses. Cadence's or Tality's failure to succeed in these services businesses may seriously harm Cadence's business, operating results, and financial condition. THE SUCCESS OF CADENCE'S ELECTRONIC DESIGN AND METHODOLOGY SERVICES BUSINESSES DEPEND ON MANY FACTORS THAT ARE BEYOND ITS CONTROL In order to be successful with its electronics design and methodology services, Cadence must overcome several factors that are beyond its control, including the following: - CADENCE'S COST OF SERVICES PERSONNEL IS HIGH AND REDUCES GROSS MARGIN. Gross margin represents the difference between the amount of revenue from the sale of services and Cadence's cost of providing those services. Cadence must pay high salaries to attract and retain professional services personnel. This results in a lower gross margin than the gross margin in Cadence's software business. In addition, the high cost of training new services personnel or not fully utilizing these personnel can significantly lower gross margin. 23 - A SUBSTANTIAL PORTION OF THESE SERVICES CONTRACTS ARE FIXED-PRICE CONTRACTS. This means that the customer pays a fixed price that has been agreed upon ahead of time, no matter how much time or how many resources Cadence must devote to perform the contract. If Cadence's cost in performing the services consistently and significantly exceeds the amount the customer has agreed to pay, it could seriously harm Cadence's business, operating results, and financial condition. CADENCE'S FAILURE TO RESPOND QUICKLY TO TECHNOLOGICAL DEVELOPMENTS COULD MAKE ITS PRODUCTS UNCOMPETITIVE AND OBSOLETE The industries in which Cadence competes experience rapid technology developments, changes in industry standards, changes in customer requirements and frequent new product introductions and improvements. Currently, the electronic chip design industry is experiencing several revolutionary trends: - The size of features such as wires, transistors, and contacts on chips is shrinking due to advances in semiconductor manufacturing processes. Process feature sizes refer to the width of the transistors and the width and spacing of the interconnect on the chip. Feature size is normally identified by the headline transistor length, which is shrinking from 0.35 microns to 0.18 microns and below. This is commonly referred to in the semiconductor industry as the migration to deep submicron and it represents a major challenge for all levels of the semiconductor industry from chip design and design automation to design of manufacturing equipment and the manufacturing process itself. Shrinkage of transistor length to such infinitesimal proportions (for reference, the diameter of the period at the end of this sentence is approximately 400 microns) is challenging fundamental laws of physics and chemistry. - The ability to design very large chips, in particular integration of entire electronic systems onto a single chip instead of a circuit board (a process that is referred to in the industry as SOC), increases the complexity of managing a design that at the lowest level is represented by billions of shapes on the fabrication mask. In addition, systems typically incorporate microprocessors and digital signal processors that are programmed with software, requiring simultaneous design of the silicon chip and the related embedded software on the chip. If Cadence is unable to respond quickly and successfully to these developments and changes, Cadence may lose its competitive position and its products or technologies may become uncompetitive or obsolete. In order to compete successfully, Cadence must develop or acquire new products and improve its existing products and processes on a schedule that keeps pace with technological developments in its industries. Cadence must also be able to support a range of changing computer software, hardware platforms and customer preferences. There is no guarantee that Cadence will be successful in this regard. CADENCE'S FAILURE TO OBTAIN SOFTWARE OR OTHER INTELLECTUAL PROPERTY LICENSES OR ADEQUATELY PROTECT ITS PROPRIETARY RIGHTS COULD SERIOUSLY HARM ITS BUSINESS Cadence's success depends, in part, upon its proprietary technology. Many of Cadence's products include software or other intellectual property licensed from third parties, and Cadence may have to seek new or renew existing licenses for this software and other intellectual property in the future. Cadence's design services business also requires it to license software or other intellectual property of third parties. Cadence's failure to obtain for its use software or other intellectual property licenses or other intellectual property rights on favorable terms, or the need to engage in litigation over these licenses or rights, could seriously harm Cadence's business, operating results, and financial condition. Also, Cadence generally relies on patents, copyrights, trademarks and trade secret laws to establish and protect its proprietary rights in technology and products. Despite precautions Cadence may take to protect its intellectual property, Cadence cannot assure you that third parties will not try to challenge, invalidate, or circumvent these patents. Cadence also cannot assure you that the rights granted under its patents will provide it with any competitive advantages, patents will be issued on any of its pending 24 applications, or future patents will be sufficiently broad to protect Cadence's technology. Furthermore, the laws of foreign countries may not protect Cadence's proprietary rights in those countries to the same extent as U.S. law protects these rights in the U.S. Cadence cannot assure you that its reliance on licenses from or to third parties, or that patent, copyright, trademark, and trade secret protections, will be enough to be successful and profitable in the industries in which Cadence competes. INTELLECTUAL PROPERTY INFRINGEMENT BY OR AGAINST CADENCE COULD SERIOUSLY HARM ITS BUSINESS There are numerous patents in the EDA industry and new patents are being issued at a rapid rate. It is not always economically practicable to determine in advance whether a product or any of its components infringes the patent rights of others. As a result, from time to time, Cadence may be forced to respond to or prosecute intellectual property infringement claims to protect its rights or defend a customer's rights. These claims, regardless of merit, could consume valuable management time, result in costly litigation, or cause product shipment delays, all of which could seriously harm Cadence's business, operating results, and financial condition. In settling these claims, Cadence may be required to enter into royalty or licensing agreements with the third parties claiming infringement. These royalty or licensing agreements, if available, may not have terms acceptable to Cadence. Being forced to enter into a license agreement with unfavorable terms could seriously harm Cadence's business, operating results, and financial condition. Any potential intellectual property litigation could force us to do one or more of the following: - Pay damages to the party claiming infringement; - Stop licensing, or providing services that use, the challenged intellectual property; - Obtain a license from the owner of the infringed intellectual property to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or - Redesign the challenged technology, which could be time-consuming and costly. If we were forced to take any of these actions, our business and results of operations may be harmed. CADENCE OBTAINS KEY COMPONENTS FOR ITS HARDWARE PRODUCTS FROM A LIMITED NUMBER OF SUPPLIERS Cadence depends on several suppliers for certain key components and board assemblies used in its hardware-based emulation products. Cadence's inability to develop alternative sources or to obtain sufficient quantities of these components or board assemblies could result in delays or reductions in product shipments. In particular, Cadence currently relies on Xilinx, Inc. and Taiwan Semiconductor Manufacturing Corporation for the supply of key integrated circuits and on IBM for the hardware components for both Cadence's CoBALT-TM- product and Mercury Design Verification System-TM-. Other disruptions in supply may also occur. If there were such a reduction or interruption, Cadence's results of operations would be seriously harmed. Even if Cadence can eventually obtain these components from alternative sources, a significant delay in Cadence's ability to deliver products would result. FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS COULD HURT CADENCE'S BUSINESS AND THE MARKET PRICE OF ITS STOCK Cadence has experienced, and may continue to experience, varied quarterly operating results. Various factors affect Cadence's quarterly operating results and some of them are not within Cadence's control, including the mix of products and services sold, the mix of licenses used to sell products and the timing of significant orders for its software products and services by customers. Quarterly operating results are affected by the mix of products and services sold because there are significant differences in margins from the sale of hardware and software products and services. For example, based on a three-year average in 1999 Cadence had realized gross margins on software product sales of approximately 91% but realized gross margins of approximately 65% on hardware product sales and 32% on its performance of services. In 25 the third quarter of 2000, realized gross margins remained flat at 91% for software products and decreased to approximately 63% for hardware products and increased to approximately 36% for services. In addition, Cadence's quarterly operating results are affected by the mix of licenses entered into in connection with the sale of software products. Cadence has three basic licensing models: perpetual, fixed-term, and subscription. Perpetual and fixed-term licenses recognize a larger portion of the revenue at the beginning of the license period and subscription licenses recognize revenue ratably over each quarter of the term of the license. As Cadence customers purchase more software products pursuant to subscription agreements, future operating results may be lower than that of comparable quarters in which perpetual and fixed-term licenses were in greater use for software product transactions. Finally, Cadence's quarterly operating results are affected by the timing of significant orders for its software products because a significant number of contracts for software products are in excess of $5 million. The failure to close a contract for the sale of one or more orders of Cadence's software products could seriously harm its quarterly operating results. Sales of Cadence's hardware products depend, in significant part, upon the decision of the prospective customer to commence a project for the design and development of complex computer chips and systems. These projects often require significant commitments of time and capital. Cadence's hardware sales may be delayed if customers delay commencement of projects. Lengthy hardware sales cycles subject Cadence to a number of significant risks over which Cadence has little or no control, including insufficient, excess or obsolescent inventory, variations in inventory valuation and fluctuations in quarterly operating results. In addition, Cadence bases its expense budgets partially on its expectations of future revenue. However, it is difficult to predict revenue levels or growth. Revenue levels that are below Cadence's expectations could seriously hurt Cadence's business, operating results, and financial condition. If revenue or operating results fall short of the levels expected by public market analysts and investors, the trading price of Cadence common stock could decline dramatically. Also, because of the timing of large orders and its customers' buying patterns, Cadence may not learn of revenue shortfalls, earnings shortfalls or other failures to meet market expectations until late in a fiscal quarter, which could cause even more immediate and serious harm to the trading price of Cadence common stock. Because Cadence has no long-term experience providing services, it believes that quarter-to-quarter comparisons of its results of operations may not be meaningful. Therefore, stockholders should not view Cadence's historical results of operations as reliable indicators of its future performance. In addition, many of our services engagements are terminable with little or no advance notice and without penalty. Since a significant portion of our costs is fixed, we may not be able to reduce our costs in a timely manner in connection with the unanticipated revenue loss when one or more projects is terminated. THE LENGTHY SALES CYCLE OF CADENCE'S PRODUCTS AND SERVICES MAKES THE TIMING OF ITS REVENUE DIFFICULT TO PREDICT AND MAY CAUSE ITS OPERATING RESULTS TO FLUCTUATE UNEXPECTEDLY Cadence has a lengthy sales cycle that generally extends at least three to five months. The length of our sales cycle may cause our revenue and operating results to vary unexpectedly from quarter to quarter. The complexity and expense associated with our business generally requires a lengthy customer education and approval process. Consequently, we may incur substantial expenses and devote significant management effort and expense to develop potential relationships that do not result in agreements or revenue and may prevent us from pursuing other opportunities. In addition, sales of our products and services may be delayed if customers delay approval or commencement of projects because of: - Customers' budgetary constraints and internal acceptance review procedures; - The timing of customers' budget cycles; and - The timing of customers' competitive evaluation processes. 26 If customers experience delays in their approval or project commencement activities, we may not learn of, and therefore be able to communicate to the public, revenue or earnings shortfalls until late in a fiscal quarter. CADENCE EXPECTS TO ACQUIRE OTHER COMPANIES AND MAY NOT SUCCESSFULLY INTEGRATE THEM OR THE COMPANIES IT HAS RECENTLY ACQUIRED Cadence has acquired other businesses before and may do so again. While Cadence expects to analyze carefully all potential transactions before committing to them, Cadence cannot assure you that any transaction that is completed will result in long-term benefits to Cadence or its stockholders, or that Cadence's management will be able to manage the acquired businesses effectively. In addition, growth through acquisition involves a number of risks. If any of the following events occurs after Cadence acquires another business, it could seriously harm Cadence's business, operating results, and financial condition: - Difficulties in combining previously separate businesses into a single unit; - The substantial diversion of management's attention from day-to-day business when negotiating these transactions and then integrating an acquired business; - The discovery after the acquisition has been completed of liabilities assumed from the acquired business; - The failure to realize anticipated benefits such as cost savings and revenue enhancements; - The failure to retain key personnel of the acquired business; - Difficulties related to assimilating the products of an acquired business in, for example, distribution, engineering, and customer support areas; - Unanticipated costs; - Adverse effects on existing relationships with suppliers and customers; and - Failure to understand and compete effectively in markets in which we have limited previous experience. CADENCE'S INTERNATIONAL OPERATIONS MAY SERIOUSLY HARM ITS FINANCIAL CONDITION BECAUSE OF SEVERAL WEAK FOREIGN ECONOMIES AND THE EFFECT OF FOREIGN EXCHANGE RATE FLUCTUATIONS Cadence has significant operations outside the United States. Cadence's revenue from international operations as a percentage of total revenue was approximately 42% and 43% for the three and nine months ended September 30, 2000, respectively, and 47% and 52% for the three and nine months ended October 2, 1999, respectively. Cadence also transacts business in various foreign currencies. Recent economic uncertainty and the volatility of foreign currencies in certain parts of the Asia-Pacific region and Europe, has had, and may continue to have, a seriously harmful effect on Cadence's revenue and operating results. Fluctuations in the rate of exchange between the U.S. dollar and the currencies of countries other than the U.S. in which Cadence conducts business could seriously harm its business, operating results, and financial condition. For example, if there is an increase in the rate at which a foreign currency exchanges into U.S. dollars, it will take more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. If Cadence prices its products and services in the foreign currency, it will receive less in U.S. dollars than it did before the rate increase went into effect. If Cadence prices its products and services in U.S. dollars, an increase in the exchange rate will result in an increase in the price for Cadence's products and services compared to those products of its competitors that are priced in local currency. This 27 could result in Cadence's prices being uncompetitive in markets where business is transacted in the local currency. Cadence's international operations may also be subject to other risks, including: - The adoption and expansion of government trade restrictions; - Volatile foreign exchange rates and currency conversion risks; - Limitations on repatriation of earnings; - Reduced protection of intellectual property rights in some countries; - Recessions in foreign economies; - Longer receivables collection periods and greater difficulty in collecting accounts receivable; - Difficulties in managing foreign operations; - Political and economic instability; - Unexpected changes in regulatory requirements; - Tariffs and other trade barriers; and - U.S. government licensing requirements for export which make licenses difficult to obtain. Cadence expects that revenue from its international operations will continue to account for a significant portion of its total revenue. Exposure to foreign currency transaction risk can arise when transactions are conducted in a currency different from the functional currency of a Cadence subsidiary. A subsidiary's functional currency is the currency in which it primarily conducts its operations, including product pricing, expenses and borrowings. Cadence uses foreign currency forward exchange contracts and purchases foreign currency put options to help protect against currency exchange risks. These forward contracts and put options allow Cadence to buy or sell specific foreign currencies at specific prices on specific dates. Increases or decreases in the value of Cadence's foreign currency transactions are partially offset by gains and losses on these forward contracts and put options. Although Cadence attempts to reduce the impact of foreign currency fluctuations, significant exchange rate movements may hurt Cadence's results of operations as expressed in U.S. dollars. Foreign currency exchange risk occurs for some of Cadence's foreign operations whose functional currency is the local currency. The primary effect of foreign currency translation on Cadence's results of operations is a reduction in revenue from a strengthening U.S. dollar, offset by a smaller reduction in expenses. Exchange rate gains and losses on the translation into U.S. dollars of amounts denominated in foreign currencies are included as a separate component of stockholders' equity. FAILURE TO OBTAIN EXPORT LICENSES COULD HARM CADENCE'S BUSINESS Cadence must comply with U.S. Department of Commerce regulations in shipping its software products and other technologies outside the U.S. Although Cadence has not had any significant difficulty complying with these regulations so far, any significant future difficulty in complying could harm Cadence's business, operating results, and financial condition. CADENCE'S INABILITY TO COMPETE IN ITS INDUSTRIES COULD SERIOUSLY HARM ITS BUSINESS The EDA market and the commercial electronics design and methodology services industries are highly competitive. If Cadence is unable to compete successfully in these industries, it could seriously harm Cadence's business, operating results, and financial condition. To compete in these industries, Cadence must identify and develop innovative and cost competitive electronic design automation software products and market them in a timely manner. It must also gain industry acceptance for its design and methodology 28 services and offer better strategic concepts, technical solutions, prices and response time, or a combination of these factors, than those of other design companies and the internal design departments of electronics manufacturers. Cadence cannot assure you that it will be able to compete successfully in these industries. Factors which could affect Cadence's ability to succeed include: - The development of competitive EDA products and design and methodology services could result in a shift of customer preferences away from Cadence's products and services and significantly decrease revenue; - The electronics design and methodology services industries are relatively new and electronics design companies and manufacturers are only beginning to purchase these services from outside vendors; - The pace of the technology change demands continuous technological development to meet the requirements of next-generation design challenges; and - There are a significant number of current and potential competitors in the EDA industry and the cost of entry is low. In the EDA products industry, Cadence currently competes with a number of large companies, including Avant! Corporation, Mentor Graphics Corporation, Synopsys, Inc. and Zuken-Redac, and numerous small companies. Cadence also competes with manufacturers of electronic devices that have developed or have the capability to develop their own EDA products. Many manufacturers of electronic devices may be reluctant to purchase services from independent vendors such as Cadence because they wish to promote their own internal design departments. In the electronics design and methodology services industries, Cadence competes with numerous electronic design and consulting companies as well as with the internal design capabilities of electronics manufacturers. Other electronics companies and management consulting firms continue to enter the electronic design and methodology services industries. CADENCE IS SUBJECT TO THE CYCLICAL NATURE OF THE INTEGRATED CIRCUIT INDUSTRY, AND ANY FUTURE DOWNTURNS WILL LIKELY REDUCE OUR REVENUE Purchases of our products and services are highly dependent upon the commencement of new design projects by integrated circuit manufacturers. The integrated circuit industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life cycles, and wide fluctuations in product supply and demand. The industry has experienced significant downturns, often connected with, or in anticipation of, maturing product cycles of both integrated circuit companies' and their customers' products and a decline in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. During these downturns, the number of new integrated circuit design projects may decrease. Any future downturns may reduce our revenue and harm our results of operations. CADENCE'S FAILURE TO ATTRACT, TRAIN, MOTIVATE, AND RETAIN KEY EMPLOYEES MAY HARM ITS BUSINESS Competition for highly skilled employees is very intense. Cadence's business depends on the efforts and abilities of its senior management, its research and development staff, and a number of other key management, sales, support, technical, and services personnel. The high cost of training new personnel, not fully utilizing these personnel, or losing trained personnel to competing employers could reduce our gross margins and harm our business and operating results. Competition for these personnel is intense, particularly in geographic areas recognized as high technology centers such as the Silicon Valley area, where our principal offices are located, and the other locations where we maintain large facilities. To attract and retain individuals with the requisite expertise, we may be required to grant large numbers of stock options or other stock-based incentive awards, which may be dilutive to existing stockholders. We may also be required to pay significant base salaries and cash bonuses, which could harm our operating 29 results. If we do not succeed in hiring and retaining candidates with appropriate qualifications, we will not be able to grow our business and our operating results will suffer. Cadence's failure to attract, train, motivate, and retain key employees would impair its development of new products, its ability to provide design and methodology services and the management of its businesses. This would seriously harm Cadence's business, operating results, and financial condition. IF CADENCE BECOME SUBJECT TO UNFAIR HIRING CLAIMS, CADENCE COULD BE PREVENTED FROM HIRING NEEDED PERSONNEL, INCUR LIABILITY FOR DAMAGES AND INCUR SUBSTANTIAL COSTS IN DEFENDING ITSELF Companies in Cadence's industry whose employees accept positions with competitors frequently claim that these competitors have engaged in unfair hiring practices or that the employment of these persons would involve the disclosure or use of trade secrets. These claims could prevent us from hiring personnel or cause us to incur liability for damages. Cadence could also incur substantial costs in defending ourselves or its employees against these claims, regardless of their merits. Defending ourselves from these claims could also divert the attention of its management away from its operations. ERRORS OR DEFECTS IN CADENCE DESIGNS COULD EXPOSE IT TO LIABILITY AND HARM OUR REPUTATION Cadence's customers use its products and services in designing and developing products that involve a high degree of technological complexity, each of which has its own specifications and is based on various industry standards. Because of the complexity of the systems and products with which Cadence works, some of its products and designs can be adequately tested only when put to full use in the marketplace. As a result, its customers or their end users may discover errors or defects in Cadence's software or the systems Cadence designs, or the products or systems incorporating its design and intellectual property may not operate as expected. Errors or defects could result in: - Loss of current customers and loss of or delay in revenue and loss of market share; - Failure to attract new customers or achieve market acceptance; - Diversion of development resources to resolving the problem; - Increased service costs; and - Liability for damages. ANTI-TAKEOVER DEFENSES IN CADENCE'S CHARTER, BY-LAWS, AND UNDER DELAWARE LAW COULD PREVENT AN ACQUISITION OF CADENCE OR LIMIT THE PRICE THAT INVESTORS MIGHT BE WILLING TO PAY FOR CADENCE COMMON STOCK Provisions of the Delaware General Corporation Law that apply to Cadence and its Certificate of Incorporation could make it difficult for another company to acquire control of Cadence. For example: - Section 203 of the Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in any business combination with a person owning 15% or more of its voting stock, or who is affiliated with the corporation and owned 15% or more of its voting stock at any time within three years prior to the proposed business combination, for a period of three years from the date the person became a 15% owner, unless specified conditions are met. - Cadence's Certificate of Incorporation allows Cadence's Board of Directors to issue, at any time and without stockholder approval, preferred stock with such terms as it may determine. No shares of preferred stock are currently outstanding. However, the rights of holders of any Cadence preferred stock that may be issued in the future may be superior to the rights of holders of its common stock. - Cadence has a rights plan, commonly known as a "poison pill," which would make it difficult for someone to acquire Cadence without the approval of Cadence's Board of Directors. 30 All or any one of these factors could limit the price that certain investors would be willing to pay for shares of Cadence common stock and could delay, prevent or allow Cadence's Board of Directors to resist an acquisition of Cadence, even if the proposed transaction was favored by a majority of Cadence's independent stockholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK Cadence's exposure to market risk for changes in interest rates relates primarily to its investment portfolio and long-term debt obligations. While Cadence is exposed with respect to interest rate fluctuations in many of the world's leading industrialized countries, Cadence's interest income and expense is most sensitive to fluctuations in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on Cadence's cash and cash equivalents, short-term and long-term investments, and interest paid on its long-term debt obligations as well as costs associated with foreign currency hedges. Cadence invests in high quality credit issuers and, by policy, limits the amount of its credit exposure to any one issuer. As stated in its policy, Cadence's first priority is to reduce the risk of principal loss. Consequently, Cadence seeks to preserve its invested funds by limiting default risk, market risk, and reinvestment risk. Cadence mitigates default risk by investing in only high quality credit securities that it believes to be low risk and by positioning its portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. On September 29, 2000, Cadence entered into two syndicated senior unsecured credit facilities that allow Cadence to borrow up to $350 million, referred to as the 2000 Facilities. The 2000 Facilities replace a prior $355 million revolving credit facility, referred to as the 1998 Facility, of which $177.5 million expired on September 27, 2000 and $177.5 million was terminated immediately prior to closing of the 2000 Facilities. One of the new 2000 Facilities is a $100 million three-year revolving credit facility, referred to as the Three-Year Facility. The other new facility is a $250 million 364-day revolving credit facility convertible into a two-year term loan, referred to as the 364-Day Facility. The Three-Year Facility terminates on September 29, 2003. The 364-Day Facility will terminate on September 28, 2001, at which time the revolving credit facility may be converted to a two-year term loan with a maturity date of September 29, 2003, or, at the request of Cadence and with the consent of members of the bank group that wish to do so, the termination date of the revolving facility may be extended for one additional 364-day period with respect to the portion of the 364-day Facility that a consenting bank holds. For both the 2000 Facilities, Cadence has the option to pay interest based on LIBOR plus a spread of between 1.25% and 1.50%, based on a pricing grid tied to a financial covenant, or the higher of the (i) Federal Funds Rate plus 0.50% and (ii) prime rate. As a result, Cadence's interest rate expenses associated with this borrowing will vary with market rates. In addition, commitment fees are payable on the unused portion of the Three-Year Facility at rates between 0.25% and 0.34% based on a pricing grid tied to a financial covenant and on the unused portion of the 364-Day Facility at a fixed rate of 0.20%. Cadence may not borrow under the 364-day facility at any time that any portion of the Three-Year Facility remains unused. The 2000 Facilities contain certain financial and other covenants. The table below presents the carrying value and related weighted average interest rates for Cadence's investment portfolio. All highly liquid investments with an original maturity of three months or less at the date of purchase are considered to be cash equivalents; investments with original maturities between three and 12 months are considered to be short-term investments. Investments with original maturities greater 31 than 12 months are considered non-current assets. As of September 30, 2000, all of Cadence's investments have maturities less than 12 months. The carrying value approximated fair value at September 30, 2000.
FAIR AVERAGE VALUE INTEREST RATE -------- ------------- (In millions, except for average interest rates) Investment Securities: Short-term investments-fixed rate......................... $ 5.8 6.58% Cash equivalents-fixed rate............................... 9.3 5.89% Cash equivalents-variable rate............................ 60.6 5.06% ----- ---- Total interest bearing instruments...................... $75.7 5.28% ===== ====
INTEREST RATE SWAP RISK Cadence entered into a 4.8% fixed interest rate-swap in connection with its accounts receivable financing program to modify the interest rate characteristics of the receivables sold to a financing institution on a non-recourse basis. At September 30, 2000, the notional amount payable was $10.8 million, which will be amortized in quarterly installments of approximately $2.2 million through October 2001. The estimated fair value at September 30, 2000 was immaterial. FOREIGN CURRENCY RISK Cadence's operations include transactions in foreign currencies and, as a result, Cadence benefits from a weaker dollar and is harmed by a stronger dollar relative to major currencies worldwide. Accordingly, the primary effect of foreign currency transactions on Cadence's results of operations is a reduction in revenue and expenses from a strengthening U.S. dollar. Cadence enters into foreign currency forward exchange contracts and purchases foreign currency put options with financial institutions primarily to protect against currency exchange risks associated with existing assets and liabilities and probable but not firmly committed transactions, respectively. Forward contracts are not accounted for as hedges and, therefore, the unrealized gains and losses are recognized in other income, net in advance of the actual foreign currency cash flows with the fair value of these forward contracts being recorded as accrued liabilities. Cadence purchases put options to hedge the currency exchange risks associated with probable but not firmly committed transactions. Probable but not firmly committed transactions consist of revenue from Cadence's products and maintenance contracts in a currency other than the functional currency. These transactions are made through Cadence's subsidiaries in Ireland and Japan. The premium costs of the put options are recorded in other current assets while the gains and losses are deferred and recognized in income in the same period as the hedged transaction. Gains and losses on accounting hedges realized before the settlement date of the related hedged transaction are also generally deferred and recognized in income in the same period as the hedged transaction. Cadence does not use forward contracts for trading purposes. Cadence's ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the forward contracts and put options mature. The table below provides information as of September 30, 2000 about Cadence's forward contracts. The information is provided in U.S. dollar equivalent amounts. The table presents the notional amounts, at 32 contract exchange rates, and the weighted average contractual foreign currency exchange rates. These forward contracts mature on or before November 16, 2000.
AVERAGE NOTIONAL CONTRACT AMOUNT RATE -------- -------- Forward Contracts: (In millions, except for average contract rates) Japanese yen.............................................. $ 39.7 105.67 Euro...................................................... 34.2 0.90 British pound sterling.................................... 25.6 1.50 Swedish krona............................................. 2.8 9.66 Canadian dollars.......................................... 2.6 1.48 Hong Kong dollars......................................... 0.9 7.80 Singapore dollars......................................... 0.2 1.74 ------ $106.0 ======
While Cadence actively manages its foreign currency risks on an ongoing basis, there can be no assurance that Cadence's foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchange rates on its results of operations, cash flows, and financial position. On a net basis, foreign currency fluctuations did not have a material impact on Cadence's results of operations and financial position during the three months ended September 30, 2000. Due to the short-term nature of the forward contracts, the fair value at September 30, 2000 was negligible. The realized gain (loss) on the forward contracts as they matured was not material to the consolidated operations of Cadence. EQUITY PRICE RISK As part of its authorized repurchase program, Cadence has sold put warrants and purchased call options through private placements. The put warrants, if exercised, would entitle the holder to sell shares of Cadence common stock to Cadence at a specified price. Similarly, the call options entitle Cadence to buy shares of Cadence common stock at a specified price. Cadence repurchases shares of its common stock under stock repurchase programs for issuance under its Employee Stock Purchase Plan, or ESPP, its 1997 Stock Option Plan, referred to as the 1997 Plan, and its 2000 Stock Option Plan. As part of these repurchase programs, Cadence has purchased and will purchase call options or has sold and will sell put warrants. These transactions may result in sales of a large number of shares and consequent decline in the market price of Cadence common stock. Cadence's stock repurchase program includes the following characteristics: - Call options allow Cadence to buy shares of its common stock on a specified day at a specified price. If the market price of the stock is greater than the exercise price of a call option, Cadence will typically exercise the option and receive shares of its stock. If the market price of the common stock is less than the exercise price of a call option, Cadence typically will not exercise the option. - Call option issuers may accumulate a substantial number of shares of Cadence common stock in anticipation of Cadence's exercising its call option and may dispose of these shares if and when Cadence fails to exercise its call option. This could cause the market price of Cadence common stock to fall. - Put warrants allow the holder to sell to Cadence shares of Cadence common stock on a specified day at a specified price. Cadence has the right to settle the put warrants with shares of Cadence common stock valued at the difference between the exercise price and the fair value of the stock at the date of exercise. 33 - Depending on the exercise price of the put warrants and the market price of Cadence common stock at the time of exercise, settlement of the put warrants with Cadence common stock could cause Cadence to issue a substantial number of shares to the holder of the put warrant. The holder may sell these shares in the open market, which could cause the price of Cadence common stock to fall. - Put warrant holders may accumulate a substantial number of shares of Cadence common stock in anticipation of exercising their put warrants and may dispose of these shares if and when they exercise their put warrants and Cadence issues shares in settlement of their put warrants. This could also cause the market price of Cadence common stock to fall. The table below provides information at September 30, 2000 about Cadence's outstanding put warrants and call options. The table presents the contract amounts and the weighted average strike prices. The put warrants and call options expire on various dates through May 2001 and Cadence has the contractual ability to settle the options prior to their maturity.
2000 2001 ESTIMATED MATURITY MATURITY FAIR VALUE -------- -------- ---------- (Shares and contract amounts in millions) Put Warrants: Shares.................................................... 3.1 1.9 Weighted average strike price............................. $21.16 $21.06 Contract amount........................................... $ 65.6 $ 39.2 $ 4.4 Call Options: Shares.................................................... 2.2 1.4 Weighted average strike price............................. $21.34 $21.31 Contract amount........................................... $ 48.0 $ 29.8 $20.5
34 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time Cadence is involved in various disputes and litigation matters that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, licensing, contract law, distribution arrangements, and employee relations matters. Cadence filed a complaint in the U.S. District Court for the Northern District of California on December 6, 1995 against Avant! Corporation and certain of its employees for misappropriation of trade secrets, copyright infringement, conspiracy, and other illegal acts. On January 16, 1996, Avant! filed various counterclaims against Cadence and Joseph B. Costello, Cadence's former President and Chief Executive Officer, and with leave of the court, on January 29, 1998, filed a second amended counterclaim. The second amended counterclaim alleges, INTER ALIA, that Cadence and Mr. Costello had cooperated with the Santa Clara County, California, District Attorney and initiated and pursued its complaint against Avant! for anti-competitive 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 second amended counterclaim also alleges that certain Cadence insiders engaged in illegal insider trading with respect to Avant!'s stock. Cadence and Mr. Costello believe that they have meritorious defenses to Avant!'s claims, and each intends to defend such action vigorously. By an order dated July 13, 1996, the court bifurcated Avant!'s counterclaim from Cadence's complaint and stayed the counterclaim pending resolution of Cadence's complaint. The counterclaim remains stayed. In an order issued on December 19, 1997, as modified on January 26, 1998, the District Court entered a preliminary injunction barring Avant! from any further infringement of Cadence's copyrights in Design Framework II software, or selling, licensing or copying such product derived from Design Framework II, including, but not limited to, Avant!'s ArcCell products. On December 7, 1998, the District Court issued a further preliminary injunction, which enjoined Avant! from selling its Aquarius product line. Cadence posted a $10 million bond in connection with the issuance of the preliminary injunction. On July 30, 1999, the U.S. Court of Appeals for the Ninth Circuit affirmed the preliminary injunction. By an order dated July 22, 1997, the District Court stayed most activity in the case pending in that court and ordered Avant! to post a $5 million bond in light of related criminal proceedings pending against Avant! and several of its executives. On September 7, 1999, the District Court ruled on the parties' Motions for Summary Adjudication, and granted in part, and denied in part, each party's motion regarding the scope of a June 6, 1994 Release Agreement between the parties. The court held that Cadence's copyright infringement claim against Avant! is not barred by the release and that Cadence may proceed on that claim. The court also held that Cadence's trade secret claim based on Avant!'s use of Cadence's Design Framework II source code is barred by the release. The Ninth Circuit has agreed to hear both parties' appeal from the District Court's order. The trial date has been vacated pending a decision on the appeal and the outcome of the criminal case, for which the trial is scheduled to begin in February 2001. On April 30, 1999, Cadence and several of its officers and directors were named as defendants in a lawsuit filed in the U.S. District Court for the Northern District of California, entitled Spett v. Cadence Design Systems, et al., civil action no. C 99-2082. The action was brought on behalf of a class of stockholders who purchased Cadence common stock between November 4, 1998 and April 20, 1999, and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The lawsuit arises out of Cadence's announcement of its first quarter 1999 financial results. On September 18, 2000 the District Court granted Cadence's Motion to Dismiss Plaintiffs' Claims with leave to amend. To date, no amended complaint has been filed. Should an amended complaint be filed, Cadence and the individual defendants intend to continue their vigorous defense of the allegations. 35 In February 1998, Aptix Corporation and Meta Systems, Inc. filed a lawsuit against Quickturn Design Systems, Inc. in the U.S. District Court for the Northern District of California. In this lawsuit, entitled Aptix Corporation and Meta Systems, Inc. v. Quickturn Design Systems, Civil Action No. C 98-00762 WHA, Aptix and Meta Systems alleged that Quickturn infringed a U.S. patent owned by Aptix and licensed to Meta. Quickturn filed a counterclaim requesting the District Court to declare the Aptix patent invalid in view of the prior art and unenforceable based on inequitable conduct during the prosecution of the patent. In June 2000 the District Court entered judgment in favor of Quickturn, dismissing the complaint and declaring the patent unenforceable. On September 8, 2000 the Court ordered Aptix to pay $4.2 million to Quickturn as reimbursement to Quickturn of the attorneys' fees and costs it incurred in the litigation. Aptix has appealed the District's Court's judgment and, in the meantime, has agreed to post a $2 million bond to secure the judgment. On July 21, 1999, Mentor filed suit against Quickturn in the U.S. District Court for the District of Delaware, alleging that Quickturn's Mercury-TM- hardware emulation systems infringe U.S. Patent Nos. 5,777,489 and 5,790,832 allegedly assigned to Mentor. At Quickturn's request, Cadence was added as a party defendant. Mentor has since asserted that Quickturn's Mercury Plus(plus)-TM- emulation systems also infringe U.S. Patent Nos. 5,777,489 and 5,790,832. The complaint seeks a permanent injunction and unspecified damages. Cadence intends to vigorously defend itself against these claims. On December 14, 1999, this action was transferred to the U.S. District Court for the Northern District of California, and renumbered Civil Action No. C 99-5464 SI. On February 25, 2000, Cadence and several of its officers were named as defendants in a lawsuit filed in the U.S. District Court for the Northern District of California, entitled Maxick v. Cadence Design Systems, Inc., File No. C 00 0658PJH. The action was brought on behalf of a class of shareholders of OrCAD, Inc., and alleges violations of Section 14(d)(7) of the Securities Exchange Act of 1934, as amended, and Rule 14d-10 thereunder. The lawsuit arises out of Cadence's acquisition of OrCAD, which was completed in August 1999. Cadence's Motion to Dismiss plaintiffs' claims was denied. On March 24, 2000, Mentor and Meta and several founders of Meta filed suit against Quickturn and Cadence and a former Quickturn employee in the U.S. District Court for the Northern District of California, Civil Action No. C 00-01030 SI. The suit alleges patent infringement of a U.S. Patent allegedly assigned to Mentor, misappropriation of trade secrets and breach of confidence, and seeks unspecified damages, injunctive relief and the assignment to Mentor of a patent previously issued to Quickturn. Cadence intends to vigorously defend itself against these claims, and has filed a counterclaim for declaratory judgment of invalidity of several patents allegedly assigned to Mentor. Following a motion by Cadence, the former Quickturn employee was dismissed as a party to the action. Discovery in the action has subsequently been consolidated with discovery in Civil Action No. C 99-5464, the Mentor v. Quickturn suit transferred from Delaware. On January 7, 1999, in the suit captioned Mentor Graphics Corporation, et. al. v. Lobo, et. al., Delaware Chancery Court, New Castle County, Civ. Action No. 16843-NC ("Mentor v. Lobo"), an amended complaint was filed and served by Mentor asserting claims against Cadence, Quickturn Design Systems, Inc. and its Board of Directors for declaratory and injunctive relief for various alleged breaches of fiduciary duty purportedly owned by Quickturn and its Board of Directors to Quickturn's shareholders in connection with the merger between Quickturn and Cadence. Mentor alleged that Cadence aided and abetted Quickturn and its Board of Directors in those purported breaches. Mentor has not prosecuted the matter since January 1999. In May 2000, Mentor advised the Delaware Chancery Court of its objection to the settlement of a companion action brought on behalf of certain Quickturn shareholders. Mentor further advised the court that it would seek an award of attorneys' fees related to its prosecution of the Mentor v. Lobo action. At the request of the court, on July 28, 2000, Mentor filed its brief in support of its standing to seek such an award. Cadence, Quickturn and the individual defendants have opposed Mentor's request. The court is awaiting Mentor's Reply Brief and will then take the matter under submission. 36 Management believes that the ultimate resolution of the disputes and litigation matters discussed above will not have a material adverse effect on Cadence's business, operating results or financial condition. However, were an unfavorable ruling to occur in any specific period, there exists the possibility of a material adverse impact on the result of operations of that period. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE - --------------------- ------------- 2.01 Amended and Restated Agreement of Limited Partnership of Tality, LP dated October 4, 2000, between Tality Corporation and Cadence Holdings, Inc. 2.02 Amended and Restated Master Separation Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality LP. 2.03 General Assignment and Assumption Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP. 2.04 Master Intellectual Property Ownership and License Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP. 2.05 Employee Matters Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP. 2.06 Master Corporate Services Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP. 2.07 Real Estate Matters Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP. 2.08 Master Confidentiality Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP. 2.09 Indemnification and Insurance Matters Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP. 2.10 Asset Purchase Agreement dated as of October 4, 2000 by and among the Registrant, Cadence Design System (Canada) Limited and Tality Canada Corporation. 2.11 Asset Purchase Agreement dated as of October 3, 2000 by and among Symbionics Limited, the Registrant and Cadence Design Systems Limited. 2.12 Fixed Term License Agreement dated as of October 4, 2000 between the Registrant and Tality, LP. 2.13 Joint Technology Development and Support Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP.
37
EXHIBIT NUMBER EXHIBIT TITLE - --------------------- ------------- 2.14 Joint Sales Agreement dated as of October 4, 2000 by and among Tality Corporation, the Registrant, Cadence Holdings, Inc. and Tality, LP. 10.01 Credit Agreement, dated as of September 29, 2000, by and among the Registrant and ABN AMRO Bank N.V., Bank One, N.A., KeyBank National Association and UBS AG, Stamford Branch. 10.02 364 Day Credit Agreement, dated as of September 29, 2000, by and among the Registrant and ABN AMRO Bank N.V., Bank One, N.A., KeyBank National Association and UBS AG, Stamford Branch. 10.03 The Registrant's 1997 Stock Option Plan, as amended on November 1, 2000. 10.04 The Registrant's 2000 Non-Statutory Equity Incentive Plan, as amended (incorporated by reference to the Registrant's Form S-8 Registration Statement filed on November 14, 2000). 10.05 Employment Agreement between Tality Corporation and Robert P. Wiederhold dated as of July 14, 2000. 10.06 Tality Corporation 2000 Equity Incentive Plan, as amended. 10.07 Tality Corporation Directors Stock Option Plan 27.01 Financial data schedule for the period ended September 30, 2000.
(b) Reports on Form 8-K: Cadence filed a Current Report on Form 8-K dated July 17, 2000 attaching Cadence's press release reporting the separation and initial public offering of Tality. Cadence filed a Current Report on Form 8-K dated October 9, 2000 attaching Cadence's press release announcing the delay of the initial public offering of Tality. 38 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: November 14, 2000 By: /s/ H. RAYMOND BINGHAM ----------------------------------------- H. Raymond Bingham PRESIDENT, CHIEF EXECUTIVE OFFICER, AND DIRECTOR Date: November 14, 2000 By: /s/ WILLIAM PORTER ----------------------------------------- William Porter SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
39 EX-2.01 2 a2029698zex-2_01.txt EX-2.01 Exhibit 2.01 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF TALITY, LP, A DELAWARE LIMITED PARTNERSHIP DATED AS OF OCTOBER 4, 2000
TABLE OF CONTENTS Page ---- ARTICLE I CERTAIN DEFINITIONS...................................................................................1 Section 1.1. Definitions..........................................................1 Section 1.2. Accounting Terms and Determinations..................................7 Section 1.3. Directly or Indirectly; Without Limitation...........................7 Section 1.4. References...........................................................7 ARTICLE II ORGANIZATION.........................................................................................7 Section 2.1. Organization.........................................................7 Section 2.2. Name.................................................................8 Section 2.3. Registered Office; Registered Agent; Principal Office in the United States; Other Offices................................................8 Section 2.4. Term.................................................................8 ARTICLE III PURPOSE AND POWERS..................................................................................8 Section 3.1. Purpose..............................................................8 Section 3.2. Powers...............................................................8 Section 3.3. Other Authority......................................................8 ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP UNITS.............................................9 Section 4.1. Capital Contributions................................................9 Section 4.2. Additional Capital Contributions....................................10 Section 4.3. Return of Contributions.............................................10 Section 4.4. Advances by Partners................................................11 Section 4.5. No Preemptive Rights................................................11 Section 4.6. Other Contribution Provisions.......................................11 Section 4.7. Additional Contributions by Tality; Relationship of Tality Common Shares to Partnership Units.........................................11 Section 4.8. Incentive Plans.....................................................12 Section 4.9. Additional Contributions by Holdings................................13 Section 4.10. Splits and Reclassifications........................................14 ARTICLE V CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS......................................................15 Section 5.1. Capital Accounts....................................................15 Section 5.2. Allocation of Net Profit or Net Loss................................16 Section 5.3. Additional Allocations..............................................16 Section 5.4. Allocations for Tax Purposes........................................17 Section 5.5. Distributions.......................................................17 Section 5.6. Tax Distributions...................................................18 Section 5.7. Withholding.........................................................19
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Page ---- ARTICLE VI MANAGEMENT..........................................................................................20 Section 6.1. Management by General Partner.......................................20 Section 6.2. Management Policies.................................................20 Section 6.3. No Compensation of General Partner..................................20 Section 6.4. Officers............................................................20 Section 6.5. Business Opportunities..............................................21 Section 6.6. Related Transactions/Intercompany Agreements........................22 Section 6.7. Certificate of Limited Partnership..................................22 Section 6.8. Title to Partnership Assets.........................................23 Section 6.9. Reimbursement of General Partner Expenses...........................23 Section 6.10. Liability of the General Partner....................................23 Section 6.11. Other Matters Concerning the General Partner........................24 Section 6.12. Rights of Limited Partners..........................................24 ARTICLE VII TRANSFERS AND EXCHANGES OF PARTNERSHIP INTERESTS...................................................24 Section 7.1. Transfer Restrictions...............................................24 Section 7.2. Permitted Transfers.................................................25 Section 7.3. Exchange of Partnership Units.......................................25 ARTICLE VIII LIMITED LIABILITY; INDEMNIFICATION................................................................26 Section 8.1. Limited Liability...................................................26 Section 8.2. Indemnification.....................................................26 Section 8.3. Contribution........................................................27 ARTICLE IX TAXES...............................................................................................28 Section 9.1. Tax Matters Partner; Tax Returns....................................28 Section 9.2. Partnership Status..................................................28 Section 9.3. Fiscal Year.........................................................29 ARTICLE X BOOKS, RECORDS AND BANK ACCOUNTS.....................................................................29 Section 10.1. Maintenance of Books................................................29 Section 10.2. Accounting Principles...............................................29 Section 10.3. Bank Accounts.......................................................29 Section 10.4. Tax Information.....................................................29 Section 10.5. Public Filings......................................................29 ARTICLE XI ADMISSION OF PARTNERS; WITHDRAWAL; CLASSES OF PARTNERSHIP INTERESTS.................................30 Section 11.1. Substitution of Partners............................................30 Section 11.2. Admission of Additional Partners....................................30 Section 11.3. Withdrawal..........................................................30 Section 11.4. Classes of Partnership Interests....................................30
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Page ---- ARTICLE XII DISSOLUTION, LIQUIDATION AND TERMINATION...........................................................31 Section 12.1. Dissolution.........................................................31 Section 12.2. Liquidation and Termination.........................................32 Section 12.3. Distribution in Kind................................................33 Section 12.4. Deficit Capital Accounts............................................33 Section 12.5. Cancellation of Filings.............................................33 ARTICLE XIII GENERAL PROVISIONS................................................................................33 Section 13.1. Representations and Warranties of Partners..........................33 Section 13.2. Offset..............................................................34 Section 13.3. Notices.............................................................34 Section 13.4. Entire Agreement; Waivers and Modifications.........................34 Section 13.5. No Third-Party Beneficiaries........................................35 Section 13.6. Governing Law.......................................................35 Section 13.7. Further Assurances..................................................35 Section 13.8. Waiver of Certain Rights............................................35 Section 13.9. Severability........................................................35 Section 13.10. Successors and Assigns..............................................36 Section 13.11. Specific Performance................................................36 Section 13.12. Interpretation of Agreement.........................................36 Section 13.13. Multiple Counterparts...............................................36
iii AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF TALITY, LP THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF TALITY, LP (this "AGREEMENT") is made and entered into as of October 4, 2000 by and between Tality Corporation, a Delaware corporation, as general partner and as a limited partner ("TALITY"), and Cadence Holdings, Inc., a Delaware corporation, as a limited partner ("HOLDINGS"). WHEREAS, Tality and Holdings desire to form a limited partnership under the Act (as defined below) with Tality as the initial general partner and Holdings as the initial limited partner; WHEREAS, Tality and Holdings intend that this Agreement shall be the initial limited partnership agreement of such partnership, which was formed by the filing of a Certificate of Limited Partnership with the Secretary of State in accordance with the Act; WHEREAS, Cadence, Holdings and Tality have entered into certain, and intend to enter into certain other, Separation Agreements (as defined below), whereby, at the time of the Separation (as defined below), certain assets will be contributed to the Partnership in a manner consistent with the Separation Agreements and Section 4.1(b); WHEREAS, Holdings and Tality entered into that certain Agreement of Limited Partnership of Tality, LP, dated as of July 21, 2000, which prior to the date hereof has governed the matters described above (the "PRIOR AGREEMENT"); and WHEREAS, each of the parties now desires to amend and restate the Prior Agreement in its entirety pursuant to Section 13.4 thereof. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and the sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS 1.1. DEFINITIONS. As used herein, the following terms shall have the respective meanings set forth below: "ACQUIRED ENTITY" has the meaning set forth in Section 4.7(a)(i). "ACT" means the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. Sections 17-101, ET SEQ., as amended from time to time, and any successor statute. 1 "ADJUSTED CAPITAL ACCOUNT" of a Partner means such Partner's Capital Account increased by such Partner's share of partnership nonrecourse debt minimum gain and partnership minimum gain as defined in Treas. Reg. Sections 1.704-2. "AFFILIATE" means, with respect to a specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. "AVAILABLE CASH" means, at any specified time, (x) the sum of all cash receipts of the Partnership prior to such time from any and all sources, less (y) all cash disbursements (including all distributions made to Partners, cash payments made by the Partnership for purposes of operating expenses, loan repayments, capital improvements and replacements) prior to such time and the amount of Reserves at such time. "BUSINESS" means the business of providing electronic design engineering services, and intellectual property in connection therewith, to electronic equipment manufacturers. "BUSINESS DAY" means any day other than a Saturday or Sunday or a holiday on which national banking associations in California are required or permitted by law to be closed. "CADENCE" has the meaning ascribed thereto in the recitals hereto. "CAPITAL ACCOUNT" means the capital account maintained for a Partner pursuant to Section 5.1, including all additions and subtractions thereto pursuant to this Agreement. "CAPITAL CONTRIBUTION" means, with respect to any Partner, any money and property (net of any liability that the Partnership is considered to assume or take subject to under Section 752 of the Code) contributed by such Partner to the Partnership. "CARRYING VALUE" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) the Carrying Value of any asset contributed or deemed contributed by a Partner to the Partnership shall be the gross fair market value of such asset at the time of contribution as reasonably determined by agreement of the contributing Partner and the General Partner; (ii) the Carrying Value of any asset distributed or deemed distributed by the Partnership to any Partner shall be adjusted immediately prior to such distribution to equal its gross fair market value at such time as reasonably determined by the General Partner; (iii) the Carrying Value of all Partnership assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the General Partner, as of: 2 (1) the date of the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a DE MINIMIS contribution to the capital of the Partnership; or (2) the distribution by the Partnership to a retiring or continuing Partner of more than a DE MINIMIS amount of money or other Partnership property in reduction of such Partner's interest in the Partnership; or (3) the liquidation of the Partnership within the meaning of Treas. Reg. Sections 1.704-1(b)(2)(ii)(g); PROVIDED, HOWEVER, that an adjustment described in clauses (1) and (2) above shall be made only if the General Partner reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Partners in the Partnership; and, PROVIDED FURTHER, that the General Partner may use such thresholds and other conventions as it deems appropriate and consistent with the intent of the Treasury regulations under Code Section 704(b) in aggregating contributions described in clause (1) and distributions in clause (2) for purposes of determining when and the extent to which Carrying Values will be adjusted under this paragraph (iii); (iv) any adjustments to the adjusted basis of any asset of the Partnership pursuant to Section 734 or 743 of the Code shall be taken into account in determining such asset's Carrying Value in a manner consistent with Treas. Reg. Sections 1.704-1(b)(2)(iv)(m); and (v) if the Carrying Value of an asset has been determined pursuant to clauses (i) through (iv) above, such Carrying Value shall thereafter be adjusted in the same manner as would the asset's adjusted tax basis for federal income tax purposes, except that depreciation, cost recovery and amortization deductions shall be computed as provided in Treas. Reg. Sections 1.704-1(b)(2)(iv)(g), and if the asset has a zero adjusted basis for federal income tax purposes, depreciation, cost recovery or amortization deductions shall be determined using any reasonable method selected by the General Partner. "CERTIFICATE" means the Certificate of Limited Partnership relating to the Partnership filed in the office of the Secretary of State, as amended or restated or otherwise modified from time to time in accordance with the Act. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "CONTROL," "CONTROLS" or "CONTROLLING" means the possession, directly or indirectly, through one or more intermediaries, of the power or authority, through ownership of voting securities, as manager, general partner, trustee or executor, by contract or otherwise, to direct the management, activities or policies of a Person. 3 "COVERED PERSON" has the meaning set forth in Section 6.10. "DGCL" means the Delaware General Corporation Law, as amended and in effect from time to time. "DISINTERESTED DIRECTORS" means the directors of Tality who are not officers, directors or employees of any of the Holdings Partners. "EQUITY AWARD" means any compensatory stock option, stock appreciation right, stock award, restricted stock award or other or similar right to receive Tality Class A Shares. "FISCAL YEAR" has the meaning set forth in Section 9.3. "GAAP" means generally accepted accounting principles consistently applied. "GENERAL PARTNER" means Tality and any other Person admitted to the Partnership as a general partner of the Partnership pursuant to this Agreement until such Person's status as a General Partner is terminated in accordance with this Agreement. "GENERAL PARTNER INTEREST" means a Partnership Interest of a General Partner that is held in its capacity as a General Partner. "HOLDINGS" has the meaning ascribed thereto in the preamble hereto. "HOLDINGS PARTNERS" means Holdings, Cadence and any Subsidiary of Holdings or Cadence other than any of the Tality Partners. "INCENTIVE PLAN" means any incentive compensation plan adopted by Tality or by the Partnership and approved by the General Partner. "IPO" means an initial public offering of Tality Common Shares. "LIMITED PARTNER" means Tality in its capacity as a limited partner of the Partnership, Holdings and any other Person admitted to the Partnership as a limited partner pursuant to this Agreement, in each case until such Person's status as a limited partner is terminated in accordance with this Agreement; any reference herein to a "Limited Partner" shall refer to any one of the Limited Partners. "LIMITED PARTNER INTEREST" means a Partnership Interest of a Limited Partner that is held in its capacity as a Limited Partner. "LIQUIDATOR" means or one or more Persons appointed by the General Partner to wind up the affairs of the Partnership and make final distributions to Partners upon the dissolution of the Partnership as provided in Section 12.2. 4 "MASTER SEPARATION AGREEMENT" means the Master Separation Agreement dated as of July 14, 2000 by and among Cadence, Holdings and Tality, as may be amended from time to time. "NET PROFIT" and "NET LOSS" mean, respectively, for any period, the taxable income and taxable loss of the Partnership for the period as determined for federal income tax purposes, provided that for purpose of determining Net Profit and Net Loss and each item thereof (and not for income tax purposes) (i) there shall be taken into account any tax-exempt income of the Partnership; (ii) any expenditures of the Partnership that are described in Section 705(a)(2)(B) of the Code or that are deemed to be described in Section 705(a)(2)(B) of the Code pursuant to Treasury Regulations under Section 704(b) of the Code shall be treated as deductible expenses; (iii) if any Partnership asset has a Carrying Value that differs from its adjusted tax basis as determined for federal income tax purposes, income, gain, loss and deduction (including but not limited to depreciation) with respect to such asset shall be computed based upon the asset's Carrying Value rather than its adjusted tax basis; (iv) items of gross income or deduction allocated pursuant to Section 5.3 shall be excluded from the computation of Net Profit and Net Loss; (v) there shall be taken into account any separately stated items under Section 702(a) of the Code; and (vi) if the Carrying Value of any Partnership asset is adjusted pursuant to the definition thereof, the amount of such adjustment shall be taken into account in the Fiscal Year or other period of adjustment as gain or loss from the disposition of such asset for purposes of computing Net Profit and Net Loss. "NOTICES" has the meaning set forth in Section 13.3. "PARTNERS" means the General Partner and the Limited Partners; any reference herein to a "Partner" shall refer to any one of the Partners. As the context may require, in connection with the allocation of any item of income, gain, loss, deduction, profit or distribution, but not otherwise, the term "PARTNER" shall include a transferee of a Partnership Interest in accordance with Article VII who is not admitted as a Partner but who is treated as a partner of the Partnership for federal income tax purposes. "PARTNERSHIP" means Tality, LP, the Delaware limited partnership formed pursuant to the filing of the Certificate. "PARTNERSHIP INTEREST" means an interest of a Limited Partner or General Partner in the Partnership and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Units. "PARTNERSHIP OPPORTUNITY" has the meaning set forth in Section 6.5(b). "PARTNERSHIP UNIT" means the equal units into which the Partnership Interests of all Partners issued pursuant to Article IV are divided and includes any class or series of Partnership Units established after the date hereof. The ownership of Partnership Units shall be evidenced 5 by such form of certificate for Partnership Units as the General Partner may adopt from time to time unless the General Partner determines that the Partnership Units shall be uncertificated securities. The number of Partnership Units outstanding and the Percentage Interests in the Partnership represented by such Partnership Units are set forth on EXHIBIT A, as such Exhibit may be amended from time to time. References to Partnership Units shall be deemed to exclude Preferred Interests, unless and to the extent otherwise provided in Section 11.4. "PERCENTAGE INTEREST" means the quotient, expressed as a percentage, determined from time to time, by dividing the number of Partnership Units held by such Partner at that time by the aggregate number of Partnership Units then outstanding. "PERSON" means any natural person, corporation, limited liability company, partnership, limited partnership, joint venture, trust, estate, association, governmental entity or other individual or entity. "PREFERRED INTERESTS" has the meaning set forth in Section 11.4. "PROPORTIONATE CAPITAL ACCOUNT" of a Partner means such Partner's Adjusted Capital Account at any specified time as a percentage of the Adjusted Capital Accounts of all Partners as of such time. "RESERVES" means funds of the Partnership set aside by the General Partner for working capital and the payment of taxes, insurance, debt service, repairs, replacements, renewals or other costs or expenses incident to the business of the Partnership. "SECRETARY OF STATE" means the Secretary of State of the State of Delaware. "SEPARATION" has the meaning set forth in the Master Separation Agreement. "SEPARATION AGREEMENTS" means, collectively, the Master Separation Agreement and all other agreements entered into by Cadence or one of its Subsidiaries (other than Tality and its Subsidiaries), on the one hand, and Tality or one of its Subsidiaries, on the other hand, as contemplated by the Master Separation Agreement. "SUBSIDIARY" means, with respect to any Person, any other Person in which such first Person owns, directly or indirectly, more than 50% of the capital stock (or other voting interests) the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such Person or otherwise controls such Person (whether by contract or otherwise). For purposes of clarification, the Partnership and all Subsidiaries of the Partnership are Subsidiaries of Tality. "TALITY" has the meaning ascribed thereto in the preamble hereto. "TALITY CLASS A SHARES" means the shares of Class A Common Stock of Tality, par value $.001 per share. 6 "TALITY CLASS B SHARES" means the shares of Class B Common Stock of Tality, par value $.001 per share. "TALITY CLASS C SHARES" means the shares of Class C Common Stock of Tality, par value $.001 per share. "TALITY COMMON SHARES" means the shares of any class of Common Stock of Tality, par value $.001 per share. "TALITY PARTNERS" means Tality and any Subsidiary of Tality that is a Partner in the Partnership. "TAX-FREE SPIN-OFF" shall mean a transaction or series of transactions pursuant to which Tality Common Shares are distributed to holders of common stock of Cadence in a manner intended to qualify as a tax-free distribution under Section 355(a) of the Code. "TAX MATTERS PARTNER" has the meaning set forth in Section 9.1(a). 1.2. ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms used herein and not otherwise defined shall have the meanings accorded to them in accordance with GAAP, and, except as expressly provided herein, all accounting determinations shall be made in accordance with GAAP, consistently applied. 1.3. DIRECTLY OR INDIRECTLY; WITHOUT LIMITATION. Where any provision in this Agreement refers to an action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person, including actions taken by or on behalf of any Affiliate of such Person. Throughout this Agreement, the term "including" and words to the same or similar effect shall be interpreted and construed to mean "including without limitation." 1.4. REFERENCES. All references herein to one gender shall include the other and the singular shall include the plural and vice versa as appropriate. Unless otherwise expressly provided, all references to "Articles" and "Sections" are to Articles and Sections, respectively, of this Agreement and all references to "Exhibits" and "Schedules" are to the exhibits and schedules, respectively, attached hereto, each of which is made a part hereof for all purposes. ARTICLE II ORGANIZATION 2.1. ORGANIZATION. The General Partner has caused the Partnership to be formed as a Delaware limited partnership by filing the Certificate in the office of the Secretary of State pursuant to the Act. 7 2.2. NAME. The name of the Partnership is "Tality, LP" and all Partnership business shall be conducted under that name or such other name or names as the General Partner may determine from time to time. 2.3. REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE IN THE UNITED STATES; OTHER OFFICES. The registered office of the Partnership in the State of Delaware shall be the initial registered office designated in the Certificate or such other office (which need not be a place of business of the Partnership) as the General Partner may designate from time to time in the manner provided by law. The registered agent of the Partnership in the State of Delaware shall be the initial registered agent designated in the Certificate or such other Person or Persons as the General Partner may designate from time to time in the manner provided by law. The principal office of the Partnership in the United States of America shall be in such place (which need not be within the State of Delaware) as the General Partner may designate from time to time. The Partnership shall have such other offices (which need not be within the State of Delaware) as the General Partner may determine to be appropriate. 2.4. TERM. The Partnership shall commence on the date the Certificate is filed with the Secretary of State and shall continue in existence until December 31, 2099, unless earlier dissolved pursuant to Section 12.1 or as otherwise provided by law. ARTICLE III PURPOSE AND POWERS 3.1. PURPOSE. The nature of the business or purpose of the Partnership is to engage in any lawful act or activity for which limited partnerships may be formed under the Act, including entering into any lawful transaction and engaging in any lawful activities in furtherance of the foregoing purposes and as may be necessary, incidental or convenient to carry out the business of the Partnership as contemplated by this Agreement. 3.2. POWERS. The Partnership is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership, including, without limitation, full power and authority, directly or through its ownership interest in other Persons, to enter into, perform and carry out contracts of any kind, borrow money and issue evidences of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and develop real property, and lease, sell, transfer and dispose of real property. 3.3. OTHER AUTHORITY. Notwithstanding anything to the contrary contained in this Agreement, the Partnership shall have the authority to enter into, deliver and perform the Separation Agreements, and any amendments to the Separation Agreements and any such action taken prior to the date of this Agreement is hereby ratified and confirmed in all respects. 8 ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP UNITS 4.1. CAPITAL CONTRIBUTIONS. (a) At or before the time of the Separation, Tality shall contribute to the capital of the Partnership cash in the amount of $14,812,500 in exchange for the issuance to Tality of a number of Partnership Units set forth on Schedule 4.1(a), which shall represent General Partner Interests and Limited Partner Interests as specified in Section 4.2(c) of this Agreement. The Capital Account of Tality shall be increased by the amount of such cash contribution. (b) At the time of the Separation, Holdings shall contribute, and Cadence shall contribute or cause to be contributed on behalf of Holdings, to the capital of the Partnership their entire right, title and interest in and to the assets, properties and rights of Cadence and its Subsidiaries identified in the Separation Agreements as assets to be transferred to the Partnership, and the Partnership shall assume such liabilities and other obligations as specified in the Separation Agreements as liabilities and other obligations to be assumed by the Partnership. Subject to Section 4.1(d), in exchange for its contribution under this Section 4.1(b), Holdings shall receive the number of Partnership Units constituting Limited Partner Interests set forth on Schedule 4.1(b), the Capital Account of Holdings shall be increased as agreed upon by Holdings and the General Partner, and upon such agreement EXHIBIT A shall be modified accordingly. (c) If an IPO occurs, Tality shall, immediately after receiving the net proceeds of the IPO (and immediately after receiving the net proceeds from any exercise of the underwriters' overallotment option), contribute to the capital of the Partnership an amount in cash equal to the net proceeds of the IPO, in exchange for: (i) such additional number, if any, of Partnership Units constituting General Partner Interests (after taking into account Partnership Units constituting General Partner Interests issued in exchange for the contribution that is made to the Partnership pursuant to Section 4.1(a) of this Agreement) as would cause Tality to have, immediately after the contribution pursuant to this Section 4.1(c), a one percent (1%) Percentage Interest; and (ii) such number of Partnership Units constituting Limited Partner Interests equal to the number of Tality Class A Shares issued in the IPO, less that number of Partnership Units, if any, issued pursuant to clause (i) above, and EXHIBIT A shall thereafter be modified to reflect such additional contribution and issuance of Partnership Units. (d) The number of Partnership Units to be issued to Holdings pursuant to Section 4.1(b) is based on negotiations between representatives of Holdings and Tality and reflects the intent that, if the IPO occurs in the manner contemplated as of the date hereof by 9 Holdings and Tality and the net proceeds of the IPO are contributed to the Partnership as provided in Section 4.1(c), Tality will own an aggregate Percentage Interest equal to that set forth on Schedule 4.1(d). If the IPO is undertaken with the understanding that Tality will own a different Percentage Interest following the IPO, the number of Partnership Units owned by Holdings shall be adjusted to equal that number of Partnership Units necessary to give Holdings a Percentage Interest equal to one (1) minus the Percentage Interest of Tality immediately after the IPO and contribution, subject to any dilution that occurs from issuances of Partnership Interests (other than as contemplated by Sections 4.1(a), (b) and (c)), if any, between the date hereof and the IPO. 4.2. ADDITIONAL CAPITAL CONTRIBUTIONS. (a) The terms of any contribution of cash (or promissory obligations), property or services to the Partnership other than as provided in this Agreement shall be determined by the General Partner at the time of such contribution. (b) Except as may be required by law or as specifically provided herein, no Partner shall have any obligation to make any further Capital Contribution to the Partnership. (c) At all times while Tality is a General Partner and holds Partnership Units, such Partnership Units shall constitute General Partner Interests to the extent they represent at least one percent (1%) of the outstanding Partnership Units, and any additional Partnership Units owned by Tality shall be Limited Partner Interests. (d) Each of Tality and Holdings acknowledges and agrees that the Separation Agreements provide for assets to be transferred to or by the Partnership in certain circumstances following the effectiveness of such agreements (for example, in the case of adjustments made to the purchase price for certain assets or payments made pursuant to indemnity obligations). Each of Tality and Holdings agrees that such transfers have been taken into account in establishing the initial Capital Accounts and Partnership Units of the Partners, and that, except as otherwise provided herein or in any other written agreement between a Holdings Partner and the General Partner, such transfers shall not be treated as Capital Contributions or distributions under this Agreement and shall not affect the Capital Account of or Partnership Units owned by the Partners. In the event of such a transfer, the Carrying Values of the assets of the Partnership shall be revised in a manner determined by the General Partner, subject to the consent of Holdings (not to be unreasonably withheld). 4.3. RETURN OF CONTRIBUTIONS. A Partner is not entitled (except as otherwise expressly provided otherwise by this Agreement) to the return of any part of its Capital Contributions or to be paid interest in respect of either its Capital Account or its Capital Contributions. An unrepaid Capital Contribution is not a liability of the Partnership or of the other Partners. A Partner is not required to contribute or to lend any cash or property to the Partnership to enable the Partnership to return any other Partner's Capital Contributions. 10 4.4. ADVANCES BY PARTNERS. Except as approved by the General Partner, or otherwise provided for specifically herein, no Partner may advance any money or other property to, or contribute any money or property to, the Partnership. 4.5. NO PREEMPTIVE RIGHTS. Except as provided in this Article IV, no Person shall have any preemptive, preferential or other similar right with respect to (i) additional Capital Contributions or loans to the Partnership; or (ii) the issuance or sale of any Partnership Interests. 4.6. OTHER CONTRIBUTION PROVISIONS. If any Person is admitted as a Partner and is given a Capital Account in exchange for services rendered to the Partnership or to the General Partner on behalf of the Partnership, such transaction shall be treated by the Partnership and the affected Partner as if the Partnership had compensated such Partner in cash, and the Partner had contributed such cash to the capital of the Partnership. 4.7. ADDITIONAL CONTRIBUTIONS BY TALITY; RELATIONSHIP OF TALITY COMMON SHARES TO PARTNERSHIP UNITS. (a) ISSUANCES OF TALITY SECURITIES. Tality shall not issue any additional Tality Common Shares or rights, options, warrants or other securities convertible into or exchangeable for equity securities of Tality (other than Tality Common Shares issued pursuant to Section 4.8, 4.10 or 7.3 or as otherwise provided in the Certificate of Incorporation of Tality (as the same may be amended, but only to the extent such amendment has been approved by the Holdings Partners) or incur any indebtedness, unless: (i) Tality transfers to the Partnership or a Subsidiary of the Partnership, as an additional Capital Contribution, the net cash proceeds or other property received by Tality (or any direct or indirect wholly owned Subsidiary of Tality) from, and causes the Partnership to assume, or take such cash or other property subject to, the liabilities incurred in connection with, the grant, award or issuance of such additional Tality Common Shares or other securities or indebtedness, as the case may be, or from the exercise of rights contained in such additional Tality Common Shares or other securities, as the case may be; PROVIDED, HOWEVER, that if the property received by Tality in exchange for such issuance consists of stock of another Person that becomes a direct or indirect wholly owned Subsidiary of Tality (including an acquisition by means of a reverse triangular merger), or if such property is received by a direct or indirect wholly owned Subsidiary of Tality (in either case, the "ACQUIRED ENTITY"), then Tality may cause the Acquired Entity to transfer all (but not less than all) of its assets to the Partnership or a Subsidiary of the Partnership, and cause the Partnership or such Subsidiary of the Partnership to assume or take such assets subject to all liabilities and other obligations of the Acquired Entity, in lieu of Tality transferring its equity interest in the Acquired Entity; PROVIDED FURTHER, that if any third party consent or approval shall be necessary to effect the transfer of any such asset or assumption of any such liability, the General Partner shall not be required to effect such transfer or assumption until such consent or approval has been obtained (and during the pendency of such transfer or assumption the General Partner or such Acquired Entity shall hold such asset or liability in trust for the 11 benefit or account of the Partnership, as the case may be, and the General Partner and Partnership shall enter into such agreement (including indemnities) or other arrangements as necessary to reflect the transfer to the Partnership or one of its Subsidiaries of all beneficial interest in such asset or responsibility for such liability); and (ii) the Partnership issues to Tality (or, in the case of an Acquired Entity that has transferred all of its assets as described in clause (i) above, to the Acquired Entity) Partnership Units or rights, options, warrants or convertible or exchangeable securities or indebtedness of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially the same as those of such additional Tality Common Shares or other securities or indebtedness, as the case may be. (b) ACQUISITION OF TALITY SECURITIES BY TALITY. If Tality acquires Tality Common Shares for any reason and in any manner, then (i) the Tality Common Shares so acquired shall be cancelled, (ii) the Partnership shall pay to Tality an amount equal to the amount, if any, paid by Tality to acquire such shares, and (iii) Tality shall surrender to the Partnership for cancellation that number of Partnership Units held by Tality equal to the number of Tality Common Shares so acquired. Similar requirements shall apply with respect to the reacquisition by Tality of any of its securities other than Tality Common Shares, such that the securities issued by the Partnership to Tality that correspond to such Tality securities are surrendered to the Partnership and the Partnership pays to Tality the amount paid by Tality to reacquire such securities. (c) ACQUISITION OF TALITY COMMON SHARES OR OTHER SECURITIES BY THE PARTNERSHIP. Except as provided in Section 4.8, if the Partnership or any of its Subsidiaries acquires Tality Common Shares (or other equity securities) for any reason and in any manner, then (i) the Partnership may (but shall not be required to) transfer such shares (or other securities) to Tality for cancellation and (ii) if the Partnership effects such transfer, Tality shall surrender an equal number of Partnership Units (or other Partnership Interests or securities issued by the Partnership that relate to such securities, as the case may be) to the Partnership for cancellation. 4.8. INCENTIVE PLANS. (a) At any time Tality issues Tality Class A Shares pursuant to an Incentive Plan (whether pursuant to an Equity Award or otherwise) to directors, officers or employees of the Partnership or any of its Subsidiaries, the following shall occur: (i) Tality shall contribute the amount of any exercise or purchase price received by Tality in connection with the issuance of such Tality Class A Shares, and Tality shall be deemed to contribute to the capital of the Partnership an amount of cash equal to the excess of the current market price of such Tality Class A Shares on the date such shares are issued (or if earlier, the date the related option is exercised (if the Equity Award is a stock option)) over the amount of such exercise or purchase price actually 12 contributed, and such amounts shall be treated as Capital Contributions under this Agreement; (ii) the Partnership shall be deemed to purchase such Tality Class A Shares from Tality for an amount of cash equal to the amount of cash contributed and deemed contributed by Tality to the Partnership in subsection (a) above (and such shares shall be deemed delivered to their owner by the Partnership); (iii) the net proceeds actually received by the Partnership with respect to such Tality Class A Shares, if any, shall be retained by the Partnership; and (iv) the Partnership shall issue to Tality that number of Limited Partnership Units equal to the number of Tality Class A Shares so issued. (b) At any time Tality issues Tality Class A Shares pursuant to an Incentive Plan (whether pursuant to an Equity Award or otherwise) to Tality employees, officers or directors, and provided the General Partner reasonably determines that the issuance of such Tality Class A Shares relates to Tality's ownership or operation of, or was for the benefit of, the Partnership as provided in Section 6.9(a), the following shall occur (unless the General Partner reasonably determines that such issuance should be governed by Section 4.8(a) in which case Section 4.8(a) shall apply): (i) Tality shall be treated as issuing such Tality Class A Shares in the same manner as if this Section 4.8(b) did not apply; (ii) the Partnership shall be deemed to have reimbursed Tality for the issuance of such Tality Class A Shares as provided in Section 6.9(a) in an amount equal to the excess of the current market price of such Tality Class A Shares on the date such shares are issued (or, if earlier, the date the related option is exercised (if the Equity Award is a stock option)) over the amount of the exercise or purchase price received by Tality upon the issuance of such Tality Class A Shares; (iii) Tality shall contribute to the capital of the Partnership the exercise or purchase price received by Tality upon the issuance of such Tality Class A Shares, and shall be deemed to have contributed to the capital of the Partnership the amount of the deemed reimbursement paid by the Partnership pursuant to clause (ii) above; and (iv) the Partnership shall issue to Tality that number of Partnership Units equal to the number of Tality Class A Shares so issued. 4.9 ADDITIONAL CONTRIBUTIONS BY HOLDINGS. If the Partnership issues additional Partnership Units to a Tality Partner or any other Person (other than a Holdings Partner) for any reason other than pursuant to Section 4.8 or 4.10 (including in connection with an acquisition or other business combination between the Partnership and any Person other than Tality), then: 13 (a) Holdings shall have the right, but not the obligation, to contribute to the Partnership cash or other property, if of a type acceptable to the General Partner and subject to Section 6.6, in an amount equal to the product obtained by multiplying: (i) the amount of cash or value of other property contributed by such Tality Partner or other Person to the Partnership in exchange for such additional Partnership Units, times (ii) a fraction, the numerator of which shall be the aggregate Percentage Interest then held by the Holdings Partners and the denominator of which shall be the aggregate Percentage Interest held by all Partners other than the Holdings Partners (in each case, determined immediately prior to the contribution referred to in clause (i) above). (b) In exchange for any such contribution by Holdings pursuant to Section 4.9(a), Holdings shall receive that number of Partnership Units equal to the product obtained by multiplying: (i) the number of such additional Partnership Units issued to the Tality Partner or such other Person, times (ii) a fraction, the numerator of which shall be the aggregate Percentage Interest then held by the Holdings Partners and the denominator of which shall be the aggregate Percentage Interest held by all Partners other than the Holdings Partners (in each case, determined immediately prior to the issuance of Partnership Units referred to in clause (i) above). (c) In connection with any additional capital contribution made in the form of property under this Section 4.9, such property shall be valued at its fair value as determined by a nationally recognized independent appraiser (including an investment banker, public accounting firm or other expert) selected by Holdings and reasonably satisfactory to the General Partner. 4.10. SPLITS AND RECLASSIFICATIONS. The Partnership shall not in any manner subdivide (by any unit split, distribution, reclassification, recapitalization or otherwise) or combine (by reverse unit split, reclassification, recapitalization or otherwise) the outstanding Partnership Units (or other Partnership Interests or securities) unless Tality is subdividing or combining the Tality Class A Shares (or, if applicable, such other securities of Tality issued in connection with the issuance of such Partnership Interests or other securities), in which event the Partnership Units shall be subdivided or combined concurrently with, to the same extent as, and in the same manner as, the Tality Class A Shares (or such other securities). 14 ARTICLE V CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS 5.1. CAPITAL ACCOUNTS. (a) The Partnership shall maintain for each Partner owning a Partnership Interest a single, separate Capital Account with respect to such Partnership Interest in accordance with the rules of Treas. Reg. Sections 1.704-1(b)(2)(iv). The initial Capital Account balance of each of the Partners shall be as set forth on EXHIBIT A. (b) Subject to rules of Treas. Reg. Sections 1.704-1(b)(2)(iv), the Capital Account of each Partner shall be increased by (i) except as otherwise provided in this Agreement, the amount of any money and the fair market value of any property (net of any liabilities of such Partner assumed by the Partnership or which are secured by any property contributed by such Partner to the Partnership) contributed by such Partner to the Partnership, (ii) the Net Profit allocated to such Partner pursuant to Section 5.2, and (iii) the items in the nature of income or gain allocated to such Partner pursuant to Section 5.3. If the General Partner and the contributing Partner agree as the value of an item of property contributed to the Partnership, such agreement shall govern the amount credited to such Partner's Capital Account. Absent such an agreement, subject to Section 4.9(c), the value of any property contributed to the Partnership shall be determined by the General Partner. (c) The Capital Account of each Partner shall be reduced by (i) the amount of any distribution of cash or the fair market value of any property (net of any Partnership liabilities assumed by such Partner or secured by any property distributed to such Partner) distributed to such Partner when such distribution is made, (ii) the Net Loss allocated to such Partner pursuant to Section 5.2, and (iii) any items in the nature of deduction or loss allocated to such Partner pursuant to Section 5.3. If the General Partner and the distributee Partner agree as the value of an item of property distributed from the Partnership, such agreement shall govern the amount debited to such Partner's Capital Account. Absent such an agreement, the value of any property distributed by the Partnership shall be determined by the General Partner. (d) Except as otherwise provided in this Agreement, whenever it is necessary to determine the Capital Account of any Partner, the Capital Account of such Partner shall be determined after giving effect to the allocations of Net Profit, Net Loss and other items realized prior or concurrently to such time (including, without limitation, any Net Profits and Net Losses attributable to adjustments to Carrying Values with respect to any concurrent distribution), and all contributions and distributions made prior or concurrently to the time as of which such determination is to be made. The General Partner may use such accounting conventions and other methods for computing interim balances of the Partners' Capital Accounts as the General Partner deems appropriate. (e) A transferee of a Partnership Interest shall succeed to a pro rata portion of the Capital Account of the transferor relating to the Partnership Interest so transferred. 15 5.2. ALLOCATION OF NET PROFIT OR NET LOSS. Except as otherwise necessary in connection with a liquidation or dissolution of the Partnership or as required pursuant to the terms of any Preferred Interests: (a) Net Profit for any Fiscal Year or other period shall be allocated to the Partners as follows: (i) First, to each Partner whose Proportionate Capital Account is less than its Percentage Interest, an amount of Net Profit necessary to cause its Proportionate Capital Account to equal its Percentage Interest, provided that if there is not sufficient Net Profit to cause each Partner's Proportionate Capital Account to equal its Percentage Interest, Net Profits shall be allocated to each Partner so as to cause a pro rata percentage reduction in such difference for each such Partner; and (ii) Second, pro rata among the Partners in accordance with their Percentage Interests. (b) Net Loss for any Fiscal Year or other period shall be allocated to the Partners as follows: (i) First, to each Partner whose Proportionate Capital Account is greater than its Percentage Interest, an amount of Net Loss necessary to cause its Proportionate Capital Account to equal its Percentage Interest, provided that if there is not sufficient Net Loss to cause each Partner's Proportionate Capital Account to equal its Percentage Interest, Net Loss shall be allocated to each Partner so as to cause a pro rata percentage reduction in such difference for each such Partner; and; (ii) Second, pro rata among the Partners in accordance with their Percentage Interests. 5.3. ADDITIONAL ALLOCATIONS. (a) Notwithstanding any other provision of this Agreement, (i) "partner nonrecourse deductions" (as defined in Treas. Reg. Sections 1.704-2(i)), if any, of the Partnership shall be allocated to the Partner that bears the economic risk of loss within the meaning of Treas. Reg. Sections 1.704-2(i), (ii) "nonrecourse deductions" (as defined in Treas. Reg. Sections 1.704-2(b)), if any, of the Partnership with respect to each period shall be allocated in proportion to the Partners' respective Percentage Interests, and (iii) a Partner's proportionate share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Treas. Reg. Sections 1.752-3(a)(3) shall be in proportion to its Percentage Interest. (b) This Agreement shall be deemed to include "qualified income offset," "minimum gain chargeback" and "partner non-recourse debt minimum gain chargeback" provisions within the meaning of the Treasury Regulations promulgated under Section 704(b) of the Code. Accordingly, notwithstanding any other provision of this Agreement, items of gross 16 income shall be allocated to the Partners on a priority basis to the extent and in the manner required by such provisions. (c) Any special allocation of items pursuant to Sections 5.3(a) and (b), including anticipated reversals of such items, shall be taken into account in computing subsequent allocations pursuant to Section 5.2 so that the cumulative net amount of all items allocated to each Partner shall, to the extent possible, be equal to the amount that would have been allocated to such Partner if there had never been any special allocation pursuant to Sections 5.3(a) and (b). (d) Any income, gain, loss or deduction realized as a direct or indirect result of the issuance of Partnership Units by the Partnership to a Partner (the "ISSUANCE ITEMS") shall be allocated among the Partners so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Partner, shall be equal to the net amount that would have been allocated to each such Partner if the Issuance Items had not been realized. 5.4. ALLOCATIONS FOR TAX PURPOSES. For income tax purposes only, (i) all items of income, gain, loss, deduction and expense shall be allocated to the Partners in the same manner as the correlative items of "book" income, gain, loss, deduction and expense are allocated pursuant to Sections 5.2 and 5.3 and (ii) each tax credit for any period shall be allocated to Partners in proportion to their Percentage Interests; PROVIDED, HOWEVER, that in accordance with Sections 704(c) of the Code, the Treas. Reg. promulgated thereunder and Treasury Regulation Sections 1.704-1(b)(4)(i), items of income, gain, loss, deduction, expense and credit with respect to any property whose Carrying Value differs from its adjusted basis for tax purposes shall, solely for income tax purposes, be allocated among the Partners so as to take account of both the amount and character of such variation. Absent the prior written consent of Holdings, the Partnership shall use the "traditional method" described in Treas. Reg. Sections 1.704-3(b) in making such allocations in accordance with Code Section 704(c) with respect to any such property contributed by or on behalf of a Holdings Partner. 5.5. DISTRIBUTIONS. (a) Except as otherwise required by law or as provided in this Agreement (including pursuant to the terms of any Preferred Interest), no Partner shall have any right to withdraw any portion of its Capital Account without the consent of both the General Partner and of Partners holding a majority of the Partnership Units constituting Limited Partner Interests. (b) Except as otherwise provided herein or pursuant to the terms of any Preferred Interests, the Partnership shall distribute Available Cash or other property available to be distributed in-kind to the Partners to each Partner in proportion to such Partner's Percentage Interest, at such times and in such amounts as the General Partner shall determine; PROVIDED, HOWEVER, that, absent the prior written consent of Holdings, no in-kind distribution of any asset may be made other than on a pro rata basis in accordance with the Partners' Percentage Interests; PROVIDED FURTHER, that with the prior written consent of Holdings, an in-kind distribution of any 17 asset may be made on other than a pro rata basis in accordance with the Partners' Percentage Interests so long as the total value of all cash and other in-kind distributions made in connection with such in-kind non-pro rata distribution when combined with such distribution is distributed in accordance with the Partners' Percentage Interests. (c) If a Holdings Partner exchanges or transfers its Partnership Units for Tality Class A Shares or Tality Class C Common Shares, pursuant to the Amended and Restated Certificate of Incorporation of Tality (as the same may be amended from time to time), on any date after a record date for a distribution to the Partners of Available Cash or other property but before actual payment thereof, such exchanging or transferring Partner shall be entitled to receive the full amount of such distribution as if such Partner continued to hold the exchanged or transferred Partnership Units on the date of such distribution. 5.6. TAX DISTRIBUTIONS. (a) Until such time as an event causing a dissolution of the Partnership has occurred pursuant to Section 12.1, at least 10 days prior to any Estimated Tax Payment Date (as hereinafter defined), the Partnership shall make a distribution to each Partner equal to the Estimated Tax Distribution (as hereinafter defined) for such date. Unless otherwise specified by the General Partner in writing, all distributions made with respect to a given year (as determined by the General Partner) shall be applied against and reduce the Estimated Tax Distribution due from the Partnership with respect to that year. (b) Within one hundred eighty (180) days after the end of each Fiscal Year, the Partnership shall provide to each Partner a report for the prior Fiscal Year computing for each Partner the amount by which the sum of the Estimated Tax Distributions for the prior year exceeds or falls short of the product of (i) the taxable income of Partnership allocated to such Partner for such prior year, and (ii) the Applicable Tax Rate for such year, less any Excess Tax Distribution (as hereinafter defined) with respect to such prior year. An amount equal to any shortfall shall be distributed to such Partner with the report. Any excess will be treated as an "EXCESS TAX DISTRIBUTION" for such year and credited against future Estimated Tax Distributions pursuant to Section 5.6(e)(iii) and this Section 5.6(b). (c) Notwithstanding anything to the contrary herein, (i) distributions under this Section 5.6 shall be made in proportion to the Partners' Percentage Interests, and this clause (i) shall operate to increase the distribution to be otherwise made under Section 5.6 to any Partner to the extent necessary so that distributions under this Section 5.6 are made in proportion to the Partners' Percentage Interests, and (ii) in all events the Estimated Tax Distributions and the distributions under Section 5.6(b) above shall be sufficient to enable each Tality Partner to pay when due its corporate income and franchise tax liability, including its estimated tax liability (taking into account the carryforward of losses available to Tality and any alternative minimum tax); provided, however, that this clause (ii) shall not apply to any such corporate income or franchise tax liability of any Tality Partner to the extent such liability is materially in excess of the corporate income and franchise tax liability of such Tality Partners arising solely from its 18 interest in the Partnership unless the transactions giving rise to such liability were approved by Holdings or Cadence. (d) In making the computations under this Section 5.6 with respect to any Partner, capital losses of the Partnership shall be taken into account only to the extent of capital gains of the Partnership against which such capital losses may be offset by such Partner (taking into account the applicable carryback and carryover period for such Partner), determined as if such Partner had no income or loss from any source other than the Partnership. (e) Definitions: (i) "APPLICABLE TAX RATE" means, for any year, the highest marginal combined tax rate, as reasonably determined by the Tax Matters Partner, under the U.S. federal and applicable state, local and foreign franchise or income tax laws as in effect for such year to which a Holdings Partner or a Tality Partner is subject by reason of its ownership of Partnership Units, taking into account the deductibility of state, local and foreign income taxes for federal income tax purposes. (ii) "ESTIMATED TAX PAYMENT DATE" means, with respect to any calendar year, any of April 15, June 15, September 15 and December 15 of such year. (iii) "ESTIMATED TAX DISTRIBUTION" means, with respect to any Partner and any Estimated Tax Payment Date, an amount equal to the excess (if any) of (A) the product of (x) an estimate of the Partnership's taxable income for the year, as estimated in good faith by the Tax Matters Partner, allocable to such Partner for such year, less the excess, if any, of cumulative tax losses of the Partnership over cumulative taxable income allocated to such Partner in prior years, (y) the Applicable Tax Rate, and (z) the Proration Percentage over (B) the sum of (u) the prior Estimated Tax Distributions distributed to such Partner with respect to the same year and (v) Excess Tax Distributions with respect to the prior year. (iv) "PRORATION PERCENTAGE" means with respect to April 15, 25%; June 15, 50%; September 15, 75%; and December 15, 100% (adjusted to the corresponding dates in the event the fiscal year of Tality is not the calendar year). 5.7. WITHHOLDING. The Partnership shall comply with all income tax withholding requirements under federal, state, local or foreign law. To the extent that the Partnership is required to withhold and pay over to any taxing authority any amount resulting from an allocation of income or distribution to any Partner, the amount withheld shall be treated as an advance distribution to such Partner of amounts to which such Partner is otherwise entitled pursuant to this Agreement or as a loan to such Partner immediately payable to the Partnership, as determined by the General Partner. Each Partner shall use all commercially reasonable efforts to minimize the amount that the Partnership is required to withhold; PROVIDED, HOWEVER, that the foregoing shall not be deemed to prohibit the Partnership from making distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and 19 the General Partner on behalf of the Partnership, shall not be required to make a distribution to any Partner on account of its interest in the Partnership if such distribution would violate Section 17-607 of the Act or any other applicable law. ARTICLE VI MANAGEMENT 6.1. MANAGEMENT BY GENERAL PARTNER. (a) The General Partner shall manage the business and affairs of the Partnership. The General Partner shall have the power and authority to make all decisions regarding the business, affairs and properties of the Partnership and to perform any and all other lawful acts or activities necessary or convenient to the conduct, promotion or attainment of the business, purposes and activities of the Partnership, including the execution, delivery and performance of the Separation Agreements on behalf of the Partnership. No Limited Partner shall have any authority to act for, or undertake or assume any obligation or responsibility on behalf of, the Partnership. (b) The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through duly appointed agents (who may be designated as officers of the Partnership), attorneys-in-fact, or other Persons and each such agent, attorney-in-fact or other Person shall, to the extent delegated by the General Partner, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the General Partner hereunder. Any approval or action taken by the General Partner in accordance with this Agreement shall constitute approval or action taken by the Partnership and shall be binding on the Partners. 6.2. MANAGEMENT POLICIES. The General Partner and officers of the Partnership will develop and implement management policies consistent with the general policies and programs established by this Agreement, the Certificate and the Separation Agreements. 6.3. NO COMPENSATION OF GENERAL PARTNER. Except as provided in Section 6.9, the General Partner shall not be entitled to any compensation from the Partnership solely for acting in its capacity as the General Partner. 6.4. OFFICERS. The General Partner may appoint such officers of the Partnership (including, but not limited to, a president and chief executive officer, one or more vice presidents, a secretary, one or more assistant secretaries, a treasurer and one or more assistant treasurers) upon such terms and conditions as the General Partner deems necessary and appropriate. 20 6.5. BUSINESS OPPORTUNITIES. (a) Except as Cadence may otherwise agree in writing, Cadence may engage or invest, and avail itself of opportunities, in the same or similar business activities or lines of business as the Partnership. Except in the case of a Partnership Opportunity (as defined in subsection (b) below), the Partnership shall have no interest or expectancy in any such engagement, investment or opportunity or that Cadence will not engage in, any of the foregoing activities, any such interest or expectancy being hereby renounced by the Partnership so that Cadence shall not violate any duty to the Partnership by engaging in, investing in or availing itself of opportunities in any such business activities or line of business. (b) For purposes of this Agreement, "PARTNERSHIP OPPORTUNITY" shall mean a transaction, potential transaction or other business opportunity that (i) the Partnership is financially able to undertake, (ii) relates exclusively to the Business, (iii) is one in which the Partnership has or, but for the effect of subsection (a) above the Partnership would have, an interest or reasonable expectancy and (iv) if offered to a director, officer or employee of the Partnership who is also a director, officer or employee of Cadence, such transaction, potential transaction or other business opportunity is offered to him or her solely in his or her capacity as a director, officer or employee of the Partnership; PROVIDED, HOWEVER, that a "Partnership Opportunity" not include (A)(1) any transaction in which the Partnership or Cadence is permitted to participate pursuant to any agreement between them or their Affiliates in effect as of the time any Partnership Interest is first held of record by any Person other than Cadence, or as may be amended thereafter with the approval of a majority of the Disinterested Directors, or (2) any such transaction provided for in any subsequent agreement between the Partnership and Cadence approved by a majority of the Disinterested Directors; (B) any transaction, potential transaction or other business opportunity that is also offered to or learned of by a director, officer or employee of Cadence (other than as described in clause (iv) above) by or from a Person other than the Partnership; or (C) any transaction, potential transaction or other business opportunity that arises from ideas independently conceived, acquired or developed by Cadence. (c) For purposes of this Section 6.5 and Section 6.6, "PARTNERSHIP" shall mean the Partnership, the General Partner and Subsidiaries of the Partnership and the General Partner, collectively, and any successors thereto and assigns thereof; PROVIDED, HOWEVER, that where, in order to effectuate the intent of this definition to provide Cadence with protection in its dealings with an Affiliate of the Partnership, action on the part of any such Affiliate of the Partnership is required (E.G., without limitation, to renounce an interest in a transaction, potential transaction or other business opportunity, or to adopt guidelines pursuant to Section 6.6), the Partnership and the General Partner shall cause such Affiliate to take such action. For purposes of this Section 6.5 and Section 6.6, "Cadence" shall mean Cadence and all of its Affiliates (other than Tality, the Partnership and Subsidiaries of Tality or the Partnership), collectively, and any successors thereto and assigns thereof. (d) In the case of a Partnership Opportunity, Cadence shall have such duties as would exist in the absence of this Section 6.5. 21 6.6. RELATED TRANSACTIONS/INTERCOMPANY AGREEMENTS. In any action by or in the right of the Partnership against Cadence or any of its officers, directors, employees or agents in which the fairness of any agreement or transaction to which any such Person is a party or in which any such Person may have a financial interest, shall be an issue: (i) the burden of proof on the issue of fairness shall be on the Person seeking to establish unfairness; and (ii) fairness shall be deemed to have been established in any of the following circumstances: (a) the conditions set forth in Section 144 of the DGCL or any successor provision, as in effect from time to time, are satisfied; (b) the agreement or transaction is effected in accordance with guidelines approved by the General Partner or a majority of the Disinterested Directors; or (c) the terms of the transaction or agreement are not materially less favorable to the Partnership than those made available by Cadence to unaffiliated Persons under similar circumstances. The provisions of this Section 6.6 shall not be construed to limit or restrict any defenses that would be available to Cadence or any of its officers, directors, employees or agents in the absence of this provision. To the extent that Cadence or any of its officers, directors, employees or agents or any Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or to any other Covered Person under applicable law, neither Cadence, nor any such officer, director, employee, agent or Covered Person acting under this Agreement, shall be liable to the Partnership or to any other Covered Person for its good faith reliance on the provisions of this Agreement. To the extent that they restrict the duties and liabilities of Cadence or any of its officers, directors, employees or agents or any Covered Person otherwise existing under applicable law, the provisions of this Agreement shall replace such other duties and liabilities. 6.7. CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner has filed the Certificate with the Secretary of State prior to the effectiveness of this Agreement. To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file or cause to be filed amendments to and restatements of the Certificate and shall do all the things to maintain the Partnership as a limited partnership (or other entity in which the Limited Partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or other jurisdiction in which the Partnership may elect to do business or own property. The General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or other entity in which the Limited Partners have limited liability) in the State of Delaware and any other state, the District of Columbia or other jurisdiction in which the Partnership may elect to do business or own property. 22 6.8. TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partners, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. 6.9. REIMBURSEMENT OF GENERAL PARTNER EXPENSES. (a) GENERAL PARTNER EXPENSES. The General Partner shall be reimbursed on a quarterly basis, or on a more frequent basis as the General Partner may reasonably determine, for all expenses it incurs relating to the ownership and operation of, or for the benefit of, the Partnership (including expenses related to the operations of the General Partner, the status of the General Partner as a public company, and the management and administration of any Subsidiaries of the General Partner or the Partnership, such as auditing expenses and filing fees). (b) REIMBURSEMENT TREATED AS A DISTRIBUTION. If and to the extent any reimbursement made pursuant to Section 6.9(a) is determined for federal income tax purposes not to constitute a payment of expenses of the Partnership, the General Partner shall take such actions as it deems appropriate (including causing the Partnership to make allocations of items of gross income or deduction) to cause the economic and tax results to be as similar as possible to the results that would have occurred if such amounts were treated as expenses of the Partnership. 6.10. LIABILITY OF THE GENERAL PARTNER. (a) GENERAL. Notwithstanding anything to the contrary set forth in this Agreement, neither the General Partner, nor any of its Affiliates, and no officer, director, stockholder, member, partner, employee or agent of the General Partner or its Affiliates (each a "COVERED PERSON"), shall be personally liable to the Partnership or any Partner, or any Person claiming by or through the Partnership or any Partner, for any losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any other act or omission relating to the conduct of the business of the Partnership; PROVIDED, HOWEVER, that nothing contained herein shall protect any Covered Person against any liability to the Partnership or any Partner to which such Covered Person would otherwise be subject by reason of (i) any act or omission of such Covered Person that involves actual fraud or willful misconduct or (ii) any transaction from which such Covered Person derived an improper personal benefit. (b) ACTIONS OF AGENTS. The General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. Neither the General Partner nor any Covered Person shall be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith. (c) EFFECT OF AMENDMENT. Notwithstanding any other provision contained herein, any amendment, modification or repeal of this Section 6.10 shall be prospective only and shall not in any way affect the limitations on the liability of the General Partner, any officers, 23 directors, shareholders, employees or agents of the General Partner to the Partnership and the Partners under this Section 6.10 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. 6.11. OTHER MATTERS CONCERNING THE GENERAL PARTNER. (a) RELIANCE ON DOCUMENTS. The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties. (b) RELIANCE ON ADVISORS. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters which the General Partner reasonably believes to be within its professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. (c) LIMITATION ON GENERAL PARTNER'S BUSINESS ACTIVITIES; ACQUISITIONS. Notwithstanding anything to the contrary set forth herein or in the Certificate of Incorporation of the General Partner, as the same may be amended, so long as any Person other than the General Partner or one of its Subsidiaries shall own any Limited Partnership Units, the General Partner agrees not to own any assets or conduct any activities other than the management of the Partnership as the general partner thereof and the ownership and management of its Partnership Interests and its interest in any Acquired Entities with respect to which the requirements of Section 4.7(a) have been satisfied. 6.12. RIGHTS OF LIMITED PARTNERS. No Limited Partner shall participate in the management, control or direction of the Partnership's operations, business or affairs, transact any business for the Partnership, or have the right, power or authority to act for or on behalf of or to bind the Partnership, the same being vested solely and exclusively in the General Partner. ARTICLE VII TRANSFERS AND EXCHANGES OF PARTNERSHIP INTERESTS 7.1. TRANSFER RESTRICTIONS. Except as otherwise provided in Section 7.2, no Partner shall, directly or indirectly, transfer any right, title or interest in any of its Partnership Interest. Any attempted transfer in violation hereof shall be void. 24 7.2. PERMITTED TRANSFERS. Notwithstanding Section 7.1: (a) The Holdings Partners may transfer their Partnership Interest to any Person in compliance with applicable law. (b) The Tality Partners may only transfer their Partnership Interest to (i) any wholly owned Subsidiary of Tality or (ii) the transferee of all or substantially all of the assets of Tality. (c) Notwithstanding anything to the contrary in this Agreement, no Partner may transfer all or any portion of its Partnership Interest, and no transferee of a Partnership Interest shall be admitted as a Partner, unless the General Partner has determined that such transfer is not reasonably expected to cause the Partnership to become a "publicly traded partnership" within the meaning of Code Section 7704; PROVIDED, HOWEVER, that under no circumstances shall an exchange of Partnership Units for Tality Common Shares pursuant to Section 7.3 be expected or deemed to cause such a result. 7.3 EXCHANGE OF PARTNERSHIP UNITS. (a) Unless otherwise agreed by the Partnership and any Partner in writing, each Limited Partner, other than Tality and its Subsidiaries, shall have the right to exchange, at any time and from time to time, each Partnership Unit owned by such Limited Partner, free and clear of any liens and encumbrances, for one (1) fully paid and non-assessable Tality Class A Share. The Partnership and the General Partner agree that, at all times, they collectively shall have available for issuance sufficient Tality Class A Shares to satisfy the exchange rights under this Section 7.3. Such Tality Class A Shares shall consist first of any Tality Class A Share then held by the Partnership (in which case the Partnership Unit shall be surrendered to the Partnership) and any additional shares shall be newly issued Tality Class A Shares (in which case the Partnership Unit shall be transferred to Tality). (b) The right to exchange Partnership Units for Tality Class A Shares pursuant to Section 7.3(b) shall be exercised by surrender to the Partnership of any certificate or certificates representing the Partnership Units to be exchanged at any time during normal business hours at the principal executive offices of the Partnership, accompanied by a written notice of such Limited Partner stating that such Limited Partner desires to exchange such Partnership Units, or a stated number of such units less than the number represented by any such certificate or certificates, into Tality Class A Shares, and by instruments of transfer in form satisfactory to the General Partner and, if the General Partner requires, the Transfer Agent of the General Partner, duly executed by such holder or such holder's duly authorized attorney (plus, if the Limited Partner requests that the certificate or certificates for such Tality Class A Shares be issued in the name of someone other than such Limited Partner, transfer tax stamps or funds therefor). (c) The Partnership and the General Partner, as promptly as practicable following the receipt of notice and such other items required to effect the exchange described in 25 this Section 7.3, deliver or cause to be delivered a certificate or certificates representing the number of Tality Class A Shares issuable upon such exchange, issued in such name or names as such Limited Partner may direct. Such exchange shall be deemed to have been effected immediately prior to the close of business on the date of the giving of the required written notice and surrender of any certificate or certificates representing Partnership Units; PROVIDED, HOWEVER, that the General Partner may delay the effective date of such exchange with respect to no more than one (1) Partnership Unit for up to fifteen (15) days to the extent it reasonably deems such delay necessary in order implement steps to avoid a dissolution of the Partnership under the Act by reason of the Partnership having only one partner. Upon the date any such exchange is made or effected, all rights of the Limited Partner with respect to the Partnership Units so exchanged shall cease. (d) The exchange of Partnership Units pursuant to this Section 7.3 shall be adjusted to the extent there has been a transaction described in Section 4.10 with respect to Tality Common Shares and there has been no corresponding transaction with respect to Partnership Units, such that the exchanging Limited Partner shall receive the same number of Tality Class A Shares it would have received in exchange for each Partnership Unit had all such adjustments pursuant to Section 4.10 been made. ARTICLE VIII LIMITED LIABILITY; INDEMNIFICATION 8.1. LIMITED LIABILITY. Except as otherwise provided under the Act, the debts, obligations and liabilities of the Partnership, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Partnership and no Limited Partner shall be obligated or liable for any such debt, obligation or liability of the Partnership. Except as otherwise provided by the laws of the State of Delaware, the debts, obligations and liabilities of any Partner, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liability of such Partner and neither the Partnership nor any other Partner shall be obligated or liable for any such debt, obligation or liability of such Partner. 8.2. INDEMNIFICATION. (a) The Partnership shall, to the fullest extent permitted by law, indemnify, defend and hold harmless each Covered Person against any and all losses, claims, damages, expenses and liabilities (including, but not limited to, any investigation, legal and other reasonable expenses incurred in connection with, and any amounts paid in settlement of, any action, suit, proceeding or claim, whether civil, criminal or administrative) of any kind or nature whatsoever that such Covered Person may at any time become subject to or liable for by reason of the formation, operation or termination of the Partnership, or the Covered Person's acting as a General Partner (or on behalf of any such Person), or the authorized actions of such Covered Person in connection with the conduct of the affairs of the Partnership or any Person in which the Partnership has an investment (including, without limitation, indemnification against negligence, gross negligence or breach of duty); PROVIDED, HOWEVER, that no Covered Person shall be entitled 26 to indemnification if and to the extent that the liability otherwise to be indemnified for results from (i) any act or omission of such Covered Person that involves actual fraud or willful misconduct or (ii) any transaction from which such Covered Person derived improper personal benefit. (b) Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Partnership in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of any Covered Person to repay such amount if it shall be ultimately determined by a court of competent jurisdiction from which no further appeal may be taken or the time for appeal has lapsed that such Person is not entitled to be indemnified by the Partnership pursuant to the terms and conditions of this Section 8.2. (c) The Partnership shall use all commercially reasonable efforts to maintain insurance on behalf of any Person who is or was a Covered Person or is or was serving at the request of the Partnership as an officer, director, manager, employee or agent of another Person against any liability asserted against and incurred by such Person in any such capacity, or arising out of such Person's status as such, whether or not the Partnership would have the power to indemnify such Person against such liability under this Section 8.2. (d) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 8.2 shall continue as to a Person who has ceased to be a Covered Person, and shall inure to the benefit of the heirs, executors, administrators and other legal successors of such Person. (e) The indemnification provided by this Section 8.2 shall not be deemed exclusive of any other rights to indemnification to which those seeking indemnification may be entitled under any agreement, determination of Partners or otherwise. (f) Any indemnification hereunder shall be satisfied only out of the assets of the Partnership (including insurance and any agreements pursuant to which the Partnership and indemnified Persons are entitled to indemnification), and the Partners shall not, in such capacity, be subject to personal liability by reason of these indemnification provisions. (g) No Person shall be denied indemnification in whole or in part under this Section 8.2 because such Person had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. 8.3. CONTRIBUTION. If there shall ever be more than one General Partner, each of such General Partners covenants for itself, its successors and assigns that it will at any time, on demand, both during the time it is a Partner and after its withdrawal from the Partnership (upon the sale of its interests or otherwise), contribute its share (determined based upon the aggregate Percentage Interest of such General Partner as of the time of such withdrawal or demand), of any liability, judgment or cost of any kind (including the reasonable cost of the defense of any suit or action and any sums which may be paid in settlement thereof) which any other General Partner 27 may be required to pay or for which such other General Partner is liable in excess of its share (determined based upon the aggregate Percentage Interest of such General Partner as of the time of such withdrawal or demand) on account of any matter or transaction that occurred during the time that it was a General Partner and for which such other General Partner is entitled to indemnification under Section 8.2 or for which the Partnership is liable (in excess of amounts actually paid to such other General Partner), except that no such contribution need be made to any General Partner who acted with gross negligence, willful misconduct or a knowing violation of law and the same resulted in such liability, judgment or cost. Each General Partner agrees to keep all former General Partners reasonably informed with respect to any potential claim for contribution pursuant to this Section 8.3. ARTICLE IX TAXES 9.1. TAX MATTERS PARTNER; TAX RETURNS. (a) Tality shall, as long as it is a Partner, be the "tax matters partner" of the Partnership pursuant to Section 6231(a)(7) of the Code (the "TAX MATTERS PARTNER"). Subject to the provisions of this Section 9.1, the Tax Matters Partner shall be entitled to take any action or decline to take any action, all as required by applicable law. The Tax Matters Partner shall take such action as may be necessary to cause the other Partners to become "notice partners" within the meaning of Section 6231(a)(8) of the Code. (b) The Tax Matters Partner shall cause to be prepared and filed all necessary foreign, federal, state and local income tax returns for the Partnership, including making elections on the Partnership's tax returns or otherwise relating to tax matters. Each other Partner shall furnish to the Tax Matters Partner all pertinent information in its possession relating to Partnership operations that is necessary to enable the Partnership's income tax returns to be prepared and filed. (c) To the extent permitted by applicable law, the Tax Matters Partner shall determine, in its reasonable discretion, whether or not to permit the other Partners to participate in the defense of all pending tax proceedings involving the Partnership, including, without limitation, participation in any meeting with the Internal Revenue Service or other taxing authority. (d) The Partnership shall reimburse the Tax Matters Partner for any costs and expenses incurred in connection with such Person serving as the Tax Matters Partner, including costs and expenses incurred in the preparation or filing of any such income tax returns and the defense of any such tax proceedings. 9.2. PARTNERSHIP STATUS. It is the intent of the Partners that the Partnership be treated as a partnership for federal income tax purposes and, to the extent permitted by applicable law, for state, local and foreign franchise and income tax purposes. Neither the Partnership nor any 28 Partner may make an election for the Partnership to be excluded from the application of the provisions of subchapter K of Chapter 1 of Subtitle A of the Code or any similar provisions of applicable state or local law, and no provision of this Agreement shall be construed to sanction or approve such an election. 9.3. FISCAL YEAR. The fiscal year of the Partnership for financial, accounting and federal, state and local income tax purposes shall be the year ending on the Saturday closest to December 31 or such other fiscal year that is the same as the taxable year that is required by law for federal income tax purposes (the "FISCAL YEAR"). ARTICLE X BOOKS, RECORDS AND BANK ACCOUNTS 10.1. MAINTENANCE OF BOOKS. The books of account for the Partnership shall be maintained on an accrual basis in accordance with the terms of this Agreement. 10.2. ACCOUNTING PRINCIPLES. Except as otherwise expressly provided herein, the books and records of the Partnership shall be maintained in accordance with GAAP; PROVIDED, HOWEVER, that Capital Accounts shall be maintained in accordance with Section 5.1. 10.3. BANK ACCOUNTS. The General Partner shall cause the Partnership to establish, maintain and designate signatories on one or more separate bank and investment accounts for Partnership funds in the Partnership name with such financial institutions and firms as the General Partner may select and designate signatories thereon. The Partnership's funds shall not be commingled with the funds of any other Person. 10.4. TAX INFORMATION. Within one hundred eighty (180) days after the end of each Fiscal Year, the Tax Matters Partner shall prepare and send, or cause to be prepared and sent, to each Person who was a Partner at any time during such Fiscal Year, copies of such information as may be required for federal, state, local and foreign income tax reporting purposes, including copies of Schedule K-1 or any successor schedule or form, for such Person and such other information as a Partner may reasonably request for the purpose of complying with applicable laws. 10.5. PUBLIC FILINGS. The Partnership shall assemble and prepare such information and documentation with respect to the Partnership that Tality reasonably requests in connection with the filing by Tality of all registration statements, periodic reports and other documents required to be filed by Tality pursuant to Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and shall deliver such documents to Tality a reasonable period of time in advance of the date such documents are required to be filed. 29 ARTICLE XI ADMISSION OF PARTNERS; WITHDRAWAL; CLASSES OF PARTNERSHIP INTERESTS 11.1 SUBSTITUTION OF PARTNERS. Unless otherwise agreed in writing by the General Partner and a transferee of a Partnership Interest (which agreement may be a condition to the General Partner's approval of the transfer where such approval is required hereunder), any transferee of a Partnership Interest from a Partner, if such transfer complies with Article VII, shall be admitted as a Partner, such admission to be effective immediately prior to such transfer, only if such substitute Partner shall have agreed to be bound by the terms and conditions of this Agreement by executing a counterpart hereof. Whether or not such a counterpart is executed, such transferee shall be deemed, by acquiring such interest in the Partnership, to have agreed to hold it subject to the terms and conditions of this Agreement. Upon such admission, such substitute Partner shall be a Partner for all purposes of this Agreement. 11.2 ADMISSION OF ADDITIONAL PARTNERS. Other than pursuant to Section 11.1 in connection with a transfer, the Partnership may admit additional Partners only upon the satisfactory completion of the following: (a) such admission of an additional Limited Partner shall have been approved by the General Partner; (b) such admission of an additional or new General Partner shall be approved by all the Limited Partners; and (c) such additional Partner shall have agreed to be bound by the terms and conditions of this Agreement by executing a counterpart hereof. 11.3. WITHDRAWAL. No Partner shall have any right to withdraw or resign from the Partnership, except in connection with a transfer of such Partner's entire interest in the Partnership permitted by Section 7.2, in which case such transferring Partner shall cease to be a Partner of the Partnership. 11.4 CLASSES OF PARTNERSHIP INTERESTS. (a) The General Partner may cause the Partnership issue a class of Partnership Interests (including pursuant to Section 4.7(a)) in exchange for a Capital Contribution to a new or existing Partner having rights, preferences and privileges senior to the rights, preferences and privileges of the other Partners ("PREFERRED INTERESTS"); PROVIDED, HOWEVER, that no Preferred Interest may be issued by the Partnership (other than in connection with the issuance by Tality of preferred equity pursuant to Section 4.7(a)) without the advance written consent of the Holdings Partners, which consent may be given or withheld in their sole and absolute discretion. Except as provided in connection with the issuance of a Partnership Interest pursuant to Section 4.7(a), no Partnership Interest shall be treated as a Preferred Interest unless the issuance and specific 30 terms of such Preferred Interest are set forth in writing by the Partnership and the Partner owning such Preferred Interest. (b) Except as agreed upon in writing by the General Partner and the Partner to whom a Preferred Interest is issued, references in this Agreement to Partnership Units shall be deemed to exclude references to Preferred Interests, and any Partner that owns both Partnership Units and Preferred Interests shall, unless so agreed, be treated (other than for income tax purposes or otherwise as required by law) as a separate Partner with respect to each class of Partnership Interests owned. (c) It is the intention of the Partners that the Partnership Interests represented by the Partnership Units constitute the residual equity of the Partnership after taking into account the rights, preferences and privileges of any outstanding Preferred Interests. ARTICLE XII DISSOLUTION, LIQUIDATION AND TERMINATION 12.1. DISSOLUTION. The Partnership shall be dissolved and its affairs shall be wound up upon the first to occur of any of the following: (a) the expiration of the Partnership's term pursuant to Section 2.4; (b) the written consent of Tality and the Holdings Partners (if any); (c) the entry of a decree of judicial dissolution under the Act; (d) the sale or other disposition of all, or substantially all, the assets of the Partnership (excluding a lease, mortgage, pledge, grant of security interest or other encumbrance); (e) an event of withdrawal of a General Partner has occurred under the Act; PROVIDED, HOWEVER, that the Partnership shall not be dissolved or required to be wound upon an event of withdrawal of a General Partner if (i) at the time of such event of withdrawal, there is at least one (1) other General Partner of the Partnership who carries on the business of the Partnership (any remaining General Partner being hereby authorized to and shall carry on the business of the Partnership), or (ii) within ninety (90) days after the occurrence of such event of withdrawal, remaining Partners owning more than 75% of the outstanding Partnership Units (other than Partnership Units owned by such withdrawing General Partner) agree in writing to continue the business of the Partnership and to the appointment, effective as of the date of the event of withdrawal, of one (1) or more additional General Partners of the Partnership; or (f) at any time there are no Limited Partners, unless the Partnership is continued in accordance with the Act. 31 12.2. LIQUIDATION AND TERMINATION. (a) On dissolution of the Partnership, the General Partner shall act as Liquidator or may appoint one or more other Persons as Liquidator. The Liquidator shall proceed diligently to wind up the affairs of the Partnership and make final distributions as provided herein and in the Act by the end of the taxable year of the Partnership in which its liquidation (as such term is defined in Treas. Reg. Sections 1.704-1(b)(2)(ii)(g)) occurs or, if later, within ninety (90) Business Days after the date of such liquidation. The costs of liquidation shall be borne as a Partnership expense. Until final distribution, the Liquidator shall continue to operate the Partnership properties with all of the power and authority of the Partners and the General Partner. The steps to be accomplished by the Liquidator are as follows: (i) as promptly as possible after dissolution and again after final liquidation, the Liquidator shall cause a proper accounting to be made by an accounting firm of the Partnership's assets, liabilities and operations through the last day of the calendar month in which the dissolution shall occur or the final liquidation shall be completed, as applicable; (ii) the Liquidator shall have full power and authority to sell, assign and encumber any or all of the Partnership's assets and to wind up and liquidate the affairs of the Partnership in an orderly and business-like manner; and (iii) all proceeds from liquidation shall be distributed in the following order of priority: (A) first, to the satisfaction of the debts and liabilities of the Partnership both to Partners, to the extent otherwise permitted by law, and to persons other than Partners (but, in the case of nonrecourse debts and liabilities, only to the extent required under the applicable credit and security agreement) and expenses of liquidation (whether by payment or the making of reasonable provision for payment thereof, including the setting up of such reserves as the Liquidator may reasonably deem necessary for any liability of the Partnership); (B) second, pro rata to the Partners in accordance with the positive balances in their Capital Accounts (as determined after taking into account the adjustments required under Treas. Reg. Sections 1.704-1(b)(2)(ii)(b)(2)), provided that the terms of any Preferred Interests shall be taken into account in determining whether proceeds are distributed first to the holders of Preferred Interests prior to holders of other Partnership Interests; and (C) last, to the Partners in accordance with their respective Percentage Interests. (b) Notwithstanding the provisions of this Section 12.2 which require the liquidation of the assets of the Partnership, but subject to the order of priorities set forth above, if 32 upon or following dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its reasonable discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (other than those to Partners as creditors). 12.3. DISTRIBUTION IN KIND. If the Liquidator shall determine that all or a portion of the Partnership's assets should be distributed in kind to the Partners, the Liquidator, on behalf of the Partnership, shall obtain an independent appraisal of the fair market value of each such asset as of a date reasonably close to the date of liquidation. Any unrealized appreciation or depreciation with respect to such assets shall be allocated among the Partners' Capital Accounts (in accordance with Article V, assuming that the assets of the Partnership were sold for such appraised fair market value) and distribution of any such assets in kind to a Partner shall be considered a distribution of an amount equal to the assets' appraised fair market value for purposes of Section 12.2. 12.4. DEFICIT CAPITAL ACCOUNTS. Notwithstanding any other provision hereof to the contrary, to the extent that a deficit, if any, exists in the Capital Account of any Partner, such deficit shall not be an asset of the Partnership and such Partner shall not be obligated to contribute such amount to the Partnership to bring the balance of such Partner's Capital Account to zero. 12.5. CANCELLATION OF FILINGS. Upon completion of the distribution of Partnership assets as provided herein, the Liquidator and, if the Liquidator so directs, the General Partner, shall file a certificate of cancellation with the Secretary of State, cancel any other filings made pursuant to Sections 2.1 and 6.7 as may be necessary and take such other actions as may be necessary to terminate the Partnership. ARTICLE XIII GENERAL PROVISIONS 13.1. REPRESENTATIONS AND WARRANTIES OF PARTNERS. Each Partner hereby represents and warrants to the Partnership and each other Partner that: (a) such Partner is duly organized, validly existing and in good standing under the law of the jurisdiction of its organization and is duly qualified and in good standing in the jurisdiction of its principal place of business (if not organized therein); (b) such Partner has full corporate, or other applicable power and authority to execute and agree to this Agreement and to perform its obligations hereunder and all necessary actions by the board of directors, shareholders, members or other Persons necessary for the due authorization, execution, delivery and performance of this Agreement by that Partner have been duly taken; 33 (c) such Partner has duly executed and delivered this Agreement; (d) such Partner's authorization, execution, delivery and performance of this Agreement do not conflict with any other agreement or arrangement to which that Partner is a party or by which it is bound or with any law or regulation to which that Partner is subject; (e) such Partner has such knowledge and experience in business and financial matters and is capable of evaluating the merits and risks of an investment in the Partnership and making an informed investment decision with respect thereto; (f) such Partner is able to bear the economic and financial risk of an investment in the Partnership for an indefinite period of time; (g) such Partner is acquiring its Partnership Interests for its own account, for investment only and not with a view to a sale or distribution thereof in violation of any securities laws; (h) such Partner has received, or has had access to, all information which it considers necessary or advisable to that Partner's decision concerning its acquisition of the Partnership Interest; and (i) this Agreement constitutes a valid and binding agreement of such Partner, enforceable against such Partner in accordance with its terms, subject to general equitable principles and except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to creditors' rights. 13.2. OFFSET. Whenever the Partnership is to pay any sum to a Partner, any amounts that such Partner owes the Partnership may be deducted from that sum before payment. 13.3. NOTICES. All notices and other communications (collectively, "NOTICES") provided for or permitted to be given under this Agreement shall be in writing and shall be given by depositing the Notice in the United States mail, addressed to the Person to be notified, postage paid and registered or certified with return receipt requested, or by such Notice being delivered in person or by facsimile communication to such party. Unless otherwise expressly set forth herein, notices given or served pursuant hereto shall be effective upon receipt by the Person to be notified. All Notices to be sent to a Partner shall be sent to or made at, and all payments hereunder shall be made at the address of such Partners set forth on EXHIBIT A, or such other address as that Partner or any additional Partner may specify by Notice to the Partnership. 13.4. ENTIRE AGREEMENT; WAIVERS AND MODIFICATIONS. (a) This Agreement constitutes the entire agreement of the Partners relating to the Partnership and supersedes any and all prior contracts, understandings, negotiations and agreements with respect to the Partnership and the subject matter hereof, whether oral or written. 34 (b) This Agreement may be amended or modified from time to time only by a written instrument executed by each of the Partners; PROVIDED, HOWEVER, that the General Partner may amend EXHIBIT A from time to time to reflect the admission or withdrawal of Partners, the issuance, redemption or transfer of Partnership Units, changes in Percentage Interests, or changes in the names or addresses of Partners, in each case pursuant to transactions otherwise permitted by the terms of this Agreement; and PROVIDED FURTHER, that the General Partner may amend this Agreement from time to time to make ministerial changes that are not materially adverse, in the good faith judgment of the General Partner, to the interests of any Partner. (c) Any waiver or consent, express, implied or deemed, in whatever form, to or of any breach or default by any Person in the performance by that Person of its obligations with respect to the Partnership or any action inconsistent with this Agreement is not a waiver of or consent to any other breach or default in the performance by that Person of the same or any other obligations of that Person with respect to the Partnership or any other such action. Failure on the part of a Person to complain of any act of any Person or to declare any Person in default with respect to the Partnership, irrespective of how long that failure continues, does not constitute a waiver by that Person of its rights with respect to that default until the applicable statute-of-limitations period has run. All waivers and consents hereunder shall be in writing and shall be delivered to the other Partners in the manner set forth in Section 13.3. 13.5. NO THIRD-PARTY BENEFICIARIES. Except as expressly provided otherwise herein, nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any claim, cause of action, remedy or right of any kind, it being the intent of the parties that this Agreement shall not be construed as a third-party beneficiary contract. 13.6. GOVERNING LAW. This Agreement is governed by and shall be construed in accordance with the law of the State of Delaware, excluding any conflict-of-laws rule or principle that might refer the governance or construction of this agreement to the law of another jurisdiction. 13.7. FURTHER ASSURANCES. In connection with this Agreement and the transactions contemplated hereby, each Partner shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and those transactions. 13.8. WAIVER OF CERTAIN RIGHTS. To the fullest extent permitted by law, each Partner irrevocably waives any right (but not any power) it might have to maintain any action for dissolution of the Partnership or for partition of the property of the Partnership. If any Partner maintains any action for such dissolution or partition, such Partner shall, to the fullest extent permitted by law, be liable to the Partnership and the other Partners for all monetary damages suffered by them as a result thereof (including, indirect, incidental and consequential damages). 13.9. SEVERABILITY. The provisions of this Agreement are severable. The invalidity, in whole or in part, of any provision of this Agreement shall not affect the validity or enforceability of any other of its provisions. If one or more provisions hereof shall be so declared invalid or 35 unenforceable, the remaining provisions shall remain in full force and effect and shall be construed in the broadest possible manner to effectuate the purposes hereof. The Partners further agree to replace such void or unenforceable provisions with provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. 13.10. SUCCESSORS AND ASSIGNS. Subject to the limitations and restrictions set forth in this Agreement, this Agreement shall be binding on and inure to the benefit of the successors and assigns of the Partnership Interests of the parties hereto. 13.11. SPECIFIC PERFORMANCE. Without intending to limit the remedies available to any party, each party hereto acknowledges that a breach of any of the covenants contained in this Agreement may result in irreparable injury to the other party for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, each party hereto shall be entitled to obtain a temporary restraining order and a preliminary or permanent injunction restraining or requiring actions prohibited or required by this Agreement or such other relief as may be requested to enforce specifically any of the covenants of this Agreement. 13.12. INTERPRETATION OF AGREEMENT. The table of contents of and headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13.13. MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument. 36 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf as of the day and year first above written. GENERAL PARTNER: TALITY CORPORATION /s/Duane W. Bell By:---------------------------- Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer LIMITED PARTNERS: CADENCE HOLDINGS, INC. /s/R.L. Smith McKeithen By:----------------------------- Name: R.L. Smith McKeithen Title: Secretary TALITY CORPORATION /s/Duane W. Bell By:--------------------------------- Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer 37 EX-2.02 3 a2029698zex-2_02.txt EX-2.02 Exhibit 2.02 AMENDED AND RESTATED MASTER SEPARATION AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS..........................................................................................2 Section 1.1 Affiliate............................................................................2 Section 1.2 Applicable Law.......................................................................2 Section 1.3 Business Day.........................................................................2 Section 1.4 Cadence's Auditors...................................................................2 Section 1.5 Cadence Group........................................................................2 Section 1.6 Canadian APA.........................................................................2 Section 1.7 Class A Common Stock.................................................................2 Section 1.8 Class B Common Stock.................................................................2 Section 1.9 Class C Common Stock.................................................................2 Section 1.10 Contracts............................................................................2 Section 1.11 Foreign Transfer Agreement...........................................................2 Section 1.12 General Partner......................................................................2 Section 1.13 Governmental Approvals...............................................................3 Section 1.14 Governmental Authority...............................................................3 Section 1.15 Information..........................................................................3 Section 1.16 IPO Closing Date.....................................................................3 Section 1.17 Person...............................................................................3 Section 1.18 Subsidiary...........................................................................3 Section 1.19 Tality's Auditors....................................................................3 Section 1.20 Tality Group.........................................................................3 Section 1.21 Third-Party Approvals................................................................3 ARTICLE II SEPARATION..........................................................................................4 Section 2.1 Separation Date......................................................................4 Section 2.2 Documents to be Delivered by Cadence and Tality......................................4 Section 2.3 Governmental Approvals...............................................................5 Section 2.4 Third-Party Approvals................................................................5 Section 2.5 No Representations or Warranties.....................................................5 ARTICLE III THE IPO AND REGISTRATION RIGHTS....................................................................6 Section 3.1 Transactions Prior to the IPO........................................................6 Section 3.2 Cooperation..........................................................................6 Section 3.3 Conditions Precedent to Consummation of the IPO......................................6 Section 3.4 Registration Rights..................................................................7 ARTICLE IV COVENANTS AND OTHER MATTERS........................................................................16 Section 4.1 Further Instruments.................................................................16 Section 4.2 Agreement for Exchange of Information...............................................17 Section 4.3 Auditors and Audits; Annual and Quarterly Statements and Accounting.................18 Section 4.4 Dispute Resolution..................................................................20 Section 4.5 Non-Solicitation of Employees.......................................................21
i Section 4.6 Employee Agreements.................................................................21 Section 4.7 Government and Third Party Approvals................................................23 Section 4.8 Relationship with Scottish Enterprise and Scottish Executive........................24 ARTICLE V MISCELLANEOUS.......................................................................................26 Section 5.1 Limitation of Liability.............................................................26 Section 5.2 Entire Agreement....................................................................26 Section 5.3 Governing Law.......................................................................26 Section 5.4 Termination.........................................................................26 Section 5.5 Notices.............................................................................26 Section 5.6 Counterparts........................................................................27 Section 5.7 Binding Effect; Assignment..........................................................27 Section 5.8 Severability........................................................................27 Section 5.9 Failure or Delay not Waiver; Remedies Cumulative....................................27 Section 5.10 Amendment...........................................................................28 Section 5.11 Authority...........................................................................28 Section 5.12 Interpretation......................................................................28 Section 5.13 Conflicting Agreements..............................................................28 Section 5.14 Payment of Expenses.................................................................28 Section 5.15 Prior Agreement Superseded..........................................................29
ii AMENDED AND RESTATED MASTER SEPARATION AGREEMENT THIS AMENDED AND RESTATED MASTER SEPARATION AGREEMENT (this "AGREEMENT") is entered into and effective as of October 4, 2000, by and among Cadence Design Systems, Inc., a Delaware corporation ("CADENCE"), and Cadence Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Cadence ("HOLDINGS" and, together with Cadence, the "CADENCE PARTIES"), on the one hand, and Tality Corporation, a Delaware corporation ("TALITY"), and Tality, LP, a Delaware limited partnership (the "PARTNERSHIP", and, together with Tality, the "TALITY PARTIES"), on the other hand. Capitalized terms used herein and not defined elsewhere herein shall have the meanings ascribed to them in Article I. RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence and its Subsidiaries (the "SEPARATION") associated with the operation of the business of providing design engineering services, and intellectual property in connection therewith, to electronic equipment manufacturers and other customers, all as described in the Registration Statement (the "TALITY BUSINESS"); WHEREAS, Cadence, Holdings, the Partnership and Tality currently contemplate that, immediately following the contribution of such assets to and assumption of such liabilities by the Partnership, Tality shall commence an initial public offering ("IPO") of its Class A Common Stock, par value $0.001 per share (the "CLASS A COMMON STOCK"), pursuant to a registration statement on Form S-1 promulgated by the Securities and Exchange Commission (the "REGISTRATION STATEMENT"); WHEREAS, Cadence, Holdings and Tality entered into that certain Master Separation Agreement, dated as of July 14, 2000, which prior to the date hereof has governed the matters described above (the "PRIOR AGREEMENT"); WHEREAS, each of the parties now desires to amend and restate the Prior Agreement in its entirety pursuant to Section 5.10 thereof; and WHEREAS, the parties intend for this Agreement to set forth the principal arrangements between them regarding the Separation. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1 "AFFILIATE" of any Person means any other Person that controls, is controlled by, or is under common control with, such first Person. As used herein, "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or other interests, by contract or otherwise. Section 1.2 "APPLICABLE LAW" means all laws and regulations of Governmental Authorities applicable to the transaction, property or Persons at issue. Section 1.3 "BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of California. Section 1.4 "CADENCE'S AUDITORS" means Cadence's independent certified public accountants from time to time. Section 1.5 "CADENCE GROUP" means Cadence and each of its Subsidiaries (other than any member of the Tality Group) on and after the Separation Date. Section 1.6. "CANADIAN APA" means the Asset Purchase Agreement by and among Cadence, Cadence Design Systems (Canada) Limited and Tality Canada Corporation dated as of October 3, 2000. Section 1.7 "CLASS A COMMON STOCK" has the meaning set forth in the recitals. Section 1.8 "CLASS B COMMON STOCK" means the Class B Common Stock, par value $0.001 per share, of Tality. Section 1.9 "CLASS C COMMON STOCK" means the Class C Common Stock, par value $0.001 per share, of Tality. Section 1.10 "CONTRACTS" means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of its property under Applicable Law. Section 1.11 "FOREIGN TRANSFER AGREEMENT" means the Canadian APA and any of the other agreements identified on SCHEDULE 1.11 relating to the Separation outside of the United States. Section 1.12 "GENERAL PARTNER" shall have the meaning specified in the Partnership Agreement. 2 Section 1.13 "GOVERNMENTAL APPROVALS" means any notices, reports or other filings to be made with, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority. Section 1.14 "GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or international court or government of competent jurisdiction, or any political subdivision thereof, or any department, commission, board, bureau, agency, official or other regulatory, administrative body of any such government of competent jurisdiction or political subdivision thereof. Section 1.15 "INFORMATION" means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible form, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product) and other technical, financial, employee or business information or data. Section 1.16 "IPO CLOSING DATE" means the date on which the first closing of the IPO occurs. Section 1.17 "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a Governmental Authority. Section 1.18 "SUBSIDIARY" of any Person means any other Person of which at least a majority of the securities or other interests having by their terms ordinary voting power to elect at least a majority of the board of directors or other body performing similar functions with respect to such other Person is directly or indirectly owned or controlled (including by contract) by such first Person. By way of example and not limitation, the Partnership shall be deemed to be a Subsidiary of Tality. Section 1.19 "TALITY'S AUDITORS" means the Tality Parties' independent certified public accountants from time to time. Section 1.20 "TALITY GROUP" means Tality and each of its Subsidiaries on and after the Separation Date. Section 1.21 "THIRD-PARTY APPROVALS" means any notices, consents or authorizations of third parties (other than Governmental Approvals) required to consummate the Separation. 3 ARTICLE II SEPARATION Section 2.1 SEPARATION DATE. Unless otherwise expressly provided in this Agreement, any Ancillary Agreement (as defined in Section 2.2), the Agreement of Limited Partnership of the Partnership, any Foreign Transfer Agreement or any other agreement among the parties, the effective time and date of each transfer of assets and property, assumption of liability, license, undertaking or other agreement in connection with the Separation shall be 12:00 a.m., Pacific Time, October 1, 2000, or such other date as may be fixed by the Board of Directors of Cadence or a duly authorized officer of Cadence (the "SEPARATION DATE"). Section 2.2 DOCUMENTS TO BE DELIVERED BY THE CADENCE PARTIES AND THE TALITY PARTIES. On the Separation Date, each of the parties shall duly execute and deliver, or shall cause its appropriate Subsidiaries to duly execute and deliver, to the other parties all of the following agreements, documents and other instruments (collectively, together with all agreements and documents contemplated by such agreements, the "ANCILLARY AGREEMENTS"): (a) The General Assignment and Assumption Agreement in substantially the form attached hereto as EXHIBIT A (the "ASSIGNMENT AGREEMENT"); (b) The Master Intellectual Property Ownership and License Agreement in substantially the form attached hereto as EXHIBIT B (the "MASTER INTELLECTUAL PROPERTY AGREEMENT"); (c) The Employee Matters Agreement in substantially the form attached hereto as EXHIBIT C (the "EMPLOYEE MATTERS AGREEMENT"); (d) The Master Corporate Services Agreement in substantially the form attached hereto as EXHIBIT D (the "MASTER CORPORATE SERVICES AGREEMENT"); (e) The Real Estate Matters Agreement in substantially the form attached hereto as EXHIBIT E (the "REAL ESTATE MATTERS AGREEMENT"); (f) The Master Confidentiality Agreement in substantially the form attached hereto as EXHIBIT F (the "MASTER CONFIDENTIALITY AGREEMENT"); (g) The Indemnification and Insurance Matters Agreement in substantially the form attached hereto as EXHIBIT G (the "INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT"); (h) The EDA Tools Agreement in substantially the form attached hereto as EXHIBIT H (the "EDA TOOLS AGREEMENT"); (i) The Joint Technology Development and Support Agreement in substantially the form attached hereto as EXHIBIT I (the "JOINT TECHNOLOGY SUPPORT AGREEMENT"); 4 (j) The Joint Sales Agreement in substantially the form attached hereto as EXHIBIT J (the "JOINT SALES AGREEMENT"); (k) The resignation of each individual who is an officer or director of Cadence or any member of the Cadence Group, immediately prior to the Separation Date, and who shall be an employee of any of the Tality Parties from and after the Separation Date; and (l) Such other agreements, documents or instruments as the parties may agree are necessary or desirable in order to achieve the purposes hereof. Section 2.3 GOVERNMENTAL APPROVALS. To the extent that the Separation requires any Governmental Approvals, the parties shall use all commercially reasonable efforts to obtain such Governmental Approvals on or prior to the Separation Date. Section 2.4 THIRD-PARTY APPROVALS. The parties shall use all commercially reasonable efforts to obtain all Third-Party Approvals on or prior to the Separation Date. Section 2.5 NO REPRESENTATIONS OR WARRANTIES. Neither of the Cadence Parties nor any other member of the Cadence Group makes, either in this Agreement or any Ancillary Agreement, any representation as to, warranty of or covenant with respect to: (a) the value of any asset, property or other thing of value to be transferred to the Partnership or any of its Subsidiaries; (b) the kind, character, nature or extent of any liabilities to be assumed by the Partnership or any of its Subsidiaries; (c) the freedom from encumbrance of any asset, property or other thing of value to be transferred to the Partnership or any of its Subsidiaries; (d) the absence of defenses or freedom from set-offs or counterclaims with respect to any claim to be transferred to the Partnership or any of its Subsidiaries; or (e) the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any asset, property or other thing of value upon its execution and delivery or filing. Except as may be expressly set forth herein or in any Ancillary Agreement, all assets, properties and other things of value to be transferred to, and all liabilities to be assumed by, the Partnership or any of its Subsidiaries shall be transferred or assumed, as applicable, "AS IS, WHERE IS," and the Partnership and its Subsidiaries shall bear the economic and legal risk that any conveyance shall prove to be insufficient to vest in the Partnership and its Subsidiaries good and marketable title, free and clear of any lien, claim, equity or other encumbrance. 5 ARTICLE III THE IPO AND REGISTRATION RIGHTS Section 3.1 TRANSACTIONS PRIOR TO THE IPO. Subject to the conditions set forth in Section 3.3, each of the parties shall use all commercially reasonable efforts to consummate the IPO. Such efforts shall include the following: (a) REGISTRATION STATEMENT. Tality shall file the Registration Statement, and such amendments or supplements thereto as may be necessary in order to cause the same to become and remain effective as required by Applicable Law or by the managing underwriters for the IPO (the "UNDERWRITERS"), including filing such amendments to the Registration Statement as may be required by the underwriting agreement to be entered into between Tality and the Underwriters (the "UNDERWRITING AGREEMENT"), the Securities and Exchange Commission (the "COMMISSION") or federal, state or foreign securities laws. The parties shall also cooperate in preparing, filing with the Commission and causing to become effective a registration statement registering the Class A Common Stock under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and any registration statements or amendments thereof which are required to reflect the establishment of, or amendments to, any employee benefit and other plans necessary or appropriate in connection with the IPO, the Separation or any of the other transactions contemplated by this Agreement. (b) UNDERWRITING AGREEMENT. Tality shall enter into the Underwriting Agreement, in form and substance reasonably satisfactory to Cadence and Tality, and shall comply with its obligations thereunder. (c) NASDAQ LISTING. Tality shall prepare, file and use all commercially reasonable efforts to seek to make effective an application for quotation of the Class A Common Stock issued in the IPO on the Nasdaq National Market (the "NASDAQ"), subject to official notice of issuance. Section 3.2 COOPERATION. Tality shall consult with, and cooperate in all respects with, Cadence in connection with the pricing of the Class A Common Stock to be offered in the IPO and shall, at Cadence's direction, promptly take any and all actions necessary or desirable to consummate the IPO as contemplated by the Registration Statement and the Underwriting Agreement. Section 3.3 CONDITIONS PRECEDENT TO CONSUMMATION OF THE IPO. The obligations of the parties to use all commercially reasonable efforts to consummate the IPO shall be conditioned on the satisfaction of all of the following conditions: (a) REGISTRATION STATEMENT. The Registration Statement shall have been declared effective by the Commission, and there shall not have been issued or threatened any stop order with respect thereto which remains in effect. 6 (b) BLUE SKY. The actions and filings with regard to state securities and blue sky laws of the United States (and any comparable laws under any foreign jurisdictions) shall have been taken and, where applicable, have become effective or been accepted. (c) NASDAQ LISTING. The Class A Common Stock to be issued in the IPO shall have been accepted for quotation on the Nasdaq, upon official notice of issuance. (d) UNDERWRITING AGREEMENT. Tality shall have entered into the Underwriting Agreement and all conditions to the obligations of Tality and the Underwriters thereunder shall have been satisfied or waived. (e) COMMON STOCK OWNERSHIP. Cadence shall be satisfied in its sole discretion that the Cadence Group shall own voting securities of Tality having at least 80% of the voting rights of all Tality securities outstanding immediately following the IPO Closing Date. (f) NO LEGAL RESTRAINTS. No order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation or the IPO or any of the other transactions contemplated by this Agreement shall be in effect or been threatened. (g) SEPARATION. The Separation Date shall have occurred. (h) NO TERMINATION. This Agreement shall not have been terminated. Section 3.4 REGISTRATION RIGHTS (a) DEFINITIONS. For purposes of this Section 3.4 only: (i) "REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act of 1933, as amended, (the "SECURITIES ACT"), and the declaration or ordering of effectiveness of such registration statement. (ii) "REGISTRABLE SECURITIES" means (A) any Class A Common Stock or Class C Common Stock issued or issuable upon conversion of Class B Common Stock, or in exchange for Limited Partnership Units in the Partnership originally issued to Cadence, Holdings or any other member of the Cadence Group (the "LP UNITS"); (B) all shares of Class A Common Stock held by Cadence Group members' officers or employees as of the date on which the Registration Statement was first filed with the Commission; (C) any Class A Common Stock or Class C Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the securities described in (A) or (B) above; and (D) all other shares of Class A Common Stock or Class C Common Stock hereafter acquired by members of the Cadence Group. Notwithstanding the foregoing, "Registrable Securities" shall exclude any Registrable Securities sold by a Person in a transaction in which rights under this Section 4.4 are not assigned in accordance with this Agreement or any Registrable Securities sold in a public 7 offering, whether sold pursuant to Rule 144 promulgated under the Securities Act, or in a registered offering, or otherwise. (iii) "HOLDER" means any Person owning of record Registrable Securities (or any security convertible into or exchangeable for Registrable Securities), that have not been sold in a public offering and any permitted assignee of such Registrable Securities (or securities convertible into or exchangeable into Registrable Securities) to whom rights under this Section 3.4 have been duly assigned in accordance with this Agreement. (iv) "FORM S-3" means such form under the Securities Act as is in effect on the date hereof, or any successor registration form under the Securities Act subsequently adopted by the Commission, which permits inclusion or incorporation of substantial information by reference to other documents filed by Tality with the Commission. (b) DEMAND REGISTRATION. (i) REQUEST BY HOLDERS. If Tality shall, at any time after the expiration of the 180-day "lock-up" period pursuant to the Underwriting Agreement (the "LOCK-UP EXPIRATION DATE"), receive a written request from Cadence, Holdings or any subsequent Holder of LP Units originally issued to Cadence, Holdings or any other member of the Cadence Group (or any Registrable Securities issued in exchange therefor) holding at least ten percent (10%) of the aggregate outstanding number of such LP Units that Tality file a registration statement on form S-1 (or any successor form thereto) under the Securities Act covering the registration of Registrable Securities pursuant to this Section 3.4(b), then Tality shall, within ten (10) Business Days after the receipt of such written request, give written notice of such request ("REQUEST NOTICE") to all Holders, and use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that Holders request to be registered and included in such registration by written notice given by such Holders to Tality within twenty (20) days after receipt of the Request Notice, subject only to the limitations of this Section 3.4(b); PROVIDED, HOWEVER, that the Registrable Securities requested by all Holders to be registered pursuant to such request must be at least ten percent (10%) of all Registrable Securities then held by or issuable to them; PROVIDED FURTHER, that Tality shall not be obligated to effect any such registration if Tality has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act pursuant to this Section 3.4(b) or Section 3.4(d), or in which the Holders had an opportunity to participate pursuant to Section 3.4(c), other than a registration from which the Registrable Securities of Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to Section 3.4(c)(i). (ii) UNDERWRITING. If the Holders initiating the registration request under this Section 3.4(b) (the "INITIATING HOLDERS") intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise Tality as a part of their request made pursuant to this Section 3.4(b)(i) and Tality shall include such information in the Request Notice. In such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the initiating Holders and such 8 Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting by the Holders of a majority of the Registrable Securities being registered and reasonably acceptable to Tality (including a market stand-off agreement of up to 180 days if required by such underwriters). Notwithstanding any other provision of this Section 3.4(b), if the underwriter(s) advise(s) Tality in writing that marketing factors require a limitation of the number of securities to be underwritten, then Tality shall so advise all Holders of Registrable Securities which would otherwise be registered and underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated among the Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities of each Holder requesting registration (including the initiating Holders); PROVIDED, HOWEVER, that the number of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities of Tality and the employees, officers and directors (who are not also officers or directors of Cadence) of Tality (or any Subsidiary of Tality) are first entirely excluded from the underwriting and registration. Any Registrable Securities excluded and withdrawn from such underwriting shall be withdrawn from the registration. (iii) MAXIMUM NUMBER OF DEMAND REGISTRATIONS. Tality shall be obligated to effect only three (3) such registrations pursuant to this Section 3.4(b). (iv) DEFERRAL. Notwithstanding the foregoing, if Tality shall furnish to Holders requesting the filing of a registration statement pursuant to this Section 3.4(b), a certificate signed by the President or Chief Executive Officer of Tality stating that in the good faith judgment of the Board of Directors of Tality, it would be materially detrimental to Tality and its stockholders for such registration statement to be filed, then Tality shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the initiating Holders; PROVIDED, HOWEVER, that Tality may not utilize this right more than once in any twelve (12) month period. (v) EXPENSES. All expenses incurred in connection with any registration pursuant to this Section 3.4(b), including all federal and "blue sky" registration, filing and qualification fees, printer's and accounting fees, and fees and disbursements of counsel for Tality and one counsel for the Holders, reasonably acceptable to Tality (but excluding underwriters' discounts and commissions relating to shares sold by the Holders), shall be borne by Tality. Each Holder participating in a registration pursuant to this Section 3.4(b) shall bear such Holder's proportionate share (based on the total number of shares sold in such registration other than for the account of Tality) of all discounts, commissions or other amounts payable to underwriters or brokers in connection with such offering by the Holders. Notwithstanding the foregoing, Tality shall not be required to bear any expenses of any registration proceeding begun pursuant to this Section 3.4(b) if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, unless the Holders of a majority of the Registrable Securities agree that such registration constitutes the use by the Holders of one (1) demand registration pursuant to this Section 3.4(b) (in which case such registration shall also constitute the use by all Holders of Registrable Securities of one (l) such demand registration); PROVIDED FURTHER, that if at the time of such withdrawal, the Holders have 9 learned of a material adverse change in the condition (financial or otherwise), business or prospects of Tality not known to the Holders at the time of their request for such registration and have withdrawn their request for registration with reasonable promptness after learning of such material adverse change, then the Holders shall not be required to pay any of such expenses and such registration shall not constitute the use of a demand registration pursuant to this Section 3.4(b). (c) PIGGYBACK REGISTRATIONS. Tality shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of Tality (including registration statements relating to secondary offerings of securities of Tality, but excluding registration statements relating to any registration under Section 3.4(b) or Section 3.4(d) or to any employee benefit plan or a corporate reorganization) and shall afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities of such Holder. Each Holder desiring to include in any such registration statement all or any part of such Holder's Registrable Securities shall within twenty (20) days after receipt of the above-described notice from Tality, so notify Tality in writing, and in such notice shall inform Tality of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by Tality, such Holder shall nevertheless continue to have the right to include any of such Holder's Registrable Securities in any subsequent registration statement or registration statements as may be filed by Tality with respect to offerings of its securities, all upon the terms and conditions set forth herein. (i) UNDERWRITING. If a registration statement as to which Tality gives notice under this Section 3.4(c) is for an underwritten offering, then Tality shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder's Registrable Securities to be included in a registration pursuant to this Section 3.4(c) shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting (including a market stand-off agreement of up to 180 days if required by such underwriters). Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude Registrable Securities from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, FIRST to Tality and, SECOND, to each of the Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of Registrable Securities of each such Holder; PROVIDED, HOWEVER, that the right of the underwriters to exclude Registrable Securities from the registration and underwriting as described above shall be restricted so that (A) the number of Registrable Securities included in any such registration is not reduced below twenty-five percent (25%) of the aggregate number of Registrable Securities for which inclusion has been requested; and (B) all shares that are not Registrable Securities and are held by any other Person, including any employee, officer or director (other than a director who is also an officer or director of Cadence) of Tality (or any Subsidiary of Tality) shall first be excluded from 10 such registration and underwriting before any Registrable Securities are so excluded. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to Tality and the underwriter(s), delivered at least ten (10) Business Days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder that is a partnership, the Holder and the partners and retired partners of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing Persons, and for any Holder that is a corporation, the Holder and all corporations that are affiliates of such Holder, shall be deemed to be a single "Holder," and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. (ii) EXPENSES. All expenses incurred in connection with a registration pursuant to this Section 3.4(c), including fees and disbursements of one counsel for the Holders, reasonably acceptable to Tality (but excluding underwriters' and brokers' discounts and commissions relating to shares sold by the Holders), including all federal and "blue sky" registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for Tality, shall be borne by Tality. (iii) NOT DEMAND REGISTRATION. Registration pursuant to this Section 3.4(c) shall not be deemed to be a demand registration pursuant to Section 3.4(b) above. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 3.4(c). (d) FORM S-3 REGISTRATION. In case Tality shall, at any time after the Lock-Up Expiration Date, receive a written request from Cadence, Holdings or any subsequent Holder of LP Units originally issued to Cadence, Holdings or any other member of the Cadence Group (or any Registrable Securities issued in exchange therefor) holding at least ten percent (10%) of the aggregate outstanding number of such LP Units that Tality effect a registration on Form S-3, and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then Tality shall: (i) NOTICE. Promptly give written notice of the proposed registration and the Holder's or Holders' request therefor, and any related qualification or compliance, to all other Holders of Registrable Securities; and (ii) REGISTRATION. As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after Tality provides the notice contemplated by Section 3.4(d)(i); PROVIDED, HOWEVER, that Tality shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 3.4(d): 11 (A) if Form S-3 is not available to Tality for such offering by the Holders; (B) if the Holders, together with the holders of any other securities of Tality entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $5,000,000; (C) if Tality shall furnish to the Holders a certificate signed by the President or Chief Executive Officer of Tality stating that in the good faith judgment of the Board of Directors of Tality, it would be materially detrimental to Tality and its stockholders for such Form S-3 Registration to be effected at such time, in which event Tality shall have the right to defer the filing of the Form S-3 registration statement no more than once during any twelve month period for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 3.4(d); (D) if Tality has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act other than a registration from which the Registrable Securities of Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to Section 3.4(c)(i); or (E) in any particular jurisdiction in which Tality would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (iii) EXPENSES. Tality shall pay all expenses incurred in connection with each registration requested pursuant to this Section 3.4(d), including federal and "blue sky" registration, filing and qualification fees, printers' and accounting fees and fees and disbursements of counsel, including one counsel for the Holders, reasonably acceptable to Tality, but excluding underwriters' or brokers' discounts and commissions relating to shares sold by the Holders. (iv) NOT DEMAND REGISTRATION. Form S-3 registrations shall not be deemed to be demand registrations as described in Section 3.4(b) above. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 3.4(d). (e) OBLIGATIONS OF TALITY. Whenever required to effect the registration of any Registrable Securities under this Agreement Tality shall, as expeditiously as reasonably possible: (i) REGISTRATION STATEMENT. Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective; PROVIDED, HOWEVER, that Tality shall not be required to keep any such registration statement effective for more than ninety (90) days. (ii) AMENDMENTS AND SUPPLEMENTS. Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply 12 with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (iii) PROSPECTUSES. Furnish to the Holders whose Registrable Securities are requested to be included in the registration such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration. (iv) BLUE SKY. Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that Tality shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (v) UNDERWRITING. In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (vi) NOTIFICATION. Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (vii) OPINION AND COMFORT LETTER. Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (A) an opinion, dated as of such date, of the counsel representing Tality for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (B) a "comfort" letter dated as of such date, from the independent certified public accountants of Tality, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. (f) FURNISH INFORMATION. It shall be a condition precedent to the obligations of Tality to take any action pursuant to Section 3.4(b), (c) or (d) that the selling Holders shall furnish to Tality such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be reasonably required to timely effect the Registration of their Registrable Securities. 13 (g) INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Section 3.4(b), (c) or (d): (i) BY TALITY. To the extent permitted by Applicable Law, Tality shall indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as determined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, as amended, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "VIOLATION"): (A) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (C) any violation or alleged violation by Tality of the Securities Act, the Exchange Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any federal or state securities law in connection with the offering covered by such registration statement; and Tality shall reimburse each such Holder, partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this subsection 3.4(g)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Tality (which consent shall not be unreasonably withheld or delayed), nor shall Tality be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (ii) BY SELLING HOLDERS. To the extent permitted by Applicable Law, each selling Holder shall indemnify and hold harmless Tality, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls Tality within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which Tality or any 14 such director, officer, controlling person, underwriter or other such Holder, partner or director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder shall reimburse any legal or other expenses reasonably incurred by Tality or any such director, officer, controlling person, underwriter or other Holder, partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this subsection 3.4(g)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld or delayed); and PROVIDED FURTHER, that the total amounts payable in indemnity by a Holder under this Section 3.4(g)(ii) in respect of any Violation shall not exceed the net proceeds received by such Holder in the registered offering out of which such Violation arises. (iii) NOTICE. Promptly after receipt by an indemnified party under this Section 3.4(g) of notice of the commencement of any action (including any action by a Governmental Authority), such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section 3.4(g), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to an actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of liability to the indemnified party under this Section 3.4(g) to the extent (but only to the extent) the indemnifying party is materially prejudiced as a result thereof, but the omission so to deliver written notice to the indemnified party shall not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 3.4(g). (iv) DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing indemnity agreements of Tality and the Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement in question becomes effective or the amended prospectus filed with the Commission pursuant to Commission Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any Person if a copy of the Final Prospectus was timely furnished to the indemnified party and was not furnished to the Person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. 15 (v) CONTRIBUTION. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (A) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 3.4(g) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 3.4(g) provides for indemnification in such case, or (B) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 3.4(g); then, and in each such case, Tality and such Holder shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and Tality and other selling Holders are responsible for the remaining portion; PROVIDED, HOWEVER, that, in any such case: (1) no such Holder shall be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (2) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (vi) SURVIVAL. The obligations of Tality and Holders under this Section 3.4(g) shall survive until the fifth anniversary of the completion of any offering of Registrable Securities in a registration statement, regardless of the expiration of any statutes of limitation or extensions of such statutes. (h) TERMINATION OF TALITY'S OBLIGATIONS. Tality shall have no obligations pursuant to Sections 3.4(b) through (d) with respect to any Registrable Securities proposed to be sold by a Holder in a registration pursuant to Section 3.4(b), (c) or (d) more than seven (7) years after the Separation Date, or, if, in the opinion of independent counsel to Tality (and acceptable to the Holders), all such Registrable Securities proposed to be sold by a Holder may then be sold under Rule 144 in one transaction without exceeding the volume limitations thereunder. (i) NO REGISTRATION RIGHTS TO THIRD PARTIES. Without the prior written consent of Cadence, Tality covenants and agrees that it shall not grant, or cause or permit to be created, for the benefit of any Person any registration rights of any kind (whether similar to the demand, "piggyback" or Form S-3 registration rights described in this Section 3.4 or otherwise) relating to any equity securities of Tality, other than rights that are subordinate in right to those granted hereunder. ARTICLE IV COVENANTS AND OTHER MATTERS Section 4.1 FURTHER INSTRUMENTS. At the request of either of the Tality Parties, and without further consideration, the Cadence Parties shall execute and deliver, and shall cause all 16 other members of the Cadence Group to execute and deliver, to the Partnership and its Subsidiaries such other instruments of transfer, conveyance, assignment, substitution and confirmation and take such action as either of the Tality Parties may reasonably deem necessary in order to effectively transfer, convey and assign to the Partnership and its Subsidiaries and confirm the Partnership's and its Subsidiaries' title to all of the assets and rights contemplated to be transferred to the Partnership and its Subsidiaries pursuant to this Agreement and the Ancillary Agreements to put the Partnership and its Subsidiaries in actual possession and operating control thereof and to permit the Partnership and its Subsidiaries to exercise all rights with respect thereto (including rights under contracts and other arrangements as to which the consent of any third party to the transfer thereof shall not have previously been obtained). At the request of either of the Cadence Parties and without further consideration, the Tality Parties shall execute and deliver, and shall cause all other members of the Tality Group to execute and deliver, to Cadence and its Subsidiaries all instruments, assumptions, novations, undertakings, substitutions or other documents and take such other action as Cadence may reasonably deem necessary in order to have the Partnership fully and unconditionally assume and discharge the liabilities contemplated to be assumed by the Partnership and its Subsidiaries under this Agreement and the Ancillary Agreements and to relieve each member of the Cadence Group of any liability or obligation with respect thereto and evidence the same to third parties. Neither the Cadence Parties nor the Tality Parties shall be obligated, in connection with the foregoing, to expend money other than reasonable out-of-pocket expenses, attorneys' fees and disbursements and recording or similar fees. Furthermore, each party hereto, at the request of the other party, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements. Section 4.2 AGREEMENT FOR EXCHANGE OF INFORMATION. (a) GENERALLY. Each of the parties agrees to provide, or cause to be provided, to any of the other parties, at any time before or after the Separation Date, as soon as reasonably practicable after written request therefor, any Information in the possession or under the control of such party that the requesting party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities laws) by a Governmental Authority having jurisdiction over the requesting party; (ii) for use in any other judicial, regulatory, administrative or other proceeding, or in order to satisfy audit, accounting, claims, regulatory, litigation or other similar requirements; (iii) to comply with its obligations under this Agreement or any Ancillary Agreement; or (iv) in connection with the ongoing businesses of the Cadence Parties or the Tality Parties, as the case may be; PROVIDED, HOWEVER, that if a party determines that providing its Information to the other parties could be commercially detrimental to such party, violate any law or agreement, or waive any attorney-client privilege, the parties shall take all reasonable measures to permit its compliance with such disclosure obligation in a manner that avoids any such harm or consequence. (b) INTERNAL ACCOUNTING CONTROLS; FINANCIAL INFORMATION. After the Separation Date, each party shall (i) maintain in effect at its own cost and expense adequate systems and controls for its business to the extent necessary to enable the other parties to satisfy 17 their reporting, accounting, audit and other obligations; and (ii) provide, or cause to be provided, to the other parties and their Subsidiaries in such form as requested and at no charge to the requesting party, all financial and other data and information as the requesting party determines necessary or advisable in order to prepare its financial statements and reports or filings with any Governmental Authority. (c) OWNERSHIP OF INFORMATION. Any Information owned by a party that is provided to a requesting party pursuant to this Section 4.2 shall remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring ownership or license rights in any such Information or varying an attorney-client or other privilege applicable to such Information. (d) LIMITATION OF LIABILITY. No member of either the Cadence Group or the Tality Group shall have any liability to a member of the Tality Group or Cadence Group, respectively, in the event that any Information exchanged or provided pursuant to this Section 4.2 is found to be incomplete or inaccurate, in the absence of gross negligence or willful misconduct by the party providing such Information. (e) OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights and obligations granted under this Section 4.2 are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in this Agreement and any Ancillary Agreement, including the Master Confidentiality Agreement. (f) PRODUCTION OF WITNESSES; RECORDS; COOPERATION. After the Separation Date, except in the case of a legal or other proceeding by a party hereto against another party hereto (which shall be governed by such discovery rules as may be applicable under Section 4.4 or otherwise), each party hereto shall use all commercially reasonable efforts to make available to the other parties, upon written request, the former, current and future directors, officers, employees, other personnel and agents of such party as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any legal, administrative or other proceeding in which the requesting party may from time to time be involved, regardless of whether any such legal, administrative or other proceeding is a matter with respect to which indemnification may be sought hereunder. The requesting party shall bear all costs and expenses in connection therewith. Section 4.3 AUDITORS AND AUDITS; ANNUAL AND QUARTERLY STATEMENTS AND ACCOUNTING. For so long as Cadence is required in accordance with United States generally accepted accounting principles to consolidate Tality's results of operations and financial position: (a) SELECTION OF AUDITORS. The Tality Parties shall ensure that the Tality Auditors are the same as the Cadence Auditors. 18 (b) FISCAL YEAR. The Tality Parties shall ensure that their fiscal years for financial, accounting and federal, state and local income tax purposes shall be the same as Cadence's fiscal year. (c) DATE OF AUDITORS' OPINION AND QUARTERLY REVIEWS. The Tality Parties shall use all commercially reasonable efforts to enable and cause the Tality Auditors to complete their audit such that they shall date their opinion on Tality's audited annual financial statements on the same date that the Cadence Auditors date their opinion on Cadence's audited annual financial statements, and to enable Cadence to meet its timetable for the printing, filing and public dissemination of Cadence's annual financial statements. The Tality Parties shall use all commercially reasonable efforts to enable and cause the Tality Auditors to complete their quarterly review procedures such that they shall provide clearance on Tality's quarterly financial statements on the same date that Cadence's Auditors provide clearance on Cadence's quarterly financial statements. (d) ANNUAL, QUARTERLY AND OTHER FINANCIAL STATEMENTS. The Tality Parties shall provide to Cadence on a timely basis all Information that Cadence requests to meet its schedule for the preparation, printing, filing and public dissemination of Cadence's annual, quarterly and other financial statements. Without limiting the generality of the foregoing, the Tality Parties shall provide all required financial Information with respect to the Tality Parties and their Subsidiaries to the Tality Auditors in a sufficient and reasonable time and in sufficient detail to permit the Tality Auditors to take all steps and perform all reviews necessary to provide sufficient assistance to the Cadence Auditors with respect to financial Information to be included or contained in Cadence's annual, quarterly and other financial statements. Similarly, the Cadence Parties shall provide to Tality on a timely basis all financial Information that Tality reasonably requires to meet its schedule for the preparation, printing, filing and public dissemination of Tality's annual and quarterly financial statements. Without limiting the generality of the foregoing, the Cadence Parties shall provide all required financial Information with respect to the Cadence Parties and their Subsidiaries to the Cadence Auditors in a sufficient and reasonable time and in sufficient detail to permit the Cadence Auditors to take all steps and perform all reviews necessary to provide sufficient assistance to the Tality Auditors with respect to Information to be included or contained in Tality's annual and quarterly financial statements. (e) IDENTITY OF PERSONNEL PERFORMING THE ANNUAL AUDIT AND QUARTERLY REVIEWS. The Tality Parties shall authorize the Tality Auditors to make available to the Cadence Auditors both the personnel who performed or shall perform the annual audits and quarterly reviews of Tality and work papers related to the annual audits and quarterly reviews of Tality, in all cases within a reasonable time prior to the Tality Auditors' opinion date, so that the Cadence Auditors are able to perform the procedures they consider necessary to take responsibility for the work of the Tality Auditors as it relates to the Cadence Auditors' report on Cadence's financial statements, all within sufficient time to enable Cadence to meet its timetable for the printing, filing and public dissemination of Cadence's annual and quarterly statements. Similarly, the Cadence Parties shall authorize the Cadence Auditors to make available to the Tality Auditors both the personnel who performed or shall perform the annual audits and quarterly reviews of 19 Cadence and work papers related to the annual audits and quarterly reviews of Cadence, in all cases within a reasonable time prior to the Cadence Auditors' opinion date, so that the Tality Auditors are able to perform the procedures they consider necessary to take responsibility for the work of the Cadence Auditors as it relates to the Tality Auditors' report on Tality's statements, all within sufficient time to enable Tality to meet its timetable for the printing, filing and public dissemination of Tality's annual and quarterly financial statements. (f) ACCESS TO BOOKS AND RECORDS. The Tality Parties shall, as requested by Cadence, provide Cadence's internal auditors and their designees access to the Tality Parties' and their Subsidiaries' books and records so that Cadence may conduct reasonable audits relating to the financial statements provided by Tality pursuant hereto as well as to the internal accounting controls and operations of Tality and its Subsidiaries. Similarly, the Cadence Parties shall provide Tality's internal auditors and their designees access to the Cadence Parties' and their Subsidiaries' books and records so that Tality may conduct reasonable audits relating to the financial statements provided by Cadence pursuant hereto as well as to the internal accounting controls and operations of Cadence and its Subsidiaries. (g) NOTICE OF CHANGE IN ACCOUNTING PRINCIPLES. The Tality Parties shall provide Cadence with as much prior notice as reasonably practicable (but in no event less than 30 days notice) of any proposed determination of, or any significant changes in, its accounting estimates, principles or methods from those in effect on the Separation Date. The Tality Parties shall consult with Cadence and, if requested by Cadence, the Tality Parties shall consult with the Cadence Auditors with respect to any such proposed determination or change. Section 4.4 DISPUTE RESOLUTION. (a) NEGOTIATION/MEDIATION. If a dispute, controversy or claim (a "DISPUTE") arises between the parties or any of their Subsidiaries relating to the interpretation or performance of this Agreement or any Ancillary Agreement, or any grounds for the termination hereof, duly authorized officers or employees of each party shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The date of receipt of written notice of a Dispute given by either of the Tality Parties to either of the Cadence Parties, or vice versa, with a request for a meeting between the parties shall be referred to herein as the "DISPUTE RESOLUTION COMMENCEMENT DATE." Discussions and correspondence relating to trying to resolve such Dispute shall be treated as confidential information developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible in court or any arbitration proceeding. If the parties are unable to resolve the Dispute within thirty (30) days after the Dispute Resolution Commencement Date, and any of the parties wishes to pursue its rights relating to such Dispute, then the Dispute shall be mediated by a mutually acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation. No party may unreasonably withhold consent to the selection of a mediator or the location of the mediation. The Cadence Parties and the 20 Tality Parties shall share the costs of the mediation equally between them, except that each party shall bear its own costs and expenses, including attorneys' fees and expenses, witness fees and expenses, travel expenses and preparation costs. The parties may also agree to replace mediation with some other form of non-binding or binding alternative dispute resolution ("ADR"). (b) ARBITRATION. Any Dispute which the parties cannot resolve through mediation within ninety (90) days after the Dispute Resolution Commencement Date, unless otherwise mutually agreed in writing, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association (the "AAA"), by one (1) arbitrator in Santa Clara County, California. Such arbitrator shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The arbitrator shall be instructed to prepare and deliver a written, reasoned opinion stating his decision within thirty (30) days of the completion of the arbitration. The prevailing party in such arbitration shall be entitled to expenses, including costs and reasonable attorneys' and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation). The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. The use of any ADR procedures shall not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of any party. (c) EXCEPTIONS. Any Dispute regarding any of the following matters is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction: breach of any obligation of confidentiality; or any other claim where interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others. However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. (d) CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties shall continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Section 4.4 with respect to all matters not subject to any particular Dispute. Section 4.5 NON-SOLICITATION OF EMPLOYEES. For a period of one (1) year following the Separation Date, the Tality Parties agree (and shall cause their Subsidiaries) not to solicit or recruit or hire employees of any member of the Cadence Group, without the prior consent of Cadence's Senior Vice President of Human Resources (or his or her designee). Notwithstanding the foregoing, this prohibition on solicitation, recruitment or hiring shall not apply to actions taken by any member of the Tality Group either (a) solely as a result of an employee's affirmative response to a general recruitment effort carried out through a public solicitation or (b) as a result of an employee's initiative. Section 4.6 EMPLOYEE AGREEMENTS. As used in this Section 4.6, "EMPLOYEE AGREEMENT" means the Employee Proprietary Information and Inventions Agreement and 21 corresponding agreements in foreign countries executed by each employee of Cadence or any of its Subsidiaries. (a) SURVIVAL OF EMPLOYEE AGREEMENT OBLIGATIONS AND CADENCE'S COMMON LAW RIGHTS. The Employee Agreements of all Cadence employees transferring to Tality or one of its Subsidiaries as of the Separation Date shall remain in full force and effect according to their terms; PROVIDED, HOWEVER, that none of the following acts committed by former Cadence employees within the scope of their employment with Tality or one of its Subsidiaries shall constitute a breach of such Employee Agreements: (i) the use or disclosure of Confidential Information (as that term is defined in the former Cadence employee's Employee Agreement) for or on behalf of Tality or one of its Subsidiaries, if such disclosure is consistent with the rights granted to Tality and its Subsidiaries and restrictions imposed on Tality and its Subsidiaries under this Agreement or any Ancillary Agreement; (ii) the disclosure and assignment to Tality or one of its Subsidiaries of rights in proprietary developments authored or conceived by the former Cadence employee after the Separation Date and resulting from the use of, or based upon intellectual property (whether patented or not) which is retained by Cadence, provided that in no event shall such disclosure and assignment be regarded as assigning or licensing the underlying intellectual property to Tality or one of its Subsidiaries; (iii) the rendering of any services, directly or indirectly, to Tality or one of its Subsidiaries to the extent such services are consistent with the assignment or license of rights granted to Tality and the restrictions imposed on Tality and its Subsidiaries under this Agreement, any Ancillary Agreement or any other agreement between the parties; and (iv) solicitation of the employees of one party by the other party prior to the Separation Date (so long as such solicitation does not violate Section 4.5). Further, Cadence retains any rights it has under statute or common law with respect to actions by its former employees to the extent such actions are inconsistent with the rights granted to Tality and restrictions imposed on Tality under this Agreement or any Ancillary Agreement. (b) ASSIGNMENT, COOPERATION FOR COMPLIANCE AND ENFORCEMENT. To the extent permissible under Applicable Law, the following shall apply: (i) Cadence retains all rights under the Employee Agreements of all former Cadence employees necessary to permit Cadence to protect the rights and interests of Cadence, but hereby transfers and assigns to Tality and its Subsidiaries its rights under the Employee Agreements of all former Cadence employees to the extent required to permit Tality to enjoin, restrain, recover damages from or obtain specific performance of the Employee Agreements or obtain other remedies against any employee who breaches his/her Employee Agreement; PROVIDED, HOWEVER, that if such partial transfer and assignment is not permissible under Applicable Law, Cadence shall be deemed to have transferred and assigned all such rights. (ii) Each of Cadence and Tality agrees, at its own cost and expense, to cooperate with the other as follows: (A) Tality shall advise Cadence of: (1) any violation(s) of the Employee Agreement by former Cadence employees, and (2) any violation(s) of the Tality Employee Agreement which affect Cadence's 22 rights; and (B) Cadence shall advise Tality of any violations of the Employee Agreement by current or former Cadence employees which affect Tality's rights; PROVIDED, HOWEVER, that the foregoing obligations shall only apply to violations which become known to an attorney within the legal department of the party obligated to provide notice thereof. (iii) Tality may enforce all rights transferred and assigned to it under this Agreement relating to the Employee Agreements. In addition, if Cadence has retained any rights under the Employee Agreements, Tality shall, if requested by Cadence, enforce the Employee Agreements of former Cadence employees to the extent necessary to reasonably protect the interests of any member of the Cadence Group; PROVIDED, HOWEVER, that Tality shall not commence any legal action relating thereto without first consulting with Cadence's General Counsel (or his/her designee). If Tality, in seeking to enforce any Employee Agreement, notifies Cadence that it requires, or desires, Cadence to join in such action, then Cadence shall do so. In addition, if Cadence commences or becomes a party to any action to enforce a Employee Agreement of a former Cadence employee, Cadence shall, whether or not it becomes a party to the action, cooperate with Tality by making available its files and employees who have information or knowledge relevant to the dispute, subject to appropriate measures to protect the confidentiality of any proprietary or confidential information that may be disclosed in the course of such cooperation or action and subject to any relevant privacy laws and regulations. Any such action shall be conducted at the expense of Tality and Cadence and Tality shall agree on a case by case basis on compensation, if any, of Cadence for the value of the time of Cadence employees as reasonably required in connection with the action. (iv) Cadence and Tality understand and acknowledge that matters relating to the making, performance, enforcement, assignment and termination of employee agreements are typically governed by the laws and regulations of the national, federal, state or local governmental unit where an employee resides, or where an employee's services are rendered, and that such laws and regulations may supersede or limit the applicability or enforceability of this Section 4.6. In such circumstances, Cadence and Tality agree to take action with respect to the employee agreements that best accomplishes the parties' objectives as set forth in this Section 4.6 and that is consistent with applicable law. Section 4.7 GOVERNMENT AND THIRD PARTY APPROVALS. If and to the extent that the valid, complete and perfected transfer, assignment or novation of any asset or liability pursuant to the Assignment Agreement would be a violation of Applicable Law or require any Third-Party Approval or Governmental Approval in connection with the Separation or the IPO, then, unless Cadence shall otherwise determine, the transfer or assignment to, or novation by, the Tality Group, as the case may be, of such assets or liabilities shall be automatically deemed deferred and any such purported transfer, assignment or novation shall be null and void until such time as all such Third-Party Approvals or Governmental Approvals have been obtained. Notwithstanding the foregoing, any asset allocated to the Partnership the transfer of which is so delayed shall still be considered an asset of the Partnership for purposes of determining whether 23 any associated liability is a liability of the Partnership; PROVIDED, HOWEVER, that if such Third-Party Approvals or Governmental Approvals have not been obtained within six months after the Separation Date, the parties shall use all commercially reasonable efforts to achieve an alternative solution in accordance with the parties' intentions. Tality shall (and it shall cause its Subsidiaries to) reimburse Cadence for all additional costs and expenses incurred by Cadence or any other member of the Cadence Group in connection with the performance of its obligations under this Section 4.7. Section 4.8 RELATIONSHIPS WITH SCOTTISH ENTERPRISE AND SCOTTISH EXECUTIVE. As to the facilities owned by Cadence Design Systems Limited ("CADENCE UK") located in Livingston, United Kingdom, and the relationships between (i) Scottish Enterprise, on the one hand, and Cadence and Cadence UK, on the other hand, and (ii) Scottish Executive, on the one hand, and Cadence and Cadence UK, on the other hand, the parties agree as follows: (a) TRANSFER OF SCOTTISH ENTERPRISE CONTRACTUAL RIGHTS AND OBLIGATIONS. Subject to the consent of Scottish Enterprise, and as promptly as practicable after the receipt of such consent, Cadence shall transfer (or cause to be transferred) to Symbionics Limited, a company organized under the laws of the United Kingdom and which will become an indirect wholly owned subsidiary of the Partnership ("SYMBIONICS"), all of the rights and interests, and Symbionics shall assume the liabilities, obligations and commitments, of Cadence, Cadence UK and their Subsidiaries under that certain Master Agreement between Cadence UK and Scottish Enterprise dated March 24, 1998, as amended (the "MASTER AGREEMENT"), and all the agreements related thereto (collectively, the "SERVICE CONTRACT"); PROVIDED, HOWEVER, that (i) Cadence UK shall, and Cadence shall cause Cadence UK to, retain its obligations and continue to be bound by certain mutually agreed upon provisions of the Master Agreement and by that certain Premises Agreement between Cadence UK and Scottish Enterprise dated March 24, 1998, that certain Methodologies and Materials License between Cadence UK and Scottish Enterprise dated March 24, 1998, that certain Software License between Cadence UK and Scottish Enterprise dated March 24, 1998 and that certain Beta Software License between Cadence UK and Scottish Enterprise dated March 24, 1998 (the "RETAINED OBLIGATIONS"); (ii) Symbionics shall not assume certain mutually agreed upon obligations included among the Retained Obligations; and (iii) Cadence shall retain its obligations and continue to guaranty the performance of Symbionics under the Service Contract pursuant to that certain Guarantee by Cadence in favor of Scottish Enterprise dated March 24, 1998. (b) TRANSFER OF SCOTTISH EXECUTIVE CONTRACTUAL RIGHTS AND OBLIGATIONS. Subject to the consent of Scottish Executive, and as promptly as practicable after the receipt of such consent, Cadence shall cause Cadence-UK to, and the Tality Parties shall cause Symbionics to, agree upon their respective rights, interests, liabilities, obligations and commitments under that certain Offer of Regional Selective Assistance between Cadence UK and the Scottish Office dated December 5, 1997, as amended (the "RSA GRANT"); PROVIDED, HOWEVER, that such rights, interests, liabilities, obligations and commitments shall include compliance with the obligations of each party pursuant to Sections 4.8(c), (d), (e) and (f) below. 24 (c) CADENCE CAPITAL AND HEADCOUNT COMMITMENTS. Cadence shall cause Cadence UK to meet or exceed and the Tality Parties shall cause Symbionics to meet or exceed its respective (i) capital expenditure commitments in relation to the Service Contract, the RSA Grant and the Livingston facility set forth on SCHEDULE 4.8(a) and (ii) employee commitments in relation to the Service Contract, the RSA Grant and the Livingston facility set forth on SCHEDULE 4.8(b). (d) FACILITY ARRANGEMENT. Notwithstanding anything to the contrary contained herein, Cadence shall cause Cadence UK to retain ownership of the Livingston facility and lease a certain portion of that space to Symbionics pursuant to the Real Estate Matters Agreement. The Tality Parties shall cause Symbionics to compensate Cadence UK for services related to its occupancy of the Livingston facility pursuant to the Master Corporate Services Agreement. (e) SUBSIDIES. After the Separation Date, if subsidy payments received prior to the Separation Date by any member of the Cadence Group pursuant to the Service Contract or the RSA Grant must be refunded, the Cadence Group shall be responsible for contributing 95% of any such payments and the Tality Group shall contribute the remaining 5%. All subsidy payments received after the Separation Date by Cadence UK, the Partnership, Symbionics or any of their respective Subsidiaries pursuant to the Service Contract or the RSA Grant ("POST-SEPARATION SUBSIDY"), and any obligation to refund any Post-Separation Subsidy (a "POST-SEPARATION SUBSIDY CLAWBACK"), shall be shared between the Cadence Group and the Tality Group based upon Cadence UK's and Symbionics' respective pro rata portion of (i) (A) the additional full time equivalent positions ("FTEs") considered for the subsidy determination during the relevant period under the Service Contract and the RSA Grant, multiplied by (B) five hundred thousand dollars ($500,000), four hundred thousand dollars ($400,000), three hundred thousand dollars ($300,000), two hundred thousand dollars ($200,000) or one hundred thousand dollars ($100,000) for subsidies based on the additional FTE's provided in 2000, 2001, 2002, 2003 or 2004, respectively; plus (ii) the additional capital expenditures considered for the subsidy determination during the relevant period under the Service Contract and the RSA Grant (each party's respective "SUBSIDY ALLOCATION", in the case of a Post-Separation Subsidy, or "CLAWBACK ALLOCATION", in the case of a Post-Separation Subsidy Clawback). The Cadence Group's and the Tality Group's "NET ALLOCATION" shall equal the Cadence Group's or the Tality Group's respective Subsidy Allocation less its Clawback Allocation, if any. If any Post-Separation Subsidy is reduced or a Post-Separation Subsidy Clawback occurs due to the failure of either Cadence UK or Symbionics to achieve the commitments set forth on SCHEDULE 4.8(a) or SCHEDULE 4.8(b), the Cadence Group or the Tality Group, respectively, shall be liable to the other for the difference between the Net Allocation actually received by the other party and the Net Allocation the other party would have received had both Cadence UK and Symbionics satisfied in full their respective commitments under SCHEDULE 4.8(a) or SCHEDULE 4.8(b), as applicable. (f) COOPERATION AND SUPPORT. The Cadence Parties shall, and shall cause Cadence UK to, cooperate with Tality, the Partnership and Symbionics in good faith to 25 assist in the management and administration of Symbionics' obligations under the Service Contract and the RSA Grant. ARTICLE V MISCELLANEOUS Section 5.1 LIMITATION OF LIABILITY. IN NO EVENT SHALL ANY MEMBER OF THE CADENCE GROUP OR TALITY GROUP BE LIABLE TO ANY MEMBER OF THE TALITY GROUP OR CADENCE GROUP, RESPECTIVELY, FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT (OTHER THAN AS SET FORTH IN ARTICLE III) OR ANY ANCILLARY AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AS SET FORTH IN THE INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT. Section 5.2 ENTIRE AGREEMENT. This Agreement, the Ancillary Agreements and the Exhibits and Schedules referenced or attached hereto and thereto, constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. Section 5.3 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of Delaware, excluding its conflict of law rules. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 4.4. Section 5.4 TERMINATION. This Agreement and all Ancillary Agreements (and any transaction in furtherance thereof) may be terminated at any time prior to the IPO Closing Date by and in the sole discretion of Cadence without the approval or consent of Tality. This Agreement may be terminated at any time after the IPO Closing Date by mutual consent of Cadence and Tality. In the event of termination pursuant to this Section 5.4, no party shall have any liability of any kind to the other party. Section 5.5 NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to the Cadence Parties: Cadence Design Systems, Inc. 2655 Seely Avenue Building 5 San Jose, California 95134 26 Attention: R.L. Smith McKeithen, General Counsel Fax: (408) 944-6855 if to the Tality Parties: Tality Corporation 2655 Seely Avenue Building 3 San Jose, California 95134 Attention: Duane W. Bell, Chief Financial Officer Fax: (408) 894-2605 or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified U.S. mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual receipt and three (3) days from the date of postmark. Section 5.6 COUNTERPARTS. This Agreement and each of the Ancillary Agreements, and the Exhibits and Schedules hereto and thereto, and the other documents referred to herein or therein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. Section 5.7 BINDING EFFECT; ASSIGNMENT. This Agreement and each Ancillary Agreement shall inure to the benefit of and be binding upon the parties hereto and thereto and their respective legal representatives and successors, and nothing in this Agreement or any Ancillary Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. No party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of Cadence, in the case of the Tality Parties, or Tality, in the case of the Cadence Parties (except in connection with a merger, consolidation or sale of all or substantially all of the party's assets), and any such attempted assignment shall be void and in violation hereof. Section 5.8 SEVERABILITY. If any term or other provision of this Agreement or any Ancillary Agreement, or any of the Exhibits and Schedules attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. Section 5.9 FAILURE OR DELAY NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or 27 be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or any Ancillary Agreement, or the Exhibits or Schedules attached hereto or thereto are cumulative to, and not exclusive of, any rights or remedies otherwise available. Section 5.10 AMENDMENT. No modification or amendment shall be made to this Agreement or any Ancillary Agreement, or the Exhibits or Schedules attached hereto or thereto, except by an instrument in writing signed on behalf of each of the parties to such agreement. Section 5.11 AUTHORITY. Each of the parties hereto and each of the Ancillary Agreements represents to the other that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement or such Ancillary Agreement, as the case may be; (b) the execution, delivery and performance of this Agreement and each of the Ancillary Agreements by it have been duly authorized by all necessary corporate or other actions; (c) it has duly and validly executed and delivered this Agreement and each of the Ancillary Agreements; and (d) this Agreement and each of the Ancillary Agreements is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equity principles. Section 5.12 INTERPRETATION. The headings contained in this Agreement and each of the Ancillary Agreements, in any Exhibit or Schedule hereto and in the table of contents to this Agreement and each of the Ancillary Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or such Ancillary Agreement. Any capitalized term used in any Exhibit or Schedule hereto or to any Ancillary Agreement but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement or such Ancillary Agreement, as the case may be. When a reference is made in this Agreement or any Ancillary Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement or such Ancillary Agreement, as the case may be, unless otherwise indicated. All Exhibits and Schedules hereto and to each Ancillary Agreement are incorporated into and made a part of this Agreement and the applicable Ancillary Agreement, respectively. The terms "including" and "include" employed in this Agreement or any Ancillary Agreement (including any of the Exhibits and Schedules incorporated into and made a part of this Agreement or any such Ancillary Agreement) mean "including, without limitation," and "includes, without limitation," respectively. Section 5.13 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement and any Ancillary Agreement or other agreement executed in connection herewith, the provisions of such Ancillary Agreement shall prevail to the extent that they specifically address the subject matter of the conflict. Section 5.14 PAYMENT OF EXPENSES. Except as otherwise provided in this Agreement or any of the Ancillary Agreements or any other agreement related to the IPO, all costs and expenses of the parties hereto in connection with the Separation and the IPO (including 28 underwriting discounts and commissions) shall be allocated between the Tality Parties and the Cadence Parties as determined by Cadence in its sole and absolute discretion. Section 5.15 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes and replaces in its entirety the Prior Agreement, which shall no longer be of any force or effect. 29 WHEREFORE, the parties have executed and delivered this Amended and Restated Master Separation Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/R.L. Smith McKeithen By: TALITY CORPORATION, --------------------------------- AS GENERAL PARTNER Name: R.L. Smith McKeithen By: /s/Duane W. Bell Title: Senior Vice President ------------------------ and General Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/R.L. Smith McKeithen By: /s/DUANE W. BELL ---------------------------------- -------------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer 30 EX-2.03 4 a2029698zex-2_03.txt EX-2.03 Exhibit 2.03 GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., TALITY CORPORATION, TALITY, LP AND CADENCE HOLDINGS, INC. DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS...........................................................................................1 Section 1.1 Action................................................................................1 Section 1.2 Assets................................................................................2 Section 1.3 Contracts.............................................................................3 Section 1.4 Delayed Transfer Assets...............................................................3 Section 1.5 Delayed Transfer Liabilities..........................................................3 Section 1.6 Excluded Assets.......................................................................3 Section 1.7 Excluded Liabilities..................................................................4 Section 1.8 Foreign Transfer Agreement............................................................4 Section 1.9 Insurance Policies....................................................................4 Section 1.10 Insurance Proceeds....................................................................4 Section 1.11 Insured Tality Liabilities............................................................4 Section 1.12 Intellectual Property.................................................................4 Section 1.13 Liabilities...........................................................................5 Section 1.14 Security Interest.....................................................................5 Section 1.15 Tality Assets.........................................................................5 Section 1.16 Tality Balance Sheet..................................................................6 Section 1.17 Tality Contingent Liability...........................................................6 Section 1.18 Tality Contracts......................................................................6 Section 1.19 Tality Liabilities....................................................................7 Section 1.20 Tality Special Gain...................................................................8 Section 1.21 Taxes.................................................................................8 ARTICLE II CONTRIBUTION AND ASSUMPTION..........................................................................9 Section 2.1 Contribution of Assets and Assumption of Liabilities..................................9 Section 2.2 Methods of Transfer and Assumption....................................................9 Section 2.3 Delayed Transfers....................................................................11 Section 2.4 Novation of Assumed Tality Liabilities...............................................11 ARTICLE III LITIGATION.........................................................................................12 Section 3.1 Allocation...........................................................................12 Section 3.2 Cooperation..........................................................................13 ARTICLE IV MISCELLANEOUS.......................................................................................13 Section 4.1 Incorporation by Reference...........................................................13 Section 4.2 Conflicting Agreements...............................................................13
i GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT THIS GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT (this "ASSIGNMENT") is entered into and effective as of October 4, 2000 by and among Cadence Design Systems, Inc., a Delaware corporation ("CADENCE"), Tality Corporation, a Delaware corporation ("TALITY"), Tality, LP, a Delaware limited partnership (the "PARTNERSHIP"), and Cadence Holdings, Inc., a Delaware corporation ("HOLDINGS"). Capitalized terms used herein and not defined elsewhere herein shall have the meanings ascribed to them in Article I or in the Separation Agreement (as defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence associated with the Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement, dated as of July 14, 2000, as amended or restated (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries own and operate the entire Tality Business; WHEREAS, all conditions to the Separation have been satisfied or waived; and WHEREAS, Cadence, Tality, the Partnership and Holdings now desire to execute and deliver this Assignment to effectuate the transfer of assets and assumption of liabilities contemplated by the Separation Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1 "ACTION" means any demand, action, suit, countersuit, arbitration, inquiry, audit, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal. 1 Section 1.2 "ASSETS" means assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following: (i) all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form; (ii) all apparatus, computers and other electronic data processing equipment, automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property, but excluding fixtures, machinery, equipment, furniture and office equipment (other than computers); (iii) all inventories, parts, raw materials, supplies, work-in-process and finished goods and products; (iv) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest, lessor, sublessor, lessee, sublessee or otherwise; (v) all interests in any capital stock or other equity interests of any Subsidiary or any other Person; all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person; all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person; and all other investments in securities of any Person; (vi) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments; (vii) all deposits, letters of credit and performance and surety bonds; (viii) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties; (ix) all Intellectual Property and licenses from third Persons granting the right to use any Intellectual Property; (x) all computer applications, programs and other software, including operating software, network software, firmware, middleware, design software, design tools, systems documentation and instructions; 2 (xi) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents; (xii) all prepaid expenses, trade accounts and other accounts and notes receivables; (xiii) all rights under contracts or agreements, all claims or rights against any Person arising from the ownership of any Asset, all rights in connection with any bids or offers and all claims, choses in action or similar rights, whether accrued or contingent; (xiv) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution; (xv) all licenses, permits, approvals and authorizations which have been issued by any Governmental Authority; (xvi) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and (xvii) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements. Section 1.3 "CONTRACTS" means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of its property under Applicable Law. Section 1.4 "DELAYED TRANSFER ASSETS" means any Tality Assets that are expressly provided in this Assignment, the Separation Agreement or any other Ancillary Agreement to be transferred after the date of this Assignment. Section 1.5 "DELAYED TRANSFER LIABILITIES" means any Tality Liabilities that are expressly provided in this Assignment, the Separation Agreement or any other Ancillary Agreement to be transferred after the date of this Assignment. Section 1.6 "EXCLUDED ASSETS" means: (i) the Assets listed or described on SCHEDULE 1.6(i); (ii) all Assets of Cadence not reflected on the Tality Balance Sheet; (iii) any cash or other Assets held by Cadence that would be classified as "current assets," in accordance with U.S. generally accepted accounting principles ("GAAP"); and 3 (iv) any other Assets that are not expressly contemplated by the Separation Agreement, any Foreign Transfer Agreement, this Assignment or any other Ancillary Agreement (or the Schedules hereto or thereto) as Assets of Cadence or any other member of the Cadence Group to be transferred to the Partnership or any other member of the Tality Group. Section 1.7 "EXCLUDED LIABILITIES" means: (i) all Liabilities listed or described in SCHEDULE 1.7(i); (ii) all Liabilities of Cadence not reflected on the Tality Balance Sheet; (iii) all accounts payable and other Liabilities of Cadence that would be classified as "current liabilities," other than deferred revenue and the current portion of capital lease obligations, in accordance with U.S. GAAP; (iv) all Insured Tality Liabilities; and (v) all Liabilities that are expressly contemplated by this Assignment, any Foreign Transfer Agreement, the Separation Agreement or any other Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be retained or assumed by Cadence or any other member of the Cadence Group, and all agreements and obligations of any member of the Cadence Group under the Separation Agreement, this Assignment or any other Ancillary Agreement. Section 1.8 "FOREIGN TRANSFER AGREEMENT" has the meaning set forth under the Separation Agreement. Section 1.9 "INSURANCE POLICIES" means insurance policies pursuant to which a Person makes a true risk transfer to an insurer. Section 1.10 "INSURANCE PROCEEDS" means those monies: (i) received by an insured from an insurance carrier; or (ii) paid by an insurance carrier on behalf of the insured; from Insurance Policies. Section 1.11 "INSURED TALITY LIABILITIES" means any Tality Liability to the extent that (i) it is covered under the terms of Cadence's Insurance Policies in effect prior to the Separation Date and (ii) neither Tality nor any of its Subsidiaries is a named insured under, or otherwise entitled to the benefits of, such Insurance Policies. Section 1.12 "INTELLECTUAL PROPERTY" means all domestic and foreign patents and patent applications, together with any continuations, continuations-in-part or divisional applications thereof, and all patents issuing thereon (including reissues, renewals and re-examinations of the foregoing); design patents, invention disclosures; mask works; copyrights, and copyright 4 applications and registrations; Web addresses, trademarks, service marks, trade names, and trade dress, in each case together with any applications and registrations therefor and all appurtenant goodwill relating thereto; trade secrets, commercial and technical information, know-how, proprietary or confidential information, including engineering, production and other designs, notebooks, processes, drawings, specifications, formulae, and technology; computer and electronic data processing programs and software (object and source code), data bases and documentation thereof; inventions (whether patented or not); registered designs, certificates of invention and all other intellectual property under the laws of any country throughout the world. Section 1.13 "LIABILITIES" means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including whether arising out of any Contract or tort based on negligence or strict liability) and whether or not the same would be required by U.S. GAAP to be reflected in financial statements or disclosed in the notes thereto. Section 1.14 "SECURITY INTEREST" means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever. Section 1.15 "TALITY ASSETS" means (without duplication) the following Assets (other than those Assets constituting Excluded Assets or as otherwise provided for in any other Ancillary Agreement or other express agreement of the parties): (i) all Assets reflected on the Tality Balance Sheet, subject to any dispositions of such Assets after the date of the Tality Balance Sheet; (ii) all Assets that have been written off, expensed or fully depreciated that, had they not been written off, expensed or fully depreciated, would have been reflected on the Tality Balance Sheet in accordance with the principles and accounting policies under which the Tality Balance Sheet was prepared; (iii) all Assets acquired by Cadence or any of its Subsidiaries after the date of the Tality Balance Sheet that would be reflected on the consolidated balance sheet of Tality as of the Separation Date if such consolidated balance sheet was prepared using the same principles and accounting policies under which the Tality Balance Sheet was prepared, including any business transaction processing that may occur on Cadence systems on behalf of Tality during the period between separation date to initialization of the processing systems required by Tality; (iv) all Assets that are used solely by the Tality Business at the Separation Date but are not reflected on the Tality Balance Sheet due to mistake or omission (as determined by Cadence in its sole and absolute discretion); (v) all Tality Special Gains; 5 (vi) all Tality Contracts; (vii) to the extent permitted by Applicable Law and subject to the Indemnification and Insurance Matters Agreement, all rights of any member of the Tality Group under any of Cadence's Insurance Policies; and (viii) all Assets that are expressly contemplated by this Assignment, any Foreign Transfer Agreement, the Separation Agreement or any other Ancillary Agreement (or SCHEDULE 1.15(viii) or any other Schedule hereto or thereto) as Assets to be transferred to the Partnership or any other member of the Tality Group. Section 1.16 "TALITY BALANCE SHEET" means the consolidated balance sheet (including the notes thereto) of the Tality Business as of July 1, 2000 that is included in the Registration Statement. Section 1.17 "TALITY CONTINGENT LIABILITY" means any Liability, other than Liabilities for Taxes, of a member of the Cadence Group or the Tality Group that is reflected on, or, were it not for the reasons noted in clause (ii) below, would have been reflected on, the Tality Balance Sheet, whenever arising, to any Person other than a member of the Cadence Group or the Tality Group, if and to the extent that (i) such Liability arises out of the events, acts or omissions occurring before the Separation Date and (ii) the existence or scope of the obligation of a member of the Cadence Group or the Tality Group as of the Separation Date with respect to such Liability was not acknowledged, fixed or determined in any material respect, due to a dispute or other uncertainty as of the Separation Date or as a result of the failure of such Liability to have been discovered or asserted as of the Separation Date (it being understood that the existence of a litigation or other reserve with respect to any Liability shall not be sufficient for such Liability to be considered acknowledged, fixed or determined); PROVIDED, HOWEVER, that the only Liabilities relating to, arising out of or resulting from litigation matters pending on the date hereof that shall constitute Tality Contingent Liabilities are Liabilities relating to, arising out of or resulting from the matters identified on SCHEDULE 1.17. In the case of any Liability a portion of which arises out of events, acts or omissions occurring prior to the Separation Date and a portion of which arises out of events, acts or omissions occurring on or after the Separation Date, only that portion that arises out of events, acts or omissions occurring prior to the Separation Date shall be considered a Tality Contingent Liability. For purposes of the foregoing, a Liability shall be deemed to have arisen out of events, acts or omissions occurring prior to the Separation Date if all the elements necessary for the assertion of a claim with respect to such Liability shall have occurred on or prior to the Separation Date, such that the claim, were it asserted in an Action on or prior to the Separation Date, would not be dismissed by a court on ripeness or similar grounds. For purposes of clarifying the foregoing, the parties agree that no Liability relating to, arising out of or resulting from any obligation of any Person to perform the executory portion of any contract or agreement existing as of the Separation Date, or to satisfy any obligation accrued under any Plan (as defined in the Employee Matters Agreement entered into by the parties as of the date hereof) as of the Separation Date, shall be deemed to be a Tality Contingent Liability. Section 1.18 "TALITY CONTRACTS" means the following contracts and agreements to which Cadence or one of its Subsidiaries is a party or by which it or any of its Assets is bound, whether 6 or not in writing, except for any such contract or agreement that is contemplated to be retained by Cadence or any member of the Cadence Group pursuant to this Assignment or any other Ancillary Agreement: (i) any contract or agreement reflected on the Tality Balance sheet; (ii) any contract or agreement entered into after July 1, 2000 and designated by Cadence (subject to the consent of the Partnership, which shall not be unreasonably withheld) as a Tality Contract; (iii) any contract or agreement that is otherwise expressly contemplated pursuant to this Assignment, any Foreign Transfer Agreement, the Separation Agreement or any of the other Ancillary Agreements to be assigned to the Partnership; and (iv) any contract or agreement set forth on SCHEDULE 1.18(iv). Section 1.19 "TALITY LIABILITIES" means (without duplication) the following Liabilities (other than those Liabilities constituting Excluded Liabilities or as otherwise provided for in any other Ancillary Agreement or other express agreement of the parties): (i) all Liabilities reflected on the Tality Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the Tality Balance Sheet; (ii) all Liabilities of Cadence or its Subsidiaries that arise after the date of the Tality Balance Sheet that would be reflected on the consolidated balance sheet of Tality as of the Separation Date if such consolidated balance sheet was prepared using the same principles and accounting policies under which the Tality Balance Sheet was prepared; (iii) all Liabilities that are related solely to the Tality Business at the Separation Date but are not reflected on the Tality Balance Sheet due to mistake or unintentional omission (as determined by Cadence in its sole and absolute discretion); (iv) all Tality Contingent Liabilities; (v) all Liabilities (other than Liabilities for Taxes), whether arising before, on or after the Separation Date, solely relating to, arising out of or resulting from: (1) the operation of the Tality Business, as conducted at any time prior to, on or after the Separation Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person's authority)); 7 (2) the operation of any business conducted by any member of the Tality Group at any time after the Separation Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person's authority)); or (3) any Tality Assets; (vi) all Liabilities relating to, arising out of or resulting from any of the terminated, divested or discontinued businesses and operations listed or described on SCHEDULE 1.19(vi); and (vii) all Liabilities that are expressly contemplated by this Assignment, SCHEDULE 1.19(vii), any Foreign Transfer Agreement, the Separation Agreement or any other Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by the Partnership or any member of the Tality Group, and all agreements, obligations and Liabilities of any member of the Tality Group under this Assignment, any Foreign Transfer Agreement or any of the Ancillary Agreements. Section 1.20 "TALITY SPECIAL GAIN" means any claim or other right of a member of the Cadence Group or the Tality Group that is reflected on, or, were it not for the reasons noted in clause (ii) below, would have been reflected on, the Tality Balance Sheet, whenever arising, against any Person other than a member of the Cadence Group or the Tality Group, if and to the extent that (i) such claim or right arises out of the events, acts or omissions occurring before the Separation Date (based on then existing law) and (ii) the existence or scope of the obligation of such other Person as of the Separation Date was not acknowledged, fixed or determined in any material respect, due to a dispute or other uncertainty as of the Separation Date or as a result of the failure of such claim or other right to have been discovered or asserted as of the Separation Date. A claim or right meeting the foregoing definition shall be considered a Tality Special Gain regardless of whether there was any Action pending, threatened or contemplated as of the Separation Date with respect thereto. In the case of any claim or right a portion of which arises out of events, acts or omissions occurring prior to the Separation Date and a portion of which arises out of events, acts or omissions occurring on or after the Separation Date, only that portion that arises out of events, acts or omissions occurring prior to the Separation Date shall be considered a Tality Special Gain. For purposes of the foregoing, a claim or right shall be deemed to have accrued as of the Separation Date if all the elements of the claim necessary for its assertion shall have occurred on or prior to the Separation Date, such that the claim or right, were it asserted in an Action on or prior to the Separation Date, would not be dismissed by a court on ripeness or similar grounds. Notwithstanding the foregoing, none of (i) any Insurance Proceeds, (ii) any Excluded Assets, (iii) any reversal of any litigation or other reserve, and (iv) any matters relating to Taxes shall be deemed to be a Tality Special Gain. Section 1.21 "TAXES" has the meaning set forth in the Indemnification and Insurance Matters Agreement. 8 ARTICLE II CONTRIBUTION AND ASSUMPTION Section 2.1 CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES. (a) CONTRIBUTION OF ASSETS. Cadence, on behalf of Holdings, and Holdings hereby assign, transfer, convey and deliver (or shall cause each and every of their applicable Subsidiaries to assign, transfer, convey and deliver) to the Partnership, or, pursuant to Section 2.4, to any applicable Subsidiary of the Partnership, and the Partnership hereby accepts from Cadence, Holdings or their applicable Subsidiary, and agrees to cause its applicable Subsidiary to accept, all of Cadence's, Holdings' and their applicable Subsidiaries' respective right, title and interest in and to the Tality Assets, other than the Delayed Transfer Assets; PROVIDED, HOWEVER, that any Tality Assets that are specifically assigned or transferred pursuant to another Ancillary Agreement or a Foreign Transfer Agreement shall not be assigned or transferred pursuant to this Section 2.1(a). (b) ASSUMPTION OF LIABILITIES. The Partnership hereby assumes and agrees faithfully to perform and fulfill (or shall cause any applicable Subsidiary of the Partnership to assume, perform and fulfill), all the Tality Liabilities owed by Cadence, Holdings or their Subsidiaries, other than the Delayed Transfer Liabilities, in accordance with their respective terms; PROVIDED, HOWEVER, that any Tality Liabilities that are specifically assumed pursuant to another Ancillary Agreement or a Foreign Transfer Agreement shall not be assumed pursuant to this Section 2.1(b). Thereafter, the Partnership shall be responsible (or shall cause any applicable Subsidiary of the Partnership to be responsible) for all Tality Liabilities held by Cadence, Holdings or their Subsidiaries, regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to, on or after the date hereof, regardless of where or against whom such Liabilities are asserted or determined (including any Tality Liabilities arising out of claims made by Cadence's, Holdings', Tality's or the Partnership's respective directors, officers, consultants, independent contractors, employees or agents against any member of the Cadence Group or the Tality Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation by any member of the Cadence Group or the Tality Group or any of their respective directors, officers, employees or agents. (c) DELAYED TRANSFER ASSETS AND LIABILITIES. Each of the parties hereto agrees that the Delayed Transfer Assets shall be assigned, transferred, conveyed and delivered, and the Delayed Transfer Liabilities shall be assumed as set forth on SCHEDULE 2.1(c). Following such assignment, transfer, conveyance and delivery of any Delayed Transfer Asset, or the assumption of any Delayed Transfer Liability, the applicable Delayed Transfer Asset or Delayed Transfer Liability shall be treated for all purposes of this Assignment and the other Ancillary Agreements as a Tality Asset or as a Tality Liability, as the case may be. Section 2.2 METHODS OF TRANSFER AND ASSUMPTION. (a) TERMS OF CERTAIN OTHER AGREEMENTS GOVERN. Substantially concurrently with this Assignment, the parties shall enter into the other Ancillary Agreements that have not 9 been entered into as of the date hereof. To the extent that the transfer of any Tality Asset or the assumption of any Tality Liability is expressly provided for by the terms of any other Ancillary Agreement or a Foreign Transfer Agreement, the terms of such other Ancillary Agreement or Foreign Transfer Agreement shall effect, and determine the manner of, the transfer or assumption. It is the intent of the parties hereto that pursuant to Section 2.1 the transfer and assumption of all other Tality Assets and Tality Liabilities, other than Delayed Transfer Assets, Delayed Transfer Liabilities and any other Tality Assets and Tality Liabilities heretofore transferred to the Partnership, shall be made effective as of the Separation Date; PROVIDED, HOWEVER, that circumstances in various jurisdictions outside the United States may require the transfer of certain Assets and the assumption of certain Liabilities to occur in such other manner and at such other time as the parties shall agree. (b) MISTAKEN ALLOCATIONS. In addition to those transfers and assumptions accurately identified and designated by the parties to take place but which the parties are not able to effect prior to the Separation Date, there may exist (i) Assets that the parties discover were, contrary to the agreements between the parties, by mistake or omission, transferred or not transferred, as the case may be, to the Partnership (or its applicable Subsidiaries) or (ii) Liabilities that the parties discover were, contrary to the agreements between the parties, by mistake or omission, assumed or not assumed, as the case may be, by the Partnership (or its applicable Subsidiaries). The parties hereto shall cooperate in good faith to effect the transfer or re-transfer of such Assets, and/or the assumption or re-assumption of such Liabilities, to or by the appropriate party with respect to the Assets to be transferred to or Liabilities to be assumed by the Partnership (or its applicable Subsidiaries). Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for the other Person. Each party shall reimburse the other or make other financial adjustments (including cash reserves) or other adjustments to remedy any mistakes or omissions relating to any of the Assets transferred hereby or any of the Liabilities assumed hereby. (c) DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and conveyance of Tality Assets and the assumption of Tality Liabilities set forth in Sections 2.2(a) and (b) and certain other Ancillary Agreements, simultaneously with the execution and delivery hereof or as promptly as practicable thereafter, (i) Cadence, on behalf of Holdings, and Holdings shall execute and deliver, and shall cause their respective Subsidiaries to execute and deliver, such bills of sale, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of Cadence's, Holdings' and their respective Subsidiaries' right, title and interest in and to the Tality Assets to the Partnership (or its applicable Subsidiaries) effected by this Assignment; and (ii) the Partnership shall, or shall cause its Subsidiaries to, execute and deliver such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Tality Liabilities by the Partnership (or its applicable Subsidiaries) effected by this Assignment. (d) RECONCILIATION OF ACCOUNTS RECEIVABLE. Within thirty (30) days after the end of Cadence's first full fiscal year to be completed subsequent to the Separation Date (the "RECONCILIATION DATE"), Cadence, on behalf of Holdings, shall deliver to the Partnership a written reconciliation of the actual amounts collected prior to such date in respect of the accounts 10 receivable included on the Tality Balance Sheet ("COLLECTED AMOUNTS"). If the Collected Amounts exceed the accounts receivable net of any reserves for doubtful accounts included on the Tality Balance Sheet, Holdings or Cadence, on behalf of Holdings, shall transfer the difference in immediately available funds to the Partnership no later than thirty (30) days after the Reconciliation Date. If the Collected Amounts are less than the accounts receivable net of any reserves for doubtful accounts included on the Tality Balance Sheet, the Partnership shall transfer the difference in immediately available funds to Holdings no later than thirty (30) days after the Reconciliation Date. Section 2.3 DELAYED TRANSFERS. (a) TRANSFERS NOT CONSUMMATED PRIOR TO SEPARATION DATE. If the transfer, assignment or novation of any Assets (other than Delayed Transfer Assets) intended to be transferred or assigned hereunder is not consummated prior to or on the Separation Date, whether pursuant to Section 4.7 of the Separation Agreement or for any other reason, then the Person retaining such Asset shall thereafter hold such Asset for the use and benefit, insofar as reasonably possible, of the Person entitled thereto (at the expense of the Person entitled thereto). In addition, the Person retaining such Asset shall take such other actions as may be reasonably requested by the Person to whom such Asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Tality Assets (or such Excluded Assets, as the case may be), including possession, use, risk of loss, potential for gain and dominion, control and command over such Assets, are to inure from and after the Separation Date to the Tality Group (or the Cadence Group, as the case may be). If and when the Third-Party Approvals and/or Governmental Approvals, the absence of which caused the deferral of transfer of such Asset pursuant to Section 4.7 of the Separation Agreement, are obtained or such other reason for the delay no longer exists, the transfer of the Asset shall be effected in accordance with the terms of this Assignment and/or such other applicable Ancillary Agreement. (b) EXPENSES. The Person retaining an Asset (other than Delayed Transfer Assets) due to the deferral of the transfer of such Asset shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Person entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys' fees and recording or similar fees, all of which shall be promptly reimbursed by the Person entitled to such Asset. Section 2.4 NOVATION OF ASSUMED TALITY LIABILITIES. (a) REASONABLE COMMERCIAL EFFORTS. Each of the parties, at the request of either Cadence or Holdings, on the one hand, or the Partnership or Tality, on the other, shall use all commercially reasonable efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate (including with respect to any federal government contract) or assign all rights and obligations under agreements, leases, licenses and other obligations or Liabilities of any nature whatsoever that constitute Tality Liabilities or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the Tality Group, so that, in any such case, Tality and its Subsidiaries shall be solely responsible for such Liabilities; PROVIDED, HOWEVER, that none of the parties or their respective 11 Subsidiaries shall be obligated to pay any consideration therefor to any third party from whom such consents, approvals, substitutions and amendments are requested. (b) INABILITY TO OBTAIN NOVATION. If the parties are unable to obtain, or to cause to be obtained, any such required consent, approval, release, substitution or amendment, the applicable member of the Cadence Group shall continue to be bound by such agreements, leases, licenses and other obligations and, unless prohibited by law or the terms thereof (except to the extent expressly set forth in this Assignment, the Separation Agreement or any other Ancillary Agreement), the Partnership shall, as agent or subcontractor for Cadence, Holdings or such other Person, as the case may be, pay, perform and discharge fully, or cause to be paid, transferred or discharged all the obligations or other Liabilities of Cadence, Holdings or such other Person, as the case may be, thereunder from and after the date hereof. Cadence shall, on behalf of Holdings, or Holdings shall, without further consideration, pay and remit, or cause to be paid or remitted, to the Partnership or its appropriate Subsidiary promptly all money, rights and other consideration received by it or any member of the Cadence Group in respect of such performance (unless any such consideration is an Excluded Asset). If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, Cadence, on behalf of Holdings, or Holdings shall thereafter assign, or cause to be assigned, all its rights, obligations and other Liabilities thereunder or any rights or obligations of any member of the Cadence Group to the Partnership (or its appropriate Subsidiary) without payment of further consideration and the Partnership (or its appropriate Subsidiary) shall, without the payment of any further consideration, assume such rights and obligations. ARTICLE III LITIGATION Section 3.1 ALLOCATION. (a) LITIGATION TO BE TRANSFERRED TO THE PARTNERSHIP. Notwithstanding any contrary provisions in the Indemnification and Insurance Matters Agreement, on the Separation Date, the responsibilities for management of the litigation identified on SCHEDULE 3.1(a), as such Schedule is updated by Cadence and delivered to the Partnership immediately prior to the Separation (the "LITIGATION SCHEDULE"), shall be transferred in their entirety from Cadence, on behalf of Holdings, Holdings or their respective Subsidiaries to the Partnership or its applicable Subsidiaries. From and after the Separation Date, the Partnership shall manage the defense of such litigation and shall cause its applicable Subsidiaries to do the same. Cadence and its Subsidiaries must first obtain the prior consent of the Partnership or its applicable Subsidiary for any action taken subsequent to the Separation Date in connection with the litigation identified in the Litigation Schedule, which consent cannot be unreasonably withheld or delayed. All other matters relating to such litigation, including any indemnification for such claims, shall be governed by the provisions of the Indemnification and Insurance Matters Agreement. (b) LITIGATION TO BE DEFENDED BY CADENCE AT THE PARTNERSHIP'S EXPENSE. Notwithstanding any contrary provisions in the Indemnification and Insurance Matters Agreement, Cadence, on behalf of Holdings, and Holdings shall defend, and shall cause their 12 applicable Subsidiaries to defend, the litigation identified in the Litigation Schedule that is not delivered by Cadence, on behalf of Holdings, Holdings or their applicable Subsidiaries, to the Partnership on the Separation Date. All other matters relating to such litigation, including indemnification for such claims, shall be governed by the provisions of the Indemnification and Insurance Matters Agreement. Section 3.2 COOPERATION. The parties and their respective Subsidiaries shall cooperate with each other in the defense of any litigation covered under this Article III and afford to each other reasonable access upon reasonable advance notice to witnesses and Information (other than Information protected from disclosure by applicable privileges) that is reasonably required to defend this litigation. The foregoing agreement to cooperate includes an obligation to provide access to qualified assistance to provide information, witnesses and documents to respond to discovery requests in specific lawsuits. In such cases, cooperation shall be timely so that the party responding to discovery may meet all court-imposed deadlines. The party requesting information shall reimburse the party providing information consistent with the terms of Section 4.2 of the Separation Agreement. The obligations set forth in this paragraph are more clearly defined in Section 4.2 of the Separation Agreement. ARTICLE IV MISCELLANEOUS Section 4.1 INCORPORATION BY REFERENCE. Sections 4.4 and 4.7 and all of the provisions of Article V of the Separation Agreement (except for Sections 5.13 and 5.15 thereof) are incorporated into and made a part of this Agreement, as if fully set forth herein. Section 4.2 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement and the Separation Agreement, any Foreign Transfer Agreement, any other Ancillary Agreement or other agreement executed in connection herewith or therewith, the provisions of such other agreement shall prevail to the extent that they specifically address the subject matter of the conflict. 13 WHEREFORE, the parties have executed and delivered this Assignment effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/R.L. Smith McKeithen By: TALITY CORPORATION, ------------------------------- AS GENERAL PARTNER Name: R.L. Smith McKeithen By: /s/Duane W. Bell Title: Senior Vice President and -------------------------- General Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/R.L. Smith McKeithen By: /s/Duane W. Bell ------------------------------ -------------------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer 14 EX-2.04 5 a2029698zex-2_04.txt EX-2.04 Exhibit 2.04 MASTER INTELLECTUAL PROPERTY OWNERSHIP AND LICENSE AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS..........................................................................................1 SECTION 1.1 CADENCE ELECTRONIC DESIGN TECHNOLOGY.................................................2 SECTION 1.2 CADENCE PDK TECHNOLOGY...............................................................2 SECTION 1.3 COPYRIGHTS...........................................................................2 SECTION 1.4 DERIVATIVE USE.......................................................................2 SECTION 1.5 DESIGN TOOL TECHNOLOGY...............................................................2 SECTION 1.6 ELECTRONIC DESIGN TECHNOLOGY.........................................................2 SECTION 1.7 GROUP................................................................................2 SECTION 1.8 INTELLECTUAL PROPERTY RIGHTS.........................................................2 SECTION 1.9 INTERNAL USE.........................................................................3 SECTION 1.10 JOINTLY-OWNED PDK TECHNOLOGY.........................................................3 SECTION 1.11 MARKS................................................................................3 SECTION 1.12 MASK WORK RIGHTS.....................................................................3 SECTION 1.13 METHODOLOGY TECHNOLOGY...............................................................3 SECTION 1.14 OTHER INTELLECTUAL PROPERTY RIGHTS...................................................3 SECTION 1.15 PARTY................................................................................3 SECTION 1.16 PATENTS..............................................................................3 SECTION 1.17 PDKS.................................................................................3 SECTION 1.18 PRE-SEPARATION TECHNOLOGY............................................................4 SECTION 1.19 PROJECT ALBA METHODOLOGIES...........................................................4 SECTION 1.20 PROJECT ALBA TERRITORY...............................................................4 SECTION 1.21 RETAINED INTELLECTUAL PROPERTY RIGHTS................................................4 SECTION 1.22 SOFTWARE............................................................................ 4 SECTION 1.23 TALITY DESIGN TOOL TECHNOLOGY........................................................4 SECTION 1.24 TALITY ELECTRONIC DESIGN TECHNOLOGY..................................................4 SECTION 1.25 TALITY MARKS.........................................................................4 SECTION 1.26 TALITY METHODOLOGY TECHNOLOGY........................................................4 SECTION 1.27 TALITY PDK TECHNOLOGY................................................................4 SECTION 1.28 TALITY TRANSFERRED TECHNOLOGY........................................................5 SECTION 1.29 TECHNOLOGY...........................................................................5 SECTION 1.30 TECHNOLOGY REQUEST...................................................................5 SECTION 1.31 TRADE SECRETS........................................................................5 SECTION 1.32 TRANSFERRED INTELLECTUAL PROPERTY RIGHTS.............................................5 SECTION 1.33 TRANSFERRED PATENTS..................................................................5 SECTION 1.34 TWG..................................................................................5 ARTICLE II ASSIGNMENT OF TALITY TRANSFERRED TECHNOLOGY AND TALITY MARKS; RIGHTS IN JOINTLY-OWNED PDK TECHNOLOGY....................................................................................5 SECTION 2.1 ASSIGNMENT OF TALITY TRANSFERRED TECHNOLOGY..........................................5 SECTION 2.2 ASSIGNMENT OF TALITY MARKS...........................................................6
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Page ---- SECTION 2.3 ASSIGNMENT OF JOINT OWNERSHIP INTEREST INJOINTLY-OWNED PDK TECHNOLOGY................6 SECTION 2.4 RIGHTS TO JOINTLY-OWNED PDK TECHNOLOGY...............................................6 SECTION 2.5 OWNERSHIP OF OTHER INTELLECTUAL PROPERTY RETAINED BY CADENCE.........................7 SECTION 2.6 FURTHER ASSURANCES...................................................................8 SECTION 2.7 AUTHORIZATION TO RECORD..............................................................8 SECTION 2.8 MISTAKEN ALLOCATIONS.................................................................8 SECTION 2.9 GOVERNMENTAL APPROVALS AND THIRD-PARTY APPROVALS.....................................8 SECTION 2.10 PRE-EXISTING LICENSES TO THIRD PARTIES...............................................9 SECTION 2.11 ASSIGNMENT DISCLAIMER................................................................9 ARTICLE III LICENSE GRANTS; COVENANT NOT TO SUE................................................................9 SECTION 3.1 GRANT OF LICENSES BY CADENCE.........................................................9 SECTION 3.2 GRANT OF LICENSES BY THE PARTNERSHIP................................................11 SECTION 3.3 NO LICENSE TO IMPROVEMENTS..........................................................12 SECTION 3.4 NO OTHER RIGHTS.....................................................................12 SECTION 3.5 MUTUAL COVENANT NOT TO SUE..........................................................13 SECTION 3.6 RIGHT TO USE INDEPENDENT CONTRACTORS................................................13 SECTION 3.7 RIGHTS OF SUBSIDIARIES..............................................................13 SECTION 3.8 THIRD PARTY TECHNOLOGY..............................................................14 SECTION 3.9 DISCLAIMER..........................................................................14 ARTICLE IV CLASSIFICATION AND PROTECTION OF TECHNOLOGY; PROSECUTION AND ENFORCEMENT...........................14 SECTION 4.1 CLASSIFICATION OF TECHNOLOGY; TECHNOLOGY REQUESTS; TECHNOLOGY WORKING GROUP.........14 SECTION 4.2 PROTECTION OF PRE-SEPARATION TECHNOLOGY.............................................15 SECTION 4.3 CONFIDENTIALITY.....................................................................16 SECTION 4.4 PROSECUTION AND MAINTENANCE.........................................................16 SECTION 4.5 ENFORCEMENT.........................................................................16 ARTICLE V TERM................................................................................................17 SECTION 5.1 TERM................................................................................17 SECTION 5.2 NO TERMINATION......................................................................17 ARTICLE VI MISCELLANEOUS......................................................................................17 SECTION 6.1 EXCLUSION OF CONSEQUENTIAL DAMAGES..................................................17 SECTION 6.2 INCORPORATION BY REFERENCE..........................................................17 SECTION 6.3 CONFLICTING AGREEMENTS..............................................................17 SECTION 6.4 ASSIGNMENT..........................................................................17
ii MASTER INTELLECTUAL PROPERTY OWNERSHIP AND LICENSE AGREEMENT THIS MASTER INTELLECTUAL PROPERTY OWNERSHIP AND LICENSE AGREEMENT (this "AGREEMENT") is entered into and effective as of October 4, 2000 between Cadence Design Systems, Inc., a Delaware corporation ("CADENCE"), Cadence Holdings, Inc., a Delaware corporation ("Holdings"), Tality, LP, a Delaware limited partnership (the "Partnership") and Tality Corporation, a Delaware corporation ("TALITY"). Capitalized terms used herein and not otherwise defined elsewhere herein shall have the meanings ascribed to them in Article I or in the Separation Agreement (as defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence associated with the Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement, dated as of July 14, 2000, as amended or restated (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries own and operate the entire Tality Business; and WHEREAS, all conditions to the Separation have been satisfied or waived; and Cadence, Holdings, the Partnership and Tality now desire to execute and deliver this Agreement to effectuate the transfer of intellectual property from Holdings and from Cadence, on behalf of Holdings, to the Partnership and the granting of the licenses to the Partnership contemplated by the Separation Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below. 1 Section 1.1 "CADENCE ELECTRONIC DESIGN TECHNOLOGY" means any Electronic Design Technology that was developed by Cadence or a Subsidiary thereof pursuant to (i) a contract with a third-party customer that was not a customer of the Tality Business or (ii) research and development work conducted independent of any Tality Business project or contract. Section 1.2 "CADENCE PDK TECHNOLOGY" means any PDKs developed solely by a business or businesses of Cadence or any of its Subsidiaries other than the Tality Business. Section 1.3 "COPYRIGHTS" mean (i) any copyright in any original works of authorship fixed in any tangible medium of expression as set forth in 17 U.S.C. Section 101 et. seq., whether registered or unregistered, including any applications for registration thereof, (ii) any corresponding foreign copyrights under the laws of any jurisdiction, in each case, whether registered or unregistered, and any applications for registration thereof, and (iii) moral rights under the laws of any jurisdiction. Section 1.4 "DERIVATIVE USE" means, with reference to specified Technology, the right to use such Technology to make any refinement, enhancement, adaptation, variation, improvement, elaboration or other modification of such Technology for the purpose or with the effect of preparing new Technology. "Derivative Use" includes the right to use, execute, display, perform or reproduce the subject Technology, and the right to modify or prepare derivative works based on such Technology, but excludes any right to distribute, license, sublicense, sell or otherwise transfer or make available such Technology to any third party. Section 1.5 "DESIGN TOOL TECHNOLOGY" means any Software developed by Cadence or any of its Subsidiaries prior to the date hereof for the commercial EDA market, including source level language code, object code and executable programs. Section 1.6 "ELECTRONIC DESIGN TECHNOLOGY" means any Technology owned by Cadence or any of its Subsidiaries and developed prior to date hereof that consists of the complete or partial set of descriptions and representations of a system, integrated circuit or embedded software design. Electronic Design Technology includes the following types of descriptions or representations: specifications, circuit or system documentation, system architecture descriptions, behavioral descriptions, mechanical packaging and enclosure descriptions, RTL descriptions, circuit schematics, gate level netlists, test vectors and programs, test benches, integrated circuit layouts, packaging information and embedded software source code. Electronic Design Technology, in contrast to Methodology Technology, is associated with customer applications, end uses, and specific electronic products, functions or complete systems. Notwithstanding the foregoing, Electronic Design Technology shall not include any PDKs. Section 1.7 "GROUP" means the Cadence Group or the Tality Group as appropriate. Section 1.8 "INTELLECTUAL PROPERTY RIGHTS" means all rights in, to, or arising under or out of any (i) Patents; (ii) Copyrights; (iii) Mask Work Rights; (iv) Trade Secrets; and (v) all other intellectual or industrial property of any kind or nature, in each case arising under or 2 protected by the laws of any country anywhere in the world, excluding any rights under or in respect of Marks. Section 1.9 "INTERNAL USE" means, with reference to specified Technology, the right to use, execute, display, perform or reproduce such Technology, but excludes (i) any right to make Derivative Use of such Technology and (ii) any right to distribute, license, sublicense, sell or otherwise transfer or make available such Technology to any third party. Section 1.10 "JOINTLY-OWNED PDK TECHNOLOGY" means any PDKs that were co-developed by the Tality Business and other businesses of Cadence or any of its Subsidiaries, including those set forth on EXHIBIT A. Section 1.11 "MARKS" mean fictional business names, trade names, trade dress rights, registered and unregistered trademarks and service marks and logos, including any Internet domain names, and applications therefor, and like intellectual property rights. Section 1.12 "MASK WORK RIGHTS" means (i) any rights in maskworks, as defined in 17 U.S.C. Section 901, whether registered or unregistered, including applications for registration thereof, and (ii) any foreign rights in semiconductor topologies under the laws of any jurisdiction, whether registered or unregistered, including applications for registration thereof. Section 1.13 "METHODOLOGY TECHNOLOGY" means any Technology owned by Cadence or any of its Subsidiaries and developed prior to the date hereof that is associated with the practices, methods and utility software used to combine commercially available EDA tools into a system to perform the design of electronic systems, circuit design or the design of embedded software. Methodology Technology, as distinct from Electronic Design Technology, focuses on the process to be employed in designing new electronic systems, circuits or embedded software, rather than the end-product or application produced by or with such Technology. Notwithstanding the foregoing, Methodology Technology shall not include any PDKs. Section 1.14 "OTHER TRANSFERRED INTELLECTUAL PROPERTY RIGHTS" means all of the Intellectual Property Rights (other than Patents) of Cadence or any of its Subsidiaries that protect, cover, or embody any Tality Transferred Technology. Section 1.15 "PARTY" means Cadence or Holdings, on the one hand, and Tality or the Partnership, on the other, and members of the Cadence Group or the Tality Group, as applicable. Section 1.16 "PATENTS" means all classes or types of patents, utility models and design patents (including originals, divisions, continuations, continuations-in-part, re-examinations, extensions or reissues), and applications for these classes or types of patent rights in all countries of the world (and any patents issuing thereon). Section 1.17 "PDKS" means the data and files unique to a fabrication process, or to a particular customer flow, created by the Tality Business or another business of Cadence or any of 3 its Subsidiaries prior to the date hereof, for use with Cadence EDA tools, and used for such purposes, for illustration, as enabling analog and mixed signal circuit design, layout and verification. Section 1.18 "PRE-SEPARATION TECHNOLOGY" has the meaning set forth in Section 4.1(a). Section 1.19 "PROJECT ALBA METHODOLOGIES" means any of the "Methodologies" as such term is defined under that certain Master Agreement between Cadence Design Systems Limited and Scottish Enterprise, dated March 24, 1998, as amended. Section 1.20 "PROJECT ALBA TERRITORY" means the "Territory" as such term is defined under that certain Master Agreement between Cadence Design Systems Limited and Scottish Enterprise, dated March 24, 1998, as amended. Section 1.21 "RETAINED INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in Section 2.5. Section 1.22 "SOFTWARE" means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, and (iv) all documentation, including user manuals and training documentation, relating to any of the foregoing. Section 1.23 "TALITY DESIGN TOOL TECHNOLOGY" means any Design Tool Technology developed by the Tality Business pursuant to a third-party customer contract, the terms of which would be violated if the ownership of that Design Tool Technology were not to be transferred to Tality or the Partnership on the date hereof. Section 1.24 "TALITY ELECTRONIC DESIGN TECHNOLOGY" means any Electronic Design Technology other than Cadence Electronic Design Technology. Section 1.25 "TALITY MARKS" means the Marks of Cadence or any of its Subsidiaries that are identified on EXHIBIT B and that are to be transferred to the Partnership in accordance with Section 2.2 hereof. Section 1.26 "TALITY METHODOLOGY TECHNOLOGY" means any Methodology Technology developed by the Tality Business pursuant to a third-party customer contract, the terms of which would be violated if the ownership of that Methodology Technology were not to be transferred to Tality or the Partnership on the date hereof; PROVIDED, HOWEVER, that the Tality Methodology Technology shall not include any of the Project Alba Methodologies. Section 1.27 "TALITY PDK TECHNOLOGY" means all PDKs developed solely by the Tality Business. 4 Section 1.28 "TALITY TRANSFERRED TECHNOLOGY" means all Tality Design Tool Technology, Tality Electronic Design Technology, Tality Methodology Technology, and Tality PDK Technology. Section 1.29 "TECHNOLOGY" means Software (in both object code and source code form), know-how, engineering, production and other designs, inventions, discoveries, concepts, ideas, methods, processes (including design and manufacturing processes), drawings, specifications, formulae, data bases and documentation thereof, technological models, algorithms, behavioral models, logic diagrams, schematics, test vectors, technical information, documentation, websites, data and other Information. Section 1.30 "TECHNOLOGY REQUEST" has the meaning set forth in Section 4.1(c). Section 1.31 "TRADE SECRETS" means any Technology and other commercial or technical Information that derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy and any other Information that is proprietary or confidential, in each case excluding any rights in respect of any of the foregoing that comprise or are protected by Copyrights, Mask Work Rights or Patents. Section 1.32 "TRANSFERRED INTELLECTUAL PROPERTY RIGHTS" means the Transferred Patents and the Other Transferred Intellectual Property Rights. Section 1.33 "TRANSFERRED PATENTS" means the Patents listed on EXHIBIT C. Section 1.34 "TWG" has the meaning set forth in Section 4.1(b). ARTICLE II ASSIGNMENT OF TALITY TRANSFERRED TECHNOLOGY AND TALITY MARKS; RIGHTS IN JOINTLY-OWNED PDK TECHNOLOGY Section 2.1 ASSIGNMENT OF TALITY TRANSFERRED TECHNOLOGY. Cadence, on behalf of Holdings, hereby assigns, transfers, conveys and delivers, and agrees to cause each and every applicable member of the Cadence Group to assign, transfer, convey and deliver to the Partnership and the Partnership hereby accepts from Cadence, or the applicable member of the Cadence Group, all of the right, title and interest in and to the Transferred Intellectual Property Rights of Cadence and the members of the Cadence Group. Cadence, on behalf of Holdings, further assigns, transfers, conveys and delivers, and agrees to cause each and every member of the Cadence Group to assign, transfer, convey and deliver to the Partnership all its (and their) right, title and interest in and to any and all causes of action and rights of recovery for past infringement or misappropriation of the Transferred Intellectual Property Rights. 5 Section 2.2 ASSIGNMENT OF TALITY MARKS. Cadence, on behalf of Holdings, hereby assigns, transfers, conveys and delivers to the Partnership, and agrees to cause each and every member of the Cadence Group to assign, transfer, convey and deliver to the Partnership, and the Partnership hereby accepts from Cadence, or the applicable member of the Cadence Group, all of the right, title and interest of Cadence, and the members of the Cadence Group, in and to the Tality Marks, together with all appurtenant goodwill relating thereto. Section 2.3 ASSIGNMENT OF JOINT OWNERSHIP INTEREST IN JOINTLY-OWNED PDK TECHNOLOGY. Cadence, on behalf of Holdings, hereby assigns, transfers, conveys and delivers to the Partnership, and agrees to cause each and every member of the Cadence Group to assign, transfer, convey and deliver to the Partnership, and the Partnership hereby accepts from Cadence, or the applicable member of the Cadence Group, an undivided one-half interest (as tenant-in-common) in and to all Intellectual Property Rights (other than Patents) of Cadence, and the members of the Cadence Group that protect, cover, or embody any Jointly-Owned PDK Technology. Section 2.4 RIGHTS TO JOINTLY-OWNED PDK TECHNOLOGY. (a) Each of Cadence (and the members of the Cadence Group) and Tality (and the Members of the Tality Group) has the right to (i) use and exploit the Jointly-Owned PDK Technology, (ii) license the Jointly-Owned PDK Technology to third parties on a non-exclusive basis, and (iii) transfer its ownership interest in any or all Jointly-Owned PDK Technology to any third party, in each case (x) without restriction (other than, to the extent applicable, the confidentiality obligations of such Party referred to in Section 4.3), (y) without the consent of the other Party, and (z) without the obligation to account to the other Party for profits derived therefrom. (b) Should either Cadence (or any member of the Cadence Group) or Tality (or any member of the Tality Group) (the "REGISTERING PARTY") desire at any time to register Copyrights in any Jointly-Owned PDK Technology or seek patent protection for any Jointly-Owned PDK Technology in any jurisdiction, such Party shall notify the other Party (the "NON-REGISTERING PARTY") in writing of its intent and the reasons therefor. The Non-Registering Party promptly shall communicate in writing any objections it may have. In the absence of any written objections within thirty (30) days after the date of its notice, the Registering Party shall be free to proceed with the desired registration in the name of both the Partnership and Cadence. In the event of any such objections by the Non-Registering Party, the parties shall discuss and negotiate reasonably and in good faith to resolve the objections based on each Party's business objectives with respect to the relevant item of Jointly-Owned PDK Technology. If the objections of the Non-Registering Party are not resolved, the Registering Party shall not be permitted to proceed with the proposed copyright registration or patent application. If the Non-Registering Party does not timely object to the copyright registration or patent application proposed by the Registering Party or if any timely objection of the Non-Registering Party is resolved, the Parties shall share equally any actual and reasonable out-of-pocket expenses (excluding the value of the time of 6 either Party's employees) incurred in connection with any such registration or patent application (including the prosecution of such patent application), except as the Parties otherwise may agree in connection with resolving any objections of the Non-Registering Party. The Registering Party promptly shall provide the Non-Registering Party with copies of each application and issued registration or issued patent under this Section 2.4(b). (c) Should either Party become aware of any actual infringement or misappropriation of Jointly-Owned PDK Technology, such Party shall communicate promptly the details to the other Party and the parties will meet and confer regarding any enforcement action with respect to such Jointly-Owned PDK Technology. If the Parties decide jointly to bring an action for infringement or misappropriation of such Jointly-Owned PDK Technology, the parties shall equally share all actual and reasonable expenses associated therewith (except for the value of the time of each Party's employees in connection with the action; each Party shall alone bear its employee expenses) and any resulting damages or compensation, including any amounts paid in settlement. If the Parties decide not to jointly bring such an action, either Party or any of its subsidiaries may, at its own expense (including, as the parties shall agree on a case by case basis, compensation, if any, of the other Party for the value of time of the other Party's employees as reasonably required in connection with the action), enforce any Jointly-Owned PDK Technology against any third party infringer or misappropriating person without the consent of the other Party, subject to the following: (i) neither Party shall have any obligation to be joined as a party plaintiff in such action without its prior written consent, which may be granted or withheld in its sole discretion, regardless of whether such joinder is required in order to confer jurisdiction in the jurisdiction in which the action is to be brought; (ii) if either Party brings any such action on its own, including cases in which the other Party consents to be named as party plaintiff, the Party bringing the action agrees to defend, indemnify and hold harmless the other Party for all losses, costs, liabilities and expenses arising out of or related to the bringing of such action; and (iii) the Party bringing such action shall not take any action, or make any admissions, that may affect the validity of any registration for Copyrights in any Jointly-Owned PDK Technology or the confidentiality of any Trade Secrets embodied in any Jointly-Owned PDK Technology without the prior written consent of the other Party. If the enforcing Party or its subsidiaries recovers any damages or compensation for any action the enforcing Party or the subsidiaries of the enforcing Party takes hereunder, including any settlement, the enforcing Party or the subsidiaries of the enforcing Party shall retain one hundred percent (100%) of such damages. If the Parties cooperate in any such enforcement action, then any recovery of damages or compensation shall be allocated pursuant to mutual agreement. Section 2.5 OWNERSHIP OF OTHER INTELLECTUAL PROPERTY RETAINED BY CADENCE. All Intellectual Property Rights (other than Patents) of Cadence or any members of the Cadence Group that protect, cover, or embody (i) Cadence Electronic Design Technology; (ii) Cadence PDK Technology; (iii) Methodology Technology other than Tality Methodology Technology; and (iv) Design Tool Technology other than the Tality Design Tool Technology, and all Patents of Cadence or any members of the Cadence Group other than the Transferred Patents (all such Intellectual Property Rights and Patents are referred to collectively herein as the "RETAINED 7 INTELLECTUAL PROPERTY RIGHTS") shall be retained by the Cadence Group, and the Tality Group shall have no right or license therein except as expressly set forth in Article III or in a separate written agreement into which a member of the Cadence Group and a member of the Tality Group may enter. Section 2.6 FURTHER ASSURANCES. Concurrently herewith, Cadence, on behalf of Holdings, shall, and shall cause each and every member of the Cadence Group to, execute and deliver to the Partnership assignments in appropriate form by which Cadence and each such member of the Cadence Group will assign to the Partnership all of the Transferred Intellectual Property Rights and the Tality Marks. Promptly upon the request of the Partnership, Cadence, on behalf of Holdings, further agrees to execute and deliver, and cause each and every member of the Cadence Group to execute and deliver, such additional documents and take such other action as may be necessary or desirable to continue, secure, defend, register, confirm, evidence and otherwise give full effect to and to perfect the rights of the Partnership under this Agreement, including all such documents necessary to perfect, affirm, record and maintain title (to the extent provided herein) in the Partnership, its successor, assigns or other legal representatives to any and all Transferred Intellectual Property Rights and Tality Marks, including all documents necessary to register in the name of the Partnership the assignment of each registered Mark identified on EXHIBIT B and each Patent identified on EXHIBIT C in the appropriate country or countries. Section 2.7 AUTHORIZATION TO RECORD. Cadence, within ten (10) days of the effective date hereof, shall authorize and request that the Commissioner of Patents or Commissioner of Trademarks of the United States and each official holding a corresponding position of authority in any country in which Cadence or a Subsidiary of Cadence owns one or more patent or trademark registrations or has pending one or more patent or trademark applications to issue and to record the title of the Partnership as owner of all right, title and interest in and to the registered Marks identified on EXHIBIT B and the Patents identified on EXHIBIT C. Section 2.8 MISTAKEN ALLOCATIONS. The Parties acknowledge that there may exist Intellectual Property Rights that the Parties hereafter discover were, contrary to the agreements between the parties, by mistake or omission, transferred or not transferred, as the case may be, to the Partnership. The Parties hereto shall cooperate in good faith to effect the transfer or re-transfer of such Intellectual Property Rights to or by the appropriate Party, in accordance with the procedures specified in Section 4.1, and shall not use the determination that remedial actions need to be taken to alter the original intent of the parties hereto with respect to the Intellectual Property Rights to be transferred to the Partnership. Prior to any such transfer, the Party holding title to such Intellectual Property Rights shall hold the same in trust for the other Party. Section 2.9 GOVERNMENTAL APPROVALS AND THIRD-PARTY APPROVALS. If and to the extent that the valid, complete and perfected transfer assignment to the Partnership of any Transferred Intellectual Property Rights would be a violation of applicable laws or require any Third-Party Approval or Governmental Approval, then, unless Cadence shall otherwise determine, the 8 transfer and assignment to the Partnership of such Intellectual Property Rights shall be automatically deemed deferred and any such purported transfer and assignment shall be null and void until such time as all legal impediments are removed and/or such Third-Party Approval or Governmental Approvals have been obtained. If the transfer and assignment of any Intellectual Property Rights intended to be transferred or assigned hereunder is not consummated on the date hereof for any other reason, then the member of the Cadence Group retaining title to such Intellectual Property Rights shall thereafter hold the same for the use and benefit, insofar as reasonably possible, of the Partnership (at the expense of the Partnership). In addition, such member of the Cadence Group shall take such other actions as may be reasonably requested by the Partnership in order to place the Partnership, insofar as reasonably possible, in the same position as if such Intellectual Property Rights had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Intellectual Property Rights, including possession, use, risk of loss, potential for gain, and dominion, control and command over such Intellectual Property Rights, are to inure from and after the date hereof to the Partnership. If and when the Third-Party Approvals and/or Governmental Approvals, the absence of which caused the deferral of transfer of any Intellectual Property Rights pursuant to this Section 2.9, are obtained, the transfer of such Intellectual Property Rights shall be effected in accordance with the terms of this Agreement. The member of the Cadence Group retaining Intellectual Property Rights shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Partnership, other than reasonable out-of-pocket expenses, attorneys' fees and recording or similar fees, all of which shall be promptly reimbursed by the Partnership. Section 2.10 PRE-EXISTING LICENSES TO THIRD PARTIES. The assignments contemplated by this Article II are subject to all pre-existing licenses and rights granted by Cadence or any member of the Cadence Group to third parties. Section 2.11 ASSIGNMENT DISCLAIMER. TALITY AND THE PARTNERSHIP ACKNOWLEDGE AND AGREE THAT THE FOREGOING ASSIGNMENTS ARE MADE ON AN "AS IS," QUITCLAIM BASIS AND THAT NEITHER CADENCE NOR ANY MEMBER OF THE CADENCE GROUP HAS MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. ARTICLE III LICENSE GRANTS; COVENANT NOT TO SUE Section 3.1 GRANT OF LICENSES BY CADENCE. (a) Subject to any applicable third-party restriction by which Cadence or any member of the Cadence Group is bound, including any customer-specific confidentiality obligations, as may apply to any particular Methodology Technology, Cadence and each and every member of 9 the Cadence Group hereby grant to the Partnership and each other member of the Tality Group under the Retained Intellectual Property Rights perpetual, irrevocable, worldwide, non-exclusive, royalty-free and fully-paid Internal Use and Derivative Use rights with respect to the Methodology Technology other than the Tality Methodology Technology. The Partnership shall not grant sublicenses under the license to Methodology Technology granted under this Section 3.1(a) except upon terms agreeable to and with the express written consent of Cadence or the member of the Cadence Group, as applicable; PROVIDED, HOWEVER, that the Partnership may grant sublicenses as provided in Section 3.6 and under the following circumstances: (1) In the event that the Partnership identifies a customer or business opportunity involving the development or sale (or other commercial exploitation) of Methodology Technology (each, a "METHODOLOGY BUSINESS OPPORTUNITY"), then the Partnership shall promptly present the Methodology Business Opportunity to Cadence, by written notice or mutually agreeable form of electronic communication between the respective executives (or their designees) assigned for this purpose who are identified on EXHIBIT D (each being a "DESIGNATED BUSINESS OPPORTUNITY CONTACT"), and the Partnership shall provide to Cadence through the Designated Business Opportunity Contact, with such notice or as soon as practicable thereafter, reasonably available information with respect to such Methodology Business Opportunity; (2) Cadence shall have ten (10) calendar days within which to advise the Tality Designated Business Opportunity Contact that it is interested in pursuing the Methodology Business Opportunity, and to reach agreement with the Partnership on any business terms (including commission, participation, license fee or royalty) and on technical support (as appropriate and necessary); and should Cadence decline the opportunity, or fail to respond within such period, or be unable to so reach agreement on such business terms, then the Partnership may pursue such Methodology Business Opportunity and it shall, for such purposes, be deemed to have been granted by Cadence and each appropriate Subsidiary thereof royalty-free rights to use, practice and exploit the Methodology Technology licensed under this Section 3.1(a), including through the grant of a sublicense under the license granted under this Section 3.1(a), as and to the extent reasonably necessary to pursue such Methodology Business Opportunity and provide the Technology and services required by the relevant customer in connection therewith. (b) Subject to any applicable third-party restriction by which Cadence or any member of the Cadence Group is bound, including any customer-specific confidentiality obligations, as may apply to any particular PDK Technology, Cadence and each and every member of the Cadence Group hereby grant to the Partnership and each other member of the Tality Group under the Retained Intellectual Property Rights perpetual, irrevocable, worldwide, non-exclusive, royalty-free and fully-paid (i) Internal Use and Derivative Use rights with respect to the Cadence 10 PDK Technology and (ii) rights to distribute, sublicense, sell, offer to sell, import, or otherwise transfer or make available to any third party any Cadence PDK Technology. In the event of a conflict between this Agreement and the terms of any third party agreement pursuant to which a PDK licensed hereunder was created, the terms of the third party agreement shall control. If the Partnership requests, Cadence and the members of the Cadence Group, as applicable, shall make a prompt and good-faith effort to assist the Partnership, at the Partnership's expense, in securing from the applicable third party any consent or license required to permit any such PDK to be licensed to the Partnership as contemplated hereby. (c) Cadence and each and every member of the Cadence Group hereby grant to the Partnership and each other member of the Tality Group under the Retained Intellectual Property Rights, effective on the second anniversary of the date hereof, perpetual, irrevocable, worldwide, non-exclusive, royalty-free and fully-paid (i) Internal Use and Derivative Use rights with respect to the Methodology Technology other than Tality Methodology Technology; and (ii) rights to distribute, sublicense, sell, offer to sell, import or otherwise transfer or make available to any third party any such Methodology Technology. (d) Notwithstanding anything to the contrary contained in this Agreement, neither the Partnership nor any other member of the Tality Group shall be entitled to use the Project Alba Methodologies or to grant any license or sublicense to the Project Alba Methodologies to any third-party for the use of the Project Alba Methodologies in relation to education, research or industrial retraining by any academic higher education institution or research institute or to enable any governmental agency economic development body or other educational establishment to commence a project to establish a design factory in the Project Alba Territory for research into the use of the Project Alba Methodologies for the design of system on chip products, including hardware products. Section 3.2 GRANT OF LICENSES BY THE PARTNERSHIP. (a) The Partnership hereby grants to Cadence and each other member of the Cadence Group under the Transferred Intellectual Property Rights perpetual, irrevocable, worldwide, non-exclusive, royalty-free and fully-paid Internal Use rights with respect to Tality Electronic Design Technology, solely to the extent the same is reasonably requested or needed by Cadence prior to the second anniversary of the date hereof. Internal Use rights may be exercised by Cadence and other members of the Cadence Group pursuant to the license granted in this Section 3.2(a) solely for the refinement, improvement or elaboration of existing Cadence Design Tool Technology or Methodology Technology and for the verification or validation of Design Tool Technology or Methodology Technology. If Cadence or other members of the Cadence Group intend to exercise any rights under this Section 3.2(a) with respect to Tality Electronic Design Technology in its possession prior to the second anniversary of the date hereof, it will give the Partnership prompt written notice thereof, specifying in such notice the Tality Electronic Design Technology as to which it intends to exercise such rights and the purpose for which such rights will be exercised. If Cadence or other members of the Cadence Group intend to exercise any rights 11 under this Section 3.2(a) with respect to Tality Electronic Design Technology that is not in its possession prior to the second anniversary of the date hereof, it will make a Technology Request (as defined in Section 4.1(c)) and specify in such Technology Request the Tality Electronic Design Technology as to which it intends to exercise such rights and the purpose for which such rights will be exercised. Cadence, and other members of the Cadence Group, will have no rights under this Section 3.2(a) with respect to any Tality Electronic Design Technology that is not identified in written notice or Technology Request given by Cadence, or other members of the Cadence Group, to the Partnership prior to the second anniversary of the date hereof. Cadence, and other members of the Cadence Group, shall not grant sublicenses under the license to Tality Electronic Design Technology granted under this Section 3.2(a) except upon terms agreeable to the Partnership and with the Partnership's express written consent. Subject to the foregoing, Cadence, and other members of the Cadence Group, have no rights to Tality Electronic Design Technology, except as may be granted upon terms agreeable to the Partnership and with the express written consent of the Partnership. (b) Subject to any applicable third-party restriction, including any customer-specific confidentiality obligations, as may apply to any particular Tality PDK Technology, the Partnership hereby grants to Cadence and to any member of the Cadence Group (i) perpetual, irrevocable, worldwide, non-exclusive, royalty-free and fully-paid Internal Use and Derivative Use rights to the Tality PDK Technology and (ii) rights to distribute, sublicense, sell, offer to sell, import, or otherwise transfer or make available to any third party any Tality PDK Technology. In the event of a conflict between this Agreement and the terms of any third party agreement pursuant to which a PDK licensed hereunder was created, the terms of the third party agreement shall control. If Cadence requests, the Partnership shall make a prompt and good-faith effort to assist Cadence, at Cadence's expense, in securing from the applicable third party any consent or license required to permit any such PDK to be licensed to Cadence as contemplated hereby. Section 3.3 NO LICENSE TO IMPROVEMENTS. All improvements, enhancements, modifications, developments or new Technology or Intellectual Property Rights first conceived, created, invented, discovered, acquired or made by or for Cadence or any member of the Cadence Group, on the one hand, or Tality or any member of the Tality Group, on the other hand, after the date hereof shall be owned by such Party or member of its Group, as applicable. Nothing herein grants to either Party (or member of its Group) any license or other rights to any such improvements, enhancements, modifications, developments or new Technology or Intellectual Property Rights first conceived, created, invented, discovered, acquired or made by or for the other Party (or member of its Group). Section 3.4 NO OTHER RIGHTS. No other rights are granted hereunder, by implication, estoppel, statute or otherwise, except as expressly provided herein. Specifically, (i) except as expressly provided herein, nothing in the licenses granted hereunder or otherwise contained in this Agreement shall expressly or by implication, estoppel or otherwise give either Party (or member of its Group) any right to license any Intellectual Property Rights of the other Party (or 12 member of its Group) to others and (ii) no license or immunity is granted by either Party (or member of its Group) directly or by implication, estoppel or otherwise to any third parties acquiring items from the other Party (or member of its Group) for the combination of such Party's products and technologies with other items or for the use of such combination. Section 3.5 MUTUAL COVENANT NOT TO SUE. Each of Cadence and each and every member of the Cadence Group and Tality and each and every member of the Tality Group covenants and agrees that it shall not Assert any Covered Patent owned by it against the other Party, or the members of the other Party's Group or their customers (direct or indirect), distributors (direct or indirect), agents (direct or indirect) and contractors (direct or indirect) based on an allegation that the manufacture, use, import, offer for sale or sale of the products of the other Party (or member of its Group) technologies or services that existed on the date hereof, including any enhanced or new versions or any successor products, technologies or services that do not have substantial additional functionality or features, by the other Party or member of its Group, or any process or method employed in the manufacture, testing, distribution or use thereof by the other Party or any member of its Group, constitutes an infringement, contributory infringement of, or an inducement to infringe, any such Covered Patents owned by it. This covenant not to sue shall survive any termination of this Agreement and shall remain in full force and effect until mutually agreed otherwise by the Parties. For the purposes hereof, (i) "ASSERT" means to bring an action of any nature before any legal, judicial, arbitration, administrative, executive or other type of body or tribunal that has or claims to have authority to adjudicate such action in whole or in part (examples of such body or tribunal including, without limitation, United States State and Federal Courts, the United States International Trade Commission and any foreign counterparts of any of the foregoing); and (ii) "COVERED PATENTS" means any Patent owned by a Party or member of its Group with an effective filing date prior to the fifth anniversary of the date of this Agreement. Section 3.6 RIGHT TO USE INDEPENDENT CONTRACTORS. Each Party (and members of its Group) agrees that the other Party (and members of its Group) may retain, subject to the confidentiality restrictions to which reference is made in Section 4.3, independent contractors to assist with the design, development, testing, improvement, maintenance and support of the other Party's products, technologies and services, and the grant of Internal Use or Derivative Use rights by such Party shall be deemed to permit such other Party to utilize such contractors in connection with the exercise of such rights hereunder; PROVIDED, HOWEVER, that, absent the express written consent of the other Party, a Party (and members of its Group) shall make no disclosures of any Confidential Information to independent contractors that are direct competitors of the other Party. Section 3.7 RIGHTS OF SUBSIDIARIES. The right of a member of the Tality Group other than the Partnership or a member of the Cadence Group other than Cadence to exercise the rights licensed under Section 3.1 and Section 3.2, respectively, is subject to such member agreeing in writing to be bound by the terms and conditions hereof. A license to a particular member of the Tality Group or the Cadence Group granted pursuant to Section 3.1 or Section 3.2 shall terminate 13 upon the date that such member ceases to be a Subsidiary of the Partnership or Cadence, as the case may be. Section 3.8 THIRD PARTY TECHNOLOGY. The assignment of any applicable license agreements with respect to Technology owned by a third party and licensed to Cadence or any member of the Cadence Group are set forth in a separate General Assignment and Assumption Agreement between the parties. Section 3.9 DISCLAIMER. EACH PARTY (AND MEMBER OF ITS GROUP) IS LICENSING TO THE OTHER PARTY (AND MEMBER OF ITS GROUP) SUCH PARTY'S TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS ON AN "AS IS" BASIS AND EACH PARTY HEREBY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO SUCH TECHNOLOGY OR INTELLECTUAL PROPERTY LICENSED BY IT HEREUNDER, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. NOTHING CONTAINED IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY OR REPRESENTATION AS TO THE VALIDITY, ENFORCEABILITY OR SCOPE OF ANY CLASS OR TYPE OF INTELLECTUAL PROPERTY RIGHTS. ARTICLE IV CLASSIFICATION AND PROTECTION OF TECHNOLOGY; PROSECUTION AND ENFORCEMENT Section 4.1 CLASSIFICATION OF TECHNOLOGY; TECHNOLOGY REQUESTS; TECHNOLOGY WORKING GROUP. (a) The unilateral, good-faith determination of each Party shall govern the identification, classification and ownership of all Design Tool Technology, Electronic Design Technology and Methodology Technology for the purposes of this Agreement (collectively, "PRE-SEPARATION TECHNOLOGY"). (b) Promptly after the date hereof, the Parties shall form a Technology Working Group (the "TWG"), which shall consist of four members, two of whom will be designated by each Party, to assist in resolving questions of classification, ownership or rights of use, of Pre-Separation Technology. Each Party may change its designees on the TWG at any time and from time to time upon written notice to the other Party. (c) Either Cadence or the Partnership may request in writing (each a "TECHNOLOGY REQUEST") access to Pre-Separation Technology that the requesting Party believes to be in the possession of the other Party (including the members of 14 its Group). Either Party also may make a Technology Request in order to resolve an issue of classification, ownership or license rights as to Technology in its possession or in the possession of the other Party (including the members of its Group). Each Technology Request may include, in addition to a request for access (where applicable), a request that the other Party respond to the requesting Party and state, if requested, its position regarding the classification, ownership or license rights associated with the Pre-Separation Technology that is the subject of the Technology Request. The receiving Party shall promptly and in good faith respond to each Technology Request made by the requesting Party, and in any case shall respond within fourteen (14) calendar days after receipt of each Technology Request. Notwithstanding the foregoing, nothing in this Section 4.1 alters the ownership or license rights of or with respect to Pre-Separation Technology, as provided in Article II and Article III hereof. (d) A Party making a Technology Request that is not satisfied or disagrees with, or seeks clarification of, the response to such Technology Request given by the other Party, or if such Party has not received timely response from the other Party, shall refer such matter to the TWG, which, acting by consensus, shall use all commercially reasonable efforts to resolve such matter in manner consistent with the intent and spirit of this Agreement. The TWG shall seek to respond to each Technology Request within five (5) business days after receipt, and each Party shall cooperate in good faith and promptly and fully respond to any information requests of the TWG. If a request is made by a Party for expedited treatment of any such matter, the other Party will make a good faith effort to accommodate an accelerated decision process. (e) The resolution recommended by a majority of members of the TWG shall be binding upon both Parties (and the members of their respective Groups), subject to the right of either Party to request a review of such resolution through the internal escalation procedure specified in this Section 4.1(e). A Party requesting such review may escalate the disputed matter, first, to the respective Technology Managers appointed for such purpose by the Partnership and Cadence, who shall meet promptly, review such resolution and determine whether any adjustment to such resolution is appropriate and, then, if the matter is not resolved to the satisfaction of each Party and further escalation desired by either Party, to the respective Product Line Vice-Presidents, or equivalent position, as identified by each of the Partnership and Cadence, and then, if further escalation is necessary, to the Chief Executive Officer of each of the Partnership and Cadence. The foregoing escalation process also shall apply if the TWG is unable to arrive at a recommended resolution by vote of a majority of its members within such five (5) business day period. Any such disputes remaining after this escalation process shall be resolved by binding arbitration in accordance with the applicable provisions of Section 4.4 of the Separation Agreement. (f) Except as otherwise indicated, the provisions of this Section 4.1 shall expire three (3) years from the date hereof; provided however that each Party shall continue to comply with the applicable terms of the licenses of Pre-Separation Technology granted in Article III. Section 4.2 PROTECTION OF PRE-SEPARATION TECHNOLOGY. (a) Each Party (and member of its Group) shall treat all Pre-Separation Technology owned by the other Party (and members of its Group) as confidential and take all reasonable 15 measures to protect the secrecy, and avoid the disclosure or use, of such Pre-Separation Technology, except as expressly permitted under this Agreement or otherwise as authorized by the written consent of Party owning the Pre-Separation Technology. Such measures shall include, but not be limited to using at least the degree of care that the non-owning Party customarily uses to protect its own confidential information of a similar nature. Each Party agrees to notify the other Party in writing promptly upon becoming aware of any prohibited disclosure or misuse or misappropriation of Pre-Separation Technology owned by the other Party. The obligations of the Parties under this Section 4.2 are supplemental to, and do not serve to diminish, the obligations of the Parties under the Master Confidentiality Agreement between the Parties dated the date hereof. (b) The Parties agree that it is in their mutual interest to coordinate means by which Pre-Separation Technology protected under this Agreement is affixed with an appropriate restrictive legend, or equivalent (for purposes of Software or other electronic embodiment of Technology), and agree to use the TWG for the purpose of developing and implementing agreed procedures. (c) Within sixty (60) days after the date hereof, the TWG shall consider and determine whether it is timely and appropriate for both Parties to review the Pre-Separation Technology in their possession for the purposes of preparing a formal schedule of such Pre-Separation Technology and evaluating whether and to what extent patent protection of such Pre-Separation Technology should be sought. Section 4.3 CONFIDENTIALITY. Subject to Section 4.2(a), the terms of the Master Confidentiality Agreement, including without limitation Section 2.9 thereof, shall apply to any Highly Confidential or Confidential Information (as defined therein) which is included in the Pre-Separation Technology that is assigned or licensed pursuant to this Agreement. Section 4.4 PROSECUTION AND MAINTENANCE. Neither Party, in respect of any Patents owned by it, is under any obligation to the other Party file or continue the prosecution of any patent application, secure any patent or maintain any patent in force or otherwise obtain, maintain or protect any Patent. Section 4.5 ENFORCEMENT. Neither Party, in respect of any Intellectual Property Rights owned by it, is under any obligation to the other Party to bring or prosecute actions or suits against third parties for infringement or misappropriation of such Intellectual Property Rights or to defend any action or suit brought by a third party which challenges or concerns the validity of any of such Intellectual Property rights or which claims that any Pre-Separation Technology assigned or licensed to the other Party hereunder infringes any Patent, Copyright, Mask Work Right or other intellectual property right of any third party or constitutes a misappropriated Trade Secret of any third party. The Partnership shall not have any right to institute any action or suit against third parties for infringement or misappropriation of any of the Patents, Copyrights, Mask Work Rights or Trade Secrets protecting, covering or embodying the Pre-Separation Technology licensed to the Partnership under Section 3.1 and Cadence shall not have any right to 16 institute any action or suit against third parties for infringement or misappropriation of any of the Patents, Copyrights, Mask Work Rights or Trade Secrets protecting, covering or embodying the Pre-Separation Technology licensed to Cadence under Section 3.2. ARTICLE V TERM Section 5.1 TERM. This Agreement shall commence on the date hereof and continue in perpetuity; provided that the terms hereof applicable to any Patents licensed pursuant to Section 3.1 or 3.2 shall not apply to any issued Patent that has expired or lapsed. Section 5.2 NO TERMINATION. This Agreement and each license granted hereunder shall not be terminable by either Party and the rights granted under this Agreement shall continue in full force and effect, notwithstanding any material breach of any term hereof by either Party or member of its respective Group. In the event of a breach of any term of this Agreement by either Party or member of its Group, the other Party may bring any action against the breaching Party, subject to the applicable requirements of Section 5.4 of the Separation Agreement, and may, subject to Section 6.1, seek any and all relief and remedies other than termination of this Agreement or the licenses granted to the breaching Party hereunder. ARTICLE VI MISCELLANEOUS Section 6.1 EXCLUSION OF CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL ANY PARTY OR MEMBER OF ITS GROUP HEREUNDER BE LIABLE TO ANOTHER PARTY OR MEMBER OF ITS GROUP, FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES Section 6.2 INCORPORATION BY REFERENCE. Section 4.4 and all of the provisions of Article V of the Separation Agreement (except for Sections 5.1, 5.7 and 5.13 thereof) are incorporated into and made a part of this Agreement, as if fully set forth herein. Section 6.3 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement and the Separation Agreement, any other Ancillary Agreement or other agreement executed in connection herewith or therewith, the provisions of such other agreement shall prevail to the extent that they specifically address the subject matter of the conflict. Section 6.4 ASSIGNMENT. Neither Party (or member of its Group) may, directly or indirectly, in whole or in part, whether by operation of law or otherwise, assign or transfer this 17 Agreement or the rights and obligations of such Party hereunder, without the other Party's prior written consent, and any attempted assignment, transfer or delegation without such prior written consent shall be voidable at the sole option of such other Party; provided however that (i) no assignment shall limit or affect assigning Party's obligations hereunder; and (ii) the other Party shall not unreasonably withhold its consent to any assignment of this Agreement as a whole to a Person that succeeds to all or substantially all of the business or assets of such Party (it being agreed and understood that it would not be unreasonable for the other Party to withhold its consent in connection with a proposed sale to or acquisition by a Person that is a direct competitor of the other Party). Without limiting the foregoing, this Agreement will be binding upon and inure to the benefit of the Parties and their permitted successors and assigns. 18 WHEREFORE, the Parties have executed and delivered this Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/R.L. Smith Mckeithen By: TALITY CORPORATION, ------------------------------ AS GENERAL PARTNER Name: R. L. Smith McKeithen By: /s/Duane W. Bell Title: Senior Vice President and --------------------- General Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/R.L. Smith McKeithen By: /s/Duane W. Bell ----------------------------- ----------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer 19 EX-2.05 6 a2029698zex-2_05.txt EX-2.05 Exhibit 2.05 EMPLOYEE MATTERS AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS...........................................................................................2 1.1 401(k) PLAN....................................................................................2 1.2 AD&D PLAN......................................................................................2 1.3 AFFILIATE......................................................................................2 1.4 ASSETS.........................................................................................2 1.5 BONUS PLAN.....................................................................................2 1.6 BUSINESS TRAVEL ACCIDENT INSURANCE.............................................................2 1.7 CADENCE EMPLOYEE...............................................................................2 1.8 CADENCE TERMINATED EMPLOYEE....................................................................2 1.9 CLASS A COMMON STOCK...........................................................................2 1.10 COBRA..........................................................................................2 1.11 CODE...........................................................................................3 1.12 DEFERRED COMPENSATION PLAN.....................................................................3 1.13 DISABILITY PLAN................................................................................3 1.14 DOL............................................................................................3 1.15 EDUCATIONAL ASSISTANCE PROGRAM.................................................................3 1.16 EMPLOYEE ASSISTANCE PROGRAM....................................................................3 1.17 ERISA..........................................................................................3 1.18 EXECUTIVE BONUS PLAN...........................................................................3 1.19 FMLA...........................................................................................3 1.20 FOOD PROGRAMS..................................................................................3 1.21 FOREIGN PLAN...................................................................................3 1.22 FRINGE BENEFIT PLANS...........................................................................3 1.23 GROUP LIFE PLAN................................................................................4 1.24 HCFA...........................................................................................4 1.25 HEALTH AND WELFARE PLANS.......................................................................4 1.26 HEALTH PLANS...................................................................................4 1.27 HMO............................................................................................4 1.28 INDEPENDENCE...................................................................................4 1.29 INDEPENDENCE DATE..............................................................................4 1.30 IRS............................................................................................4 1.31 LEAVE OF ABSENCE PLANS.........................................................................4 1.32 LIABILITIES....................................................................................4 1.33 LONG-TERM CARE PLAN............................................................................4 1.34 LONG-TERM DISABILITY PLAN......................................................................5 1.35 MATERIAL FEATURES..............................................................................5 1.36 MEDICAL BENEFITS ABROAD PLAN...................................................................5 1.37 NASDAQ.........................................................................................5 1.38 OPTION.........................................................................................5 1.39 PARTICIPATING COMPANY..........................................................................5 1.40 PLAN...........................................................................................5 1.41 POST-INDEPENDENCE DATE PERIOD..................................................................5
1.42 QDRO...........................................................................................5 1.43 QMCSO..........................................................................................6 1.44 RESTRICTED STOCK...............................................................................6 1.45 REVENUE........................................................................................6 1.46 SECTION 125 PLAN...............................................................................6 1.47 SEVERANCE PLAN.................................................................................6 1.48 SHORT-TERM DISABILITY PLAN.....................................................................6 1.49 STOCK PLAN.....................................................................................6 1.50 STOCK PURCHASE PLAN............................................................................6 1.51 TALITY CLAIMS..................................................................................6 1.52 TALITY EMPLOYEE................................................................................6 1.53 TALITY TERMINATED EMPLOYEE.....................................................................7 1.54 TALITY TRANSFERRED EMPLOYEE....................................................................7 1.55 UNEMPLOYMENT INSURANCE PROGRAM.................................................................7 1.56 WORKERS' COMPENSATION PLAN.....................................................................7 ARTICLE II GENERAL PRINCIPLES...................................................................................8 2.1 ASSUMPTION OF LIABILITIES......................................................................8 2.2 ESTABLISHMENT OF TALITY PLANS..................................................................8 2.3 TALITY AND THE PARTNERSHIP UNDER NO OBLIGATION TO MAINTAIN PLANS...............................9 2.4 PARTICIPATION OF TALITY AND THE PARTNERSHIP IN CADENCE PLANS...................................9 2.5 TERMS OF PARTICIPATION BY TALITY TRANSFERRED EMPLOYEES IN TALITY PLANS........................10 2.6 DISPUTE RESOLUTION............................................................................11 2.7 FOREIGN PLANS.................................................................................11 ARTICLE III DEFINED CONTRIBUTION PLAN..........................................................................11 3.1 401(k) PLAN TRUST.............................................................................11 3.2 401(k) PLAN: ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS.................................11 3.3 NO DISTRIBUTION TO TALITY TRANSFERRED EMPLOYEES...............................................11 3.4 CERTAIN ACQUIRED COMPANIES....................................................................12 ARTICLE IV NON-QUALIFIED PLAN..................................................................................12 ARTICLE V HEALTH AND WELFARE PLANS.............................................................................12 5.1 HEALTH PLANS AS OF THE INDEPENDENCE DATE......................................................12 5.2 HEALTH PLANS FROM THE DATE HEREOF THROUGH THE INDEPENDENCE DATE...............................13 5.3 GROUP LIFE & AD&D PLAN........................................................................13 5.4 SABBATICAL PLAN...............................................................................13 5.5 DISABILITY PLANS..............................................................................14 5.6 BUSINESS TRAVEL ACCIDENT INSURANCE............................................................14 5.7 MEDICAL BENEFITS ABROAD.......................................................................14 5.8 LONG TERM CARE PLAN...........................................................................14 5.9 SECTION 125 PLAN..............................................................................14 5.10 COBRA.........................................................................................14 5.11 LEAVE OF ABSENCE PLANS AND FMLA...............................................................15 5.12 WORKERS' COMPENSATION PLAN....................................................................16 5.13 ADMINISTRATIVE SERVICES.......................................................................16
ii ARTICLE VI EQUITY AND OTHER COMPENSATION.......................................................................16 6.1 BONUS PLAN....................................................................................16 6.2 EXECUTIVE BONUS PLAN..........................................................................17 6.3 CADENCE OPTIONS...............................................................................17 6.4 STOCK PURCHASE PLAN...........................................................................17 6.5 ADMINISTRATIVE SERVICES.......................................................................17 ARTICLE VII FRINGE AND OTHER BENEFITS..........................................................................17 7.1 EDUCATIONAL ASSISTANCE PROGRAM................................................................17 7.2 CAFETERIA AND RELATED SUBSIDIES...............................................................18 7.3 EMPLOYEE COMPANY STORE........................................................................18 7.4 TIMEOUT PROGRAM...............................................................................18 7.5 OTHER BENEFITS................................................................................18 7.6 ADMINISTRATIVE SERVICES.......................................................................19 ARTICLE VIII ADMINISTRATIVE PROVISIONS.........................................................................19 8.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS.....................................19 8.3 SHARING OF PARTICIPANT INFORMATION............................................................19 8.4 REPORTING AND DISCLOSURE COMMUNICATIONS TO PARTICIPANTS.......................................19 8.5 AUDITS REGARDING VENDOR CONTRACTS.............................................................19 8.6 BENEFICIARY DESIGNATION.......................................................................20 8.7 REQUESTS FOR IRS AND DOL OPINIONS.............................................................20 8.8 FIDUCIARY MATTERS.............................................................................20 8.9 CONSENT OF THIRD PARTIES......................................................................20 8.10 CADENCE INTRANET..............................................................................20 8.11 TAX COOPERATION...............................................................................21 ARTICLE IX EMPLOYMENT-RELATED MATTERS..........................................................................21 9.1 TERMS OF TALITY EMPLOYMENT....................................................................21 9.2 HR DATA SUPPORT SYSTEMS.......................................................................21 9.3 NON-SOLICITATION OF EMPLOYEES.................................................................21 9.4 EMPLOYMENT OF EMPLOYEES WITH U.S. WORK VISAS..................................................21 9.5 CONFIDENTIALITY AND PROPRIETARY INFORMATION...................................................22 9.6 PERSONNEL RECORDS.............................................................................22 9.7 UNEMPLOYMENT INSURANCE PROGRAM................................................................22 9.8 NON-TERMINATION OF EMPLOYMENT.................................................................22 9.9 EMPLOYMENT LITIGATION.........................................................................22 ARTICLE X MISCELLANEOUS........................................................................................23 10.1 INCORPORATION BY REFERENCE....................................................................23 10.2 BINDING EFFECT; ASSIGNMENT....................................................................23 10.3 CERTAIN DEFINITIONS...........................................................................23 10.4 CONFLICTING AGREEMENTS........................................................................23
iii EMPLOYEE MATTERS AGREEMENT THIS EMPLOYEE MATTERS AGREEMENT (this "AGREEMENT") is entered into and effective on October 4, 2000, by and among Cadence Design Systems, Inc., a Delaware corporation ("CADENCE"), Cadence Holdings, Inc., a Delaware corporation ("HOLDINGS"), Tality, LP, a Delaware limited partnership (the "PARTNERSHIP"), and Tality Corporation, a Delaware corporation ("TALITY"). Capitalized terms used herein and not otherwise defined elsewhere herein shall have the meanings ascribed to them in Article I or in the Separation Agreement (as defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence and its Subsidiaries associated with the Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement, dated as of July 14, 2000, as amended or restated (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries own and operate the entire Tality Business; and WHEREAS, all conditions to the Separation have been satisfied or waived, and Cadence, Holdings, the Partnership and Tality desire to allocate among them Assets, Liabilities and responsibilities with respect to certain employee compensation, benefit plans, programs and arrangements and certain employment matters. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below: Section 1.1 "401(k) PLAN" when immediately preceded by "Cadence," means the Cadence Corporation 401(k) Plan, a defined contribution plan. When immediately preceded by "Tality," "401(k) Plan" means the defined contribution plan to be established by the Partnership pursuant to Section 2.2 and Article III. Section 1.2 "AD&D PLAN" when immediately preceded by "Cadence," means the Cadence Accidental Death and Dismemberment Plan. When immediately preceded by "Tality," "AD&D Plan" means the accidental death and dismemberment plan to be established by the Partnership pursuant to Sections 2.2 and 5.3. Section 1.3 "AFFILIATE" means an entity that is under common control with another entity under Section 414(b), (c), (m), or (o) of the Code. Section 1.4 "ASSETS" shall have the meaning set forth in the Assignment Agreement. Section 1.5 "BONUS PLAN" when immediately preceded by "Cadence," means the Cadence Bonus Plans; PROVIDED, HOWEVER, with respect to Tality Employees in the Cadence Bonus Plans, that "Bonus Plan" means the bonus plan as established and implemented with respect to the Tality Employees. When immediately preceded by "Tality," "Bonus Plan" means the bonus plan to be established by the Partnership pursuant to Sections 2.2 and 6.1. Section 1.6 "BUSINESS TRAVEL ACCIDENT INSURANCE" when immediately preceded by "Cadence," means the policy or policies covering Cadence business travel accident insurance in the U.S. and to the extent applicable, outside the U.S. When immediately preceded by "Tality," "Business Travel Accident Insurance" means the policy or policies covering the business travel accident insurance to be established by the Partnership pursuant to Sections 2.2 and 5.6. Section 1.7 "CADENCE EMPLOYEE" means an individual who, on the Independence Date, is: (a) either actively employed by, or on leave of absence from, the Cadence Group; (b) a Cadence Terminated Employee; or (c) an employee or group of employees designated as Cadence Employees by Cadence and the Partnership, by mutual agreement. Section 1.8 "CADENCE TERMINATED EMPLOYEE" means any individual who is a former employee of the Cadence Group and who, on the Independence Date, is not a Tality Transferred Employee. Section 1.9 "CLASS A COMMON STOCK" means the Class A Common Stock, par value $0.001 per share, of Tality. Section 1.10 "COBRA" means the continuation coverage requirements for "group health plans" under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as 2 amended from time to time, and as codified in Code Section 4980B and ERISA Sections 601 through 608, inclusive. Section 1.11 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. Section 1.12 "DEFERRED COMPENSATION PLAN" when immediately preceded by "Cadence," means the Cadence Deferred Compensation Plan. Section 1.13 "DISABILITY PLAN" when immediately preceded by "Cadence," means the Cadence Disability Plan which consists of the Cadence Short-Term Disability Plan and the Cadence Long-Term Disability Plan. When immediately preceded by "Tality," "Disability Plan" means the Tality Short-Term Disability Plan and the Tality Long-Term Disability Plan, to be established by the Partnership pursuant to Sections 2.2 and 5.5. Section 1.14 "DOL" means the United States Department of Labor. Section 1.15 "EDUCATIONAL ASSISTANCE PROGRAM" when immediately preceded by "Cadence," means the Cadence Educational Assistance Program. When immediately preceded by "Tality," "Educational Assistance Program" means the educational assistance program to be established by the Partnership pursuant to Section 7.1. Section 1.16 "EMPLOYEE ASSISTANCE PROGRAM" when immediately preceded by "Cadence," means the Cadence Employee Assistance Program. When immediately preceded by "Tality," "Employee Assistance Program" means the employee assistance program to be established by Tality pursuant to Section 2.2. Section 1.17 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Section 1.18 "EXECUTIVE BONUS PLAN" when immediately preceded by "Cadence," means the Cadence Executive Bonus Program. When immediately preceded by "Tality," "Executive Bonus Plan" means the executive bonus plan to be established by Tality pursuant to Section 2.2. Section 1.19 "FMLA" means the Family and Medical Leave Act of 1993, as amended from time to time. Section 1.20 "FOOD PROGRAMS" is defined in Section 7.4. Section 1.21 "FOREIGN PLAN" when immediately preceded by "Cadence," means a Plan maintained by the Cadence Group for the benefit of its employees outside the U.S. When immediately preceded by "Tality," "Foreign Plan" means a Plan to be established by the Partnership for the benefit of its employees outside the U.S. Section 1.22 "FRINGE BENEFIT PLANS" when immediately preceded by "Cadence," means the Cadence employee assistance program, educational assistance program and other fringe benefit plans, programs and arrangements, sponsored and maintained by Cadence (as set forth in Article VII and SCHEDULE 7.5). When immediately preceded by "Tality," "Fringe Benefit Plans" 3 means the fringe benefit plans, programs and arrangements to be established by the Partnership pursuant to Section 2.2 and Article VII. Section 1.23 "GROUP LIFE PLAN" when immediately preceded by "Cadence," means the Cadence Group Life Plan. When immediately preceded by "Tality," "Group Life Plan" means the group life plan to be established by the Partnership pursuant to Sections 2.2 and 5.3. Section 1.24 "HCFA" means the United States Health Care Financing Administration. Section 1.25 "HEALTH AND WELFARE PLANS" when immediately preceded by "Cadence," means the Cadence Health Plans, the Cadence Section 125 Plan, and the health and welfare plans listed on SCHEDULE 5.2(a) established and maintained by Cadence for the benefit of eligible employees of the Cadence Group, and such other welfare plans or programs as may apply to such employees as of the Independence Date. When immediately preceded by "Tality," "Health and Welfare Plans" means the Tality Health Plans, the Tality Section 125 Plan, and the health and welfare plans to be established by the Partnership pursuant to Section 2.2, Article V, and SCHEDULE 5.1(a). Section 1.26 "HEALTH PLANS" when immediately preceded by "Cadence," means the medical, HMO, vision and dental plans and any similar or successor Plans. When immediately preceded by "Tality," "Health Plans" means the medical, HMO, vision and dental plans to be established by the Partnership pursuant to Section 2.2 and Article V. Section 1.27 "HMO" means a health maintenance organization that provides benefits under the Cadence Health Plans or the Tality Health Plans. Section 1.28 "INDEPENDENCE" means the Partnership is no longer an Affiliate of Cadence. Section 1.29 "INDEPENDENCE DATE" means the date, if ever, Independence occurs. Section 1.30 "IRS" means the United States Internal Revenue Service. Section 1.31 "LEAVE OF ABSENCE PLANS" when immediately preceded by "Cadence," means the personal, medical/disability, military and FMLA leave offered from time to time under the personnel policies and practices of Cadence. When immediately preceded by "Tality," "Leave of Absence Plans" means the leave of absence programs to be established by the Partnership pursuant to Sections 2.2 and 5.11. Section 1.32 "LIABILITIES" shall have the meaning set forth in the Assignment Agreement. Section 1.33 "LONG-TERM CARE PLAN" when immediately preceded by "Cadence," means the Cadence Long-Term Care Plan. When immediately preceded by "Tality," "Long-Term Care Plan" means the long-term care plan, if any, that may be established by the Partnership pursuant to Sections 2.2 and 5.8. 4 Section 1.34 "LONG-TERM DISABILITY PLAN" when immediately preceded by "Cadence," means the Cadence Long-Term Disability Plan. When immediately preceded by "Tality," Long-Term Disability Plan" means the long-term disability plan to be established by the Partnership pursuant to Sections 2.2 and 5.5(b). Section 1.35 "MATERIAL FEATURES" means such features of a Plan that when taken in the aggregate could reasonably be expected to be of material importance to the sponsoring employer or the participants (or their dependents or beneficiaries) of that Plan, which could include, depending on the type and purpose of the particular Plan, the class or classes of employees eligible to participate in such Plan, the nature, type, form, source and level of benefits provided under such Plan, the amount or level of contributions, if any, required to be made by participants (or their dependents or beneficiaries) to such Plan, and the costs and expenses incurred by the sponsoring employer or Participating Companies for implementing and/or maintaining such Plan. Section 1.36 "MEDICAL BENEFITS ABROAD PLAN" when immediately preceded by "Cadence," means the policy or policies covering business travel medical benefits outside the employee's country of residence. When immediately preceded by "Tality," "Medical Benefits Abroad Plan" means the business travel medical benefits plan that may be established by the Partnership pursuant to Sections 2.2 and 5.7. Section 1.37 "NASDAQ" means the Nasdaq National Market. Section 1.38 "OPTION" when immediately preceded by "Cadence," means an option to purchase Cadence common stock pursuant to a Stock Plan. When immediately preceded by "Tality," "Option" means an option to purchase the Class A Common Stock pursuant to a Stock Plan. Section 1.39 "PARTICIPATING COMPANY" means: (a) Cadence; (b) any Person (other than an individual) that Cadence has approved for participation in, has accepted participation in, and which is participating in, a Plan sponsored by Cadence; and (c) any Person (other than an individual) which, by the terms of such Plan, participates in such Plan or any employees of which, by the terms of such Plan, participate in or are covered by such Plan. Section 1.40 "PLAN" means any plan, policy, program, payroll practice, arrangement, contract, trust, insurance policy or any agreement or funding vehicle providing compensation or benefits to employees, former employees, directors or consultants of Cadence, Tality or the Partnership. Section 1.41 "POST-INDEPENDENCE PERIOD" means, for each designated Plan, the period beginning as of the Independence Date and ending on the date that no member of the Tality Group is using Cadence benefit delivery and administrative services with respect to that Plan. Section 1.42 "QDRO" means a domestic relations order which qualifies under Code Section 414(p) and ERISA Section 206(d) and which creates or recognizes an alternate payee's right to, or assigns to an alternate payee, all or a portion of the benefits payable to a participant under the Cadence 401(k) Plan. 5 Section 1.43 "QMCSO" means a medical child support order which qualifies under ERISA Section 609(a) and which creates or recognizes the existence of an alternate recipient's right to, or assigns to an alternate recipient the right to, receive benefits for which a participant or beneficiary is eligible under any of the Health Plans. Section 1.44 "RESTRICTED STOCK" when immediately preceded by "Cadence," means shares of Cadence common stock that are subject to transfer restrictions or to employment and/or performance vesting conditions, pursuant to a Cadence Stock Plan. When immediately preceded by "Tality," "Restricted Stock" means shares of Class A Common Stock that are subject to transfer restrictions or to employment and/or performance vesting conditions, pursuant to a Tality Stock Plan. Section 1.45 "REVENUE" means net revenue as determined in accordance with U.S. generally accepted accounting principles. Section 1.46 "SECTION 125 PLAN" when immediately preceded by "Cadence," means a plan or program providing flexible or other benefits and which relies on Code Section 125 for its tax favored treatment. When immediately preceded by "Tality," "Section 125 Plan" means a plan or program providing flexible or other benefits that may be established by the Partnership pursuant to Sections 2.2 and 5.1. Section 1.47 "SEVERANCE PLAN" means the Cadence Severance Plan in effect from time to time. Section 1.48 "SHORT-TERM DISABILITY PLAN" when immediately preceded by "Cadence," means the Cadence Short-Term Disability Plan. When immediately preceded by "Tality," Short-Term Disability Plan" means the short-term disability plan to be established by the Partnership pursuant to Sections 2.2 and 5.5(a). Section 1.49 "STOCK PLAN" when immediately preceded by "Cadence," means any plan, program, or arrangement, other than the Stock Purchase Plan, pursuant to which employees and other service providers hold Options, Cadence Restricted Stock, or other Cadence equity incentives. When immediately preceded by "Tality," "Stock Plan" means substantially similar plans, programs, or arrangements to be established by Tality or the Partnership pursuant to Section 2.2 and Article VI. Section 1.50 "STOCK PURCHASE PLAN" when immediately preceded by "Cadence," means the Cadence Employee Stock Purchase Plan. When immediately preceded by "Tality," "Stock Purchase Plan" means the employee stock purchase plan to be established by Tality pursuant to Sections 2.2 and 6.4. Section 1.51 "TALITY CLAIMS" is defined in Section 5.12(a). Section 1.52 "TALITY EMPLOYEE" means any individual who is: (a) either actively employed by, or on leave of absence from, a member of the Tality Group on the date hereof; (b) either actively employed by, or on leave of absence from, a member of the Cadence Group as either part of a work group or organization, or common support function that, at any time after the date hereof and before the Independence Date, moves to the employ of a member of the 6 Tality Group from the employ of a member of the Cadence Group; (c) a Tality Terminated Employee; (d) employed by the Tality Group; (e) any other employee or group of employees designated as Tality Employees (as of the specified date) by the parties by mutual agreement; or (f) a QDRO alternate payee or COBRA beneficiary (as such term is defined under COBRA), in each case, of an employee or former employee, described in clauses (a) through (e), inclusive, with respect to that employee's or former employee's benefit under the applicable Plan(s) (unless specified otherwise in this Agreement, such an alternate payee, alternate recipient, beneficiary, covered dependent, or qualified beneficiary shall not otherwise be considered a Tality Employee with respect to any benefits he or she accrues or accrued under any applicable Plan(s), unless he or she is a Tality Employee by virtue of clauses (a) through (e), inclusive). Section 1.53 "TALITY TERMINATED EMPLOYEE" means any individual who is: (a) a former employee of any member of the Cadence Group who was terminated from the Tality Business on or before the date hereof; or (b) a former employee of any member of the Tality Group. Notwithstanding the foregoing, "Tality Terminated Employee" shall not, unless otherwise expressly provided to the contrary in this Agreement, include: an individual who is a Cadence Employee at the Independence Date; or an individual who is otherwise a Tality Terminated Employee, but who is subsequently employed by any member of the Cadence Group prior to the Independence Date. Section 1.54 "TALITY TRANSFERRED EMPLOYEE" means any individual who, as of the Independence Date, is: (a) either actively employed by, or on a leave of absence from, any member of the Tality Group; (b) a Tality Terminated Employee; (c) an employee or group of employees designated by Cadence and the Partnership, by mutual agreement, as Tality Transferred Employees; or (d) a QDRO alternate payee or COBRA beneficiary (as such term is defined under COBRA), in each case, of an employee or former employee, described in clauses (a) through (c), inclusive, with respect to that employee's or former employee's benefit under the applicable Plan(s) (unless specified otherwise in this Agreement, such an alternate payee, alternate recipient, beneficiary, covered dependent, or qualified beneficiary shall not otherwise be considered a Tality Transferred Employee with respect to any benefits he or she accrues or accrued under any applicable Plan(s), unless he or she is a Tality Transferred Employee by virtue of clauses (a) through (c), inclusive). An employee may be a Tality Transferred Employee pursuant to this Section regardless of whether such employee is, as of the Independence Date, alive, actively employed, on a temporary leave of absence from active employment, on layoff, terminated from employment, retired or on any other type of employment or post-employment status relative to a Cadence Plan, and regardless of whether, as of the Independence Date, such employee is then receiving any coverage under or benefits from a Cadence Plan. Section 1.55 "UNEMPLOYMENT INSURANCE PROGRAM" when immediately preceded by "Cadence," means the group unemployment insurance policies purchased by Cadence from time to time. When immediately preceded by "Tality," "Unemployment Insurance Program" means any group unemployment insurance program to be established by the Partnership pursuant to Section 9.7. Section 1.56 "WORKERS' COMPENSATION PLAN" when immediately preceded by "Cadence" means the Cadence Workers' Compensation Plan, comprised of the various arrangements established by a member of the Cadence Group to comply with the workers' compensation 7 requirements of the states in which the Cadence Group conducts business. When immediately preceded by "Tality," "Workers' Compensation Plan" means the workers' compensation program to be established by the Partnership pursuant to Section 5.12. ARTICLE II GENERAL PRINCIPLES Section 2.1 ASSUMPTION OF LIABILITIES. Except as specified otherwise in this Agreement or as mutually agreed upon by Cadence, the Partnership and Tality from time to time, effective as of the date hereof, the Partnership hereby assumes and agrees to pay, perform, fulfill and discharge, in accordance with their respective terms, all of the following: (a) all Liabilities of, or relating to, Tality Employees or Tality Transferred Employees, in each case relating to, arising out of, or resulting from future, present or former employment with the Tality Business (including Liabilities relating to, arising out of, or resulting from Cadence Plans and Tality Plans); (b) all Liabilities relating to, arising out of, or resulting from any other actual or alleged employment relationship with the Tality Group; and (c) all other Liabilities relating to, arising out of, or resulting from obligations, liabilities and responsibilities expressly assumed or retained by any member of the Tality Group or any Tality Plan pursuant to this Agreement. Except as specified otherwise in this Agreement or as otherwise mutually agreed upon by Cadence, the Partnership and Tality from time to time, Cadence shall transfer to the Partnership amounts equal to trust assets, insurance reserves, and other related assets as consistent with the applicable Plan transition that relates to, arises out of, or results from the Partnership's pro rata interest in each Cadence Plan. Section 2.2 ESTABLISHMENT OF TALITY PLANS. (a) HEALTH AND WELFARE PLANS. Except as specified otherwise in this Agreement, effective as of the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), the Partnership shall adopt the Tality Health and Welfare Plans. Except as otherwise specified in this Agreement, to the extent administratively and financially practicable, each of the foregoing Tality Plans as in effect as of the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), except with respect to the employer matching feature, shall be comparable in the aggregate in all Material Features to the corresponding Cadence Plan as in effect as of such agreed upon date. (b) 401(k) AND FRINGE BENEFIT PLANS. Except as specified otherwise in this Agreement, effective as of the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), the Partnership shall adopt the Tality 401(k) Plan and the Tality Fringe Benefit Plans. Except as otherwise specified in this Agreement, to the extent administratively and financially practicable, each of the foregoing Tality Plans as in effect as of the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), except with respect to the employer matching feature, shall be comparable in the aggregate in all Material Features to the corresponding Cadence Plan as in effect as of such agreed upon date. 8 (c) EQUITY AND OTHER COMPENSATION. Except as specified otherwise in this Agreement, effective as of the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), the Partnership shall adopt the Tality Executive Bonus Plan and the Tality Bonus Plan. Effective on or before the IPO (or such other date as Cadence, the Partnership and Tality may mutually agree), Tality shall adopt the Tality Stock Purchase Plan. The Tality Stock Purchase Plan as in effect as of the IPO (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), shall be comparable in the aggregate in all Material Features to the corresponding Cadence Plan as in effect as of agreed upon date; PROVIDED, HOWEVER, that the Tality Stock Purchase Plan shall not be qualified under Code Section 423. (d) OTHER PLANS. Except as otherwise specified in this Agreement, effective as of the date hereof (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), Tality shall adopt certain Tality Plans that are specifically tied to its payroll practices, including a Short-Term Disability Plan. The Partnership shall also adopt a Section 125 Plan, effective as of not later than the Independence Date. Section 2.3 TALITY AND THE PARTNERSHIP UNDER NO OBLIGATION TO MAINTAIN PLANS. Except as specified otherwise in this Agreement, nothing in this Agreement shall preclude Tality or the Partnership, at any time after the Independence Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Tality Plan, any benefit under any Tality Plan or any trust, insurance policy or funding vehicle related to any Tality Plans, or any employment or other service arrangement with Tality Employees or vendors (to the extent permitted by Applicable Law). Section 2.4 PARTICIPATION OF TALITY AND THE PARTNERSHIP IN CADENCE PLANS. (a) PARTICIPATION IN CADENCE PLANS. Except as specified otherwise in this Agreement or as Cadence, the Partnership and Tality may mutually agree, Tality and the Partnership shall, until the Independence Date, each continue to be a Participating Company in the Cadence Plans to the extent that they have not established a corresponding Plan. Effective as of any date on or after the date hereof and before the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), any member of the Tality Group not described in the preceding sentence may, at its request and with the consent of Cadence and Tality, become a Participating Company in any or all of the Cadence Plans, to the extent that Tality or such Tality Group member has not yet established a corresponding Plan. Notwithstanding the foregoing, effective January 1, 2001 members of the Tality Group shall not participate in the employer matching feature of the Cadence 401(k) Plan. (b) CADENCE'S GENERAL OBLIGATIONS AS PLAN SPONSOR. To the extent that Tality or the Partnership is a Participating Company in any Cadence Plan, Cadence shall continue to administer, or cause to be administered, in accordance with its terms and Applicable Law, such Cadence Plan, and shall have the sole and absolute discretion and authority to interpret the Cadence Plan, as set forth therein. Cadence shall not amend the Material Features of any Cadence Plan in which any member of the Tality Group is a Participating Company, except to the extent: (i) such amendment would affect Cadence employees generally; (ii) such amendment would not materially affect any coverage or benefits of Tality Employees or Tality Transferred 9 Employees under such Plan in a manner different than the effect upon Cadence employees generally; (iii) Tality shall consent to such amendment and such consent shall not be unreasonably withheld or delayed; or (iv) such amendment is necessary or appropriate to comply with Applicable Law or the provisions of this Agreement. (c) GENERAL OBLIGATIONS OF TALITY AND THE PARTNERSHIP AS PARTICIPATING COMPANIES. Each of Tality and the Partnership shall (and shall cause each other member of the Tality Group to) perform, with respect to its participation in the Cadence Plans, the duties of a Participating Company as set forth in each such Plan or any procedures adopted pursuant thereto, including: (i) assistance in the administration of claims, to the extent requested by the claims administrator of the applicable Cadence Plan; (ii) full cooperation with Cadence Plan auditors, benefit personnel and benefit vendors; (iii) preservation of the confidentiality of all financial arrangements Cadence has or may have with any vendors, claims administrators, trustees, service providers or any other entity or individual with whom Cadence has entered into an agreement relating to the Cadence Plans; and (iv) preservation of the confidentiality of participant information (including health information in relation to FMLA leaves) to the extent not specified otherwise in this Agreement. (d) TERMINATION OF PARTICIPATING COMPANY STATUS. Except as otherwise may be mutually agreed by Cadence, the Partnership and Tality, effective as of the Independence Date or, if earlier, such date as Tality or the Partnership establishes a corresponding Plan (as specified in Section 2.2 or otherwise in this Agreement), Tality and the Partnership shall each automatically cease to be a Participating Company in the corresponding Cadence Plan. Section 2.5 TERMS OF PARTICIPATION BY TALITY TRANSFERRED EMPLOYEES IN TALITY PLANS. (a) NON-DUPLICATION OF BENEFITS. Except as specified otherwise in this Agreement, as of the Independence Date, or other later date that applies to the particular Tality Plan established thereafter, the Tality Plans shall be, with respect to Tality Transferred Employees, in all respects the successors in interest to, and shall not provide benefits that duplicate benefits provided by, the corresponding Cadence Plans. Cadence and the Partnership shall agree on methods and procedures, including amending the respective Plan documents, to prevent Tality Employees from receiving duplicate benefits from the Cadence Plans and the Tality Plans. (b) SERVICE CREDIT. Except as specified otherwise in this Agreement, with respect to Tality Transferred Employees, each Tality Plan shall provide that all service, all compensation and all other benefit-affecting determinations that, as of the Independence Date, were recognized under the corresponding Cadence Plan shall, as of the Independence Date, receive full recognition and credit and be taken into account under such Tality Plan to the same extent as if such items occurred under such Tality Plan, except to the extent that duplication of benefits would result. The service crediting provisions shall be subject to any respectively applicable "service bridging," "break in service," "employment date," or "eligibility date" rules under the Tality Plans and the Cadence Plans. (c) ASSUMPTION OF LIABILITIES. Except as specified otherwise in this Agreement (including the exception applicable to self-insured Health Plans), the provisions of this 10 Agreement for the transfer of Assets relating to Cadence Plans to the Partnership and/or the appropriate Tality Plans are based upon the understanding of the parties that the Partnership and/or the appropriate Tality Plan shall assume all Liabilities of the corresponding Cadence Plan to or relating to Tality Transferred Employees, as provided for herein. If any such Liabilities are not effectively assumed by the Partnership and/or the appropriate Tality Plan, then the amount of transferred Assets shall be recomputed accordingly, taking into account the retention of such Liabilities by such Cadence Plan, and Assets shall be transferred from the Partnership and/or the appropriate Tality Plan to Cadence and/or the appropriate Cadence Plan so as to place the Partnership and/or the appropriate Tality Plan in the position it would have been in had the initial Asset transfer been made in accordance with such recomputed amount of assets. Section 2.6 DISPUTE RESOLUTION. To the extent disputes arise between Cadence and any member of the Tality Group regarding management of the Plans, such disputes shall be dealt with in accordance with Section 4.4 of the Separation Agreement. Section 2.7 FOREIGN PLANS. Each of Cadence and the Partnership intends that matters, issues or Liabilities relating to, arising out of or resulting from Foreign Plans and non-U.S.-related employment matters be handled in a manner that is consistent with comparable U.S. matters, issues or Liabilities as reflected in this Agreement (to the extent permitted by Applicable Law or as otherwise specified in the applicable Section or Schedule). ARTICLE III DEFINED CONTRIBUTION PLAN Section 3.1 401(k) PLAN TRUST. Effective as of the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree), the Partnership shall establish, or cause to be established, a separate plan, which is intended to be tax-qualified under Code Section 401(a), and a separate trust to be exempt from taxation under Code Section 501(a)(1), and to form the Tality 401(k) Plan. Section 3.2 401(k) PLAN: ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. Effective as of the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree): (i) the Tality 401(k) Plan shall assume and be solely responsible for all Liabilities relating to, arising out of, or resulting from Tality Transferred Employees under the Cadence 401(k) Plan; and (ii) Cadence shall cause the accounts of the Tality Transferred Employees under the Cadence 401(k) Plan that are held by its related trust to be transferred to the Tality 401(k) Plan and its related trust, and Tality shall cause such transferred accounts to be accepted by such Plan and its related trust. The transferred accounts shall include unpaid participant loans, and such transfer shall be consistent with Code Section 414(l). Section 3.3 NO DISTRIBUTION TO TALITY TRANSFERRED EMPLOYEES. The Cadence 401(k) Plan and the Tality 401(k) Plan shall provide that no distribution of account balances shall be made to any Tality Transferred Employee on account of the Tality Group ceasing to be an Affiliate of the Cadence Group as of the Independence Date. 11 Section 3.4 CERTAIN ACQUIRED COMPANIES. At this time the assets of the benefit plans of one company acquired by Cadence await final disposition. While the assets of such plans are frozen, bridge loans have been issued to some employees with the agreement that they take out a loan and repay Cadence. Any such employee who is a Tality Employee shall remain obligated to repay Cadence pursuant to the terms of such loan. ARTICLE IV NON-QUALIFIED PLAN After the date hereof, Tality Employees shall no longer be eligible to contribute to or receive contributions under the Cadence 1994 Deferred Compensation Plan and the 1996 Deferred Compensation Venture Investment Plan; PROVIDED, HOWEVER, that amounts credited to the accounts of Tality Employees shall continue to be credited with gains and losses in accordance with the terms of such plans until such accounts are distributed. Neither the Separation nor Independence of Tality or the Partnership shall of itself constitute a termination of employment or otherwise constitute an event of distribution under either plan. Cadence shall amend the plans as necessary to achieve the effects and results contemplated by this Article IV. ARTICLE V HEALTH AND WELFARE PLANS Section 5.1 HEALTH PLANS AS OF THE INDEPENDENCE DATE. (a) TALITY HEALTH PLANS. As of the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), the Partnership shall have established the Tality Health Plans listed on SCHEDULE 5.1(a) and, correspondingly, the Partnership shall cease to be a Participating Company in the Cadence Health Plans. Tality shall be solely responsible for the administration of the Tality Health Plans, including the payment of all employer-related costs in establishing and maintaining the Tality Health Plans, and for the collection and remittance of employee premiums with any and all costs, expenses and liabilities for the performance of such services subject to Section 8.1. (b) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM BENEFITS. (i) As of the Independence Date and for the remainder of the plan year in which the Independence Date occurs (or such other period as Cadence, the Partnership and Tality may mutually agree), the Partnership shall use its best efforts to cause the Tality Health Plans to recognize and maintain all coverage and contribution elections made by Tality Employees and Tality Transferred Employees under the Cadence Health Plans and apply such elections under the Tality Health Plans for the remainder of the period or periods for which such elections are by their terms applicable. The transfer or other movement of employment between Cadence to the Partnership at any time upon or before the Independence Date shall neither constitute nor be treated as a "status change" or 12 termination of employment under the Cadence Health Plans or the Tality Health Plans. (ii) On and after the Independence Date, the Partnership shall cause the Tality Health Plans to recognize and give credit for (A) all amounts applied to deductibles, out-of-pocket maximums, co-payments and other applicable benefit coverage limits with respect to which such expenses have been incurred by Tality Transferred Employees under the Cadence Health Plans for the remainder of the calendar year in which the Independence Date occurs, and (B) all benefits paid to Tality Transferred Employees under the Cadence Health Plans for purposes of determining when such persons have reached their lifetime maximum benefits under the Tality Health Plans. (c) HCFA. As of the date hereof (or such other date as Cadence, the Partnership and Tality may mutually agree), the Partnership shall assume all Liabilities relating to, arising out of, or resulting from claims, if any, under the HCFA data match reports that relate to Tality Transferred Employees. Section 5.2 HEALTH PLANS FROM THE DATE HEREOF THROUGH THE INDEPENDENCE DATE. Except as otherwise agreed by Cadence and the Partnership, for the period beginning with the date hereof and ending on the Independence Date (or such other period as Cadence, the Partnership and Tality may mutually agree), the Partnership shall be a Participating Company in the Cadence Health Plans listed on SCHEDULE 5.2. Cadence shall administer claims incurred under the Cadence Health Plans by Tality Employees before the Independence Date but only to the extent that the Partnership has not, before the Independence Date, established and assumed administrative responsibility for a corresponding Health Plan. Any determination made or settlements entered into by Cadence with respect to such claims shall be final and binding. Cadence shall retain administrative ("run-out") Liability and all related obligations and responsibilities for all claims incurred by Tality Transferred Employees before the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree), including any claims that were administered by Cadence as of, on, or after the Independence Date (or such other date(s) as Cadence, the Partnership and Tality may mutually agree). Except as set forth in the preceding sentence, any and all costs and expenses associated with the Partnership's participation in the Cadence Health Plans shall be subject to Section 8.1. Section 5.3 GROUP LIFE & AD&D PLAN. The Partnership shall, until the Independence Date, continue to be a Participating Company in the Cadence Group Life Plan with any and all costs and expenses associated with its participation in the Cadence Group Life Plan from and after the date hereof subject to Section 8.1. The Partnership shall cease to be a Participating Company in the Cadence Group Life Plan coincident with the Partnership's establishment of the Tality Group Life Plan (or, if none, the Partnership's written notice to Cadence of its withdrawal as a Participating Company in the Cadence Group Life Plan). Section 5.4 SABBATICAL PLAN. The Partnership shall agree to recognize any sabbaticals grandfathered by Cadence at the time of the Orcad-Cadence merger for former Orcad employees that become Tality Transferred Employees. 13 Section 5.5 DISABILITY PLANS. (a) SHORT-TERM DISABILITY PLAN. As of the date hereof, the Partnership shall revert to the California state disability insurance plan and shall supplement state benefits with a self-insured "top-up" plan. Cadence shall administer Tality's Short-Term Disability Plans through the earlier to occur of the Independence Date or the establishment of a separate plan by the Partnership with any and all costs and expenses associated with such administration from and after the date hereof subject to Section 8.1. (b) LONG-TERM DISABILITY PLAN. The Partnership shall, until the Independence Date, continue to be a Participating Company in the Cadence Long Term Disability Plan with any and all costs and expenses associated with its participation in the Cadence Long Term Disability Plan from and after the date hereof subject to Section 8.1. Section 5.6 BUSINESS TRAVEL ACCIDENT INSURANCE. The Partnership shall, until the Independence Date, continue to be a Participating Company in the Cadence Business Travel Accident Plan with any and all costs and expenses associated with its participation in the Cadence Business Travel Accident Plan from and after the date hereof subject to Section 8.1. Section 5.7 MEDICAL BENEFITS ABROAD. The Partnership shall, until the Independence Date, continue to be a Participating Company in the Cadence Medical Benefits Abroad Plan with any and all costs and expenses associated with its participation in the Cadence Medical Benefits Abroad Plan from and after the date hereof subject to Section 8.1. Section 5.8 LONG-TERM CARE PLAN. The Partnership shall, until the Independence Date, continue to be a Participating Company in the Cadence Long Term Care Plan with any and all costs and expenses associated with its participation in the Cadence Long Term Care Plan from and after the date hereof subject to Section 8.1. The Tality Transferred Employees participating in the Cadence Long-Term Care Plan shall have the rights to take their existing benefits with them under such Cadence Long-Term Care Plan (a "portable benefit") at the time their rights to participation would otherwise terminate. Section 5.9 SECTION 125 PLAN. The Partnership shall remain a Participating Company in the Cadence Section 125 Plan. The existing elections for Tality Employees participating in the Cadence Section 125 Plan and for newly-eligible Tality Employees who elect to participate in the Cadence Section 125 Plan shall remain in effect through December 31, 2000. Tality employees may continue to participate in the Cadence Section 125 Plan through December 31, 2001 or the Independence Date if prior to January 1, 2002. Cadence shall administer the Cadence Section 125 Plan for Tality Employees until December 31, 2001 or, if earlier, the Independence Date with any and all costs and expenses attributable to Tality Employees subject to Section 8.1. Section 5.10 COBRA. Cadence shall be responsible through the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree), for compliance with the health care continuation coverage requirements of COBRA with respect to Tality Transferred Employees and qualified beneficiaries (as such term is defined under COBRA). The Partnership shall be responsible for providing Cadence with all necessary employee change notices and 14 related information for covered dependents, spouses, qualified beneficiaries (as such term is defined under COBRA), and alternate recipients pursuant to QMCSO, in accordance with applicable Cadence COBRA policies and procedures. As soon as administratively practicable after the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree), Cadence shall provide the Partnership (through hard copy, electronic format, or such other mechanism as is appropriate under the circumstances), with a list of all qualified beneficiaries (as such term is defined under COBRA) that relate to the Tality Group and the relevant information pertaining to their coverage elections and remaining COBRA time periods. Effective as of the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree), the Partnership shall be solely responsible for compliance with the health care continuation coverage requirements of COBRA and the Tality Health and Welfare Plans for Tality Transferred Employees and their qualified beneficiaries (as such term is defined under COBRA), including those that became COBRA beneficiaries after the date hereof. Cadence shall be responsible for the individuals who became COBRA beneficiaries before the date hereof. Section 5.11 LEAVE OF ABSENCE PLANS AND FMLA. (a) ALLOCATION OF RESPONSIBILITIES AFTER DATE HEREOF. Effective as of the date hereof (or such other date as Cadence, the Partnership and Tality may mutually agree): (i) Tality shall adopt Leave of Absence Plans which shall be comparable in the aggregate in all Material Features to the Cadence Leave of Absence Plans as in effect on the date hereof (or such other date as Cadence, the Partnership and Tality may mutually agree); (ii) the Partnership shall honor all terms and conditions of leaves of absence which have been granted to any Tality Employee under a Cadence Leave of Absence Plan or FMLA before the date hereof by Cadence, including such leaves that are to commence after the date hereof (or such other date as Cadence, the Partnership and Tality may mutually agree); and (iii) the Partnership shall recognize all periods of service of Tality Employees and Tality Transferred Employees with the Cadence Group, as applicable, to the extent such service is recognized by the Cadence Group for the purpose of eligibility for leave entitlement under the Cadence Leave of Absence Plans and FMLA; PROVIDED, HOWEVER, that no duplication of benefits shall, to the extent permitted by law, be required by the foregoing. (b) ADMINISTRATION. Through the Independence Date (or such other such period as Cadence, the Partnership and Tality may mutually agree), Cadence shall administer, or cause to be administered, the Tality Leave of Absence Plans in such manner as Cadence, the Partnership and Tality may mutually agree with any and all costs and expenses associated with such administration subject to Section 8.1. (c) DISCLOSURE. Before the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree), Cadence shall provide to the Partnership copies of all records pertaining to the Cadence Leave of Absence Plans and FMLA with respect to all Tality Employees and Tality Transferred Employees to the extent such records have not been previously provided. 15 Section 5.12 WORKERS' COMPENSATION PLAN. (a) ASSUMPTION OF CADENCE AND TALITY WORKERS' COMPENSATION PLAN LIABILITIES BY THE PARTNERSHIP. Effective as of the date hereof, the Partnership shall assume and be solely responsible for all Liabilities relating to, arising out of, or resulting from their claims by Tality Employees and Tality Transferred Employees employment with the Tality Business ("TALITY CLAIMS") whether incurred before or after the date hereof. (b) PARTICIPATION IN THE CADENCE WORKERS' COMPENSATION PLAN. The Partnership shall, until the Independence Date (or such earlier date as Cadence, the Partnership and Tality may mutually agree), continue to be a Participating Company in the Cadence Workers' Compensation Plan. Cadence shall continue to administer, or cause to be administered, the Cadence Workers' Compensation Plan in accordance with its terms and Applicable Law. The Partnership shall fully cooperate with Cadence and its insurance company in the administration and reporting of Tality Claims under the Cadence Workers' Compensation Plan. Any determination made, or settlement entered into, by or on behalf of Cadence or its insurance company with respect to Tality Claims under the Cadence Workers' Compensation Plan shall be final and binding. Any and all costs and expenses related to the Tality Claims or the Partnership's participation in the Cadence Workers' Compensation Plan, including loss costs, claims administration fees, legal expenses, premium audits and retrospective premium adjustments, shall be subject to Section 8.1. Cadence shall transfer to and reimburse the Partnership for any assets related to the Tality Claims or the Partnership's participation in the Cadence Workers' Compensation Plan, including loss reserves, premium audits, and retrospective premium adjustments. (c) ESTABLISHMENT OF THE TALITY WORKERS' COMPENSATION PLAN. As of the Distribution Date, the Partnership shall be responsible for complying with the workers' compensation requirements of the states in which the Tality Group conducts business and for obtaining and maintaining insurance programs for its risk of loss. Such insurance arrangements shall be separate and apart from the Cadence Workers' Compensation Plan. Notwithstanding the foregoing, Cadence shall provide the Partnership with any information that is in the possession of Cadence and is reasonably available and necessary to either obtain insurance coverages for the Partnership or to assist the Partnership in preventing unintended self-insurance, in whatever form. Section 5.13 ADMINISTRATIVE SERVICES. To the extent not provided otherwise in this Article V or addressed under the Master Corporate Services Agreement, Cadence shall provide certain administrative services to the Partnership in conjunction with both the Cadence and Tality Health and Welfare Plans in such manner and for such period as Cadence, the Partnership and Tality may mutually agree with any and all costs and expenses incurred in the performance of such services subject to Section 8.1. ARTICLE VI EQUITY AND OTHER COMPENSATION Section 6.1 BONUS PLAN. 16 (a) Tality Transferred Employees shall continue to participate in all current Cadence bonus plans through calendar year 2000. The Partnership shall evaluate whether it wants to continue to participate in such plans for calendar year 2001 and reserves the right to modify, delete or add to any plan as of January 1, 2001. (b) The Partnership shall continue to manage the Business Manager Compensation Plan. Section 6.2 EXECUTIVE BONUS PLAN. Eligible executives of members of the Tality Group shall participate in current Cadence executive bonus plans, except as specifically outlined in the employment agreement for the Chief Executive Officer of the Partnership and Tality. Section 6.3 CADENCE OPTIONS. (a) This transaction shall not trigger automatic cancellation of Cadence options or require Cadence employees to exercise vested options upon transfer of employment to a member of the Tality Group. (b) Non-U.S. Optionees shall be treated similarly to the U.S. Optionees to the extent permissible by Applicable Law. Section 6.4 STOCK PURCHASE PLAN. Through the IPO Closing Date employees of the Tality Business (including for this purpose any employee of Cadence who is designated as an employee of the Tality Business for purposes of the Separation) shall continue to be eligible for participation in the Cadence Stock Purchase Plan. On or about the IPO Closing Date, the Partnership shall establish the Tality Stock Purchase Plan for Tality Employees that shall not be qualified under Code Section 423. Section 6.5 ADMINISTRATIVE SERVICES. To the extent not provided otherwise in this Article VI or addressed under the Master Corporate Services Agreement, Cadence shall provide certain administrative services to Tality and the Partnership in conjunction with both the Cadence and Tality Bonus Plans, Executive Bonus Plan and Stock Plans in such manner and for such period as Cadence, the Partnership and Tality may mutually agree with any and all costs and expenses incurred in the performance of such services subject to Section 8.1. ARTICLE VII FRINGE AND OTHER BENEFITS Section 7.1 EDUCATIONAL ASSISTANCE PROGRAM. Effective as of the date hereof (or such other date as Cadence, the Partnership and Tality may mutually agree), the Partnership shall provide a Tality Educational Assistance Program to Tality Employees which is comparable in the aggregate in all Material Features to the Cadence Educational Assistance Program. The Partnership shall cease to be a Participating Company in the Cadence Educational Assistance Program coincident with the Partnership's establishment of the Tality Educational Assistance Program. At such time, any and all outstanding approved reimbursements under the Cadence 17 Educational Assistance Program for Tality Employees shall be made by the Partnership. Furthermore, any and all costs and expenses associated with the Partnership's participation in the Cadence Educational Assistance Program and Cadence's preparation of an Educational Assistance Program on behalf of Tality shall be subject to Section 8.1. Section 7.2 CAFETERIA AND RELATED SUBSIDIES. Cadence shall continue to make its cafeterias, vending machines, and other food or beverage provision facilities (collectively, the "FOOD PROGRAMS"), available to Tality Employees on substantially similar terms and conditions as are offered to employees of Cadence, until the termination of the occupancy agreements among Cadence and the Partnership regarding Tality and the Partnership's occupancy of the Cadence facilities (or such other date as Cadence, the Partnership and Tality may mutually agree). Cadence, the Partnership and Tality shall use their commercially reasonable best efforts to mutually agree on the appropriate methods and/or processes to ensure continued tax-favored status of Cadence's Food Programs under the Code. To the extent not otherwise addressed in the occupancy agreements, any and all costs and expenses associated with allowing Tality and the Partnership access to Cadence's Food Programs shall be subject to Section 8.1. Section 7.3 EMPLOYEE COMPANY STORE. Cadence shall provide access to its Company Store until the termination of the occupancy agreements between Cadence and the Partnership at the Cadence San Jose campus (or such other date as Cadence, the Partnership and Tality may mutually agree). Cadence shall provide qualified employee discounts available to Tality Employees on substantially similar terms and conditions as such discounts are made available to employees of the Cadence Group through the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree). To the extent not otherwise addressed in the occupancy agreements, Cadence and the Partnership shall each reimburse the other for any and all direct and indirect costs and expenses relating to the provision of qualified discounts and access to the Company Store. Section 7.4 TIMEOUT PROGRAM. Cadence shall continue to provide access to its gym and other athletic facilities (collectively, the "TIMEOUT PROGRAM") available to Tality Employees on substantially similar terms and conditions as are offered to employees of the Cadence Group until the termination of the occupancy agreements between Cadence and the Partnership regarding Tality and the Partnership's occupancy of the Cadence San Jose campus (or such other date as Cadence, the Partnership and Tality may mutually agree), except that upon the Separation Date, Tality and the Partnership will discontinue the Field Site Program. To the extent not otherwise addressed in the occupancy agreements, any and all costs and expenses associated with allowing Tality and the Partnership access to Cadence's TimeOut Program shall be subject to Section 8.1. Section 7.5 OTHER BENEFITS. To the extent that Cadence maintains, sponsors or provides other fringe benefits specified in SCHEDULE 7.5 to its eligible employees, then Cadence shall, to the extent permitted by law, continue to make such benefits available to Tality Employees on substantially similar terms and conditions as are offered to the employees of the Cadence Group through the Independence Date (or such other date upon which Cadence, the Partnership and Tality mutually agree). Any and all costs and expenses associated with, arising out of, or resulting from the provision of such other fringe benefits to the Partnership's employees shall be subject to Section 8.1. Cadence, the Partnership and Tality agree to make 18 commercially reasonable best efforts to mutually agree on whether, when, and on what terms any member of the Tality Group shall maintain, sponsor, or offer fringe benefits. Section 7.6 ADMINISTRATIVE SERVICES. To the extent not provided otherwise in this Article VII or addressed under the Master Corporate Services Agreement, Cadence shall provide certain administrative services to the Partnership in conjunction with both the Cadence and Tality Fringe Benefit Plans in such manner and for such period as Cadence, the Partnership and Tality may mutually agree with any and all costs and expenses incurred in the performance of such services subject to Section 8.1. ARTICLE VIII ADMINISTRATIVE PROVISIONS Section 8.1 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS. In addition to the costs identified in the Master Corporate Services Agreement, Tality and the Partnership shall be responsible for, and reimburse Cadence (or Cadence's insurance company, as applicable) for, any additional Tality-related direct or indirect costs, expenses or liabilities incurred by Cadence or any other member of the Cadence Group pursuant to Articles V, VI or VII. Section 8.2 SHARING OF PARTICIPANT INFORMATION. In addition to the responsibilities and obligations of Cadence and Tality specified in the Separation Agreement and subject to Section 9.2 of this Agreement, Cadence, the Partnership and Tality shall share, or cause to be shared, all participant information that is necessary or appropriate for the efficient and accurate administration of each of the Cadence Plans and the Tality Plans during the respective periods applicable to such Plans as Cadence, the Partnership and Tality may mutually agree. Cadence, the Partnership and Tality and their respective authorized agents shall, subject to Applicable Laws of confidentiality and data protection, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of Cadence, the Partnership or Tality or their agents, to the extent necessary or appropriate for such administration. Section 8.3 REPORTING AND DISCLOSURE COMMUNICATIONS TO PARTICIPANTS. While Tality or the Partnership is a Participating Company in the Cadence Plans, each of them shall take, or cause to be taken, all actions necessary or appropriate to facilitate the distribution of all Cadence Plan-related communications and materials to employees, participants and beneficiaries, including summary plan descriptions and related summaries of material modification(s), summary annual reports, investment information, prospectuses, notices and enrollment material for the Cadence Plans and Tality Plans. Tality or the Partnership, as applicable, shall reimburse Cadence for the costs and expenses relating to the copies of all such documents provided to them. Tality and the Partnership shall each assist Cadence in complying with all reporting and disclosure requirements of ERISA, including the preparation of Form Series 5500 annual reports for the Cadence Plans, where applicable. Section 8.4 AUDITS REGARDING VENDOR CONTRACTS. From the period beginning as of the date hereof and ending on such date as Cadence, the Partnership and Tality may mutually agree, Cadence and the Partnership and their duly authorized representatives shall have the right to 19 conduct joint audits with respect to any vendor contracts that relate to both the Cadence Health and Welfare Plans and the Tality Health and Welfare Plans. The scope of such audits shall encompass the review of all correspondence, account records, claim forms, canceled drafts (unless retained by the bank), provider bills, medical records submitted with claims, billing corrections, vendor's internal corrections of previous errors and any other documents or instruments relating to the services performed by the vendor under the applicable vendor contracts. Cadence and the Partnership shall agree on the performance standards, audit methodology, auditing policy and quality measures, reporting requirements, and the manner in which costs and expenses incurred in connection with such audits shall be shared. Section 8.5 BENEFICIARY DESIGNATION. To the extent technically feasible, all beneficiary designations made by Tality Employees and Tality Transferred Employees for the Cadence Plans shall be transferred to and be in full force and effect under the corresponding Tality Plans, in accordance with the terms of each such applicable Tality Plan, until such beneficiary designations are replaced or revoked by the Tality Employees and Tality Transferred Employee who made the beneficiary designation. Section 8.6 REQUESTS FOR IRS AND DOL OPINIONS. If the need for an IRS or DOL determination letter arises out of this transaction or in the intervening period prior to the spinoff, Cadence and the Partnership shall cooperate in obtaining and share expenses relating to any such letter. In the event that Tality or the Partnership establishes any new employee-related plan that requires an IRS or DOL opinion letter, they shall be responsible for doing so and all costs related thereto. Section 8.7 FIDUCIARY MATTERS. Each of Cadence and the Partnership acknowledges that actions contemplated to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other Applicable Law, and that no party shall be deemed to be in violation of this Agreement if such party fails to comply with any provisions hereof based upon such party's good faith determination that to do so would violate such a fiduciary duty or standard. Section 8.8 CONSENT OF THIRD PARTIES. If any provision of this Agreement is dependent on the consent of any third party (such as a vendor) and such consent is withheld, Cadence and the Partnership shall use their commercially reasonable best efforts to implement the applicable provisions of this Agreement. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, Cadence and the Partnership shall negotiate in good faith to implement the provision in a mutually satisfactory manner. Section 8.9 CADENCE INTRANET. Through the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree), Cadence shall make its intranet site available to Tality Employees on substantially the same terms as such intranet site is made available to Cadence Employees. The Partnership shall reimburse Cadence for any and all costs and expenses related to making its intranet site available to Tality Employees, subject to the Master Corporate Services Agreement. Cadence, the Partnership and Tality shall use their commercially reasonable best efforts to mutually agree on the appropriate methods by which the Partnership shall establish its own intranet site. 20 Section 8.10 TAX COOPERATION. In connection with the interpretation and administration of this Agreement, the parties shall take into account the agreements and policies established pursuant to the Separation Agreement. ARTICLE IX EMPLOYMENT-RELATED MATTERS Section 9.1 TERMS OF TALITY EMPLOYMENT. All basic terms and conditions of employment for Tality Employees and Tality Transferred Employees including their pay and benefits in the aggregate, shall, to the extent legally and practicably possible, remain substantially the same through the Independence Date as the terms and conditions that were in place when the Tality Employee or Tality Transferred Employee was employed by Cadence, as applicable. Notwithstanding the foregoing, Tality Employees and Tality Transferred Employees shall be required to execute, by the date hereof or as soon as reasonably practicable thereafter, new agreements regarding their employment status, proprietary information and inventions in a form approved by the Partnership, and also to execute such standard documents as are generally executed by employees leaving their employment with Cadence. In addition, nothing in the Separation Agreement, this Agreement or any other Ancillary Agreement should be construed to change the at-will status of the employment of any of the employees of Cadence or the Partnership. Section 9.2 HR DATA SUPPORT SYSTEMS. Cadence shall provide human resources data support for Tality Employees and Tality Transferred Employees through Independence Date (or such other period as Cadence, the Partnership and Tality may mutually agree). The Partnership agrees to fully reimburse Cadence for any and all direct and indirect costs and expenses associated with its use of the Cadence human resources data support systems, subject to the Master Corporate Services Agreement. If Cadence and the Partnership agree to extend the time period beyond Independence Date, then the costs and expenses shall be computed commencing from the Independence Date. Cadence and the Partnership each reserves the right to discontinue the Partnership's access to any Cadence human resources data support systems with ninety (90) days notice (or such other period as Cadence, the Partnership and Tality may mutually agree). Section 9.3 NON-SOLICITATION OF EMPLOYEES. For a period of one (1) year following the Separation Date, each of Tality and the Partnership agrees (and shall cause each other member of the Tality Group) not to solicit or recruit or hire employees of any member of the Cadence Group, without the prior consent of Cadence's Senior Vice President of Human Resources (or his or her designee). Notwithstanding the foregoing, this prohibition on solicitation, recruitment or hiring shall not apply to actions taken by any member of the Tality Group either (a) solely as a result of an employee's affirmative response to a general recruitment effort carried out through a public solicitation, or (b) as a result of an employee's initiative. Section 9.4 EMPLOYMENT OF EMPLOYEES WITH U.S. WORK VISAS. Tality Employees with U.S. work visas authorizing them to work for Cadence shall continue to hold work authorization for the Tality Group after the date hereof, provided the work performed is substantially the same and they remain in the same geographic location. The Partnership shall request amendments to the nonimmigrant visa status and applications for permanent residency of Tality Employees and 21 Tality Transferred Employees with U.S. work visas authorizing them to work for Cadence, excluding the Tality Group, to request authorization to work for the Partnership. To the extent that certain employees are required to stay with Cadence during the visa application process, such employees will perform services for the Partnership while employed by Cadence. Cadence, the Partnership and Tality shall enter into a mutually agreeable employee leasing arrangement for such employees. Section 9.5 CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of the Separation Agreement or any Ancillary Agreement shall be deemed to release any individual for any violation of the Cadence non-competition guideline or any agreement or policy pertaining to confidential or proprietary information of any member of the Cadence Group, or otherwise relieve any individual of his or her obligations under such non-competition guideline, agreement, or policy. Section 9.6 PERSONNEL RECORDS. Subject to Applicable Laws on confidentiality and data protection, Cadence shall deliver to the Partnership prior to the Independence Date (or such other date as Cadence, the Partnership and Tality may mutually agree), personnel records of Tality Employees and Tality Transferred Employees to the extent such records relate to Tality Employees' and Tality Transferred Employees' active employment by, leave of absence from, or termination of employment with the Partnership. The Partnership shall fully reimburse Cadence for any and all direct and indirect costs and expenses associated with such delivery, subject to the Master Corporate Services Agreement. Section 9.7 UNEMPLOYMENT INSURANCE PROGRAM. Cadence shall provide unemployment insurance claims administration through the Independence Date pursuant to the Master Corporate Services Agreement. Section 9.8 NON-TERMINATION OF EMPLOYMENT. Transfer of employees from Cadence to the Partnership shall not trigger any termination-related clause under any existing Cadence plan, including plans relating to benefits, stock, or otherwise, or under any existing employment, retention, or change-of-control agreement. Section 9.9 EMPLOYMENT LITIGATION. (a) CLAIMS TO BE TRANSFERRED TO THE PARTNERSHIP AND/OR JOINTLY DEFENDED BY CADENCE AND THE PARTNERSHIP. On or before the date hereof, Cadence and the Partnership shall enter into a written agreement that specifies the responsibility for defense and accompanying Liability for identified claims of employees of Tality or the Partnership relating to, arising out of, or resulting from their participation in the Tality Business or employment by the Tality Group (other than those matters addressed by Section 3.1 of the Assignment Agreement). (b) UNSCHEDULED CLAIMS. Subject to Section 9.9(a), on or after the date hereof, the Partnership shall have the sole responsibility for all employment-related claims regarding Tality Employees and Tality Transferred Employees, relating to, arising out of, or resulting from their employment with the Tality Business or a member of the Tality Group. 22 ARTICLE X MISCELLANEOUS Section 10.1 INCORPORATION BY REFERENCE. Section 4.4 and all of the provisions of Article V (except for Sections 5.7 and 5.13 thereof) of the Separation Agreement are incorporated into and made a part of this Agreement, as if fully set forth herein. Section 10.2 BINDING EFFECT; ASSIGNMENT. This Agreement, the Separation Agreement and each other Ancillary Agreement shall inure to the benefit of and be binding upon the parties hereto and thereto and their respective legal representatives and successors, and nothing in this Agreement, the Separation Agreement or any Ancillary Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. No party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of Cadence, in the case of Tality or the Partnership, or Tality, in the case of Cadence or Holdings (except in connection with a merger, consolidation or sale of all or substantially all of the party's assets), and any such attempted assignment shall be void and in violation hereof. Section 10.3 CERTAIN DEFINITIONS. (a) CADENCE AND HOLDINGS. In all instances in which Cadence or Holdings is referenced in this Agreement, it shall also be deemed to include a reference to each member of the Cadence Group, unless specifically provided otherwise; Cadence shall be solely responsible to Tality for ensuring that each member of the Cadence Group complies with the applicable terms of this Agreement. (b) TALITY AND THE PARTNERSHIP. In all instances in which Tality or the Partnership is referenced in this Agreement, it shall also be deemed to include a reference to each member of the Tality Group, unless specifically provided otherwise; Tality shall be solely responsible to Cadence for ensuring that each member of the Tality Group complies with the applicable terms of this Agreement. Section 10.4 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement, the Separation Agreement, any other Ancillary Agreement or other agreement executed in connection herewith or therewith, the provisions of such other agreement shall prevail to the extent that they specifically address the subject matter of the conflict. 23 WHEREFORE, the parties have executed and delivered this Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/R.L. Smith McKeithen By: TALITY CORPORATION, ----------------------------- AS GENERAL PARTNER Name: R. L. Smith McKeithen By: /s/Duane W. Bell Title: Senior Vice President and ------------------------- General Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/R.L. Smith McKeithen By: /s/Duane W. Bell ------------------------------ ----------------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer 24 EX-2.06 7 a2029698zex-2_06.txt EX-2.06 Exhibit 2.06 MASTER CORPORATE SERVICES AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS...........................................................................................1 SECTION 1.1 Additional Services...................................................................2 SECTION 1.2 Corporate Service Schedule............................................................2 SECTION 1.3 Impracticability......................................................................2 SECTION 1.4 Party.................................................................................2 SECTION 1.5 Separation Agreement..................................................................2 SECTION 1.6 Service(s)............................................................................2 SECTION 1.7 Software..............................................................................2 ARTICLE II CORPORATE SERVICE SCHEDULES..........................................................................2 SECTION 2.1 Execution of Schedules................................................................2 SECTION 2.2 Schedule Contents.....................................................................2 ARTICLE III SERVICES............................................................................................2 SECTION 3.1 Services Generally....................................................................2 SECTION 3.2 Service Boundaries....................................................................3 SECTION 3.3 Impracticability......................................................................3 SECTION 3.4 Additional Resources..................................................................3 SECTION 3.5 Additional Services...................................................................3 ARTICLE IV TERM & TERMINATION...................................................................................3 SECTION 4.1 Term..................................................................................3 SECTION 4.2 Termination...........................................................................4 SECTION 4.3 Survival..............................................................................4 SECTION 4.4 User Ids, Passwords and Other Access..................................................4 ARTICLE V COMPENSATION..........................................................................................4 SECTION 5.1 Charges For Services..................................................................4 SECTION 5.2 Payment Terms.........................................................................4 SECTION 5.3 Error Correction; True-Ups; Accounting................................................5 SECTION 5.4 Pricing Adjustments...................................................................5 ARTICLE VI GENERAL OBLIGATIONS; STANDARD OF CARE................................................................5 SECTION 6.1 Performance Metrics...................................................................5 SECTION 6.2 Disclaimer Of Warranties..............................................................5 SECTION 6.3 Transitional Nature Of Services; Changes..............................................6 SECTION 6.4 Responsibility For Errors; Delays.....................................................6 SECTION 6.5 Good Faith Cooperation; Consents......................................................6 SECTION 6.6 Alternatives..........................................................................6 ARTICLE VII RELATIONSHIP AMONG THE PARTIES......................................................................7 ARTICLE VIII SUBCONTRACTORS.....................................................................................7
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PAGE ---- ARTICLE IX INTELLECTUAL PROPERTY................................................................................7 SECTION 9.1 Allocation Of Rights By Ancillary Agreements..........................................7 SECTION 9.2 Existing Ownership Rights Unaffected..................................................7 ARTICLE X CONFIDENTIALITY.......................................................................................7 ARTICLE XI LIMITATION OF LIABILITY..............................................................................8 ARTICLE XII FORCE MAJEURE.......................................................................................8 ARTICLE XIII MISCELLANEOUS......................................................................................8 SECTION 13.1 Incorporation by Reference............................................................8 SECTION 13.2 Conflicting Agreements................................................................8
ii MASTER CORPORATE SERVICES AGREEMENT THIS MASTER CORPORATE SERVICES AGREEMENT (this "AGREEMENT"), dated and effective as of October 4, 2000, among Cadence Design Systems, Inc., a Delaware corporation (together with its Subsidiaries, "CADENCE"), Cadence Holdings, Inc., a Delaware corporation ("HOLDINGS"), Tality, LP, a Delaware limited partnership (the "PARTNERSHIP") and Tality Corporation, a Delaware corporation ("TALITY"). Capitalized terms used herein and not defined elsewhere herein shall have the meaning ascribed to them in Article I or in the Separation Agreement (as defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence associated with the Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement, dated as of July 14, 2000, as amended or restated (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries own and operate the entire Tality Business; and WHEREAS, all conditions to the Separation have been satisfied or waived, and Cadence, Holdings, the Partnership and Tality now desire to execute and deliver this Master Corporate Services Agreement to set forth certain arrangements regarding the provision of services between Cadence, on the one hand, and Tality and the Partnership, on the other. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below: 1 Section 1.1 "ADDITIONAL SERVICES" shall have the meaning set forth in Section 3.5. Section 1.2 "CORPORATE SERVICE SCHEDULE" means a corporate service schedule in the form attached hereto. Section 1.3 "IMPRACTICABILITY" shall have the meaning set forth in Section 3.3. Section 1.4 "PARTY" means Cadence or Holdings, on the one hand, and Tality or the Partnership, on the other, and members of the Cadence Group or the Tality Group, as applicable. Section 1.5 "SEPARATION AGREEMENT" has the meaning set forth in the recitals. Section 1.6 "SERVICE(S)" shall have the meaning set forth in Section 3.1. Section 1.7 "SOFTWARE" means a Service Provider's software program(s), in object code only, listed and described in the relevant Corporate Service Schedule. ARTICLE II CORPORATE SERVICE SCHEDULES Section 2.1 EXECUTION OF SCHEDULES. This Agreement shall govern individual corporate services as requested by Tality or the Partnership and provided by Cadence or requested by Cadence and provided by the Partnership, the details of which are set forth in the Corporate Service Schedules attached to this Agreement. Each Service shall be covered by this Agreement upon execution of a Corporate Service Schedule. Each Corporate Service Schedule executed by the parties hereto shall be incorporated by reference and become an integral part of this Agreement as if fully set forth herein. Section 2.2 SCHEDULE CONTENTS. For each Service, the Parties shall set forth, among other things, (a) the time period during which the Service shall be provided if different from the term of this Agreement determined pursuant to Article IV; (b) a summary of the Service to be provided; (c) a description of the Service; (d) the cost methodology to be employed (including an estimated total charge), if any, for the Service and any other terms applicable thereto in the Corporate Service Schedule. Obligations regarding each Corporate Service Schedule shall be effective upon execution and delivery thereof. ARTICLE III SERVICES Section 3.1 SERVICES GENERALLY. Except as otherwise provided herein, during the term hereof, Cadence or the Partnership, as applicable (each, a "SERVICE PROVIDER"), shall provide or cause to be provided to Tality, the Partnership or Cadence, as applicable (each, a "SERVICE RECIPIENT"), the activities and services described in the Corporate Service Schedule(s) attached hereto. Each activity or service described in a Corporate Service Schedule shall be referred to herein as a "SERVICE." Collectively, the services described in all the Corporate Service Schedules (including Additional Services) shall be referred to herein as "SERVICES." 2 Section 3.2 SERVICE BOUNDARIES. Except as provided in a Corporate Service Schedule for a specific Service: (i) the Service Providers shall be required to provide their respective Services in substantially the same manner as such Services are being provided immediately prior to the date hereof, unless Cadence and the Partnership agree otherwise; and (ii) the Services shall be available only for purposes of (A) if Tality or the Partnership is the Service Recipient, conducting the business of the Partnership in substantially the same manner as it was conducted prior to the date hereof, unless Cadence and the Partnership agree otherwise, or (B) if Cadence is the Service Recipient, conducting the business of Cadence in substantially the same manner as it was conducted prior to the date hereof, unless Cadence and the Partnership agree otherwise. Section 3.3 IMPRACTICABILITY. No Service Provider shall be required to provide any Service to the extent the performance of such Service becomes impracticable as a result of a cause or causes outside the reasonable control of the Service Provider, including unfeasible technological requirements, or to the extent the performance of such Service would require the Service Provider to violate any Applicable Law or would result in the breach of any software license or other contract to which the Service Provider is a party or by which it or any of its assets and properties is bound ("IMPRACTICABILITY"). Section 3.4 ADDITIONAL RESOURCES. Except as provided in a Corporate Service Schedule for a specific Service, in providing the Services, the Service Providers shall not be obligated to: (i) hire any additional employees; (ii) maintain the employment of any specific employee; (iii) purchase, lease or license any additional equipment or software; or (iv) pay any costs related to the transfer or conversion of the Service Recipient's data to the Service Recipient or any alternative supplier of Services. Section 3.5 ADDITIONAL SERVICES. From time to time during the term hereof, the Parties may identify additional services that the Parties may agree to provide to each other in accordance with the terms of this Agreement (the "ADDITIONAL SERVICES"). Accordingly, the Parties shall execute additional Corporate Service Schedules for such Additional Services pursuant to Article II. The Parties may agree in writing on Additional Services during the term of this Agreement. ARTICLE IV TERM & TERMINATION Section 4.1 TERM. The term of this Agreement shall commence on the date hereof and shall remain in effect until two (2) years after the date hereof (the "EXPIRATION DATE"), unless earlier terminated under Section 4.2. This Agreement may be extended by the parties in writing, either in whole or with respect to one or more of the Services; PROVIDED, HOWEVER, that any such extension shall only apply to the Services for which the Agreement was extended. The parties shall be deemed to have extended this Agreement with respect to a specific Service if the Corporate Service Schedule for such Service specifies a completion date beyond the aforementioned Expiration Date. The parties may agree on an earlier expiration date respecting a specific Service by specifying such date in the Corporate Service Schedule for that Service. Services shall be provided up to and including the date set forth in the applicable Corporate Service Schedule, subject to earlier termination as provided herein. 3 Section 4.2 TERMINATION. A Party may terminate this Agreement with respect to any one or more of the Services provided to the Party hereunder, for any reason or for no reason, at any time upon six (6) months prior written notice to the other Party. The Parties may terminate this Agreement, by mutual consent, with respect to any one or more of the Services provided hereunder without notice. In addition, subject to Section 4.4 of the Separation Agreement, either Party may terminate this Agreement with respect to a specific Service if the other Party materially breaches a material provision with regard to that particular Service and does not cure such breach (or does not take reasonable steps required under the circumstances to cure such breach going forward) within sixty (60) days after being given notice of the breach; PROVIDED, HOWEVER, that the non-terminating Party may request that the Parties engage in a dispute resolution negotiation as specified in Section 4.4 of the Separation Agreement prior to termination for breach. Section 4.3 SURVIVAL. Those Sections of this Agreement that, by their nature, are intended to survive termination shall survive in accordance with their terms. Notwithstanding the foregoing, in the event of any termination with respect to one or more, but less than all Services, this Agreement shall continue in full force and effect with respect to any Services not terminated hereby. Section 4.4 USER IDS, PASSWORDS AND OTHER ACCESS. The Parties shall use good faith efforts at the termination or expiration of this Agreement or any specific Service hereto to ensure that all applicable user IDs and passwords or other means of access to sites, systems and information are canceled or returned to the other Party as applicable. ARTICLE V COMPENSATION Section 5.1 CHARGES FOR SERVICES. Each Service Recipient shall pay the Service Provider of the relevant Service the charges determined in accordance with the pricing methodology set forth in the Corporate Service Schedule for each of the Services listed therein, as adjusted, from time to time, in accordance with the procedures set forth in Sections 5.3 and 5.4. Except as otherwise provided in the applicable Corporate Service Schedule, such fees shall include the direct costs, as determined using the process described in the Corporate Service Schedule for each such Service, and indirect costs of providing such Service. The Parties shall discuss in good faith any situation in which the actual charge for a Service is reasonably expected to exceed the estimated charge, if any, set forth in a Corporate Service Schedule for a particular Service; PROVIDED, HOWEVER, that the incurrence of charges in excess of any such estimate shall not justify stopping the provision of, or payment for, Services under this Agreement. Section 5.2 PAYMENT TERMS. Except as set forth in the applicable Corporate Service Schedule (including the Tality SOW Schedule), each Service Provider shall bill the relevant Service Recipients quarterly for all charges accrued for Services to such Service Recipients during the quarter pursuant to the budgeted amounts set forth in each Corporate Service Schedule to this Agreement (the "QUARTERLY INVOICE"); PROVIDED, HOWEVER, that to the extent such charges exceed one hundred ten percent (110%) of the estimated quarterly costs stated in the relevant 4 Corporate Service Schedule, the excess amount shall be included in the Quarterly Invoice for the following quarter. The Quarterly Invoices shall be accompanied by reasonable documentation or other reasonable explanation supporting such charges. Each Service Recipient shall pay the relevant Service Provider the amount of the Quarterly Invoices (the "QUARTERLY PAYMENTS") for all Services provided to the Service Recipient within thirty (30) days after receipt of an invoice therefor. Late payments shall bear interest at the lesser of twelve percent (12%) and the maximum rate allowed by law. Section 5.3 ERROR CORRECTION; TRUE-UPS; ACCOUNTING. Unless otherwise agreed by Cadence and the Partnership, no later than forty-five (45) days following the end of each quarter, representatives of each of Cadence and the Partnership shall meet to reconcile the Quarterly Payments made during the prior quarter with the actual costs incurred by the Service Providers during such period. If a Service Provider's actual costs were in excess of the amount of Quarterly Payments for such period, the Service Recipient shall transfer to the Service Provider the difference in immediately available funds no later than thirty (30) days following the end of such period. If a Service Provider's actual costs were less than the amount of Quarterly Payments for such period, the Service Provider shall transfer to the Service Recipient the difference in immediately available funds no later than thirty (30) days following the end of such period. Section 5.4 PRICING ADJUSTMENTS. In the event of a tax audit adjustment relating to the pricing of any or all Services provided pursuant to this Agreement in which it is determined by a taxing authority that any of the charges, individually or in combination, did not result in an arm's-length payment, as determined under internationally accepted arm's-length standards, then the parties, including any subcontractor providing Services hereunder, may agree to make corresponding adjustments to the charges in question for such period to the extent necessary to achieve arm's-length pricing. Any adjustment made pursuant to this Section 5.4 at any time during the term of this Agreement or after termination of this Agreement shall be reflected in the parties' books and records, and the resulting underpayment or overpayment shall create, respectively, an obligation to be paid in the manner specified in Section 5.2 or shall create a credit against amounts owed under this Agreement, as the case may be. ARTICLE VI GENERAL OBLIGATIONS; STANDARD OF CARE Section 6.1 PERFORMANCE METRICS. Subject to Section 3.4 and any other terms of this Agreement, each Service Provider shall use all commercially reasonable efforts to maintain sufficient resources to perform its obligations hereunder. Specific performance metrics for a Service Provider for a specific Service may be set forth in the corresponding Corporate Service Schedule. Where none is set forth, the Service Provider shall use reasonable efforts to provide Services in accordance with the policies, procedures and practices in effect before the date hereof and shall exercise the same care and skill as it exercises in performing similar services for itself. Section 6.2 DISCLAIMER OF WARRANTIES. THE PARTIES MAKE NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A 5 PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES, SOFTWARE OR OTHER DELIVERABLES PROVIDED BY IT HEREUNDER. Section 6.3 TRANSITIONAL NATURE OF SERVICES; CHANGES. The parties acknowledge the transitional nature of the Services and that a Service Provider may make changes from time to time in the manner of performing its Services if such Service Provider is making similar changes in performing similar services for itself and if the Service Provider furnishes to the Service Recipient sixty (60) days written notice regarding such changes. Section 6.4 RESPONSIBILITY FOR ERRORS; DELAYS. Each Service Provider's sole responsibility to its Service Recipients: (a) for errors or omissions in Services, shall be to furnish correct information, payment and/or adjustment in the Services, at no additional cost or expense to the Service Recipients, as appropriate; PROVIDED, HOWEVER, that each Service Recipient must promptly advise its Service Provider of any such error or omission of which it becomes aware after having used reasonable efforts to detect any such errors or omissions in accordance with the standard of care set forth in Section 6.1; and (b) for failure to deliver any Service because of Impracticability, shall be to use reasonable efforts, subject to Section 3.3, to make the Services available and/or to resume performing the Services as promptly as reasonably practicable. Section 6.5 GOOD FAITH COOPERATION; CONSENTS. The parties shall cooperate in good faith with each other in all matters relating to the provision and receipt of Services. Such cooperation shall include exchanging information, performing true-ups and adjustments, and obtaining all third party consents, licenses, sublicenses or approvals necessary to permit each party to perform its obligations hereunder (including rights to use third party software needed for the performance of Services). The costs of obtaining any such third party consents, licenses, sublicenses or approvals shall be borne by the relevant Service Recipient. Each of the parties shall maintain, in accordance with its standard document retention procedures, documentation supporting the information relevant to cost calculations contained in the Corporate Service Schedules and cooperate with each other in making such information available as needed in the event of a tax audit, whether in the United States or any other country. Section 6.6 ALTERNATIVES. If a Service Provider reasonably believes it is unable to provide any Service because of a failure to obtain necessary consents, licenses, sublicenses or approvals pursuant to Section 6.5 or because of Impracticability, the parties shall cooperate to determine the best alternative approach. Until such alternative approach is found or the problem otherwise resolved to the satisfaction of the parties, the Service Provider shall use reasonable efforts, subject to Section 3.3 and Section 3.4, to continue providing the Service. To the extent an agreed upon alternative approach increases the cost of such Service Provider performing such Service above that which is included in the Service Provider's charge for the Service in question, the Service Recipient shall fully bear such increase unless they otherwise agree in writing. 6 ARTICLE VII RELATIONSHIP AMONG THE PARTIES The relationship between the Cadence Parties, on the one hand, and the Tality Parties, on the other hand, established under this Agreement is that of independent contractors, and neither Party is, or shall be construed to be, an employee, agent, partner or joint venturer of or with the other. Each Service Provider shall be solely responsible for any employment-related taxes, insurance premiums or other employment benefits respecting its performance of Services under this Agreement. The Service Recipients agree to grant the Service Providers' personnel access to sites, systems and information as necessary for the Service Providers to perform their obligations hereunder. ARTICLE VIII SUBCONTRACTORS In its sole discretion, a Service Provider may engage a subcontractor to perform all or any portion of the Service Provider's duties under this Agreement; PROVIDED, HOWEVER that any such subcontractor agrees in writing to be bound by confidentiality obligations at least as protective as the terms of the Master Confidentiality Agreement; and PROVIDED FURTHER that in such event the Service Provider shall remain responsible for the performance of such subcontracted Service. ARTICLE IX INTELLECTUAL PROPERTY Section 9.1 ALLOCATION OF RIGHTS BY ANCILLARY AGREEMENTS. This Agreement and the performance of this Agreement shall not affect the ownership of any intellectual property or rights thereto allocated in the Ancillary Agreements (including the Master Intellectual Property Agreement). Section 9.2 EXISTING OWNERSHIP RIGHTS UNAFFECTED. Neither Party shall gain, by virtue of this Agreement, any rights of ownership of copyrights, patents, trade secrets, trademarks or any other intellectual property rights owned by the other. ARTICLE X CONFIDENTIALITY The terms of the Master Confidentiality Agreement shall apply to any Confidential Information (as defined therein) which is the subject matter of this Agreement or that may be obtained in the course of performing the Services. 7 ARTICLE XI LIMITATION OF LIABILITY NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOSS OF DATA, LOSS OF USE, COST OF COVER, BUSINESS INTERRUPTION OR OTHER SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY, ARISING FROM THE PERFORMANCE OF, OR RELATING TO, THIS AGREEMENT. ARTICLE XII FORCE MAJEURE Service Providers shall be excused for any failure or delay in performing any of their obligations under this Agreement, if such failure or delay is caused by Force Majeure. For purposes hereof, "FORCE MAJEURE" means any act of God or the public enemy, any accident, explosion, fire, storm, earthquake, flood, or any other circumstance or event beyond the reasonable control of the party relying upon such circumstance or event. ARTICLE XIII MISCELLANEOUS Section 13.1 INCORPORATION BY REFERENCE. Section 4.4 and all of the provisions of Article V (except for Section 5.13 thereof) of the Separation Agreement are incorporated into and made a part of this Agreement, as if fully set forth herein. Section 13.2 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement and the Separation Agreement, other Ancillary Agreement (including the Master Intellectual Property Agreement) or other agreement executed in connection herewith or therewith, the provisions of such other agreement shall prevail to the extent that they specifically address the subject matter of the conflict. 8 WHEREFORE, the parties have executed and delivered this Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/R.L. Smith McKeithen By: TALITY CORPORATION, -------------------------- AS GENERAL PARTNER Name: R. L. Smith McKeithen By: /s/Duane W. Bell Title: Senior Vice President and General ------------------------------ Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/R.L. Smith McKeithen By: /s/Duane W. Bell -------------------------- ---------------------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer 9 Corporate Service Schedule to Master Corporate Services Agreement 1. Corporate Service Schedule #:____________ (To be inserted by responsible individual or department.) 2. Functional Area:_______________ 3. Start/End Date: The Services start on the effective date of the Master Corporate Services Agreement among Cadence Design Systems, Inc. ("Cadence"), Cadence Holdings, Inc., Tality, LP ("the Partnership") and Tality Corporation to which this Corporate Service Schedule is attached and end on October 1, 2002 unless otherwise indicated below. INDICATE BELOW IF OTHER START/END DATE: Start Date:_____________________________ End Date:_______________________________ If Start and End Dates vary by service and/or country, please indicate in Section 5 below. 4. Summary of Services (Describe the service to be provided in appropriate detail, including the applicable Service Provider and Service Recipient). SERVICE NAME DESCRIPTION ------------ ----------- 5. List of services to be provided per country and site: (List all the services to be provided at each site. Enter Start Date and End Date if different than Section 3 above.) COUNTRY SITE SERVICE(S) START DATE END DATE ------- ---- ---------- ---------- -------- 6. Performance parameters/Service level: (State minimum performance expected from each service, if applicable.): 7. Estimated Total Compensation:__________________________ 8. Describe cost methodology and cost drivers used to calculate (i) Estimated Total Compensation; (ii) Quarterly Payments and (iii) actual costs. (Describe on an individual service basis if necessary): 1 9. Describe the process by which the cost of services will be adjusted in the instance of an increase/reduction in the services provided: (Describe on an individual service basis if necessary.) 10. Software: Will software be used or included with the Services to be provided under this Corporate Service Schedule: ____ Yes ____ No If yes, will source code be provided: ____ Yes ____ No List software to be provided: SOFTWARE APPLICATION NUMBER OF LICENSES TO BE PROVIDED -------------------- --------------------------------- Upon execution and delivery of this Corporate Service Schedule by the parties, this Corporate Service Schedule is hereby deemed incorporated into and made part of the Master Corporate Services Agreement, and subject to all the terms thereof. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By:__________________________ By: TALITY CORPORATION, Name:________________________ AS GENERAL PARTNER Title:_______________________ By:_______________________________ Name:_____________________________ Title:____________________________ CADENCE HOLDINGS, INC. TALITY CORPORATION By:__________________________ By:__________________________________ Name:________________________ Name:________________________________ Title:_______________________ Title:_______________________________ 2 EX-2.07 8 a2029698zex-2_07.txt EX-2.07 Exhibit 2.07 REAL ESTATE MATTERS AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS............................................................................................1 Section 1.1 Actual Completion Date....................................................................1 Section 1.2 Cadence Lease.............................................................................2 Section 1.3 Headquarters Facility.....................................................................2 Section 1.4 Landlord..................................................................................2 Section 1.5 Lease Consents............................................................................2 Section 1.6 Leased Properties.........................................................................2 Section 1.7 Master Corporate Services Agreement.......................................................2 Section 1.8 Owned Properties..........................................................................2 Section 1.9 Property..................................................................................2 Section 1.10 Relevant Leases...........................................................................2 Section 1.11 Retained Parts............................................................................2 Section 1.12 Shared Properties.........................................................................2 ARTICLE II LEASED PROPERTY.......................................................................................3 Section 2.1 Leased Properties to be Assigned to the Partnership; Sublease or License Back of Certain Leased Properties to Cadence......................................................3 Section 2.2 Leased Property to be Subleased by the Partnership........................................3 Section 2.3 License to the Partnership of Certain Shared Properties...................................3 Section 2.4 Owned Properties..........................................................................4 Section 2.5 Lease Consents............................................................................4 Section 2.6 Occupation by the Partnership.............................................................5 Section 2.7 Obligation to Complete....................................................................6 Section 2.8 Forms of Transfer Documents...............................................................7 Section 2.9 Casualty; Lease Termination...............................................................8 Section 2.10 Tenant's Fixtures and Fittings; Services..................................................9 Section 2.11 Costs.....................................................................................9 ARTICLE III MISCELLANEOUS........................................................................................9 Section 3.1 Incorporation by Reference................................................................9 Section 3.2 Conflicting Agreements....................................................................9 Section 3.3 Property Transfers and Governing law......................................................9 SCHEDULE 1 PROPERTIES.......................................................................................... SCHEDULE 2 FORM OF ASSIGNMENT OF LEASE......................................................................... SCHEDULE 3 FORM OF LICENSE FOR SHARED PROPERTIES............................................................... SCHEDULE 4 FORM OF SUBLEASE FOR SHARED PROPERTIES.............................................................. SCHEDULE 5 FORM OF LEASE FOR THE HEADQUARTERS FACILITY.........................................................
-2- REAL ESTATE MATTERS AGREEMENT THIS REAL ESTATE MATTERS AGREEMENT (this "AGREEMENT") is entered into and effective as of October 4, 2000 by and among Cadence Design Systems, Inc., a Delaware corporation ("CADENCE"), Cadence Holdings, Inc., a Delaware corporation ("HOLDINGS"), Tality, LP, a Delaware limited partnership (the "PARTNERSHIP"), and Tality Corporation, a Delaware corporation ("TALITY"). Capitalized terms used herein and not otherwise defined elsewhere herein shall have the meanings ascribed to them in Article I or in the Separation Agreement (as defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer or cause to be transferred to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence and its Subsidiaries associated with the Tality Business (the "SEPARATION"); WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement dated as of July 14, 2000, as amended (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to complete the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries operate the entire Tality Business; and WHEREAS, all the conditions to the separation have been satisfied or waived, and Cadence, Holdings, the Partnership and Tality now desire to execute and deliver this Agreement to set forth certain agreements regarding real estate matters. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1 "ACTUAL COMPLETION DATE" means, with respect to each Property, the date upon which completion of the assignment, lease, license, conveyance or sublease of that Property, as applicable, actually takes place. -1- Section 1.2 "CADENCE LEASE" means, in relation to each Leased Property, the lease(s) or sublease(s) or license(s) under which Cadence or its applicable Subsidiary holds such Leased Property together with any other amendment, modification or supplemental document completed prior to the Actual Completion Date. Section 1.3 "HEADQUARTERS FACILITY" means the buildings and other improvements comprising Cadence's office campus located in San Jose, California identified in Section D of SCHEDULE 1 attached to this Agreement. Section 1.4 "LANDLORD" means the landlord under any Cadence Lease, and its respective successors and assigns, and includes the holder of any other interest that is superior to the interest of the landlord under any Cadence Lease. Section 1.5 "LEASE CONSENTS" means all consents, waivers or amendments required from any Landlord or other third parties under the Relevant Leases to assign, sublease, license or otherwise transfer all or a portion of the Relevant Leases to the Partnership or its applicable Subsidiary as contemplated by this Agreement. Section 1.6 "LEASED PROPERTIES" means those Properties leased by Cadence or its applicable Subsidiary pursuant to an Cadence Lease and identified in Sections A, B and C of SCHEDULE 1 of this Agreement. Section 1.7 "MASTER CORPORATE SERVICES AGREEMENT" means the Master Corporate Services Agreement dated as of the date hereof among the parties and the Corporate Services Schedule for the Real Estate and Site Services Functional Area attached thereto. Section 1.8 "OWNED PROPERTIES" means those properties owned by Cadence or its applicable Subsidiary identified in Section D of SCHEDULE 1 of this Agreement. Section 1.9 "PROPERTY" means the Leased Properties and the Owned Properties. Section 1.10 "RELEVANT LEASES" means those of the Cadence Leases with respect to which a Lease Consent is required for an assignment, sublease, license or other transfer of all or a portion of such Cadence Lease to a third party, or which prohibit assignments, subleases, licenses or other such transfers. Section 1.11 "RETAINED PARTS" means those parts of the Shared Properties that, following assignment to the Partnership or its applicable Subsidiary, are intended to be subleased or licensed back to Cadence or its applicable Subsidiary. Section 1.12 "SHARED PROPERTIES" means those Leased Properties listed in (a) Section A of Schedule 1 as a Leased Property involving a sublease or license back to Cadence, and (b) Section C of SCHEDULE 1 of this Agreement. -2- ARTICLE II LEASED PROPERTY Section 2.1 LEASED PROPERTIES TO BE ASSIGNED TO THE PARTNERSHIP; SUBLEASE OR LICENSE BACK OF CERTAIN LEASED PROPERTIES TO CADENCE. (a) Cadence shall assign or cause its applicable Subsidiary to assign, and the Partnership shall accept and assume, or cause its applicable Subsidiary to accept and assume, Cadence's or its applicable Subsidiary's interest in the Leased Properties identified in Section A of SCHEDULE 1 of this Agreement, subject to the other provisions of this Agreement and (to the extent not inconsistent with the provisions of this Agreement) the terms of the Separation Agreement and the other Ancillary Agreements. With respect to each such Leased Property, such assignment shall be completed on the later of: (i) the Separation Date; and (ii) the earlier of (A) the fifth (5th) business day after the Lease Consent for any Relevant Lease has been granted, and (B) the date agreed upon by the parties in accordance with Section 2.6(a) below. (b) Subject to the completion of the assignment to the Partnership or its applicable Subsidiary of the relevant Leased Property, with respect to each Leased Property that is also a Shared Property, the Partnership shall grant or cause its applicable Subsidiary to grant to Cadence or its applicable Subsidiary a license or a sublease, as applicable, as identified in Section A of SCHEDULE 1 of this Agreement, and Cadence shall accept or cause its applicable Subsidiary to accept the same. Such license or sublease, as applicable, shall be completed immediately following completion of the assignment of the relevant Leased Property to the Partnership or its applicable Subsidiary. The area to be subleased or licensed to Cadence and the monthly cost allocated to Cadence for each such sublease or license shall be as set forth in the Master Corporate Services Agreement. Section 2.2 LEASED PROPERTY TO BE SUBLEASED BY THE PARTNERSHIP. Cadence shall sublease or cause its applicable Subsidiary to sublease, and the Partnership shall accept and enter into, or cause its applicable Subsidiary to accept and enter into, a sublease of Cadence's or its applicable Subsidiary's interest in a portion of each Leased Property identified in Section B of SCHEDULE 1 of this Agreement, subject to the other provisions of this Agreement and (to the extent not inconsistent with the provisions of this Agreement) the terms of the Separation Agreement and the other Ancillary Agreements. With respect to such Leased Property, such sublease shall be completed on the later of (i) the Separation Date; and (ii) the earlier of (A) the fifth (5th) business day after a Lease Consent has been granted, if required, and (B) the date agreed upon by the parties in accordance with Section 2.6(a) below. Section 2.3 LICENSE TO THE PARTNERSHIP OF CERTAIN SHARED PROPERTIES. Cadence shall grant or cause its applicable Subsidiary to grant to the Partnership or its applicable Subsidiary a license to occupy portions of the Shared Properties identified in Section C of SCHEDULE 1 of this Agreement, and the Partnership shall accept or cause its applicable Subsidiary to accept the same, subject to the other provisions of this Agreement and (to the extent not inconsistent with the provisions of this Agreement) the terms of the Separation Agreement and the other Ancillary Agreements. Such license shall be completed on the -3- Separation Date. The area to be licensed to the Partnership and the monthly cost allocated to the Partnership for each such license shall be as set forth in the Master Corporate Services Agreement. Section 2.4 OWNED PROPERTIES. Cadence shall grant to the Partnership a lease of those parts of the Owned Properties identified in Section D of SCHEDULE 1 of this Agreement, and the Partnership shall accept the same, subject to the other provisions of this Agreement and (to the extent not inconsistent with the provisions of this Agreement) the terms of the Separation Agreement and the other Ancillary Agreements. Each lease shall be completed on the Separation Date. Section 2.5 LEASE CONSENTS. (a) Cadence confirms that, with respect to each Relevant Lease, an application has been made or will be made by the Separation Date to each applicable Landlord for the Lease Consent required with respect to such Relevant Lease to approve the transactions contemplated by this Agreement. (b) Cadence will use its reasonable commercial efforts to obtain the Lease Consent required for each Relevant Lease, but Cadence shall not be required to commence judicial proceedings for a declaration that a Lease Consent has been unreasonably withheld or delayed, nor shall Cadence be required to pay any consideration in excess of that required by the Relevant Lease or that which is typical in the open market to obtain the Lease Consent for the Relevant Lease. Tality and the Partnership shall cooperate as reasonably requested by Cadence to obtain the Lease Consents. (c) Tality, the Partnership and Cadence will promptly satisfy or cause their respective applicable Subsidiaries to satisfy the lawful requirements of the applicable Landlord, and Tality and the Partnership will take or cause its applicable Subsidiary to take all steps to assist Cadence in obtaining the Lease Consent as to each Relevant Lease, including, without limitation: (i) if properly required by the Landlord, entering into an agreement with the relevant Landlord to observe and perform the tenant's obligations contained in the Relevant Lease throughout the remainder of the term of the Relevant Lease, subject to any statutory limitations of such liability; (ii) if properly required by the Landlord, providing a guarantee, surety or other security (including, without limitation, a security deposit) for the obligations of the Partnership or its applicable Subsidiary as tenant under the Relevant Lease, and otherwise taking all steps that are reasonably necessary and which the Partnership or its applicable Subsidiary is reasonably capable of doing to meet the lawful requirements of the Landlord so as to ensure that the Lease Consent for such Relevant Lease is obtained; and (iii) using all reasonable commercial efforts to assist Cadence with obtaining the Landlord's consent to the release of any guarantee, surety or other security which -4- Cadence or its Subsidiary may have previously provided to the Landlord and, if required, offering the same or equivalent security to the Landlord to obtain such release. Notwithstanding the foregoing, except with respect to providing guarantees, sureties or other security referenced in Section 2.5(c)(ii) above, neither Tality nor the Partnership shall be required to obtain a release of any obligation entered into by Cadence or its Subsidiary with any Landlord or other third party with respect to any Leased Property. (d) If, with respect to any Relevant Lease, Cadence, Tality and the Partnership are unable to obtain a release by the Landlord of any guarantee, surety or other security which Cadence or its Subsidiary has previously provided to the Landlord, Tality and the Partnership shall indemnify, defend, protect and hold harmless Cadence and its Subsidiary from and after the Separation Date against all losses, costs, claims, damage or liabilities incurred by Cadence or its Subsidiary as a result of the Partnership's occupancy of the Leased Property with respect to such guarantee, surety or other security. Section 2.6 OCCUPATION BY THE PARTNERSHIP. (a) Subject to compliance with Section 2.6(b) below, if the Actual Completion Date for any Leased Property does not occur on the Separation Date, the Partnership or its applicable Subsidiary shall, commencing on the Separation Date, be entitled to occupy the relevant Property (except to the extent that the same is a Retained Part) as a licensee upon the terms and conditions contained in the applicable Cadence Lease for such Property. Such license shall not be revocable prior to the date for completion as provided in Section 2.1(a) unless an enforcement action or forfeiture by the relevant Landlord due to the Partnership's or its applicable Subsidiary's occupation of the Property constituting a breach of such Cadence Lease cannot, in the reasonable opinion of Cadence, be avoided other than by requiring the Partnership or its applicable Subsidiary immediately to vacate the relevant Property, in which case Cadence may by notice to the Partnership immediately require the Partnership or its applicable Subsidiary to vacate the relevant Property. The Partnership will be responsible for all costs, expenses and liabilities incurred by Cadence or its applicable Subsidiary as a consequence of such occupation, except for any losses, claims, costs, demands and liabilities incurred by Cadence or its Subsidiary as a result of any enforcement action taken by the Landlord against Cadence or its Subsidiary with respect to any breach by Cadence or its Subsidiary of the Relevant Lease in permitting the Partnership or its applicable Subsidiary to so occupy the Property without obtaining the required Lease Consent, for which Cadence or its Subsidiary shall be solely responsible. Neither the Partnership nor its applicable Subsidiary shall be entitled to make any claim or demand against, or obtain reimbursement from, Cadence or its applicable Subsidiary with respect to any costs, losses, claims, liabilities or damages incurred by the Partnership or its applicable Subsidiary as a consequence of being obliged to vacate the Property or in obtaining alternative premises, including, without limitation, any enforcement action that a Landlord may take against the Partnership or its applicable Subsidiary. (b) If the Actual Completion Date for any Leased Property does not occur on the Separation Date, whether or not the Partnership or its applicable Subsidiary occupies a Property as licensee as provided in Section 2.6(a) above, then the Partnership shall, effective as -5- of the Separation Date, (i) pay or cause its applicable Subsidiary to pay Cadence the monthly allocated cost to the Partnership for such Leased Property as set forth in the Master Corporate Services Agreement, (ii) observe or cause its applicable Subsidiary to observe the tenant's covenants, obligations and conditions contained in Cadence's Lease, and (iii) indemnify, defend, protect and hold harmless Cadence and its applicable Subsidiary from and against all losses, costs, claims, damages and liabilities arising on account of any breach thereof by the Partnership or its applicable Subsidiary. (c) Cadence shall supply promptly to the Partnership copies of all invoices, demands, notices and other communications received by Cadence or its applicable Subsidiaries or agents in connection with any of the matters for which the Partnership or its applicable Subsidiary may be liable to make any payment or perform any obligation pursuant to Section 2.6(a) or (b), and shall, at the Partnership's cost, take any steps reasonably requested by the Partnership and pass on any objections which the Partnership or its applicable Subsidiary may have in connection with any such matters. The Partnership shall promptly supply to Cadence any notices, demands, invoices and other communications received by the Partnership or its applicable Subsidiary or agents from any Landlord while the Partnership or its applicable Subsidiary occupies any Leased Property without a Lease Consent or any premises for which the parties have not obtained a full release of Cadence from its obligations under such Cadence Lease. Section 2.7 OBLIGATION TO COMPLETE. (a) If, with respect to any Relevant Lease, at any time a Lease Consent is formally and unconditionally refused in writing, Cadence and Tality shall commence good faith negotiations and use commercially reasonable efforts to determine how to allocate the applicable Leased Property, based on the relative importance of such Leased Property to the operations of each party, the size of such Leased Property, the number of employees of each party at such Leased Property and the potential risk and liability to each party if an enforcement action is brought by the applicable Landlord. Such commercially reasonable efforts shall include consideration of alternate structures to accommodate the needs of both parties and the allocation of the costs thereof, including entering into amendments of the size, term or other terms of the Relevant Lease, restructuring a proposed lease assignment to be a sublease and relocating one party. If the parties are unable to agree upon an allocation of such Leased Property within fifteen (15) days after commencement of negotiations between the parties as described above, then either party may, by delivering written notice to the other, require that the matter be referred to the Chief Financial Officers of both parties. In such event, the Chief Financial Officers shall use commercially reasonable efforts to determine the allocation of such Leased Property, including having a meeting or telephone conference within ten (10) days thereafter. If the parties are unable to agree upon the allocation of such Leased Property within fifteen (15) days after the matter is referred to the Chief Financial Officers of the parties as described above, the disposition of such Leased Property and the risks associated therewith shall be allocated between the parties as set forth in subparts (b) and (c) of this section below. (b) If, with respect to any Leased Property, the parties are unable to agree upon the allocation of such Leased Property as set forth in Section 2.7(a), Cadence may by -6- written notice to the Partnership elect to apply to the relevant Landlord for consent to sublease all of such Leased Property to the Partnership or its applicable Subsidiary for the remainder of the Relevant Lease term, less three (3) days, at a rent equal to the rent from time to time under the Relevant Lease, and otherwise on substantially the same terms and conditions as the Relevant Lease. If Cadence makes such an election, then, until such time as the relevant Lease Consent is obtained and a sublease is completed, the provisions of Section 2.6 will apply and, upon the grant of the Lease Consent required to sublease such Leased Property, Cadence shall sublease or cause its applicable Subsidiary to sublease to the Partnership or its applicable Subsidiary such Leased Property, which sublease shall be for the term (less three days) and rent set forth in the Relevant Lease and otherwise on the terms of the Relevant Lease. (c) If the parties are unable to agree upon the allocation of a Leased Property as set forth in Section 2.7(a) and Cadence does not make an election pursuant to Section 2.7(b) above, then Cadence may elect by written notice to the Partnership to require the Partnership or its applicable Subsidiary to vacate such Leased Property immediately or by such other date as may be specified in the notice served by Cadence (the "NOTICE DATE"), in which case the Partnership shall vacate or cause its applicable Subsidiary to vacate such Leased Property on the Notice Date but shall indemnify Cadence and its applicable Subsidiary from and against all costs, claims, losses, liabilities and damages in relation to such Leased Property arising from and including the Separation Date to and including the later of the Notice Date and date on which the Partnership or its applicable Subsidiary vacates such Leased Property, except for any costs, losses, damages, claims and liabilities incurred by Cadence or its Subsidiary with respect to any enforcement action taken by the Landlord against Cadence or its Subsidiary with respect to any breach by Cadence or its Subsidiary of the Relevant Lease in permitting the Partnership or its applicable Subsidiary to so occupy such Leased Property without obtaining the required Lease Consent. Neither the Partnership nor its applicable Subsidiary shall be entitled to make any claim or demand against or obtain reimbursement from Cadence or its applicable Subsidiary with respect to any costs, losses, claims, liabilities or damages incurred by the Partnership or its applicable Subsidiary as a consequence of being obliged to vacate such Leased Property or obtaining alternative premises, including, without limitation, any enforcement action which a Landlord may take against the Partnership or its applicable Subsidiary. Section 2.8 FORMS OF TRANSFER DOCUMENTS. (a) LEASED PROPERTIES ASSIGNED TO THE PARTNERSHIP. The assignment to the Partnership or its applicable Subsidiary of each Leased Property to be assigned to the Partnership shall be in substantially the form attached to this Agreement as SCHEDULE 2, with such reasonable amendments as are required by any applicable Landlord and as necessary with respect to each particular Leased Property, including, without limitation, in all cases where a relevant Landlord has required a guarantor or surety to guarantee the obligations of the Partnership or its applicable Subsidiary contained in the relevant Lease Consent or any other document which the Partnership or its applicable Subsidiary is required to complete, the giving of such guarantee by a guarantor or surety, and the giving by the Partnership or its applicable Subsidiary and any guarantor or surety of the Partnership's or its applicable Subsidiary's obligations of direct obligations to Cadence or third parties to the extent -7- required under the terms of any of the Lease Consent or any covenant, condition, restriction, easement, lease or other encumbrance to which such Leased Property is subject. (b) LICENSE BACK TO CADENCE; LICENSE TO THE PARTNERSHIP. The license to be granted by the Partnership or its applicable Subsidiary to Cadence or its applicable Subsidiary, and Cadence or its applicable Subsidiary to the Partnership or its applicable Subsidiary, with respect to each Shared Property to be licensed to either Cadence or the Partnership shall be at the rental rates and for the terms as set forth in the Master Corporate Services Agreement and substantially in the form of SCHEDULE 3 attached to this Agreement, with such reasonable amendments as are necessary with respect to each particular Leased Property. Either party shall have the right to terminate a license as to any Leased Property upon thirty (30) days' prior written notice. (c) SUBLEASE BACK TO CADENCE. The sublease by the Partnership or its applicable Subsidiary of each Leased Property to be subleased by the Partnership to Cadence shall be at the rental rates and for the terms as set forth in the Master Corporate Services Agreement and substantially in the form attached to this Agreement as SCHEDULE 4, with such reasonable amendments as are necessary with respect to such Leased Property. (d) SUBLEASE TO THE PARTNERSHIP. The sublease by Cadence or its applicable Subsidiary of each Leased Property to be subleased by Cadence to the Partnership shall be at the rental rates and for the terms as set forth in the Master Corporate Services Agreement and substantially in the form attached to this Agreement as SCHEDULE 4, with such reasonable amendments as are necessary with respect to such Leased Property. (e) LEASE BY THE PARTNERSHIP OF PORTION OF HEADQUARTERS FACILITY. The lease to be granted to the Partnership with respect to the Owned Properties shall be substantially in the form of SCHEDULE 5 attached to this Agreement and at the monthly rental rates set forth in the Master Corporate Services Agreement. The lease shall be modified gross including use of furniture and copier(s), and be for a term commencing on the Separation Date and expiring on the dates set forth in Section D of SCHEDULE 1 attached to this Agreement. Notwithstanding the foregoing, the lease for the Headquarters Facility shall contain a provision that either Cadence or the Partnership may terminate the lease as to all of the space in either building at the Headquarters Facility then subject to the lease upon six (6) months prior notice, which notice may be given at any time after December 31, 2000. Section 2.9 CASUALTY; LEASE TERMINATION. The parties hereto shall grant and accept assignments, leases, subleases and licenses of the Leased Properties as described in this Agreement, regardless of any casualty damage or other change in the condition of such Leased Properties. In addition, subject to -8- Cadence's obligations in Section 5.5 of the Separation Agreement, if Cadence's Lease with respect to a Leased Property is terminated prior to the Separation Date, (a) Cadence or its applicable Subsidiary shall not be required to assign, sublease or license such Leased Property, (b) the Partnership or its applicable Subsidiary shall not be required to accept an assignment, sublease or license of such Leased Property, and (c) neither party shall have any further liability with respect to such Leased Property hereunder. Section 2.10 TENANT'S FIXTURES AND FITTINGS; SERVICES. The provisions of the Separation Agreement and the other Ancillary Agreements shall apply to any trade fixtures and personal property located at each Property. The lease of the Headquarters Facility and the licenses as to the Shared Properties shall include the services and the use of the furniture and equipment at such Properties as set forth in the Master Corporate Services Agreement. Section 2.11 COSTS. Cadence shall pay all reasonable costs and expenses incurred in connection with obtaining the Lease Consents, including, without limitation, Landlord's consent fees and attorneys' fees and any costs and expenses relating to re-negotiation of any Cadence Leases. ARTICLE III MISCELLANEOUS Section 3.1 INCORPORATION BY REFERENCE. Section 4.4 and all of the provisions set forth in Article V of the Separation Agreement (except for Section 5.13 thereof) are incorporated into and made a part of this Agreement by reference. Section 3.2 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement and the Separation Agreement, any other Ancillary Agreement or other agreement executed in connection herewith, the provisions of such other agreement shall prevail to the extent that they specifically address the subject matter of the conflict. Section 3.3 PROPERTY TRANSFERS AND GOVERNING LAW. Notwithstanding Section 3.1 hereof and Section 5.3 of the Separation Agreement, the applicable Property transfers shall be performed in accordance with the laws of the state or jurisdiction where the applicable Property is located. -9- WHEREFORE, the parties have executed and delivered this Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/R.L. Smith McKeithen By: TALITY CORPORATION, -------------------------- AS GENERAL PARTNER Name: R.L. Smith McKeithen By: /s/Duane W. Bell Title: Senior Vice President and General ---------------------------- Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/R.L. Smith McKeithen By: /s/Duane W. Bell -------------------------- -------------------------------- Name: R. L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer -10- EX-2.08 9 a2029698zex-2_08.txt EX-2.08 Exhibit 2.08 MASTER CONFIDENTIALITY AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEM, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS..........................................................................................3 Section 1.1 Confidential Information...................................................................4 Section 1.2 Cadence Group..............................................................................4 Section 1.3 Confidentiality Period.....................................................................4 Section 1.4 Disclosing Party...........................................................................4 Section 1.5 Highly Confidential Information............................................................4 Section 1.6 Receiving Party............................................................................4 Section 1.7 Tality Group...............................................................................4 Section 1.8 Third Party................................................................................5 Section 1.9 Transaction Agreements.....................................................................5 ARTICLE II CONFIDENTIALITY.....................................................................................5 Section 2.1 Confidentiality and Non-Use Obligations....................................................5 Section 2.2 Preservation of Privileged Communications..................................................5 Section 2.3 Disclosure to Sublicensees.................................................................5 Section 2.4 Independent Contractors....................................................................5 Section 2.5 Residuals..................................................................................6 Section 2.6 Compelled Disclosure.......................................................................6 Section 2.7 No Restriction on Disclosing Party.........................................................6 Section 2.8 Third-Party Restrictions...................................................................6 Section 2.9 Competitor Controversies...................................................................6 ARTICLE III WARRANTY DISCLAIMER................................................................................7 Section 3.1 Warranty Disclaimer........................................................................7 Section 3.2 Indemnity..................................................................................7 ARTICLE IV CONFIDENTIALITY OF TRANSACTION AGREEMENTS...........................................................8 ARTICLE V TERM AND TERMINATION.................................................................................9 Section 5.1 Term.......................................................................................9 Section 5.2 Survival...................................................................................9 ARTICLE VI MISCELLANEOUS PROVISIONS............................................................................9 Section 6.1 Incorporation by Reference.................................................................9 Section 6.2 Export Restrictions........................................................................9 Section 6.3 No Implied Licenses........................................................................9 Section 6.4 Remedies...................................................................................9 Section 6.5 Binding Agreement; No Waiver...............................................................9 Section 6.6 Infringement Suits........................................................................10 Section 6.7 Conflicting Agreements....................................................................10
MASTER CONFIDENTIALITY AGREEMENT THIS MASTER CONFIDENTIALITY AGREEMENT (this "AGREEMENT") is entered into and effective as of October 4, 2000 by and among Cadence Design Systems, Inc., a Delaware corporation ("CADENCE"), Cadence Holdings, Inc., a Delaware corporation ("HOLDINGS"), Tality, LP, a Delaware limited partnership (the "PARTNERSHIP"), and Tality Corporation, a Delaware corporation ("TALITY"). Capitalized terms used herein and not otherwise defined elsewhere herein shall have the meanings ascribed to them in Article I or in the Separation Agreement (as defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence associated with the Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement, dated as of July 14, 2000, as amended or restated (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries own and operate the entire Tality Business; and WHEREAS, all conditions to the Separation have been satisfied or waived, and Cadence, Holdings, the Partnership and Tality now desire to execute and deliver this Agreement to provide for the protection of their Confidential Information. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below: 3 Section 1.1 "CONFIDENTIAL INFORMATION" means all information concerning the business of the Disclosing Party conveyed to the Receiving Party orally or in tangible form (including by electronic transmission) that (i) is identified as being "Confidential" at the time of disclosure; (ii) is marked as "Confidential," or with a similar legend; or (iii) which, due to the circumstances surrounding its disclosure or its nature or sensitivity, reasonably should have been understood by the Receiving Party as intended to be treated as confidential. Confidential Information of Third Parties that is known to, in the possession of or acquired by a Receiving Party pursuant to a relationship with the Disclosing Party shall be deemed the Disclosing Party's Confidential Information for purposes hereof. Notwithstanding the foregoing, Confidential Information shall not include information that: (i) was in the Receiving Party's possession before receipt from the Disclosing Party and was obtained from a source other than the Disclosing Party and other than through the existing relationship of the Disclosing Party and the Receiving Party before the Separation Date; (ii) is or becomes a matter of public knowledge through no breach by the Receiving Party of this Agreement or any other Transaction Agreement; (iii) is rightfully received by the Receiving Party from a Third Party without a duty of confidentiality to the Disclosing Party; or (iv) is independently conceived of or developed by the Receiving Party. Section 1.2 "CADENCE GROUP" means Cadence and each of its Subsidiaries (other than any member of the Tality Group) immediately after the date hereof, and each Person that becomes a Subsidiary of Cadence after the date hereof (other than any member of the Tality Group). Section 1.3 "CONFIDENTIALITY PERIOD" means, (i) with respect to Confidential Information that is not Highly Confidential Information, five (5) years, and (ii) with respect to Highly Confidential Information, in perpetuity. Section 1.4 "DISCLOSING PARTY" means the party (including any member of the Cadence Group, in the case of Cadence or Holdings, or the Tality Group, in the case of Tality or the Partnership) owning or disclosing the relevant Confidential Information. Section 1.5 "HIGHLY CONFIDENTIAL INFORMATION" means Confidential Information that is (i) source code for products that are commercially released or for which substantial steps have been taken towards commercialization; (ii) other Confidential Information which (x) if conveyed in written form, is marked "HIGHLY CONFIDENTIAL" by the Disclosing Party; or (y) if conveyed in oral form, is promptly followed by a written notice designating such information as "HIGHLY CONFIDENTIAL"; and (iii) as to Confidential Information disclosed prior to the Separation Date, any information which the Receiving Party reasonably should understand to constitute a "trade secret", as defined under California Civil Code Section 3426.1, of the Disclosing Party. Section 1.6 "RECEIVING PARTY" means the non-owning party or recipient (including any member of the Cadence Group, in the case of Cadence or Holdings, or the Tality Group, in the case of Tality or the Partnership) of the relevant Confidential Information. Section 1.7 "TALITY GROUP" means Tality and each of its Subsidiaries immediately after the date hereof and each Person that becomes a Subsidiary of Tality after the date hereof. 4 Section 1.8 "THIRD PARTY" means a Person other than a member of the Cadence Group or the Tality Group. Section 1.9 "TRANSACTION AGREEMENTS" mean the Separation Agreement and the Ancillary Agreements collectively. ARTICLE II CONFIDENTIALITY Section 2.1 CONFIDENTIALITY AND NON-USE OBLIGATIONS. During the Confidentiality Period, the Receiving Party shall (i) maintain the confidentiality of the Confidential Information of the Disclosing Party by using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized use, dissemination or publication of such Confidential Information as the Receiving Party uses to protect its own confidential information of a like nature; (ii) not use such Confidential Information in violation of any use restriction in any Transaction Agreement; and (iii) without the prior written consent of the Disclosing Party (which consent may be withheld in its sole and absolute discretion), not disclose or otherwise make available such Confidential Information to any Third Party, except as expressly permitted by this Agreement, in any other Transaction Agreement or in any other written agreement entered into by the parties. Each party hereto agrees to notify the other parties in writing immediately upon becoming aware of any prohibited disclosure or misuse or misappropriation of Confidential Information by any of its officers, directors, employees, consultants and agents. Section 2.2 PRESERVATION OF PRIVILEGED COMMUNICATIONS. In the event of any claim, controversy, dispute or litigation, or other proceeding in which the parties hereto conclude they have a common interest, provided that in such circumstances there exists a good faith basis to conclude that an attorney-client privilege may exist in respect to attorney-client communications undertake pursuant to the joint defense or joint prosecution of such claim or controversy, then, in respect of such attorney-client communications, and for the related purpose of preserving confidentiality or immunity from discovery of "attorney work product" materials, the parties shall cooperate as is necessary to give effect to and preserve the existence of such privilege(s) and immunities, and shall maintain the confidentiality of communications for such purposes. Section 2.3 DISCLOSURE TO SUBLICENSEES. The Receiving Party has the right to disclose to its sublicensees permitted under a Transaction Agreement any of the Disclosing Party's Confidential Information that comprises a part of the Disclosing Party's intellectual property that the Receiving Party is expressly permitted to sublicense to its permitted licensees under such Transaction Agreement, subject to the sublicensee's agreement in writing to confidentiality and non-use terms at least as protective of the Disclosing Party as the provisions of this Agreement. Section 2.4 INDEPENDENT CONTRACTORS. The Receiving Party has the right to disclose to any independent contractors, such as a contract manufacturer or foundry, for example, that have been engaged by the Receiving Party to assist in the development, enhancement and support of the Receiving Party's intellectual property, solely for the benefit of the Receiving Party, as permitted under any Transaction Agreement, portions of the Confidential Information as reasonably necessary in the exercise of the Receiving Party's "have made" rights under any 5 Transaction Agreement, subject to agreement of the independent contractor, in writing, to accept confidentiality and non-use terms at least as protective of the Disclosing Party as the provisions of this Agreement; PROVIDED, HOWEVER, that, absent the express written consent of the Disclosing Party, the Receiving Party shall make no disclosures to independent contractors that are direct competitors of the Disclosing Party. Section 2.5 RESIDUALS. Subject to the confidentiality restrictions imposed hereby, the Receiving Party may use Residuals for any purpose whatsoever, including, use in the development, manufacture, marketing, licensing, sale and maintenance of any of its products or services; in each case without the payment of any royalty or other fee or charge; PROVIDED, HOWEVER, that the right to use Residuals does not confer upon the Receiving Party a license under any patents, copyrights, mask work rights or other similar intellectual property rights of the Disclosing Party. For purposes hereof, the term "RESIDUALS" means any concepts, ideas or techniques of general application that are embodied in the Disclosing Party's Confidential Information which are retained in the unaided memory of the Receiving Party's employees who have had access to such Confidential Information pursuant to the terms hereof. An employee's memory is unaided if the employee has not intentionally memorized the Confidential Information for the purpose of retaining and subsequently using or disclosing such Confidential Information. No party shall have the right or authority to restrict the position or job to which an employee of the other party is assigned by reason of the employee's knowledge of Confidential Information of any other party. Section 2.6 COMPELLED DISCLOSURE. If the Receiving Party believes that it is required by Applicable Law or is under threat of being compelled by a court or other Governmental Authority to disclose Confidential Information of the Disclosing Party, it shall (i) give the Disclosing Party prompt written notice so that the Disclosing Party may, at its sole expense, take steps to oppose such disclosure or obtain a protective order or its equivalent in respect of such disclosure; (ii) cooperate with the Disclosing Party in its attempts to oppose such disclosure; and (iii) take all reasonable steps, consistent with any order of a Governmental Authority requiring such disclosure, to disclose only so much Confidential Information as is specifically required to be disclosed by such order. Section 2.7 NO RESTRICTION ON DISCLOSING PARTY. Nothing in this Agreement shall restrict a Disclosing Party from using, disclosing or disseminating in any way its own Confidential Information. Section 2.8 THIRD-PARTY RESTRICTIONS. Nothing in this Agreement supersedes any restriction imposed by Third Parties on their Confidential Information, and there is no obligation on a Disclosing Party to conform Third Party agreements to the terms of this Agreement. Section 2.9 COMPETITOR CONTROVERSIES. Notwithstanding any other provision of this Article II, the Parties acknowledge that inappropriate disclosure of Confidential Information could cause material competitive injury of a nature not readily definable or susceptible to correction or redress. Accordingly, Cadence, for itself and as agent for all members of the Cadence Group, and Tality, for itself and as agent for all members of the Tality Group, agree to certain special measures intended to recognize the competitive concerns of the other Party in respect to matters in controversy as may come into being between Third Parties and either a 6 member of the Cadence Group or a member of the Tality Group. When either a member of the Cadence Group or a member of the Tality Group receives notice of the assertion of a claim by a Person who is a Third Party or of the commencement by any such Third Party of any Action (collectively, a "THIRD PARTY CLAIM"), or where either Cadence or Tality commences an Action against a Third Party ("THIRD PARTY ACTION") (and, together with "Third Party Claim," a "COMPETITOR CONTROVERSY"), and where the Person making such Third Party Claim, or against whom such Third Party Action is brought, is, or reasonably should be understood to be, a direct competitor of either Cadence or Tality (or member of their respective Groups), then Cadence or Tality (as applicable) shall promptly and in writing notify the other Party of the existence and general nature of the Third Party Claim or Third Party Action. Within five (5) Business Days thereafter, the Party to whom such notice was given (the "UNINVOLVED PARTY") may request assurance from the other Party (the "INVOLVED PARTY") that the Confidential Information of the Uninvolved Party will not, as a consequence of the Competitor Controversy, or otherwise, be at risk of misuse by the Third Party, and the Involved Party shall provide such assurance as it can within five (5) Business Days after receipt of such request. Should the Uninvolved Party thereafter not be satisfied, in its sole discretion, with the assurance given, then the Uninvolved Party may demand, and the Involved Party must comply, that the Involved Party (i) cease immediately to provide any further Confidential Information to the Third Party involved in the Competitor Controversy; (ii) immediately seek to recover, as is reasonably possible, any Confidential Information of the Uninvolved Party that was or is believed to be in the possession of such Third Party; and (iii) suspend or revoke, except to the extent precluded by prior agreement, any sublicenses to have, make or use the Technology of the Uninvolved Party, and the Involved Party shall not disclose any additional Confidential Information of the Uninvolved Party, or enter into any new sublicense of or otherwise provide access to or afford any rights in the Technology of the Uninvolved Party, to or for the benefit of the Third Party, until such time that the Uninvolved Party receives the written consent of the Involved Party. ARTICLE III WARRANTY DISCLAIMER Section 3.1 WARRANTY DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL CONFIDENTIAL INFORMATION IS PROVIDED ON AN "AS IS, WHERE IS" BASIS AND THAT NO PARTY NOR ANY OF ITS SUBSIDIARIES HAS MADE OR WILL MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT THERETO WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. Section 3.2 INDEMNITY. The Receiving Party agrees and acknowledges that it assumes all risks associated with any use by the Receiving Party of any Confidential Information conveyed to the Receiving Party by the Disclosing Party. The Receiving Party agrees to indemnify and hold harmless the Disclosing Party and the Disclosing Party's Affiliates from and against any damages, losses, liabilities, costs, and expenses (including reasonable attorneys' fees and disbursements) resulting from any claim, action or proceeding by a Third Party arising out of or relating to the use of such Confidential Information by the Receiving Party, including any claim, action or proceeding brought against the Disclosing Party or any Affiliate thereof based on an allegation that the use of such Confidential Information by the Receiving Party (a) violates, 7 infringes, misappropriates or otherwise wrongfully exploits any patent, copyright, trade secret or other intellectual property right of any Third Party or (b) breaches or violates any contractual or other obligation owing to such Third Party. In respect of such Third Party claims, the procedures for defense, settlement and indemnification shall be as set forth in Section 2.6 of the Indemnification and Insurance Matters Agreement which is an Ancillary Agreement to the Separation Agreement. ARTICLE IV CONFIDENTIALITY OF TRANSACTION AGREEMENTS Each party agrees that those terms and conditions of the Transaction Agreements for which, in the case of documents filed as exhibits to the Registration Statement of Tality, "Confidential Treatment" is requested of and received from the Commission, or, in the case of other Transaction Agreements, are marked as "Confidential," shall be treated as Confidential Information and that neither party shall disclose such terms or conditions to any Third Party without the prior written consent of the other party (which consent may be withheld in its sole and absolute discretion); PROVIDED, HOWEVER, that each party may disclose such terms and conditions of such agreements marked as confidential: (a) subject to Section 2.2, to legal counsel, accountants and other professional advisors; PROVIDED, HOWEVER, that the recipient is under a legal or contractual obligation to maintain confidentiality; (b) subject to Section 2.6, as required by any Governmental Authority, or as otherwise required by Applicable Law; (c) to banks, investors and other financing sources and the advisors of such parties; PROVIDED, HOWEVER, that the recipient is under a legal or contractual obligation to maintain confidentiality; (d) in connection with the enforcement of this Agreement or any other Transaction Agreement; PROVIDED, HOWEVER, that the parties shall take all reasonable steps to cause the sealing of relevant court files and take or cause to be taken other similar actions in such enforcement proceedings consistent with maintaining the confidentiality of the Confidential Information hereunder; or (e) in connection with an actual or prospective merger, acquisition, divestiture or similar transaction; PROVIDED, HOWEVER, that the Receiving Party, when seeking to make such disclosure, shall first secure the informed and written consent of the Disclosing Party, such consent not to be unreasonably withheld or delayed (it being understood that it is not "unreasonable" for consent to be denied where disclosure is proposed to a direct competitor of the party from whom consent is sought). 8 ARTICLE V TERM AND TERMINATION Section 5.1 TERM. This Agreement shall remain in full force and effect unless and until terminated by the mutual written agreement of the parties. Section 5.2 SURVIVAL. Article VI and, with respect to Confidential Information acquired or disclosed prior to the date of termination, Articles II, III and IV shall survive any termination of this Agreement. ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.1 INCORPORATION BY REFERENCE. Section 4.4 and all of the provisions of Article V (except for Section 5.13) of the Separation Agreement are incorporated into and made a part of this Agreement, as if fully set forth herein. Section 6.2 EXPORT RESTRICTIONS. Each party to this Agreement acknowledges its obligations to control access to and disclosure of technical data under the U.S. export laws and regulations and agrees to adhere to such laws and regulations and to obtain, as and when required, any license(s) or permits as may be required with respect to the transfer, disclosure or sale of any information as may be subject to such laws and regulations. Section 6.3 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be construed as conferring any rights by implication, estoppel or otherwise, under any intellectual property right, other than the rights expressly granted in this Agreement with respect to Confidential Information. This Agreement imposes no obligation on any party hereto to furnish or disclose to any other party any technical or other information. The right to use Confidential Information or to a make a permitted disclosure of it under this Agreement does not constitute a license under any patents, copyrights, mask work rights or other similar intellectual property rights of the Disclosing Party. Section 6.4 REMEDIES. Each Receiving Party acknowledges and agrees that the Confidential Information of the Disclosing Party constitutes valuable trade secrets of the Disclosing Party, and that any violation or threatened violation of this Agreement will cause the Disclosing Party irreparable harm for which its remedies at law will be inadequate. Therefore, the Receiving Party agrees that the Disclosing Party shall have the right, in addition to any other remedies, to obtain the issuance of an EX PARTE restraining order or injunction in any court having the capacity to grant such relief to protect trade secrets and restrain any breach or threatened breach or continuing violation of the Receiving Party's obligations hereunder. Section 6.5 BINDING AGREEMENT; NO WAIVER. This Agreement shall be binding upon and for the benefit of the undersigned parties, their successors and assigns; PROVIDED, HOWEVER, that Confidential Information may not be transferred or assigned without the prior written consent of the Disclosing Party, which consent may be withheld in the Disclosing Party's sole 9 discretion. Failure to enforce any provision of this Agreement by a party shall not constitute a waiver of any term hereof by such party. Section 6.6 INFRINGEMENT SUITS. None of the parties hereto shall have any obligation hereunder to institute any action or suit against Third Parties for misappropriation of any of its Confidential Information or to defend any action or suit brought by a Third Party that alleges infringement of any intellectual property rights by the Receiving Party's authorized use of the Disclosing Party's Confidential Information. Section 6.7 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement and the Separation Agreement, any other Ancillary Agreement or other agreement executed in connection herewith or therewith, the provisions of such other agreement shall prevail to the extent that they specifically address the subject matter of the conflict. 10 WHEREFORE, the parties hereto have executed and delivered this Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/R.L. Smith McKeithen By: TALITY CORPORATION, ----------------------------- AS GENERAL PARTNER Name: R. L. Smith McKeithen By: /s/Duane W. Bell Title: Senior Vice President and General ---------------------------- Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/R.L. Smith McKeithen By: /s/Duane W. Bell ----------------------------- -------------------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer 11 EX-2.09 10 a2029698zex-2_09.txt EX-2.09 Exhibit 2.09 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS..........................................................................................1 Section 1.1 Action...............................................................................1 Section 1.2 Assets...............................................................................2 Section 1.3 Assignment Agreement.................................................................2 Section 1.4 Cadence Business.....................................................................2 Section 1.5 Cadence Facilities...................................................................2 Section 1.6 Cadence Indemnitees..................................................................2 Section 1.7 Cadence Taxes........................................................................2 Section 1.8 Coverage Amount......................................................................2 Section 1.9 Environmental Actions................................................................2 Section 1.10 Environmental Conditions.............................................................2 Section 1.11 Environmental Laws...................................................................2 Section 1.12 Foreign Transfer Agreement...........................................................2 Section 1.13 Group Tax Return.....................................................................2 Section 1.14 Hazardous Materials..................................................................3 Section 1.15 Indemnitee...........................................................................3 Section 1.16 Insurance Policies...................................................................3 Section 1.17 Insurance Proceeds...................................................................3 Section 1.18 Insurance Transition Period..........................................................3 Section 1.19 IPO Liabilities......................................................................3 Section 1.20 Liabilities..........................................................................3 Section 1.21 Party................................................................................3 Section 1.22 Release..............................................................................3 Section 1.23 Shared Cadence Percentage............................................................3 Section 1.24 Shared Tality Percentage.............................................................3 Section 1.25 Shared Percentage....................................................................3 Section 1.26 Straddle Period......................................................................3 Section 1.27 Straddle Period Tax Return...........................................................3 Section 1.28 Tality Contracts.....................................................................3 Section 1.29 Tality Covered Parties...............................................................3 Section 1.30 Tality Facilities....................................................................4 Section 1.31 Tality Indemnitees...................................................................4 Section 1.32 Tality Liabilities...................................................................4 Section 1.33 Tality Taxes.........................................................................4 Section 1.34 Tax or Taxes.........................................................................4 Section 1.35 Tax Returns..........................................................................4 Section 1.36 Termination Date.....................................................................4 Section 1.37 Third Party Claim....................................................................4 ARTICLE II MUTUAL RELEASES; INDEMNIFICATION....................................................................4 Section 2.1 Release of Pre-Closing Claims........................................................4 Section 2.2 Indemnification by Tality............................................................5
i TABLE OF CONTENTS (CONTINUED)
PAGE ---- Section 2.3 Indemnification by Cadence...........................................................6 Section 2.4 Indemnification With Respect to Environmental Actions and Conditions.................7 Section 2.5 Reductions for Insurance Proceeds and Other Recoveries...............................7 Section 2.6 Procedures for Defense, Settlement and Indemnification of Third Party Claims.........8 Section 2.7 Additional Matters...................................................................9 Section 2.8 Survival of Indemnities.............................................................10 ARTICLE III INSURANCE MATTERS.................................................................................10 Section 3.1 Tality Insurance Coverage During the Transition Period..............................10 Section 3.2 Cooperation and Agreement Not to Release Carriers...................................11 Section 3.3 Tality Insurance Coverage After the Insurance Transition Period.....................12 Section 3.4 Responsibilities for Deductibles and/or Self-insured Obligations....................12 Section 3.5 Procedures With Respect to Insured Tality Liabilities...............................12 Section 3.6 Insufficient Limits of Liability for Architect Liabilities and Tality Liabilities...13 Section 3.7 Cooperation.........................................................................13 Section 3.8 No Assignment or Waiver.............................................................13 Section 3.9 No Liability........................................................................13 Section 3.10 Additional or Alternate Insurance...................................................13 Section 3.11 Further Agreements..................................................................14 Section 3.12 Matters Governed by Employee Matters Agreement......................................14 ARTICLE IV TAX MATTERS........................................................................................14 Section 4.1 Liability for Taxes.................................................................14 Section 4.2 Tax Returns.........................................................................14 Section 4.3 Tax Refunds.........................................................................15 Section 4.4 Tax Contest Provisions..............................................................16 Section 4.5 Tax Information and Cooperation.....................................................16 Section 4.6 Redeterminations of Tax Liability...................................................16 Section 4.7 Status of Tality Group Member as Member of One or More Tax Groups...................17 ARTICLE V MISCELLANEOUS.......................................................................................18 Section 5.1 Incorporation by Reference..........................................................18 Section 5.2 Conflicting Agreements..............................................................18
ii INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT THIS INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT (this "AGREEMENT") is entered into and effective as of October 4, 2000 by and among Cadence Design Systems, Inc., a Delaware corporation ("CADENCE"), Cadence Holdings, Inc., a Delaware corporation ("HOLDINGS"), Tality, LP, a Delaware limited partnership (the "PARTNERSHIP"), and Tality Corporation, a Delaware corporation ("TALITY"). Capitalized terms used herein and not otherwise defined elsewhere herein shall have the meanings ascribed to them in Article I or in the Separation Agreement (defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence associated with the Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement, dated as of July 14, 2000, as amended or restated (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries own and operate the entire Tality Business; and WHEREAS, all conditions to the Separation have been satisfied or waived, and Cadence, Holdings, the Partnership and Tality desire to set forth certain agreements regarding indemnification and insurance. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below. Section 1.1 "ACTION" has the meaning set forth in the Assignment Agreement. 1 Section 1.2 "ASSETS" has the meaning set forth in the Assignment Agreement. Section 1.3 "ASSIGNMENT AGREEMENT" means that certain General Assignment and Assumption Agreement entered into by and among Cadence, Holdings, Tality and the Partnership as of the date hereof. Section 1.4 "CADENCE BUSINESS" means any business of Cadence other than the Tality Business. Section 1.5 "CADENCE FACILITIES" means all of the real property and improvements thereon owned or occupied at any time by any member of the Cadence Group, for purposes of conducting the Cadence Business, excluding the Tality Facilities. Section 1.6 "CADENCE INDEMNITEES" means Cadence, each member of the Cadence Group and each of their respective directors, officers, employees, agents and representatives. Section 1.7 "CADENCE TAXES" has the meaning set forth on SCHEDULE 4.1. Section 1.8 "COVERAGE AMOUNT" has the meaning set forth in Section 3.6(a). Section 1.9 "ENVIRONMENTAL ACTIONS" means any notice, claim, act, cause of action, order, decree or investigation by any Person (including any Governmental Authority) alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, damage to flora or fauna caused by Environmental Conditions, real property damages, personal injuries or penalties) arising out of, based on or resulting from the Release of or exposure of any individual to any Hazardous Materials. Section 1.10 "ENVIRONMENTAL CONDITIONS" means the presence in the environment, including the soil, groundwater, surface water or ambient air, of any Hazardous Material at a level which exceeds any applicable standard or threshold under any Environmental Law or otherwise requires investigation or remediation (including investigation, study, health or risk assessment, monitoring, removal, treatment or transport) under any applicable Environmental Laws. Section 1.11 "ENVIRONMENTAL LAWS" means all laws and regulations of any Governmental Authority with jurisdiction that relate to the protection of the environment (including ambient air, surface water, ground water, land surface or subsurface strata) including laws and regulations relating to the Release of Hazardous Materials, or otherwise relating to the treatment, storage, disposal, transport or handling of Hazardous Materials, or to the exposure of any individual to a Release of Hazardous Materials. Section 1.12 "FOREIGN TRANSFER AGREEMENT" has the meaning set forth in the Assignment Agreement. Section 1.13 "GROUP TAX RETURN" means any Tax Return of a Tax Filing Group (as defined in Section 4.7). 2 Section 1.14 "HAZARDOUS MATERIALS" means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive and biological materials, hazardous substances, petroleum and petroleum products or any fraction thereof. Section 1.15 "INDEMNITEE" has the meaning set forth in Section 2.5. Section 1.16 "INSURANCE POLICIES" has the meaning set forth in the Assignment Agreement. Section 1.17 "INSURANCE PROCEEDS" has the meaning set forth in the Assignment Agreement. Section 1.18 "INSURANCE TRANSITION PERIOD" has the meaning set forth in Section 3.1(a). Section 1.19 "IPO LIABILITIES" means any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in the Registration Statement or any preliminary, final or supplemental prospectus forming a part of the Registration Statement. Section 1.20 "LIABILITIES" has the meaning set forth in the Assignment Agreement. Section 1.21 "PARTY" means Cadence or Holdings, on the one hand, and Tality or the Partnership, on the other, and members of the Cadence Group or the Tality Group, as applicable. Section 1.22 "RELEASE" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, groundwater, wetlands, land or subsurface strata. Section 1.23 "SHARED CADENCE PERCENTAGE" means eighty percent (80%). Section 1.24 "SHARED TALITY PERCENTAGE" means twenty percent (20%). Section 1.25 "SHARED PERCENTAGE" means the Shared Tality Percentage or the Shared Cadence Percentage, as the case may be. Section 1.26 "STRADDLE PERIOD" means any Tax period that includes but does not end on the Separation Date. Section 1.27 "STRADDLE PERIOD TAX RETURN" means any Tax Return with respect to a Straddle Period. Section 1.28 "TALITY CONTRACTS" has the meaning set forth in the Assignment Agreement. Section 1.29 "TALITY COVERED PARTIES" has the meaning set forth in Section 3.1(a). 3 Section 1.30 "TALITY FACILITIES" means all of those facilities to be transferred to Tality on the Separation Date as set forth on Schedule 1 to the Real Estate Matters Agreement. Section 1.31 "TALITY INDEMNITEES" means Tality, each member of the Tality Group and each of their respective directors, officers, employees, agents and representatives. Section 1.32 "TALITY LIABILITIES" has the meaning set forth in the Assignment Agreement. Section 1.33 "TALITY TAXES" has the meaning set forth on SCHEDULE 4.1. Section 1.34 "TAX" or "TAXES" means any foreign or U.S. federal, state, local or municipal income, alternative or add-on minimum, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, value added or any other tax, custom, tariff, impost, levy, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount related thereto, imposed by any governmental authority or any subdivision, agency, commission or authority thereof, or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or other imposition of the foregoing. Section 1.35 "TAX RETURNS" means returns, reports, and information statements with respect to Taxes required to be filed with the Internal Revenue Service or any other federal, foreign, state, or provincial taxing authority, including, without limitation, consolidated, combined and unitary tax returns. Section 1.36 "TERMINATION DATE" has the meaning set forth in Section 3.1(a). Section 1.37 "THIRD PARTY CLAIM" has the meaning set forth in Section 2.6(a). ARTICLE II MUTUAL RELEASES; INDEMNIFICATION Section 2.1 RELEASE OF PRE-SEPARATION CLAIMS. (a) TALITY RELEASE. Except as provided in Section 2.1(d) and SCHEDULE 2.1, effective as of the date hereof, Tality does hereby, for itself and as agent for each member of the Tality Group (including as general partner of the Partnership), remise, release and forever discharge each and all of the Cadence Indemnitees from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the date hereof, including in connection with the transactions and all other activities to implement any aspect of the Separation and the IPO. 4 (b) CADENCE RELEASE. Except as provided in Section 2.1(d) and SCHEDULE 2.1, effective as of the date hereof, Cadence does hereby, for itself and as agent for each member of the Cadence Group, remise, release and forever discharge each and all of the Tality Indemnitees from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the date hereof, including in connection with the transactions and all other activities to implement any aspect of the Separation and the IPO. (c) WAIVER OF SECTION 1542. Each party waives the benefits of Section 1542 of the Civil Code of the State of California, and, to the extent applicable, any comparable statute or other law of any other jurisdiction to the extent such section or other laws may apply to this Agreement. Civil Code Section 1542 provides: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." (d) NO IMPAIRMENT. Nothing contained in Section 2.1(a) or (b) shall impair any right of any Person to enforce the Separation Agreement, any Foreign Transfer Agreement or any Ancillary Agreement (including this Agreement), in each case in accordance with its terms. (e) NO ACTIONS AS TO RELEASED CLAIMS. Tality agrees, for itself and as agent for each member of the Tality Group (including as a general partner of the Partnership), not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Cadence or any other member of the Cadence Group, or any other Person released pursuant to Section 2.1(a), with respect to any Liabilities released pursuant to Section 2.1(a). Cadence agrees, for itself and as agent for each member of the Cadence Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Tality or any member of the Tality Group, or any other Person released pursuant to Section 2.1(b), with respect to any Liabilities released pursuant to Section 2.1(b). (f) FURTHER INSTRUMENTS. At any time, promptly upon the request of the other party, each party hereto shall cause each member of, in the case of Cadence, the Cadence Group, and in the case of Tality, the Tality Group to execute and deliver releases reflecting the provisions hereof. Section 2.2 INDEMNIFICATION BY TALITY. Except as otherwise provided in this Agreement, Tality shall, for itself and as agent for each other member of the Tality Group (including as general partner of the Partnership), indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless each and all of the Cadence Indemnitees from and against any and all Liabilities that any third party seeks to impose upon one or more of the 5 Cadence Indemnitees, or which are imposed upon one or more of the Cadence Indemnitees, and that relate to, arise out of or result from any of the following (without duplication): (i) the Tality Business, any Tality Liability or any Tality Contract; (ii) any breach by Tality or any other member of the Tality Group of the Separation Agreement or any of the Ancillary Agreements (including this Agreement); (iii) any IPO Liabilities; (iv) the litigation matters set forth on SCHEDULE 2.2(iv); (v) any decrease in the purchase price pursuant to Section 2.2(b) of the Asset Purchase Agreement by and among Cadence Design Systems, Inc., Cadence Design Systems Limited, and Symbionics Limited dated as of October 3, 2000. ; and (vi) any decrease in the purchase price pursuant to Section 2.2(b) of the Asset Purchase Agreement by an and among Cadence Design Systems (Canada) Limited and Tality Canada Corporation dated as of October 4, 2000. If any member of the Tality Group makes a payment to any of the Cadence Indemnitees hereunder, such Cadence Indemnitee subsequently diminishes the Liability on account of which such payment was made, either directly or through a third-party recovery, Cadence shall promptly repay (or shall cause an Cadence Indemnitee to promptly repay) such member of the Tality Group the amount by which the payment made by such member of the Tality Group exceeds the actual cost of the associated indemnified Liability. This Section 2.2 shall not apply to any Liability indemnified pursuant to Section 2.4. Section 2.3 INDEMNIFICATION BY CADENCE. Except as otherwise provided in this Agreement, Cadence shall, for itself and as agent for each other member of the Cadence Group, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless each and all of the Tality Indemnitees from and against any and all Liabilities that any third party seeks to impose upon one or more of the Tality Indemnitees, or which are imposed upon one or more of the Tality Indemnitees, and that relate to, arise out of or result from any of the following (without duplication): (i) the Cadence Business or any Liability of the Cadence Group other than the Tality Liabilities; (ii) any breach by Cadence or any other member of the Cadence Group of the Separation Agreement or any of the Ancillary Agreements (including this Agreement); (iii) any increase in the purchase price pursuant to Section 2.2(b) of the Asset Purchase Agreement by and among Cadence Design 6 Systems, Inc., Cadence Design Systems Limited, and Symbionics Limited dated as of October 3, 2000; and (iv) any increase in the purchase price pursuant to Section 2.2(b) of the Asset Purchase Agreement by an and among Cadence Design Systems (Canada) Limited and Tality Canada corporation dated as of October 4, 2000.. If any member of the Cadence Group makes a payment to any of the Tality Indemnitees hereunder, and such Tality Indemnitee subsequently diminishes the Liability on account of which such payment was made, either directly or through a third-party recovery, Tality shall promptly repay (or shall cause a Tality Indemnitee to promptly repay) such member of the Cadence Group the amount by which the payment made by such member of the Cadence Group exceeds the actual cost of the indemnified Liability. This Section 2.3 shall not apply to any Liability indemnified pursuant to Section 2.4. Section 2.4 INDEMNIFICATION WITH RESPECT TO ENVIRONMENTAL ACTIONS AND CONDITIONS. (a) INDEMNIFICATION BY TALITY. Tality shall, for itself and as agent for each member of the Tality Group (including as general partner of the Partnership), indemnify, defend and hold harmless each and all of the Cadence Indemnitees from and against any and all (i) Environmental Actions relating to, arising out of or resulting from operations of the Tality Business or (ii) Environmental Conditions existing on, under, about or in the vicinity of any of the Tality Facilities, including any Release of Hazardous Materials that migrates to any of the Tality Facilities (except to the extent that such Environmental Conditions relate to, arise out of or result from the operations of the Cadence Business). (b) INDEMNIFICATION BY CADENCE. Cadence shall, for itself and as agent for each other member of the Cadence Group, indemnify, defend and hold harmless each and all of the Tality Indemnitees from and against any and all (i) Environmental Actions relating to, arising out of or resulting from operations of the Cadence Business or (ii) Environmental Conditions existing on, under, about or in the vicinity of any of the Cadence Facilities, including any Release of Hazardous Materials that migrates to any of the Cadence Facilities (except to the extent that such Environmental Conditions relate to, arise out of or result from the operations of the Tality Business). (c) AGREEMENT REGARDING PAYMENTS TO INDEMNITEE. If an Indemnifying Party makes any payment to or on behalf of an Indemnitee with respect to an Environmental Action for which the Indemnifying Party is obligated to indemnify under this Section 2.4, and the Indemnitee subsequently receives any payment from a third party on account of the same financial obligation covered by the payment made by the Indemnifying Party for that Environmental Action or otherwise diminishes the financial obligation, the Indemnitee shall promptly repay the Indemnifying Party the amount by which the payment made by the Indemnifying Party, exceeds the actual cost of the financial obligation. Section 2.5 REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The amount that any party hereto or any other member of the Cadence Group or Tality Group, as the case 7 may be (an "INDEMNIFYING PARTY"), is or may be required to pay to any other Person pursuant to Section 2.2, 2.3 or 2.4, as applicable (an "INDEMNITEE"), shall be reduced (retroactively or prospectively) by any Insurance Proceeds or other amounts actually recovered from third parties by or on behalf of such Indemnitee in respect of the related loss. The existence of a claim by an Indemnitee for monies from an insurer or against a third party in respect of any indemnifiable loss shall not, however, delay any payment pursuant to the indemnification provisions contained herein and otherwise determined to be due and owing by an Indemnifying Party. Rather, the Indemnifying Party shall make payment in full of the amount determined to be due and owing by it against an assignment by the Indemnitee to the Indemnifying Party of the entire claim of the Indemnitee for Insurance Proceeds or against such third party. Notwithstanding any other provision of this Agreement, it is the intention of the parties hereto that no insurer or any other third party shall be (i) entitled to a benefit it would not be entitled to receive in the absence of the foregoing indemnification provisions or (ii) relieved of the responsibility to pay any claims for which it is obligated. If an Indemnitee has received the payment required by this Agreement from an Indemnifying Party in respect of any indemnifiable loss and later receives Insurance Proceeds or other amounts in respect of such indemnifiable loss, then such Indemnitee shall hold such Insurance Proceeds or other amounts in trust for the benefit of the Indemnifying Party or Indemnifying Parties and shall pay to it or them, as promptly as practicable after receipt thereof, a sum equal to the amount of such Insurance Proceeds or other amounts received, up to the aggregate amount of any payments received from the Indemnifying Party pursuant to this Agreement in respect of such indemnifiable loss (or, if there is more than one Indemnifying Party, the Indemnitee shall pay each Indemnifying Party, its proportionate share (based on payments received from the Indemnifying Parties) of such Insurance Proceeds). Section 2.6 PROCEDURES FOR DEFENSE, SETTLEMENT AND INDEMNIFICATION OF THIRD PARTY CLAIMS. (a) NOTICE OF CLAIMS. If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the Cadence Group or the Tality Group of any claim or of the commencement by any such Person of any Action (any such claim or Action, a "THIRD PARTY CLAIM") with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 2.2, 2.3 or 2.4, or the Separation Agreement or any Ancillary Agreement (including this Agreement), Cadence and Tality (as applicable) shall ensure that such Indemnitee shall give such Indemnifying Party written notice thereof promptly and in any event within 30 days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the delay or failure of any Indemnitee or other Person to give notice as provided in this Section 2.6(a) shall not relieve the related Indemnifying Party of its obligations under this Article II, except to the extent that such Indemnifying Party is actually and substantially prejudiced by such delay or failure to give notice. (b) DEFENSE BY INDEMNIFYING PARTY. An Indemnifying Party shall manage the defense of and, subject to subsection (e) below, may settle or compromise any Third Party Claim (except Third Party Claims related to the litigation matters set forth on SCHEDULE 2.2(iv), the defense of which shall be managed by Cadence and, subject to subsection (e) below, Cadence may settle or comprise such Third Party Claims). Within 30 days after the receipt of notice from 8 an Indemnitee in accordance with Section 2.6(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee that the Indemnifying Party is assuming responsibility for managing the defense of such Third Party Claim. The Indemnifying Party shall be solely responsible for the fees, costs and expenses of the defense. The Indemnified Party shall cooperate with and provide reasonable assistance to the Indemnifying Party, where requested by the Indemnifying Party, in respect of such defense. (c) DEFENSE BY INDEMNITEE. If an Indemnifying Party fails to assume responsibility for managing the defense of a Third Party Claim, or fails to notify an Indemnitee that it shall assume responsibility as provided in Section 2.6(b), such Indemnitee may manage the defense of such Third Party Claim; PROVIDED, HOWEVER, that the Indemnifying Party shall reimburse all such reasonable fees, costs and expenses, including attorney's and other professional fees and expenses, in the event it is ultimately determined that the Indemnifying Party is obligated to indemnify the Indemnitee with respect to such Third Party Claim. (d) NO SETTLEMENT BY INDEMNITEE WITHOUT CONSENT. Unless the Indemnifying Party has failed to manage the defense of the Third Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed, it being understood that it is not unreasonable to withhold consent where a full release in favor of the Indemnifying Party is not obtained. (e) NO CONSENT TO CERTAIN JUDGMENTS OR SETTLEMENTS WITHOUT CONSENT. Notwithstanding any provision of this Section 2.6, no Party ( shall consent to entry of any judgment or enter into any settlement of a Third Party Claim without the consent of the other Party (such consent not to be unreasonably withheld or delayed) if the effect of such judgment or settlement is to (A) permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against the other Party; (B) affect the other Party in a material fashion due to the allocation of Liabilities and related indemnities set forth in the Separation Agreement, this Agreement or any other Ancillary Agreement; (C) cause the other Party to incur any obligations of performance to which it does not consent in writing; or (D) cause the other Party to convey or otherwise grant licenses to its intellectual property or royalties derived therefrom. It is expressly understood among the Parties that it is not unreasonable for a Party to withhold its consent where a full release in favor of the Party whose consent is sought has not been obtained. Section 2.7 ADDITIONAL MATTERS. (a) COOPERATION IN DEFENSE AND SETTLEMENT. With respect to any Third Party Claim that implicates one or more members of the Tality Group (including as general partner or the Partnership) and one or more members of the Cadence Group in a material fashion due to the allocation of Liabilities, responsibilities for management of defense and related indemnities set forth in the Separation Agreement, this Agreement or any of the other Ancillary Agreements, or where the other Party, on reasonable cause in reflection of its own interest, seeks to participate actively in the defense of a Third Party Claim for which it is the Indemnitee and the other Party is the Indemnifying Party, the Parties agree to cooperate fully and maintain a joint defense (in a manner that shall preserve the attorney-client privilege with respect thereto) so as to minimize 9 such Liabilities and defense costs associated therewith. Except as the Parties otherwise may mutually agree, where both Parties hereto participate in the defense of a Third Party Claim, the responsibility for managing the defense shall be as allocated by Section 2.6(b) and (c) of this Agreement. The Party that is not responsible for managing the defense of such Third Party Claims shall, upon its reasonable request, be consulted with respect to significant matters relating thereto and may, if it deems necessary or helpful, and at its own expense, assume an active role in the defense of such claims and associate separate counsel for such purpose, subject to a continuing duty to coordinate reasonably with the Party managing the defense. (b) SUBSTITUTION. In the event of an Action involving potential indemnification obligations pursuant to this Agreement in which the Indemnifying Party is not a named defendant, if either the Indemnitee or the Indemnifying Party shall so request, the parties shall endeavor to substitute the Indemnifying Party for the named defendant. If such substitution or addition cannot be achieved for any reason or is not requested, the rights and obligations of the parties regarding indemnification and the management of the defense of claims as set forth in this Article II shall not be altered. (c) SUBROGATION. In the event of payment by or on behalf of any Indemnifying Party to or on behalf of any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee, in whole or in part based upon whether the Indemnifying Party has paid all or only part of the Indemnitee's Liability, as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim. Section 2.8 SURVIVAL OF INDEMNITIES. Subject to Section 1.3, the rights and obligations of the members of the Cadence Group and Tality Group under this Article II shall survive the sale or other transfer by any of the members of the Cadence Group or the Tality Group of any Assets or businesses or the assignment by it of any Liabilities or the sale by any member of the Cadence Group or the Tality Group of the capital stock or other equity interests of any Subsidiary to any Person. ARTICLE III INSURANCE MATTERS Section 3.1 TALITY INSURANCE COVERAGE DURING THE TRANSITION PERIOD. (a) MAINTAIN COMPARABLE INSURANCE. Throughout the period (the "INSURANCE TRANSITION PERIOD") beginning on the Separation Date and ending on the date that is the earlier of (A) one (1) year after the Separation Date (or upon the mutual consent of Cadence and the Partnership) and (B) the date on which coverage is canceled following the giving of notice as provided in this Section 3.1(a) (the "TERMINATION DATE"), Cadence shall, subject to insurance market conditions and other factors beyond its control, maintain policies of insurance, including for the benefit of the Tality Group (inclusive of Tality or any of its Subsidiaries, directors, 10 officers, employees or other covered parties (collectively, the "TALITY COVERED PARTIES")) which are comparable to those maintained for such purposes by Cadence immediately prior to the Separation Date; PROVIDED, HOWEVER, that (i) if Cadence determines that, due to circumstances beyond its authority or control (A) the amount or scope of such coverage shall be reduced by actions of insurance carrier(s) to a level that is eighty percent (80%) or less than the level of coverage in existence immediately prior to the Insurance Transition Period or (B) insurance carrier(s) come to require that the retention or deductible level applicable to such coverage, if any, shall be increased to a level that is twenty percent (20%) or more than the levels in existence immediately prior to the Insurance Transition Period, Cadence shall give the Partnership notice of such determination (a "COVERAGE DETERMINATION") as promptly as practicable; and (ii) Tality and the Partnership shall be solely responsible for the maintenance of director and officer liability insurance in relation to the directors and officers of Tality. Upon notice of a Coverage Determination, and subject to any time limitation placed upon Cadence by an insurance carrier whose actions have prompted the giving of such notice, the Partnership shall be entitled to no less than sixty (60) days to evaluate its options regarding continuance of coverage hereunder. Cadence shall cooperate to assist in such evaluation, and the Partnership, in its sole discretion, may instruct Cadence to cause to be cancelled the Partnership's interest in all or any portion of such coverage as of any day within such 60 day period. Should the Partnership not respond to such notice, Cadence shall maintain such coverage for the benefit of the Partnership as it reasonably deems appropriate, provided that it may accept reduced coverage in order to avoid a material increase in policy expense. Except as so provided, in no case may Cadence, without the express consent of the Partnership, cancel or cause to be canceled, or reduce the amount or scope of, insurance coverage during the Insurance Transition Period. (b) REIMBURSEMENT FOR PREMIUMS. The Partnership shall promptly pay or reimburse Cadence, as the case may be, for premium expenses, and Tality Covered Parties shall promptly pay or reimburse Cadence for any costs and expenses which Cadence may incur in connection with the insurance coverages maintained pursuant to this Section 3.1, including to any subsequent premium adjustments. All payments and reimbursements by the Partnership and Tality Covered Parties to Cadence shall be made within thirty (30) days after the Partnership's receipt of an invoice from Cadence. Section 3.2 COOPERATION AND AGREEMENT NOT TO RELEASE CARRIERS. Each of Cadence and the Partnership shall share such information as is reasonably necessary in order to permit the other to manage and conduct its insurance matters in an orderly fashion. Each of Cadence and the Partnership, at the request of the other, shall cooperate with and use commercially reasonable efforts to assist the other in recoveries for claims made under any insurance policy for the benefit of any insured party, and neither Cadence nor the Partnership, nor any of member of the Cadence Group or the Tality Group, shall take any action which would intentionally jeopardize or otherwise interfere with either party's ability to collect any proceeds payable pursuant to any insurance policy. Except as otherwise contemplated by the Separation Agreement, this Agreement or any other Ancillary Agreement, after the Separation Date, neither Cadence nor the Partnership shall (and shall ensure that no member of the Cadence Group or the Tality Group, respectively, shall), without the consent of the other, provide any insurance carrier with a release, or amend, modify or waive any rights under any such policy or agreement, if such release, amendment, modification or waiver would adversely affect any rights or potential rights of the other party or any member of, in the case the other party is Cadence, the Cadence Group, and in 11 the case the other party is the Partnership, the Tality Group thereunder. However, nothing in this Section 3.2 shall (A) preclude any member of either the Cadence Group or the Tality Group from presenting any claim or from exhausting any policy limit; (B) require any member of either the Cadence Group or the Tality Group to pay any premium or other amount or to incur any Liability; or (C) require any member of either the Cadence Group or the Tality Group to renew, extend or continue any policy in force. Section 3.3 TALITY INSURANCE COVERAGE AFTER THE INSURANCE TRANSITION PERIOD. From and after the Termination Date, the Partnership shall be responsible for obtaining and maintaining, at its sole expense, insurance programs for its risk of loss and such insurance arrangements shall be separate and apart from Cadence's insurance programs. Notwithstanding the foregoing, Cadence, upon the request of the Partnership, shall cooperate with and use commercially reasonable efforts to assist the Partnership in the transition to its own separate insurance programs from and after the Termination Date, and shall provide the Partnership with any information that is in the possession of Cadence and is reasonably available and necessary to either obtain insurance coverages for the Partnership or to assist the Partnership in preventing unintended self-insurance, in whatever form. Section 3.4 RESPONSIBILITIES FOR DEDUCTIBLES AND/OR SELF-INSURED OBLIGATIONS. The Partnership shall reimburse Cadence for all amounts necessary to exhaust or otherwise satisfy all applicable self-insured retentions, amounts for fronted policies, deductibles and retrospective premium adjustments and similar amounts not covered by Insurance Policies in connection with Tality Liabilities and Insured Tality Liabilities. Any amounts to be reimbursed by the Partnership shall be paid within ten (10) days after the Partnership's receipt of notice of the amount due to Cadence. Section 3.5 PROCEDURES WITH RESPECT TO INSURED TALITY LIABILITIES. (a) REIMBURSEMENT. The Partnership shall promptly reimburse, within ten (10) days after receiving notice thereof, Cadence for all reasonable amounts incurred by Cadence to pursue insurance recoveries from Insurance Policies for Insured Tality Liabilities. (b) MANAGEMENT OF CLAIMS. The defense of claims, suits or actions giving rise to potential or actual Insured Tality Liabilities shall be managed (in conjunction with Cadence's insurers, as appropriate) by the party that would have had responsibility for managing such claims, suits or actions had such Insured Tality Liabilities been Tality Liabilities, PROVIDED, HOWEVER, that (i) if such party fails to assume responsibility for managing the claim, suit or action, the other party may assume this responsibility, and may act to seek an extension of time, or take other unilateral, commercially reasonable actions, where necessary to protect the interest of the insured party; PROVIDED, FURTHER, that the party originally responsible shall reimburse all such reasonable fees, costs and expenses, including attorney's and other professional fees, so incurred in the management of the claim, suit or action; and (ii) with respect to such claims, suits or actions, in which the party not responsible for management determines, on reasonable cause in reflection of its own interest, that it wishes to participate actively in the claim, suit or action, the parties agree to cooperate fully and maintain a joint defense (in a manner that shall preserve the attorney-client privilege with respect thereto), and the party that is not responsible for managing actions shall, upon its reasonable request, be consulted with respect to significant matters relating 12 thereto and may, if it deems necessary or helpful, and at its own expense, assume an active role in the respect to such claims, suits or actions, and associate separate counsel for such purpose, subject to a continuing duty to coordinate reasonably with the party managing the claim, suit or action. Section 3.6 INSUFFICIENT LIMITS OF LIABILITY FOR CADENCE LIABILITIES AND TALITY LIABILITIES. If there shall be insufficient limits of liability available under Cadence's Insurance Policies in effect prior to the Termination Date to cover the Liabilities of Cadence and/or the Partnership that would otherwise be covered by such Insurance Policies, then to the extent that other insurance is not available to Cadence and/or Tality for such Liabilities an adjustment shall be made in accordance with the following procedures: (a) Each Party shall be allocated an amount equal to its Shared Percentage of the lesser of (A) the available limits of liability available under Cadence's Insurance Policies in effect prior to the Termination Date net of uncollectible amounts attributable to insurer insolvencies, and (B) the proceeds received from Cadence's Insurance Policies if the Liabilities are the subject of disputed coverage claims and, following consultation with each other, Cadence and/or the Partnership agree to accept less than full policy limits from Cadence's and the Partnership's insurers (the "COVERAGE AMOUNT"). (b) A Party that receives more than its share of the Coverage Amount (the "OVERALLOCATED PARTY") agrees to reimburse the other Party (the "UNDERALLOCATED PARTY") to the extent that the Liabilities of the Underallocated Party that would have been covered under such Insurance Policies is less than the Underallocated Party's share of the Coverage Amount. (c) This Section 3.6(a) shall terminate ten (10) years following the Termination Date. Section 3.7 COOPERATION. Cadence and the Partnership shall cooperate with each other in all respects, and they shall execute any additional documents which are reasonably necessary, to effectuate the provisions of this Article III. Section 3.8 NO ASSIGNMENT OR WAIVER. This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the Cadence Group in respect of any Insurance Policy or any other contract or policy of insurance. Section 3.9 NO LIABILITY. Tality and the Partnership do hereby, for themselves, as agents for each other member of the Tality Group, agree that no member of the Cadence Group or any Cadence Indemnitee shall have any Liability whatsoever to any member of the Tality Group as a result of the Insurance Policies and insurance practices of Cadence and its Subsidiaries as in effect at any time prior to the Termination Date, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise. Section 3.10 ADDITIONAL OR ALTERNATE INSURANCE. Notwithstanding any provision of this Agreement, during the Insurance Transition Period Cadence and the Partnership shall work 13 together to evaluate insurance options and secure additional or alternate insurance for the Partnership and/or Cadence if desired and cost effective. Nothing in this Agreement shall be deemed to restrict any member of the Tality Group from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period; PROVIDED, HOWEVER, that, if the Partnership elects to acquire other insurance, it must promptly notify Cadence of its intention to do so and, within thirty (30) days of the policy date of such new insurance, it must furnish Cadence with a copy of the policy binder and, when available, a copy of the certificate of insurance, and such other information concerning the policy as Cadence may reasonably request. Section 3.11 FURTHER AGREEMENTS. The Parties acknowledge that they intend to allocate financial obligations without violating any Applicable Law regarding insurance, self-insurance or other financial responsibility. If it is determined that any action undertaken pursuant to the Separation Agreement, this Agreement or any other Ancillary Agreement is violative of any insurance, self-insurance or related financial responsibility law or regulation, the parties agree to work together to do whatever is necessary to comply with such law or regulation while trying to accomplish, as much as possible, the allocation of financial obligations as intended in the Separation Agreement, this Agreement and any other Ancillary Agreement. Section 3.12 MATTERS GOVERNED BY EMPLOYEE MATTERS AGREEMENT. This Article III shall not apply to any insurance policies that are the subject of the Employee Matters Agreement. ARTICLE IV TAX MATTERS Section 4.1 LIABILITY FOR TAXES. (a) CADENCE TAXES. Cadence shall be liable for, and shall indemnify, defend and hold harmless each member of the Tality Group from and against (i) all Cadence Taxes, and (ii) all losses, liabilities, damages, and reasonable expenses incurred or sustained by the Tality Group by reason of or in connection with Cadence Taxes. (b) TALITY TAXES. Each member of the Tality Group shall be jointly and severally liable for, and shall indemnify, defend and hold harmless the Cadence Group from and against (i) all Tality Taxes, and (ii) all losses, liabilities, damages, and reasonable expenses incurred or sustained by any member of the Cadence Group by reason of or in connection with Tality Taxes; PROVIDED, HOWEVER, that it is understood that the Cadence Group shall be liable for any income Taxes imposed with respect to its allocable share of income of the Partnership. Section 4.2 TAX RETURNS. (a) TAX RETURNS TO BE PREPARED AND FILED BY CADENCE. Cadence will be responsible for and will cause to be prepared and duly filed (i) all Tax Returns of the Tality Group (other than Group Tax Returns) to the extent that any member of the Cadence Group may be liable for the payment of any Tax due with respect to any such Tax Return, except for any Tax Return pertaining to degrouping under the applicable provisions of UK law, (ii) all Straddle Period Tax Returns, and (iii) all Group Tax Returns. All such Tax Returns shall be prepared in a manner consistent with prior periods to the extent such Tax Returns have been filed in prior 14 periods. All such Tax Returns that require the payment of material amounts by the Tality Group shall be submitted to Tality no later than ten days prior to the due date and filing thereof, and Tality shall have the right to review and comment thereon (without such submission review or lack thereof affecting the indemnification obligations of Cadence under this Agreement). Such Tax Returns, as modified by reasonable comments of Tality (if applicable), shall be filed with applicable taxing authorities. Cadence shall pay or cause to be paid any and all Cadence Taxes that are due with respect to such Tax Returns, and the Tality Group shall pay any Tality Taxes that are due with respect to such Tax Returns. (b) TAX RETURNS TO BE PREPARED AND FILED BY THE TALITY GROUP. Except as provided in Section 4.2(a), the Tality Group shall be responsible for and will cause to be prepared and duly filed all Tax Returns of or with respect to any member of the Tality Group to the extent that they may be liable for the payment of any Tax due with respect to any such Tax Return and all Tax Returns (including information returns) that are required to be filed by the Partnership. The Tality Group shall pay all Tality Taxes that are due with respect to such Tax Returns. (c) AMENDED TAX RETURNS. Without the prior written consent of Cadence, no member of the Tality Group shall (i) make any election relating to Taxes or (ii) file any amended Tax Returns or propose or agree to any adjustment of any item with the Internal Revenue Service or any other taxing authority that would have the effect of increasing the liability of any member of the Cadence Group for any Cadence Taxes. Without the prior written consent of Tality, no member of the Cadence Group shall (i) make any election relating to Taxes or (ii) file any amended Tax Returns or propose or agree to any adjustment of any item with the Internal Revenue Service or any other taxing authority that would have the effect of increasing the liability for any member of the Tality Group for any Tality Taxes, except to the extent such election is reflected in a Tax Return filed by Cadence in accordance with Section 4.2(a). Section 4.3 TAX REFUNDS. (a) Subject to Section 4.3(b), Cadence and Tality shall be entitled to any refund of any Cadence Taxes and Tality Taxes, respectively, including interest received thereon. If either Cadence or Tality elects to make a claim for refund, the other party shall cooperate fully in connection therewith. Notwithstanding the foregoing, Cadence and Tality shall not be entitled to make any claim for refund of Cadence Taxes and Tality Taxes, respectively, if such refund claim would materially adversely affect the Tax liability of the other party without the prior written consent of the other party; PROVIDED, HOWEVER, that such consent shall not be unreasonably withheld or delayed and such consent shall not be necessary to the extent that the party making the refund claim has indemnified the other party against the effects of any such claim for refund. The party making a refund claim shall reimburse the other party for reasonable out-of-pocket expenses incurred in providing such cooperation. (b) If an indemnified party receives a refund or credit of Taxes for which it has been indemnified pursuant to this Article IV, it shall pay to the indemnifying party the amount of such refund or credit (including any interest received thereon), less any Taxes incurred as a result of the receipt thereof, after taking into account the Tax benefit of the payment). 15 Section 4.4 TAX CONTEST PROVISIONS. (a) Whenever any member of the Tality Group receives a notice of any pending or threatened Tax audit or assessment with respect to Cadence Taxes, it shall promptly inform Cadence in writing. Whenever any member of the Cadence Group receives a notice of any pending or threatened Tax audit or assessment with respect to any Tality Taxes, it shall promptly inform Tality in writing. (b) Cadence shall have the right to control, at its own cost, any proceedings relating to any pending or threatened Tax audit or assessment for any Cadence Taxes, or any Taxes with respect to a Straddle Period or a Group Tax Return, and to determine whether and when to settle any such claim, assessment or dispute. Notwithstanding the foregoing, Tality shall have the right to participate in the defense of any claim for Taxes with respect to a Straddle Period or Group Tax Return for which it may have material liability hereunder, and Cadence shall not be entitled to settle, either administratively or after the commencement of litigation, any claim for Taxes which would materially adversely affect the liability of the Tality Group for any Tality Taxes without the prior written consent of Tality, provided that such consent shall not be unreasonably withheld or delayed. (c) Except as provided in Section 4.4(b), Tality shall have the right to control, at its cost, any proceedings relating to any pending or threatened Tax audit or assessment relating to any Tality Taxes and to determine whether and when to settle any such claim, assessment or dispute. Notwithstanding the foregoing, Tality shall not be entitled to settle, either administratively or after the commencement of litigation, any claim for Taxes which would materially adversely affect the liability of Cadence for any Cadence Taxes without the prior written consent of Cadence, provided that such consent shall not be unreasonably withheld or delayed. Section 4.5 TAX INFORMATION AND COOPERATION. (a) After the Separation, the Cadence Group and the Tality Group will make available to the other, as reasonably requested, all information, records or documents relating to liabilities for Tality Taxes and Cadence Taxes, respectively, and shall not dispose of such information, records or documents prior to six (6) months after the expiration of any applicable statute of limitations (including extensions thereof) with respect to the assessment of such Taxes, without first offering such materials to the other party. (b) Each of Cadence and Tality agrees to cooperate fully and to cause their respective affiliates to cooperate fully and in a timely manner in connection with the preparation of Tax Returns, preparation of Tax refund claims, and the conduct of any Tax contest. Section 4.6. REDETERMINATIONS OF TAX LIABILITY. If there is a redetermination of Cadence Taxes or Tality Taxes pursuant to a Final Determination (as defined below), the payments required to be made by Cadence and Tality pursuant to Sections 4.1 and 4.2 shall be recomputed by substituting the amount of the Tax liability as so redetermined. Any additional payment, or any refund, shall be paid no later than three (3) Business Days before the date that such payment is required to be made to, or the 16 refund is received from, the relevant Tax authority by reason of such redetermination. "FINAL DETERMINATION" shall mean (i) a decision, judgment, decree or other order by any court of competent jurisdiction, which has become final and is either no longer subject to appeal or for which a determination not to appeal has been made; (ii) a closing agreement made under Section 7121 of the Code or any comparable foreign, state, local, municipal or other Taxing statute; (iii) a final disposition by any Tax authority of a claim for refund; or (iv) any other written agreement or other state of facts that results in a redetermination of Taxes for any tax period becoming final and that prohibits such Tax authority from seeking any further legal or administrative remedies with respect to such Taxes. Section 4.7 STATUS OF TALITY GROUP MEMBER AS MEMBER OF ONE OR MORE TAX GROUPS. (a) Cadence and Tality shall mutually determine whether and for what periods any member of the Cadence Group, on the one hand, and any member of the Tality Group, on the other hand, are members of the same "affiliated group" (as defined in Section 1504 of the Internal Revenue Code of 1986, as amended) or the same combined, consolidated, unitary or other similar group for state, local or foreign tax purposes (in each case, a "TAX FILING GROUP"). (b) Any dispute regarding the status of a Person as a member of a Tax Filing Group shall be resolved as follows: With respect to a Tax period all or any portion of which is included in the financial statements of Cadence and Tality that are or will be audited by the same firm of certified public accountants, then a dispute with respect to such period shall be resolved by that firm. In any other case, the dispute shall be resolved by a firm of certified public accountants mutually acceptable to Cadence and Tality, and if the parties are unable to agree on a firm to resolve such dispute, the firm shall be selected by lot from among four nationally recognized firms of certified public accountants, two of whom are selected by Cadence and two of whom are selected by Tality. (c) If any member of the Tality Group is included in any Group Tax Return for any Straddle Period and the Cadence Taxes for the post-Separation portion of the Straddle Period pertaining to such Group Tax Return are lower than they would have been in the absence of such inclusion, the Cadence Group shall pay to the Tality Group on the due date of such return an amount equal to such reduction in Cadence Taxes. For purposes of the preceding sentence, Cadence Taxes for the post-Separation portion of the Straddle Period shall be calculated by means of a closing of the books and records as of the close of the Separation Date, as if such taxable period ended as of the close of the Separation Date. (d) If any member of the Tality Group is included in any Group Tax Return for any taxable year that begins after the Separation Date and the cumulative Cadence Taxes pertaining to such Group Tax Return for all taxable periods following the Separation Date (including the post-Separation portion of any Straddle Period) are lower than they would have been for such periods in the absence of such inclusion, , the Cadence Group shall pay to the Tality Group on the due date of such return an amount equal to such reduction in Cadence Taxes, less amounts previously paid by Cadence under this Paragraph (d). . 17 Section 4.8. Articles II and III of this Agreement shall not apply to any matter relating to Taxes. Any matter relating to Taxes shall be covered by Article IV of this Agreement. ARTICLE V MISCELLANEOUS Section 5.1 INCORPORATION BY REFERENCE. Section 4.4 and all of the provisions of Article V (except for Section 5.13 thereof) of the Separation Agreement are incorporated into and made a part of this Agreement, as if fully set forth herein. Section 5.2 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement and the Separation Agreement, any Foreign Transfer Agreement, any other Ancillary Agreement (including Article III of the Assignment Agreement) or other agreement executed in connection herewith or therewith, the provisions of such other agreement shall prevail to the extent that they specifically address the subject matter of the conflict. Nothing set forth herein shall restrict or limit any indemnification obligations set forth in any Foreign Transfer Agreement. 18 WHEREFORE, the parties have executed and delivered this Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/R.L. Smith Mckeithen By: TALITY CORPORATION, --------------------------------- AS GENERAL PARTNER Name: R.L. Smith McKeithen Title: Senior Vice President and General Counsel By: /s/Duane W. Bell -------------------- Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/R.L. Smith Mckeithen By: /s/Duane W. Bell -------------------------------- --------------------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer
19 EX-2.10 11 a2029698zex-2_10.txt EX-2.10 Exhibit 2.10 ASSET PURCHASE AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE DESIGN SYSTEMS (CANADA) LIMITED AND TALITY CANADA CORPORATION DATED AS OF OCTOBER 4, 2000 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of and effective on October 4, 2000 by and among Cadence Design Systems, Inc., a Delaware corporation ("PARENT"), Cadence Design Systems (Canada) Limited, a company organized under the laws of the Province of Nova Scotia ("SELLER"), and Tality Canada Corporation, a company also organized under the laws of the Province of Nova Scotia ("BUYER"). Capitalized terms used herein and not otherwise defined elsewhere herein shall have the meanings ascribed to them in Article I. RECITALS WHEREAS, Seller intends to sell and Buyer intends to purchase the shares of Westport Technology Company ("WESTPORT") and certain of Seller's assets related to the business of providing design services for electronic devices, electronic system components and electronic systems, and assume certain liabilities related to such assets; WHEREAS, the parties intend that, in exchange for consideration equal to the Purchase Price (as defined below), Seller shall hereby transfer to Buyer on the date hereof the shares of Westport and those assets set forth on EXHIBIT A hereto (the "TRANSFERRED ASSETS") and Buyer shall hereby assume those liabilities set forth on EXHIBIT B hereto (the "TRANSFERRED LIABILITIES", together with the Transferred Assets, the "PURCHASED ASSETS"), as provided in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS "BUYER GROUP" means Buyer, the Partnership and any Subsidiary of the Partnership. "GOVERNMENTAL APPROVALS" means any notices, reports or other filings to be made with, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority. "GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or international court or government, or any political subdivision thereof, or any department, commission, board, bureau, agency, official or other regulatory, administrative body of any such government or political subdivision thereof. "PARTNERSHIP" means Tality, LP, a Delaware limited partnership wholly owned by Tality and one or more wholly owned Subsidiaries of Parent. "PARENT GROUP" means Parent and each Subsidiary and other affiliate of Parent other than Buyer, the Partnership and Subsidiaries of the Partnership. 1 "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a Governmental Authority. "SUBSIDIARY" of any Person means any other Person of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or other body performing similar functions with respect to such other Person is directly or indirectly owned or controlled by such Person, or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries. "TALITY" means Tality Corporation, a Delaware corporation and a Subsidiary of Parent. ARTICLE II PURCHASE, TRANSFER AND ASSUMPTION Section 2.1 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. (a) TRANSFER OF ASSETS. On the date hereof, Seller hereby assigns, transfers, conveys and delivers to Buyer, and Buyer hereby accepts from Seller, all of Seller's right, title and interest in and to the Transferred Assets and the beneficial and economic ownership of the Transferred Assets. Delivery of the Transferred Assets shall take place in situ and on and from the date hereof the Seller shall let the Buyer into possession of the Transferred Assets. (b) ASSUMPTION OF LIABILITIES. On the date hereof, Buyer hereby assumes and agrees faithfully to perform and fulfill all the Transferred Liabilities owed by Seller in accordance with their respective terms and shall indemnify and hold harmless the Seller against the Transferred Liabilities and all costs, claims, demands, liabilities and expenses in respect of the Transferred Liabilities. Thereafter, Buyer shall be responsible for all Transferred Liabilities owed by Seller, regardless of when or where such Transferred Liabilities arose or arise, or whether the facts on which they are based occurred prior to, on or after the date hereof, regardless of where or against whom such Transferred Liabilities are asserted or determined or whether asserted or determined prior to the date hereof. (c) Except as may be expressly set forth herein, all assets, properties and other things of value to be transferred to, and all liabilities to be assumed by, Buyer are being transferred or assumed, as applicable, "AS IS, WHERE IS," and Buyer shall bear the economic and legal risk that any conveyance shall prove to be insufficient to vest in Buyer good and marketable title, free and clear of any lien, claim, equity or other encumbrance. Section 2.2 PURCHASE PRICE; TERMS OF PAYMENT. (a) DETERMINATION OF PURCHASE PRICE. Parent retained an independent third party, Houlihan Lockey Howard & Zukin (the "VALUATION EXPERT"), to determine the fair market value of the Purchased Assets as of the date of this Agreement (the "PURCHASE PRICE"). The parties hereby agree that the purchase price to be paid for the Purchased Assets shall equal the Purchase Price as so determined by the Valuation Expert and that subject to subparagraph 2.2(b)(ii) below, the determination of the Valuation Expert that the Purchase Price equals 2 US$9,000,000 shall be final and binding on the parties. The cost of the Valuation Expert shall be borne by Parent. (b) TERMS OF PAYMENT OF PURCHASE PRICE: (i) On the date hereof, Buyer shall pay to Seller the Purchase Price. (ii) The parties hereto hereby express their intention that the Purchased Assets are to be transferred at their fair market value. The basis for the fair market value figure of the Purchased Assets is the valuation referred to in paragraph 2.2(a). The parties recognize that the said fair market value of the Purchased Assets may be determined to be higher or lower, as the case may be, by the Canada Customs and Revenue Agency ("CCRA") than the Purchase Price and in such event and to cover such case, the parties hereby agree as follows: (A) the Seller and Buyer may notify CCRA that each of them is prepared to: (1) have the fair market value figures used in this Agreement reviewed by CCRA; (2) take any and all requisite steps hereunder to settle any resulting increase or decrease in the fair market value figures; and (3) file a copy of this Agreement with CCRA, if any when requested to do so by CCRA; (B) the parties hereto will substitute CCRA's fair market value figures for the fair market value in this Agreement, and such substituted figure shall be binding upon the parties hereto, unless there is a valid objection to CCRA's substituted figure; (C) any increase or decrease to the fair market value of the Purchased Assets as used in this Agreement shall result in the payment or return on a dollar for dollar basis of an increase in or a reduction to the Purchase Price, by a corresponding amount. Interest shall be payable on any payment envisaged hereunder from the date hereof through the date of payment at the rate of 6.0% compounded monthly. (iii) Amounts required to be paid hereunder shall be paid by wire transfer to an account designated by Seller or Buyer, as the case may be, or by such other method agreed upon by Buyer and Seller. 3 (iv) Amounts due but not paid within the time prescribed hereunder for payment shall accrue interest from the time so prescribed to the time of payment at the rate of 10% compounded monthly or, if lower, the maximum rate permitted by applicable law. (c) TAXES. In addition to the Purchase Price, the Buyer shall pay to the Seller or to the appropriate taxing authority within the time limits required by the applicable legislation all goods and services, sales, use, consumption or transfer or other similar taxes to the extent required by any federal, provincial or local legislation. (d) FURTHER DOCUMENTS. The parties agree to execute and file all such agreements, elections and other documents as may be necessary or advisable in order that the transactions shall be completed on a tax-deferred basis in accordance with the rules set out in subsection 167(1) of the EXCISE TAX ACT (Canada), if applicable. (e) ALLOCATION. The parties agree that the Purchase Price shall be allocated among the Purchased Assets as set out on SCHEDULE A.2, and for the purposes of preparing financial statements and tax returns, the parties shall use such allocation for all such purposes. Section 2.3 CLASSIFICATION OF TRANSFERRED ASSETS. (a) MISTAKEN ALLOCATIONS. There may exist (i) assets that the parties discover were, contrary to the agreements between the parties, by mistake or omission, included or not included, as the case may be, within the Transferred Assets or (ii) liabilities that the parties discover were, contrary to the agreements between the parties, by mistake or omission, included or not included, within the Transferred Liabilities. The parties hereto acknowledge and agree for greater certainty that any asset or liability transferred or assumed in error is deemed not to form part of the Transferred Assets or Transferred Liabilities and not to have been transferred to or assumed by the Buyer, and shall be returned by the Buyer to the Seller. Any asset or liability forming part of the Transferred Asset or Transferred Liability, as the case may be, which was not conveyed to or assumed by the Buyer shall be conveyed or assumed forthwith. The Person receiving or possessing such asset in error shall hold such asset as bare trustee or nominee for the other Person. Each party shall reimburse the other or make other financial adjustments (including cash reserves) or other adjustments to remedy any mistakes or omissions relating to any of the assets transferred hereby or any of the liabilities assumed hereby. (b) DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and conveyance of the Transferred Assets and the assumption of the Transferred Liabilities, simultaneously with the execution and delivery hereof or as promptly as practicable thereafter, (i) Seller shall execute and deliver such instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of Seller's right, title and interest in and to the Transferred Assets to Buyer; and (ii) Buyer shall execute and deliver to Seller such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Transferred Liabilities by Buyer. Buyer and Seller shall also cooperate to evidence the retention by Seller of any Excluded Assets (as defined in EXHIBIT A). 4 Section 2.4 GOVERNMENTAL APPROVALS AND THIRD-PARTY APPROVALS. (a) TRANSFER IN VIOLATION OF LAWS OR CONTRACTS. If and to the extent that the valid, complete and perfected transfer or assignment to Buyer of any of the Purchased Assets would be a violation of applicable laws or require any third-party approval or Governmental Approval, then, unless the parties shall otherwise determine, the transfer or assignment to or from the Buyer, as the case may be, of such Transferred Assets shall be automatically deemed deferred and any such purported transfer or assignment shall be null and void until such time as all legal impediments are removed and/or such third-party approval or Governmental Approvals have been obtained. Notwithstanding the foregoing, such asset shall still be considered a Transferred Asset for purposes of determining whether any liability is a Transferred Liability; PROVIDED, HOWEVER, that if such third-party approvals or Governmental Approvals have not been obtained within six months after the date hereof, the parties shall use their reasonable commercial efforts to achieve an alternative solution in accordance with the parties' intentions. (b) TRANSFERS NOT CONSUMMATED AS OF THE DATE HEREOF. If the transfer or assignment of any assets intended to be transferred or assigned hereunder is not consummated prior to or on the date hereof, whether as a result of the provisions of Section 2.4(a) or for any other reason, then the Person retaining such asset shall thereafter hold such asset for the use and benefit, insofar as reasonably possible, of the Person entitled thereto (at the expense of the Person entitled thereto). In addition, the Person retaining such asset shall take such other actions as may be reasonably requested by the Person to whom such asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Transferred Assets, including possession, use, risk of loss, potential for gain, and dominion, control and command over such assets, are to inure from and after the date hereof to the Buyer (or the Seller, as the case may be). If and when the third-party approvals and/or Governmental Approvals, the absence of which caused the deferral of transfer of any asset pursuant to Section 2.4(a), are obtained, the transfer of the applicable asset shall be effected in accordance with the terms of this Agreement. (c) EXPENSES. The Person retaining an asset due to the deferral of the transfer of such asset shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Person entitled to the asset, other than reasonable out-of-pocket expenses, attorneys' fees and recording or similar fees, all of which shall be promptly reimbursed by the Person entitled to such asset. Section 2.5 NOVATION OF ASSUMED LIABILITIES. (a) REASONABLE COMMERCIAL EFFORTS. Each of Seller and Buyer, at the request of the other, shall use all commercially reasonable efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate all rights and obligations under agreements, leases, licenses and other obligations or liabilities of any nature whatsoever that constitute Transferred Liabilities or to obtain in writing the unconditional release of all parties to such arrangements other than Buyer, so that, in any such case, Buyer and its Subsidiaries shall be solely responsible for such liabilities; PROVIDED, HOWEVER, that none of Seller, Buyer and their respective Subsidiaries shall be obligated to pay any consideration 5 therefor to any third party from whom such consents, approvals, substitutions and amendments are requested. (b) INABILITY TO OBTAIN NOVATION. If Seller or Buyer is unable to obtain, or to cause to be obtained, any such required novation, consent, approval, release, substitution or amendment, the applicable Person shall continue to be bound by such agreements, leases, licenses and other obligations and, unless not permitted by law or the terms thereof (except to the extent expressly set forth in this Agreement), Buyer shall, as agent or subcontractor for Seller or such other Person, as the case may be, pay, perform and discharge fully, or cause to be paid, transferred or discharged all the obligations or other liabilities of Seller or such other Person, as the case may be, thereunder from and after the date hereof. Seller shall, without further consideration, pay and remit, or cause to be paid or remitted, to Buyer or its appropriate Subsidiary promptly all money, rights and other consideration received by it or any other member of Parent Group in respect of such performance. If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, Seller shall thereafter assign, or cause to be assigned, all its rights, obligations and other liabilities thereunder to Buyer without payment of further consideration and Buyer shall, without the payment of any further consideration, assume such rights and obligations. ARTICLE III OTHER COVENANTS Section 3.1 RETENTION OF RECORDS; COOPERATION. (a) Buyer will for the maximum period required by law keep safely and in reasonable condition all such books, records and documents and other things relating to the Purchased Assets as Seller shall transfer or cause to be transferred to Buyer and shall afford Seller reasonable access to such books and records for so long as shall be necessary to enable Seller to deal with its taxation (including GST and retail sales tax) liability in respect of the period up to the date hereof and will permit Seller and Seller's servants, agents and professional advisors to have access to and to take copies of such records for such purpose. (b) Seller will for the maximum period required by law keep safely and in reasonable condition any books, records and documents and other things retained by Seller relating to the Purchased Assets and shall afford Buyer reasonable access to such books and records for so long as shall be necessary to enable Buyer properly to carry on the Business and will permit Buyer and Buyer's servants, agents and professional advisors to have access to and to take copies of such records for such purpose. Section 3.2 TERMS OF BUYER EMPLOYMENT. Subject to Section 4.6 of the Separation Agreement, all basic terms and conditions of employment for employees of Parent or Seller, who are transferred to the Buyer pursuant to this Agreement, including, without limitation, their pay and benefits in the aggregate, shall, to the extent legally and practicably possible, remain substantially the same as the terms and conditions that were in place when the employees were employed by Seller or Parent. Notwithstanding the foregoing, all employees of Seller or Parent transferred to Buyer hereunder shall be required, to the extent permissible under 6 applicable law, to execute new agreements regarding their employment status, proprietary information and inventions in a form approved by the Buyer by the date hereof, and also to execute such standard documents as are generally executed by employees leaving their employment with Seller or Parent. For greater certainty, any and all severance liability shall be and form part of the Transferred Liabilities, whether or not an employee of Seller agrees to become an employee of Buyer. ARTICLE IV MISCELLANEOUS Section 4.1 LIMITATION OF LIABILITY. In no event shall any party hereunder be liable to another party, for any special, consequential, indirect, incidental or punitive damages or lost profits, however caused and on any theory of liability (including negligence) arising in any way out of this agreement or any ancillary agreement, whether or not such party has been advised of the possibility of such damages. Section 4.2 BUYER ACKNOWLEDGEMENT. Buyer acknowledges that (a) it is acquiring the Transferred Assets on an as is, where is basis, (b) it shall, without investigation, objection or requisition accept such title as Seller has to the Transferred Assets, and (c) accordingly, save as expressly set out in this Agreement, no representations, warranties or other assurances of any kind are given by or on behalf of Seller and on which Buyer may rely in entering into this Agreement and on other statement, promise or forecast made by or on behalf of Seller may form the basis of, or be pleaded in connection with, any claim by Buyer under or in connection with this Agreement. Section 4.3 ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules referenced or attached hereto, constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. Section 4.4 GOVERNING LAW. This Agreement shall be construed in accordance with and all disputes hereunder shall be governed by the laws of the State of Delaware, excluding its conflict of law rules. In the event of a dispute the resolution of which is not otherwise addressed herein, such dispute shall be resolved in accordance with the provisions of EXHIBIT C hereto. Section 4.5 NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to Parent: Cadence Design Systems, Inc. 2655 Seely Avenue, Bldg. 5 San Jose, CA 95134 Attention: General Counsel 7 Fax: (408) 944-6855 if to Buyer: Tality Canada Corporation 2655 Seely Avenue, Bldg. 5 San Jose, CA 95134 Attention: General Counsel Fax: (408) 944-6855 if to Seller: Cadence Design Systems (Canada) Limited 2655 Seely Avenue, Bldg. 5 San Jose, CA 95134 Attention: General Counsel Fax: (408) 428-4087 or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified U.S. mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. Section 4.6 COUNTERPARTS. This Agreement and the Exhibits and Schedules hereto, and the other documents referred to herein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. Section 4.7 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Neither Buyer nor Seller may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party and Parent, and any such assignment shall be void. Section 4.8 SEVERABILITY. If any term or other provision of this Agreement or any Ancillary Agreement, or any of the Exhibits and Schedules attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any of the parties. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. 8 Section 4.9 FAILURE OR DELAY NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement, or the Exhibits or Schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available. Section 4.10 AMENDMENT. No modification or amendment shall be made to this Agreement, or the Exhibits or Schedules attached hereto, except by an instrument in writing signed on behalf of each of the parties to such agreement. Section 4.11 AUTHORITY. Each of the parties hereto represents to the others that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement; (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions; (c) it has duly and validly executed and delivered this Agreement; and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equity principles. Section 4.12 INTERPRETATION. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Schedule hereto but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement, as the case may be, unless otherwise indicated. All Exhibits and Schedules hereto are incorporated into and made a part of this Agreement. The terms "including" and "include" employed in this Agreement (including any of the Exhibits and Schedules incorporated into and made a part of this Agreement) mean "including, without limitation," and "includes, without limitation," respectively. Section 4.13 PAYMENT OF EXPENSES. Each of Buyer and Seller shall be responsible for its own costs and expenses. Section 4.14 TRANSFER TAXES. Seller shall pay any and all sales, use, transfer and other taxes in the nature of transfer taxes arising from the transfers contemplated herein. 9 WHEREFORE, the parties executed and delivered this Asset Purchase Agreement as of the date first set forth above. CADENCE DESIGN SYSTEMS (CANADA) LIMITED TALITY CANADA CORPORATION By: /s/R.L. Smith McKeithen By: /s/Duane W. Bell Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Director Title: Senior Vice President, Chief Financial Officer CADENCE DESIGN SYSTEMS, INC. By: /s/William Porter Name: William Porter Title: Senior Vice President, Chief Financial Officer 10 EX-2.11 12 a2029698zex-2_11.txt EX-2.11 Exhibit 2.11 ASSET PURCHASE AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE DESIGN SYSTEMS LIMITED AND SYMBIONICS LIMITED DATED AS OF OCTOBER 3, 2000 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of and effective on October 3, 2000 by and among Cadence Design Systems, Inc., a Delaware corporation ("PARENT"), Cadence Design Systems Limited, a company organized under the laws of the United Kingdom ("SELLER"), and Symbionics Limited, a company organized under the laws of the United Kingdom ("BUYER"). Capitalized terms used herein and not otherwise defined elsewhere herein shall have the meanings ascribed to them in Article I. RECITALS WHEREAS, Seller intends to sell and Buyer intends to purchase certain of Seller's assets related to the business of providing design services for electronic devices, electronic system components and electronic systems and assume certain liabilities related to such assets; WHEREAS, the parties intend that, in exchange for consideration equal to the Purchase Price (as defined below), Seller shall hereby transfer to Buyer on the date hereof those assets set forth on EXHIBIT A hereto (the "TRANSFERRED ASSETS") and Buyer shall hereby assume those liabilities set forth on EXHIBIT B hereto (the "TRANSFERRED LIABILITIES", together with the Transferred Assets, the "PURCHASED ASSETS"), as provided in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS "BUYER GROUP" means Buyer, the Partnership and any Subsidiary of the Partnership. "GOVERNMENTAL APPROVALS" means any notices, reports or other filings to be made with, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority. "GOVERNMENTAL AUTHORITY" means any local, foreign or international court or government, or any political subdivision thereof, or any department, commission, board, bureau, agency, official or other regulatory, administrative body of any such government or political subdivision thereof. "PARTNERSHIP" means Tality, LP, a Delaware limited partnership wholly owned by Tality and one or more wholly owned Subsidiaries of Parent. "PARENT GROUP" means Parent and each Subsidiary and other affiliate of Parent other than Buyer, the Partnership and Subsidiaries of the Partnership. 1 "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a Governmental Authority. "SUBSIDIARY" of any Person means any other Person of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or other body performing similar functions with respect to such other Person is directly or indirectly owned or controlled by such Person, or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries. "TALITY" means Tality Corporation, a Delaware corporation and a Subsidiary of Parent. ARTICLE II PURCHASE, TRANSFER AND ASSUMPTION Section 2.1 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. (a) TRANSFER OF ASSETS. On the date hereof, Seller hereby assigns, transfers, conveys and delivers to Buyer, and Buyer hereby accepts from Seller, all of Seller's right, title and interest in and to the Transferred Assets and the beneficial and economic ownership of the Transferred Assets. Delivery of the Transferred Assets shall take place in situ and on and from the date hereof the Seller shall let the Buyer into possession of the Transferred Assets. (b) ASSUMPTION OF LIABILITIES. On the date hereof, Buyer hereby assumes and agrees faithfully to perform and fulfill all the Transferred Liabilities owed by Seller in accordance with their respective terms and shall indemnify and hold harmless the Seller against the Transferred Liabilities and all costs, claims, demands, liabilities and expenses in respect of the Transferred Liabilities. Thereafter, Buyer shall be responsible for all Transferred Liabilities owed by Seller, regardless of when or where such Transferred Liabilities arose or arise, or whether the facts on which they are based occurred prior to, on or after the date hereof, regardless of where or against whom such Transferred Liabilities are asserted or determined or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation by any member of the Parent Group or any of their respective directors, officers, employees or agents. (c) Except as may be expressly set forth herein, all assets, properties and other things of value to be transferred to, and all liabilities to be assumed by, Buyer are being transferred or assumed, as applicable, "AS IS, WHERE IS," and Buyer shall bear the economic and legal risk that any conveyance shall prove to be insufficient to vest in Buyer good and marketable title, free and clear of any lien, claim, equity or other encumbrance. Section 2.2 PURCHASE PRICE; TERMS OF PAYMENT. (a) DETERMINATION OF PURCHASE PRICE. Parent retained an independent third party, Houlihan Lokey Howard & Zukin (the "VALUATION EXPERT"), to determine the fair market 2 value of the Purchased Assets as of the date of this Agreement (the "PURCHASE PRICE"). The parties hereby agree that the purchase price to be paid for the Purchased Assets shall equal the Purchase Price as so determined by the Valuation Expert and that the determination of the Valuation Expert that the Purchase Price equal US$28,000,000 shall be final and binding on the parties. The cost of the Valuation Expert shall be borne by Parent. (b) TERMS OF PAYMENT OF PURCHASE PRICE. (i) On the date hereof, Buyer shall pay to Seller the Purchase Price. (ii) In the event of a final determination that, for applicable income-tax purposes, the Purchase Price paid for the Purchased Assets hereunder does not reflect the actual fair market value of the Purchased Assets or otherwise is not an arm's-length price, the parties hereby agree that the Purchase Price shall be adjusted to equal the amount so established by such final determination (which the parties will endeavor to resolve through competent authority proceedings if commercially feasible). Any increase in the Purchase Price shall be paid to Seller by Buyer, and any decrease in the Purchase Price shall be paid to Buyer by Seller; such amounts shall be paid no later than thirty (30) days following the date that such final determination becomes final, and shall be increased by interest from the date hereof through the date of payment at the rate of 6.0%, compounded monthly, less any interest theretofore paid under clause (iv) hereof by the party required to make the payment under this clause (ii). If more than one taxing jurisdiction claims that the fair market value of or arm's-length price for the Purchased Assets differs from the Purchase Price previously paid hereunder, and such determinations differ from each other and are not resolved through competent authority proceedings, the payment required hereunder shall be based on the average of the values as finally determined under the laws of each taxing jurisdiction. (iii) Amounts required to be paid hereunder shall be paid by wire transfer to an account designated by Seller or Buyer, as the case may be, or by such other method agreed upon by Buyer and Seller. (iv) Amounts due but not paid within the time prescribed hereunder for payment shall accrue interest from the time so prescribed to the time of payment at the rate of 10% compounded monthly or, if lower, the maximum rate permitted by applicable law. Section 2.3 CLASSIFICATION OF TRANSFERRED ASSETS. (a) MISTAKEN ALLOCATIONS. There may exist (i) assets that the parties discover were, contrary to the agreements between the parties, by mistake or omission, included or not included, as the case may be, within the Transferred Assets or (ii) liabilities that the parties discover were, contrary to the agreements between the parties, by mistake or omission, included or not included, within the Transferred Liabilities. The parties hereto shall cooperate in good faith to effect the transfer or re-transfer of such assets, and/or the assumption or re-assumption of such liabilities, to or by the appropriate party and shall not use the determination that remedial actions need to be taken to alter the original intent of the parties hereto with respect to the assets to be transferred to or liabilities to be assumed by Buyer. Prior to any such transfer, the Person receiving or possessing such asset shall hold such asset in trust for the other Person. Each party 3 shall reimburse the other or make other financial adjustments (including cash reserves) or other adjustments to remedy any mistakes or omissions relating to any of the assets transferred hereby or any of the liabilities assumed hereby. (b) DOCUMENTS RELATING TO TRANSFERS OF ASSETS AND ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and conveyance of the Transferred Assets and the assumption of the Transferred Liabilities, simultaneously with the execution and delivery hereof or as promptly as practicable thereafter, (i) Seller shall execute and deliver such instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of Seller's right, title and interest in and to the Transferred Assets to Buyer; and (ii) Buyer shall execute and deliver to Seller such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Transferred Liabilities by Buyer. Buyer and Seller shall also cooperate to evidence the retention by Seller of any Excluded Assets (as defined in EXHIBIT A). Section 2.4 GOVERNMENTAL APPROVALS AND THIRD-PARTY APPROVALS. (a) TRANSFER IN VIOLATION OF LAWS OR CONTRACTS. If and to the extent that the valid, complete and perfected transfer or assignment to Buyer of any of the Purchased Assets would be a violation of applicable laws or require any third-party approval or Governmental Approval, then, unless the parties shall otherwise determine, the transfer or assignment to or from the Buyer, as the case may be, of such Transferred Assets shall be automatically deemed deferred and any such purported transfer or assignment shall be null and void until such time as all legal impediments are removed and/or such third-party approval or Governmental Approvals have been obtained. Notwithstanding the foregoing, such asset shall still be considered a Transferred Asset for purposes of determining whether any liability is a Transferred Liability; PROVIDED, HOWEVER, that if such third-party approvals or Governmental Approvals have not been obtained within six months after the date hereof, the parties shall use their reasonable commercial efforts to achieve an alternative solution in accordance with the parties' intentions. (b) TRANSFERS NOT CONSUMMATED AS OF THE DATE HEREOF. If the transfer or assignment of any assets intended to be transferred or assigned hereunder is not consummated prior to or on the date hereof, whether as a result of the provisions of Section 2.4(a) or for any other reason, then the Person retaining such asset shall thereafter hold such asset for the use and benefit, insofar as reasonably possible, of the Person entitled thereto (at the expense of the Person entitled thereto). In addition, the Person retaining such asset shall take such other actions as may be reasonably requested by the Person to whom such asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Transferred Assets, including possession, use, risk of loss, potential for gain, and dominion, control and command over such assets, are to inure from and after the date hereof to the Buyer (or the Seller, as the case may be). If and when the third-party approvals and/or Governmental Approvals, the absence of which caused the deferral of transfer of any asset pursuant to Section 2.4(a), are obtained, the transfer of the applicable asset shall be effected in accordance with the terms of this Agreement. 4 (c) EXPENSES. The Person retaining an asset due to the deferral of the transfer of such asset shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Person entitled to the asset, other than reasonable out-of-pocket expenses, attorneys' fees and recording or similar fees, all of which shall be promptly reimbursed by the Person entitled to such asset. Section 2.5 NOVATION OF ASSUMED LIABILITIES. (a) REASONABLE COMMERCIAL EFFORTS. Each of Seller and Buyer, at the request of the other, shall use all commercially reasonable efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate all rights and obligations under agreements, leases, licenses and other obligations or liabilities of any nature whatsoever that constitute Transferred Liabilities or to obtain in writing the unconditional release of all parties to such arrangements other than Buyer, so that, in any such case, Buyer and its Subsidiaries shall be solely responsible for such liabilities; PROVIDED, HOWEVER, that none of Seller, Buyer and their respective Subsidiaries shall be obligated to pay any consideration therefor to any third party from whom such consents, approvals, substitutions and amendments are requested. (b) INABILITY TO OBTAIN NOVATION. If Seller or Buyer is unable to obtain, or to cause to be obtained, any such required novation, consent, approval, release, substitution or amendment, the applicable Person shall continue to be bound by such agreements, leases, licenses and other obligations and, unless not permitted by law or the terms thereof (except to the extent expressly set forth in this Agreement), Buyer shall, as agent or subcontractor for Seller or such other Person, as the case may be, pay, perform and discharge fully, or cause to be paid, transferred or discharged all the obligations or other liabilities of Seller or such other Person, as the case may be, thereunder from and after the date hereof. Seller shall, without further consideration, pay and remit, or cause to be paid or remitted, to Buyer or its appropriate Subsidiary promptly all money, rights and other consideration received by it or any other member of Parent Group in respect of such performance. If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, Seller shall thereafter assign, or cause to be assigned, all its rights, obligations and other liabilities thereunder to Buyer without payment of further consideration and Buyer shall, without the payment of any further consideration, assume such rights and obligations. ARTICLE III OTHER COVENANTS Section 3.1 Retention of Records; Cooperation. 5 (a) Buyer will for the maximum period required by law keep safely and in reasonable condition all such books, records and documents and other things relating to the Purchased Assets as Seller shall transfer or cause to be transferred to Buyer and shall afford Seller reasonable access to such books and records for so long as shall be necessary to enable Seller to deal with its taxation (including VAT) liability in respect of the period up to the date hereof and will permit Seller and Seller's servants, agents and professional advisers to have access to and to take copies of such records for such purpose. (b) Seller will for the maximum period required by law keep safely and in reasonable condition any books, records and documents and other things retained by Seller relating to the Purchased Assets and shall afford Buyer reasonable access to such books and records for so long as shall be necessary to enable Buyer properly to carry on the Business and will permit Buyer and Buyer's servants, agents and professional advisers to have access to and to take copies of such records for such purpose. Section 3.2 RELATIONSHIP WITH SCOTTISH ENTERPRISE AND SCOTTISH EXECUTIVE. As to the facilities owned by Seller located in Livingston, United Kingdom, and the relationships between (i) Scottish Enterprise, on the one hand, and Parent and Seller, on the other hand, and (ii) Scottish Executive, on the one hand, and Parent and Seller, on the other hand, the parties agree as follows: (a) TRANSFER OF SCOTTISH ENTERPRISE CONTRACTUAL RIGHTS AND OBLIGATIONS. Subject to the consent of Scottish Enterprise, and as promptly as practicable after the receipt of such consent, Parent and Seller shall transfer (or cause to be transferred) to Buyer, all of the rights and interests, and Buyer shall assume the liabilities, obligations and commitments, of Parent, Seller and their Subsidiaries under that certain Master Agreement between Seller and Scottish Enterprise dated March 24, 1998, as amended (the "MASTER AGREEMENT"), and all the agreements related thereto (collectively, the "SERVICE CONTRACT"); PROVIDED, HOWEVER, that (i) Seller shall retain its obligations and continue to be bound by certain mutually agreed upon provisions of the Master Agreement and by that certain Premises Agreement between Seller and Scottish Enterprise dated March 24, 1998, that certain Methodologies and Materials License between Seller and Scottish Enterprise dated March 24, 1998, that certain Software Licence between Seller and Scottish Enterprise dated March 24, 1998 and that certain Beta Software Licence between Seller and Scottish Enterprise dated March 24, 1998 (the "RETAINED OBLIGATIONS"); (ii) Buyer shall not assume certain mutually agreed upon obligations included among the Retained Obligations; and (iii) Parent shall retain its obligations and continue to guaranty the performance of Buyer under the Service Contract pursuant to that certain Guarantee by Parent in favor of Scottish Enterprise dated March 24, 1998. (b) TRANSFER OF SCOTTISH EXECUTIVE CONTRACTUAL RIGHTS AND OBLIGATIONS. Subject to the consent of Scottish Executive, and as promptly as practicable after the receipt of such consent, Seller and Buyer shall agree upon their respective rights, interests, liabilities, obligations and commitments under that certain Offer of Regional Selective Assistance between Seller and the Scottish Office dated December 5, 1997, as 6 amended (the "RSA GRANT"); PROVIDED, HOWEVER, that such rights, interests, liabilities, obligations and commitments shall include compliance with the obligations of each party pursuant to Sections 3.2(c), (d), (e) and (f) below. (c) CADENCE CAPITAL AND HEADCOUNT COMMITMENTS. Each of Seller and Buyer shall meet or exceed its respective (i) capital expenditure commitments in relation to the Service Contract, the RSA Grant and the Livingston facility set forth on SCHEDULE 3.2(a) and (ii) employee commitments in relation to the Service Contract, the RSA Grant and the Livingston facility set forth on SCHEDULE 3.2(b). (d) FACILITY ARRANGEMENT. Notwithstanding anything to the contrary contained herein, Seller shall retain ownership of the Livingston facility and lease a certain portion of that space to Buyer pursuant to mutually agreed upon terms. Buyer shall compensate Seller for services related to its occupancy of the Livingston facility pursuant to mutually agreed upon terms. (e) SUBSIDIES. After the Separation Date as defined under that certain Master Separation Agreement, dated July 14, 2000, by and among, Parent, Tality and Cadence Holdings, Inc., as amended (the "SEPARATION AGREEMENT"), if subsidy payments received prior to the Separation Date by members of the Parent Group pursuant to the Service Contract or the RSA Grant must be refunded, the Parent Group shall be responsible for contributing 95% of any such payments and the Buyer Group shall contribute the remaining 5%. All subsidy payments received after the Separation Date by any member of the Parent Group or the Buyer Group or any of their respective Subsidiaries pursuant to the Service Contract or the RSA Grant ("POST-SEPARATION SUBSIDY"), and any obligation to refund any Post-Separation Subsidy (a "POST-SEPARATION SUBSIDY CLAWBACK"), shall be shared between the Parent Group and the Buyer Group based upon Seller's and Buyer's respective pro rata portion of (i) (A) the additional full time equivalent positions ("FTEs") considered for the subsidy determination during the relevant period under the Service Contract and the RSA Grant, multiplied by (B) five hundred thousand dollars ($500,000), four hundred thousand dollars ($400,000), three hundred thousand dollars ($300,000), two hundred thousand dollars ($200,000) or one hundred thousand dollars ($100,000) for subsidies based on the additional FTE's provided in 2000, 2001, 2002, 2003 or 2004, respectively; plus (ii) the additional capital expenditures considered for the subsidy determination during the relevant period under the Service Contract and the RSA Grant (each party's respective "SUBSIDY ALLOCATION", in the case of a Post-Separation Subsidy, or "CLAWBACK ALLOCATION", in the case of a Post-Separation Subsidy Clawback). The Parent Group's and the Buyer Group's "NET ALLOCATION" shall equal the Parent Group's or the Buyer Group's respective Subsidy Allocation less its Clawback Allocation, if any. If any Post-Separation Subsidy is reduced or a Post-Separation Subsidy Clawback occurs due to the failure of either Seller or Buyer to achieve the commitments set forth on SCHEDULE 3.2(a) or SCHEDULE 3.2(b), the Parent Group or the Buyer Group, respectively, shall be liable to the other for the difference between the Net Allocation actually received by the other party and the Net Allocation the other party would have received had both Seller and Buyer satisfied in full their respective commitments under SCHEDULE 3.2(a) or SCHEDULE 3.2(b), as applicable. 7 (f) COOPERATION AND SUPPORT. Parent and Seller shall cooperate with Buyer in good faith to assist in the management and administration of Buyer's obligations under the Service Contract and the RSA Grant. (g) MODIFICATION REQUIRED BY LAW. The parties agree to modify this Section 3.2 to the extent required to comply with applicable law. Section 3.3 TERMS OF BUYER EMPLOYMENT. Subject to Section 4.6 of the Separation Agreement, all basic terms and conditions of employment for employees of Parent or Seller, who are transferred to the Buyer pursuant to this Agreement, including, without limitation, their pay and benefits in the aggregate, shall, to the extent legally and practicably possible, remain substantially the same as the terms and conditions that were in place when the employees were employed by Seller or Parent. Notwithstanding the foregoing, all employees of Seller or Parent transferred to Buyer hereunder shall be required, to the extent permissible under applicable law, to execute new agreements regarding their employment status, proprietary information and inventions in a form approved by the Buyer effective by the date hereof, and also to execute such standard documents as are generally executed by employees leaving their employment with Seller or Parent. In addition, nothing in this Agreement should be construed to change the at-will status of the employment of any of the employees of Parent, Seller or Buyer. ARTICLE IV MISCELLANEOUS Section 4.1 LIMITATION OF LIABILITY. IN NO EVENT SHALL ANY PARTY HEREUNDER BE LIABLE TO ANOTHER PARTY, FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Section 4.2 BUYER ACKNOWLEDGMENT. Buyer acknowledges that (1) it is acquiring the Transferred Assets on an as is, where is basis, (2) it shall, without investigation, objection or requisition accept such title as Seller has to the Transferred Assets, and (3) accordingly, save as expressly set out in this agreement, no representations, warranties or other assurances of any kind are given by or on behalf of Seller and on which Buyer may rely in entering into this Agreement and on other statement, promise or forecast made by or on behalf of Seller may form the basis of, or be pleaded in connection with, any claim by Buyer under or in connection with this Agreement. Section 4.3 ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules referenced or attached hereto, constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. 8 Section 4.4 GOVERNING LAW. This Agreement shall be construed in accordance with and all disputes hereunder shall be governed by the laws of the State of Delaware, excluding its conflict of law rules. In the event of a dispute the resolution of which is not otherwise addressed herein, such dispute shall be resolved in accordance with the provisions of EXHIBIT C hereto. Section 4.5 NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to Parent: Cadence Design Systems, Inc. 2655 Seely Avenue, Bldg. 5 San Jose, CA 95134 Attention: General Counsel Fax: (408) 944-6855 if to Buyer: Symbionics Limited 2655 Seely Avenue, Bldg. 5 San Jose, CA 95134 Attention: General Counsel Fax: (408) 944-6855 if to Seller: Cadence Design Systems Limited 2655 Seely Avenue, Bldg. 5 San Jose, CA 95134 Attention: Robert de Vries Fax: (408) 428-4087 or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified U.S. mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. Section 4.6 COUNTERPARTS. This Agreement and the Exhibits and Schedules hereto, and the other documents referred to herein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. Section 4.7 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person 9 any rights or remedies of any nature whatsoever under or by reason of this Agreement. Neither Buyer nor Seller may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party and Parent, and any such assignment shall be void. Section 4.8 SEVERABILITY. If any term or other provision of this Agreement or any Ancillary Agreement, or any of the Exhibits and Schedules attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any of the parties. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. Section 4.9 FAILURE OR DELAY NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement, or the Exhibits or Schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available. Section 4.10 AMENDMENT. No modification or amendment shall be made to this Agreement, or the Exhibits or Schedules attached hereto, except by an instrument in writing signed on behalf of each of the parties to such agreement. Section 4.11 AUTHORITY. Each of the parties hereto represents to the others that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement; (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions; (c) it has duly and validly executed and delivered this Agreement; and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equity principles. Section 4.12 INTERPRETATION. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Schedule hereto but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement, as the case may be, unless otherwise indicated. All Exhibits and Schedules hereto are incorporated into and made a part of this Agreement. The terms "including" and "include" employed in this Agreement (including any of the Exhibits and Schedules incorporated into and made a part of this Agreement) mean "including, without limitation," and "includes, without limitation," respectively. 10 Section 4.13 PAYMENT OF EXPENSES. Each of Buyer and Seller shall be responsible for its own costs and expenses. Section 4.14 TRANSFER TAXES. Seller shall pay any and all sales, use, transfer and other taxes (except for any stamp duties and value added taxes) in the nature of transfer taxes arising from the transfers contemplated herein. Section 4.15 VALUE ADDED TAXES. (a) Subject to the provisions of this Section 4.15, the parties intend that the provisions of Article 5 of the Value Added Tax (Special Provisions) Order 1995 should apply to the sale hereunder and accordingly that the sale hereby contemplated should be treated as neither a supply of goods nor a supply of services for value added tax purposes. (b) Seller warrants that it is registered for value added tax and Buyer warrants that it is, or will as a result of the sale and purchase hereunder become, a taxable person for value added tax purposes. (c) The Purchase Price is exclusive of any value added tax properly payable in respect thereof. If HM Customs & Excise shall determine in writing after full disclosure of all material facts that value added tax is payable on the whole or any part of the Purchase Price, any such value added tax shall be paid by Buyer to Seller upon receipt of a valid value added tax invoice complying with the provisions of Part III of the Value Added Tax (General) Regulations 1995 and a copy of the determination by HM Customs & Excise and the documents disclosing all material facts. (d) Seller shall, following completion of its value added tax return for the period in which the transfer and the sale and purchase of the Purchased Assets hereunder takes place, deliver to Buyer all the records of the Purchased Assets which for value added tax purposes are required by Section 49(1)(b) VAT Act to be preserved by Buyer. 11 WHEREFORE, the parties executed and delivered this Asset Purchase Agreement as of the date first set forth above. CADENCE DESIGN SYSTEMS LIMITED SYMBIONICS LIMITED By: /s/R.L. Smith McKeithen By:/s/Duane W. Bell Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Director Title: Senior Vice President, Chief Financial Officer CADENCE DESIGN SYSTEMS, INC. By:/s/William Porter Name:William Porter Title:Senior Vice President, Chief Financial Officer 12 EX-2.12 13 a2029698zex-2_12.txt EX-2.12 Exhibit 2.12 FIXED TERM LICENSE AGREEMENT AGREEMENT NO.: FTLA-00CDS0717 DATE OF AGREEMENT: OCTOBER 4, 2000 This FIXED TERM LICENSE AGREEMENT ("AGREEMENT"), entered into as of the date specified above, is by and between CADENCE DESIGN SYSTEMS, INC., a Delaware corporation having a principal place of business at 555 River Oaks Parkway, San Jose, California 95134-1937, USA ("CADENCE"), and TALITY LP, A DELAWARE LIMITED PARTNERSHIP , having a place of business at 2655 SEELY AVE., SAN JOSE, CA 95134 ("CUSTOMER"). Customer desires by this Agreement to obtain from Cadence limited, temporary licenses to Use certain Licensed Programs and related Documentation (as defined below) under the terms and conditions set forth below. Customer intends to provide integrated circuit design, product design, PCB design, manufacturing, and other services to its customers. In connection with such services, Customer's employees along with subcontractors, and consultants (at either a Designated Site or a remote location) may require the right to Use the Licensed Programs as provided hereunder in connection with specific Customer Projects ("Projects"). In addition, customers of Customer may also require the right to view design results and Use the Licensed Program operation via Customer's web site for such Projects. Therefore, Cadence and Customer agree as follows: Therefore, Cadence and Customer agree as follows: 1. DEFINITIONS The following definitions apply herein: (a) "DESIGNATED EQUIPMENT" means either: (i) a server (located at the Designated Site) identified by serial number, or host I.D on which the Licensed Programs are stored, or; (ii) a computer or workstation, as identified by its serial number, host I.D. number or ethernet address, located at the Designated Site, to which the Licensed Programs are downloaded and Used only upon the issuance of an electronic "key". The Designated Equipment shall be of a manufacture, make and model, and have the configuration, capacity, (i.e., memory/disk), operating software version level and pre-requisite and co-requisite applications, prescribed in the Documentation as necessary or desirable for the operation of the Software. (b) "DESIGNATED SITE" means the specific address of Customer's facility consisting of one or more buildings within a radius of one mile of the Designated Equipment. Use of the Licensed Programs may be either at the Designated Site or through remote access via a secure interface to the Licensed Programs on the Designated Equipment at the Designated Site. The geographic scope of such remote access shall be as set forth in the Product Quotation. (c) "DOCUMENTATION" means the user manuals and other written materials which describes the Software, its operation and matters related to its use and which Cadence generally makes available to its commercial licensees for use with the Software and any updated, improved or modified version(s) of such materials, whether provided in published written material, on magnetic media or communicated by electronic means. (d) "EFFECTIVE DATE" means the date specified in each Product Quotation representing the commencement of the Term of Use for the Licensed Programs. (e) "INITIAL CONFIGURATION" means the specific group of Licensed Programs listed in each Product Quotation which represents the initial usage by the Customer on the Effective Date. (f) "LICENSED PROGRAM(S)" means the specific group of Cadence Software and the associated Documentation listed in the Product Quotation. Unless otherwise specified in the Product Quotation, Licensed Programs excludes New Technology as defined in Section 9(a)(6) herein. (g) "MAINTENANCE SERVICE(S)" shall mean any maintenance services, installation assistance, customized support, consulting, or similar assistance which Cadence may consent to provide to Customer related to the Licensed Programs or to facilitate Customer's productive Use of the same, as is more particularly described in Section 9 (Technical Support) herein. (h) "PRODUCT QUOTATION" means a written quotation from Cadence to Customer identifying the Licensed Programs, Initial Configuration, quantity, charges, term of Use and other information relevant to a specific transaction which Cadence is quoting to Customer. Each Product Quotation will be included as an Attachment to this Agreement and incorporated herein by reference. (i) "SOFTWARE" means any applications programming code or executable computer program(s), and any updated, improved or otherwise modified version(s) thereof, generally made commercially available by or on behalf of Cadence to customers. (j) "TERM OF USE" means that period of time Customer has Use of the Licensed Programs as specified in each Product Quotation. (k) "THEN CURRENT CONFIGURATION" means the specific group of Licensed Programs being Used by 1 Customer in accordance with the provisions of this Agreement at the time Customer has the right to "remix" as provided in Section 3(b). (l) "USE" means copying all or any portion of a Licensed Program into the Designated Equipment or transmitting it to the Designated Equipment for processing instructions contained in the Licensed Program and/or loading data into or displaying, viewing or extracting output results from or otherwise operating any portion of the Licensed Program for the purpose of Customer's design and manufacture of electronic circuits and systems. 2. SCOPE AND BACKGROUND This Agreement puts into place a mechanism whereby Customer can: (i) temporarily license a number of Licensed Programs and its Documentation; and (ii) obtain Maintenance Services for the Licensed Programs pursuant to the provisions and during the Term of Use for such Licensed Programs. This Agreement has the following characteristics: (i) only Cadence Licensed Programs can be licensed; (ii) the duration of the Use of the Licensed Programs is limited to the Term of Use as specified in each Product Quotation attached to this Agreement; (iii) Maintenance Service charges are included as part of the Fees (as defined in Section 4 below); and (iv) any copy of the Licensed Programs can only be Used by Customer at a Designated Site or at remote sites in accordance with Section 3(c) of this Agreement. If Customer desires to acquire a license to Use any third party program marketed by Cadence, or a perpetual license to any Cadence Software, such acquisitions shall be a separate transaction outside the scope of this Agreement. 3. LICENSE GRANT (a) GRANT: Subject to Customer's timely payment of the Fees as set forth in Section 4 and subject to the limitations set forth in Section 3(b), Cadence hereby grants Customer, for the Term of Use as specified in each Product Quotation attached to this Agreement, a non-transferable, non-exclusive, personal, limited license to: (i) Use the quantity of Licensed Programs identified in that Product Quotation at the Designated Sites on any unit of Designated Equipment owned or leased by Customer, or at remote locations as provided in sub-part (c) below, provided, however, each item of Licensed Programs is only Used on one unit of Designated Equipment at a time by a single user; and (ii) Use the Documentation at the Designated Site, or at remote locations as provided in sub-part (c) below, as is reasonably necessary for Customer's licensed Use of the Licensed Programs (collectively, a "FIXED TERM LICENSE"). All rights not expressly granted to Customer pursuant to this Agreement are reserved by Cadence. (b) LIMITATION: Customer agrees as of the Effective Date of the applicable Product Quotation, Customer may initially Use only those Licensed Programs identified in the Initial Configuration. If specified in the Product Quotation, and upon reasonable prior written notice to Cadence, Customer may periodically remix the Initial Configuration or the Then Current Configuration with the following limitations: (i) the total value of the new configuration, as calculated in the Product Quotation, may not exceed the total value of the Initial Configuration, and (ii) the maximum dollar value of the Then Current Configuration, which may be exchanged for other Licensed Programs, is specified in the Product Quotation. Customer shall execute a Certificate of Discontinued Use upon the completion of each remix for those Licensed Programs that are exchanged or terminated in the remix. (c) RESTRICTION: All rights, title and interest in the Licensed Programs shall remain the exclusive property of Cadence and/or its licensors. Each Licensed Program and its Documentation are the confidential and proprietary property of Cadence or third parties from whom Cadence has obtained the appropriate rights. Customer shall not Use or copy the Licensed Program or Documentation except as expressly permitted hereunder. In order to protect Cadence and/or its licensors' intellectual property, Customer shall not modify, disassemble, decompile or reverse translate or create derivative works from the Licensed Programs or otherwise attempt to derive the Software's source code, or let any third party do so. No right or license is granted or implied under any of Cadence's, or its licensors', patents, copyrights, trademarks, trade names, service marks or other intellectual property rights to Use the Licensed Programs or to license or authorize others to Use the Licensed Programs beyond the rights and restrictions set forth in this Agreement. Customer shall not remove or alter any of Cadence or its licensors' restrictive or ownership legends appearing on or in the Licensed Programs and shall reproduce such legends on all copies permitted to be made. Customer shall not let the Licensed Programs be accessed or used by third parties or anyone other than Customer's employees whose duties require such access or use. Notwithstanding the foregoing, Customers authorized consultants and subcontractors may Use the Licensed Program on the Designated Equipment at the Designated Site or from remote locations (specified in a Product Quotation) but only where such Use is in connection with their performing services for a Project on Customer's behalf consistent with the Fixed Term License granted to Customer hereunder. In addition, clients of Customer may Use the Licensed Program on the Designated Equipment at the Designated Site or access the Designated Equipment from a remote location, only where such Use is in connection with performing services for a Project consistent with the Fixed Term License granted to Customer hereunder. For each such Project, Customer shall establish a specific authorization procedure whereby only Customer employees, consultants, subcontractors and/or clients with specific authorization from Customer on such Project shall have access to and Use of the Licensed Programs. As a condition precedent to such Use of the Licensed Programs, Customer shall (i) require such consultants, subcontractors and clients to sign written 2 agreements obligating them to observe the same material restrictions concerning the Licensed Program as are contained in this Agreement, (ii) ensure that such agreements contain a provision establishing Cadence, in the event of a reasonable belief by Cadence that the other party to such agreement has been or is breaching Cadence's intellectual property rights, as a third party beneficiary of such agreements with respect to such intellectual property rights and the right of Cadence to seek injunctive or other legal or equitable relief for such breach, (iii) have in place reasonable security measures to ensure that the Licensed Programs are Used only in accordance with the terms of this Agreement, and (iv) promptly notify Cadence in the event Customer learns of any material breach of such agreements. Customer shall remain fully liable to Cadence for any misuse of the Licensed Programs by Customer's authorized consultants, subcontractors and clients. (d) ADDITIONAL LICENSED PROGRAMS: Subject to Customer's payment to Cadence of additional fees as determined by mutual agreement of the parties, Customer may acquire the right and license to Use additional Cadence Software. 4. FEES; TAXES (a) FEES AND PAYMENT: Customer shall pay Cadence the license fees ("LICENSE FEES") and maintenance services fees ("MAINTENANCE SERVICES FEES") (collectively, the "FEES"). Such Fees shall be remitted so that they are received by Cadence by the dates and in the amounts set forth in the Product Quotation and, except as expressly provided herein, are non-refundable. In addition, Customer's obligation to remit License Fee payments to Cadence in accordance with the payment schedule set forth in the Product Quotation shall be absolute, unconditional, noncancellable and nonrefundable, and shall not be subject to any abatement, set-off, claim, counterclaim, adjustment, reduction, or defense for any reason, including, but not limited to, any claims that Cadence failed to perform under this Agreement or termination of this Agreement. Past due amounts shall be subject to a monthly service charge of one and one-half percent (11/2%) per month of the unpaid balance or the maximum rate allowable by law. In addition to all other sums payable hereunder, Customer shall pay all reasonable out-of-pocket expenses incurred by Cadence, including fees and disbursements of counsel, in connection with collection and other enforcement proceedings resulting therefrom or in connection therewith. (b) TAXES: All Fees are net. Customer will pay or reimburse all taxes, duties and assessments, if any due, based on or measured by amounts payable to Cadence in any transaction between Customer and Cadence under this Agreement (excluding taxes based on Cadence's net income) together with any interest or penalties assessed thereon, or furnish Cadence with evidence acceptable to the taxing authority to sustain an exemption therefrom (collectively, "TAXES"). 5. TERM AND TERMINATION (a) TERM: This Agreement is entered into as of the date specified on the initial page and shall terminate on the latest termination date set forth in the Product Quotation(s) ("TERM") unless terminated as provided in Section 5(b), or the parties have negotiated a continuance or renewal hereof. (b) TERMINATION: This Agreement may be terminated by Cadence: (i) if Customer fails to pay when due all or any portion of any amounts payable hereunder, and such failure is not cured within thirty (10) days after written notice; or (ii) if Customer breaches any provisions of Section 3 herein and such breach is not cured within ten (10) days after written notice; or (iii) in the event of a material breach by Customer of any other provision of this Agreement where Customer fails to correct such breach within thirty (30) days of its receipt of written notice thereof; or (iv) immediately if Customer becomes insolvent or makes an assignment for the benefit of creditors, or a trustee or receiver is appointed for Customer or for a substantial part of its assets, or bankruptcy, reorganization or insolvency proceedings shall be instituted by or against Customer; or (v) if an "Event of Default" (as defined in the Installment Payment Agreement "IPA") occurs and is continuing under any IPA in favor of Cadence or Cadence Credit, if Customer enters into such an IPA in order to finance the License Fees. This Agreement may be terminated by Customer in the event of a material breach by Cadence of any provision of this Agreement where Cadence fails to correct such breach within thirty (30) days of its receipt of written notice thereof. In the event of a material breach by Cadence, Customer may, at its option, either (i) terminate the Agreement as provided herein, or (ii) continue to Use the Licensed Programs provided that in such instance, Customer agrees to continue to make Maintenance Fee payments during the Term of Use. (c) EFFECT OF TERMINATION: Expiration or termination of this Agreement shall simultaneously terminate Customer's usage rights for all Fixed Term Licenses and Cadence's Maintenance Service obligations with respect thereto. Within thirty (30) days after expiration or termination of this Agreement, Customer shall: (i) furnish Cadence written notice certifying that the original and all copies, including partial copies, of the Licensed Programs furnished by Cadence under this Agreement or made by Customer as permitted by this Agreement, have either been returned to Cadence or destroyed and no copies or portions thereof remain in the possession of Customer, its employees or agents; and (ii) make prompt payment in full to Cadence for all amounts then due plus the present value (discounted at the lesser of; (a) the then current one year U.S. Treasury Bill Rate and, (b) the one year U.S. Treasury Bill Rate as of the Effective Date of this Agreement) of the unpaid balance of the License Fees as set forth in the Product Quotation, together with any applicable Taxes. Sections 3(c), 4, 5(c), 10, 11(b), 3 12, 13.6, 13.7 and 13.8 shall survive expiration or termination of this Agreement. 6. ORDERING If required by Customer, Customer shall order Licensed Programs and Maintenance Services using its standard purchase order forms. All Customer orders shall: (i) conform to and cite this Agreement; and (ii) describe the Licensed Programs and/or Maintenance Services being ordered (by Cadence's product numbers and nomenclature), (iii) identify the quantity, price, ship and bill to addresses and (iv) include such other data as Cadence may reasonably require. This Agreement shall govern all Customer purchase orders accepted by Cadence during the Term and within the scope of this Agreement. Any terms and conditions contained or incorporated by reference in purchase orders, acknowledgments, invoices, confirmations or other business forms of either party which add to or differ from the terms and conditions of this Agreement or the Attachments made a part hereof shall be of no force or effect whatsoever concerning the subject matter of this Agreement, and either party's failure to object thereto shall not be deemed a waiver of its rights hereunder. 7. SHIPMENT Delivery is to be made F.O.B point of shipment. Customer shall pay shipping charges, including insurance. Risk of loss shall pass to Customer upon delivery to carrier. 8. COPIES AND TRANSFER (a) COPIES: Customer may make a reasonable number of copies of a Licensed Program for either of the following purposes only: (i) archival purposes; or (ii) for use as a back-up when the Licensed Program is not operational. All legends, trademarks, trade names, copyright legends and other identifications must be copied when copying the Licensed Program. Documentation may not be copied except for a reasonable number of printed copies produced by Customer for internal use only from the Documentation provided in electronic form. At Cadence's request, Customer will provide Cadence with a listing of the number of copies currently in possession or control by Customer. (b) TRANSFER: The Licensed Program may be moved from the Designated Site or the Designated Equipment only if the Designated Equipment malfunctions and only with Cadence's prior written consent. Customer will immediately return Cadence's Rehost Certificate when the Licensed Program is moved from either the previously identified Designated Equipment or Designated Site and completely remove the Licensed Program from such equipment. 9. TECHNICAL SUPPORT Subject to the terms and conditions of this Agreement and Customer's timely payment of applicable Fees, Cadence agrees to use commercially reasonable efforts to perform, or have provided, during the Term hereof, the following technical assistance with respect to the Licensed Programs: (a) MAINTENANCE SERVICES: (1) TELEPHONE SUPPORT: Cadence will make available telephone assistance to Customer through Cadence's Customer Response Center ("CRC") between 8:00 a.m. and 5:00 p.m., Designated Site local time (the "PRIME SHIFT"), Monday through Friday excluding Cadence's holidays. (2) ERROR RESOLUTION ASSISTANCE: Cadence will acknowledge receipt of Customer's error or problem changes request (a "PCR") within four (4) Prime Shift hours. Upon receipt of a Customer's PCR containing a detailed description of the nature of the error, the conditions under which it occurs and other relevant data sufficient to enable Cadence to reproduce a reported error in order to verify its existence and diagnose its cause, upon completion of diagnosis Cadence will provide Customer appropriate assistance in accordance with Cadence's standard commercial practices, including furnishing Customer with an avoidance procedure, bypass, work-around, patch or hot-fix (i.e., a Customer specific release for a production stopping problem with no work-around) to correct or alleviate the condition reported. (3) UPDATE(S): Cadence will provide Customer any Update(s) (as defined below) for Licensed Programs that Cadence releases on a general commercial basis to its other customers. Cadence will also provide instructions and/or Documentation that Cadence considers reasonably necessary to assist in a smooth transition for Use of an Update. (4) COMMUNICATION: Cadence will provide Customer: (i) access to Cadence's SourceLink-TM- electronic bulletin board service; and, (ii) such newsletters and other publications, as Cadence routinely provides or makes accessible to all Maintenance Service customers to furnish information on topics such as Software advisories, known problem and solution summaries, product release notes, application notes, product descriptions, removal of an item from a product line, training class descriptions and schedules, bulletins about user group activity and the like. (5) VERSIONS SUPPORTED: Customer acknowledges that Cadence will maintain only the most current version of the Licensed Programs. Cadence shall also maintain the last prior version until the earlier of twelve (12) months from the release of each new version release, or termination of this Agreement. (6) GENERAL: As used herein an "UPDATE" means a Software modification released by Cadence on a general, regularly scheduled basis as a standard Maintenance Service offering to its other commercial customers who have the same Software version under maintenance contract coverage with Cadence and Use such Software on computer hardware of the same manufacture, make and model as the Designated Equipment upon which Customer Uses the Software. Updates may include revisions to Documentation. "NEW TECHNOLOGY" means any 4 enhancement(s) or addition(s) to Software (other than an Update) which Cadence does not make available to its commercial customers as a part of the standard Maintenance Service offering under a software maintenance contract, but rather is only provided subject to payment of a separate fee. New Technology is determined and defined by Cadence and is not covered by, and will not be provided in consideration of the Fees already paid by Customer unless otherwise specified in a Product Quotation. (b) CUSTOMER'S RESPONSIBILITIES: Customer shall: (1) NOTIFICATION: Notify Cadence promptly by either (i) Cadence electronic problem reporting software; or (ii) telephone with a description of the problem and a follow-up with a written PCR. If Customer does not receive Cadence's acknowledgment of its receipt of such report within four (4) Prime Shift hours, Customer shall promptly re-transmit such report. (2) ACCESS: Allow Cadence access to the Designated Equipment and communication facilities during Prime Shift and subject to Customer's security and safety procedures, and provide Cadence reasonable work space and other normal and customary facilities. (3) ASSISTANCE: Provide Cadence with reasonable assistance as requested and when Maintenance Services are performed on site at Customer's facility and ensure that a Customer employee is present. (4) TEST TIME: Provide sufficient support and test time on Customer's Equipment to allow Cadence to duplicate an error and verify if it is due to a Licensed Program, and when corrections are complete, acknowledge that the error has been resolved. (5) STANDARD OF CARE: Provide the same standard of care for the Licensed Program that it applies to its own products or data of like value to its business and return any defective Licensed Programs or attest in writing to the destruction of same as directed by Cadence. (6) SUPPORT: If Customer makes modifications, interfaces, and/or other changes to the Licensed Program as permitted under this Agreement, promptly inform Cadence in writing and provide such information as Cadence determines necessary to properly maintain the Licensed Program. (7) DATA NECESSARY: Provide data sufficient to enable Cadence to replicate a reported error on its own computers at the CRC. (c) EXCLUDED SERVICES: Maintenance Services required in connection with or resulting from the following are excluded from this Agreement: (1) abuse, misuse, accident or neglect; or, repairs, alterations, and/or modifications which are not permitted under this Agreement and which are performed by other than Cadence or its agents; or (2) the relocation of Licensed Programs from one unit of Equipment to another or from the Designated Site; or making changes due to Customer's decision to reconfigure the Licensed Program or the system or network upon which it is installed; or (3) maintenance, malfunction, modification of the Designated Equipment or its operating system; or (4) Use of the Licensed Program on a hardware platform other than the Designated Equipment; or use of other than the most current or last prior release of the Licensed Program; or (5) Customer's failure to maintain configuration environment (i.e., memory/disk capacity, operating system revision level, prerequisite or co-requisite items, etc.) specified in the Documentation; or where inadequate backups are supplied. (d) ADDITIONAL SERVICES: If Cadence agrees to perform services requested by Customer which are not included as part of this Agreement, such services shall be billed to Customer at prices and terms to be agreed by the parties. 10. PROPRIETARY RIGHTS INDEMNITY Cadence will indemnify, defend and hold Customer harmless, at Cadence's own expense, against any legal claim or action brought against Customer to the extent that it is based on a claim or allegation that any Licensed Program directly infringes a U.S., European or Japanese patent, copyright, trademark, or trade secret of any third party, and Cadence will pay any liabilities and costs and damages finally awarded against Customer in any such action that are attributable to any such claim or incurred by Customer through settlement thereof, but shall not be responsible for any compromise made or expense incurred without its consent. However, such defense and payments are subject to the condition that Customer gives Cadence prompt written notice of such claim, allows Cadence to direct the defense and settlement of the claim, and cooperates with Cadence as reasonably necessary for defense and settlement of the claim. Should any Licensed Program, or the operation thereof, become or in Cadence's opinion be likely to become, the subject of such claim, Cadence may, at Cadence's option and expense, procure for Customer the right to continue using the Licensed Program, replace or modify the Licensed Program so that it becomes non-infringing, or, if neither of the foregoing options are commercially reasonable or practicable, terminate the license granted hereunder for such Licensed Program and refund to Customer the Fees (less a reasonable charge for the period during which Customer has had availability of such Licensed Program for Use and of the Maintenance Services). Cadence will have no liability for any infringement claim to the extent it (i) is based on modification of a Licensed Program other than by Cadence, with or without authorization; or (ii) results from failure of Customer to use an updated version of a Licensed Program provided by Cadence to Customer; or (iii) is based on the combination or use of a Licensed Program with any other software, program or device not provided by Cadence if such infringement would not have arisen but for such use or combination; or (iv) results from 5 compliance by Cadence with designs, plans or specifications furnished by Customer, or (v) is based on any products, devices, software or applications designed or developed through use of the Licensed Programs. THE FOREGOING STATES CADENCE'S ENTIRE LIABILITY AND CUSTOMER'S EXCLUSIVE REMEDY FOR PROPRIETARY RIGHTS INFRINGMENT. 11. LIMITED WARRANTY (a) Cadence warrants for thirty (30) days after shipment that the recording media by which the Licensed Programs are furnished is free of manufacturing defects and shipping damage if the media has been properly installed on the Designated Equipment. Cadence does not warrant that Licensed Programs will meet Customer's requirements or that their Use will be uninterrupted or error free. As Customer's sole remedy and Cadence's entire liability for breach of the warranty herein, Cadence will provide a replacement magnetic media containing the Licensed Programs ordered by Customer. (b) EXCEPT AS PROVIDED ABOVE, CADENCE MAKES NO WARRANTIES TO CUSTOMER WITH RESPECT TO THE LICENSED PROGRAMS OR ANY SERVICE, ADVICE, OR ASSISTANCE FURNISHED HEREUNDER, AND NO WARRANTIES OF ANY KIND, WHETHER WRITTEN, ORAL, IMPLIED OR STATUTORY, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OR ARISING FROM COURSE OF DEALING OR USAGE IN TRADE SHALL APPLY. 12. LIMITATION OF LIABILITY Cadence's cumulative liability to Customer for all claims of any kind resulting from Cadence's performance or breach of this Agreement or the Licensed Program(s) or Services furnished hereunder shall not exceed, to the extent collected by Cadence, the Fees actually received by Cadence from Customer under this Agreement during the current Term for the Licensed Program(s) or Maintenance Services which are the subject of such claim, regardless of whether Cadence has been advised of the possibility of such damages or whether any remedy set forth herein fails of its essential purpose or otherwise. NEITHER PARTY SHALL BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTES, LOSS OF PROFITS, INTERRUPTION OF BUSINESS, OR FOR ANY OTHER SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER CAUSED, WHETHER FOR BREACH OF WARRANTY, CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE. Customer agrees it will take no legal action against Cadence's third party software suppliers related to the Software licensed under this Agreement. 13. GENERAL PROVISIONS 13.1 NOTICES Notices to Customer shall be sent to the address on the initial page and to Cadence at 555 River Oaks Parkway, San Jose, California 95134 USA, Attn: Legal Department, or such new address as a party specifies to the other in writing. 13.2 EXPORT The Fixed Term License(s) granted hereunder does not permit export of the Licensed Programs without the prior written consent of Cadence. The Licensed Programs, Documentation and all related technical information or materials are subject to export controls and (are or may be) licensable under the U. S. Government export regulations. Customer will not export, re-export, divert, transfer or disclose, directly or indirectly the Licensed Programs, Documentation and any related technical information or materials without complying strictly with all legal requirements including without limitation obtaining the prior approval of the U. S., Department of Commerce and, if necessary, other agencies or departments of the U.S. Government. Licensee will execute and deliver to Cadence such "Letters of Assurance" as may be required under applicable export regulations. Customer shall indemnify Cadence against any loss related Customer's failure to conform to these requirements. 13.3 ASSIGNMENT (a) NO ASSIGNMENT: Customer may not delegate, assign or transfer this Agreement, nor any of its rights and obligations under this Agreement, without the prior written consent of Cadence, which consent shall not be unreasonably withheld or delayed. Customer agrees that this Agreement binds Customer and each of its affiliates and the employees, agents, representatives and persons associated with any of them. Without limitation of the foregoing, in the event of a sale of substantially all the assets of Customer, a merger, a re-organization, or change in control of fifty percent (50%) or more of the equity of Customer (a "CHANGE IN CONTROL"), no transfer or assignment (including, without limitation, an assignment by operation of law) of this Agreement may be made without the prior written consent of Cadence, which consent shall not be unreasonably withheld or delayed. As used in this Agreement, assignment shall not include, and no consent shall be required, (1) if Customer raises additional capital through sale of equity (either privately or through a public offering) or debt instruments, provided that the additional equity issued does not change the equity percentage held by existing owners immediately prior to such offering more than 50%, (2) if Customer changes its state of incorporation, (3) if Customer acquires a third party that does not compete with Cadence, or (4) otherwise reorganizes its corporate structure without a change in its equity structure. If Customer is acquired by or acquires an unrelated third party or through merger forms a new corporation, Customer shall notify Cadence no later than five business days following conclusion of the merger 6 providing such details as Cadence reasonably requests. Cadence shall either (a) provide its consent to the acquisition, the provision of which shall not be unreasonably withheld or delayed, (b) notify Customer in writing that it wishes a six month period to evaluate the results of the acquisition, or (c) notify Customer within ten business days that it objects to the acquisition setting forth the business reasons therefor and any corrective action that it would consider mitigation of its concerns. If Customer is unable to reasonably mitigate the concerns expressed within 30 days following its receipt of such notice, Cadence shall have the right to request alterations to the Agreement that would make it acceptable, or if no alterations can be agreed upon, then the parties agree to resolve such dispute in accordance with the dispute resolution provisions of this Agreement. Customer and Cadence agree that legitimate concerns by Cadence include, but are not limited to, (i) acquisition of Customer by a competitor of Cadence, and (ii) acquisition of Customer at a price that is substantially less than the value of the Cadence Software licenses held by Customer. (b) ASSIGNMENT OF LICENSE FEES: Cadence may sell or assign the License Fees owing under this Agreement to third-parties ("Assignee"). Upon written notice to Customer that the right to the License Fees hereunder has been assigned, in whole or in part, Customer shall, if requested, pay all assigned amounts directly to Assignee. Customer waives and agrees it will not assert against Assignee any abatement, set-off, claim, counterclaim, adjustment, reduction, or defense for any reason, including, but not limited to, any claims that Cadence failed to perform under this Agreement or termination of this Agreement, it may have against Cadence. Customer waives all rights to make any claim against Assignee for any loss or damage to the Licensed Programs or breach of any warranty, express or implied, as to any matter whatsoever, including but not limited to the Licensed Programs and service performance, functionality, features, merchantability or fitness for a particular purpose, or any indirect, incidental or consequential damages or loss of business. (c) OBLIGATIONS: Customer shall pay Assignee all License Fees due and payable under this Agreement, but shall pursue any claims under this Agreement against Cadence. Except as provided in SECTION 5, neither Cadence nor its Assignees will interfere with Customer's quiet enjoyment or use of the Licensed Programs in accordance with this Agreement's terms and conditions. Notwithstanding any assignment by Cadence, Cadence shall remain obligated to perform all of its obligations under this Agreement. 13.4 U. S. GOVERNMENT CONTRACT PROVISIONS This Agreement is for Customer's temporary acquisition of Licensed Programs for its internal Use. No Government procurement regulation or contract clauses or provision shall be deemed a part of any transaction between the parties under this Agreement unless its inclusion is required by law, or mutually agreed upon in writing by the parties in connection with a specific transaction. Customer acknowledges that Cadence represents that: (i) the Licensed Programs are unpublished, "COMMERCIAL COMPUTER SOFTWARE AND COMMERCIAL COMPUTER SOFTWARE DOCUMENTATION" subject to "RESTRICTED RIGHTS" usage limitations, as such italicized terms are discussed in 48 CFR Section 227.401 and any other equivalent Government regulation; (ii) that the Licensed Programs were developed exclusively at private expense, that no part was developed with Government funds, nor is any part in the public domain; and (iii) that such items constitute trade secrets of Cadence for all purposes of the Freedom of Information Act. 13.5 FORCE MAJEURE Except for Customer's obligation pursuant to Section 4, neither party shall be liable to the other party for delay in performing its obligations, or failure to perform any such obligations under this Agreement, if the delay or failure results from circumstances beyond the reasonable control of the party, including but not limited to, any acts of God, governmental act, fire, explosion, accident, war, armed conflict or civil commotion. In the event of any such delay the time for performance shall be extended by the amount of time lost by reason of such delay provided however should an event of force majeure described in this section delay either party's performance in any material respect for a period of more than 90 days, then the other party shall have the option, upon giving written notice, to terminate this Agreement or the relevant order or portion thereof affected by the delay. 13.6 WAIVER AND SEVERABILITY Failure by either party to enforce at any time any of the provisions of this Agreement, or to exercise any election of options provide herein, shall not constitute a waiver of such provision or option, nor affect the validity of this Agreement or any part thereof, or the right of the waiving party to thereafter enforce each and every such provision. If any provision of this Agreement is held invalid or unenforceable, the remainder of the Agreement shall continue in full force and effect. 7 13.7 GOVERNING LAW This Agreement will be governed by the procedural and substantive laws of the State of California, U.S.A., without regard to its conflicts of laws principles. This Agreement is prepared and executed and shall be interpreted in the English language only, and no translation of the Agreement into another language shall have any effect. The parties agree that the United Nations Convention on Contracts for the International Sale of Goods (1980) is specifically excluded from and shall not apply to this Agreement. 13.8 DISPUTE RESOLUTION The parties shall attempt in good faith to resolve any issues arising in connection with Maintenance Services provided under this Agreement informally according to the following procedure. Upon written request of a party identifying an issue to be resolved, each party will designate a management representative with the responsibility and authority to resolve the dispute. The designated management representatives shall meet preliminarily within seven (7) days after the request is received from the requesting party. At this first meeting, the designated management representatives shall identify the scope of the issue and the information needed to discuss and attempt to resolve the issue. These management representatives shall then gather relevant information regarding the dispute and shall meet to discuss the issues and negotiate in good faith to resolve the dispute. Such second meeting shall occur within fifteen (15) days of the first meeting. If no resolution is reached following such second meeting, designated executives from Cadence and Customer shall meet within fifteen (15) days and negotiate in good faith to resolve the issue. 13.9 ENTIRE AGREEMENT This Agreement and the Attachments hereto is the complete and exclusive statement of the agreement between the parties and supersedes all proposals, oral or written, and all other communications between the parties relating to the subject matter of this Agreement. Only a written instrument duly executed by authorized representatives of Cadence and Customer may modify this Agreement. IN WITNESS WHEREOF, THE PARTIES HERETO HAVE ENTERED INTO THIS AGREEMENT AS OF THE EFFECTIVE DATE. 8 CUSTOMER: By: /s/ Duane W. Bell -------------------------- Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer Date: October 4, 2000 CADENCE DESIGN SYSTEMS, INC. By: /s/ R.L. Smith McKeithen -------------------------- Name: R.L. Smith McKeithen Title: Senior Vice President and General Counsel Date: October 4, 2000 9 EX-2.13 14 a2029698zex-2_13.txt EX-2.13 Exhibit 2.13 JOINT TECHNOLOGY DEVELOPMENT AND SUPPORT AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS...........................................................................................2 ARTICLE II PURPOSES OF THE OF JOINT DEVELOPMENT AND TECHNOLOGY SUPPORT AGREEMENT...............................3 ARTICLE III PLANNING AND MANAGEMENT OF JOINT DEVELOPMENT AND TECHNOLOGY SUPPORT.................................3 ARTICLE IV TERM..................................................................................................6 ARTICLE V MISCELLANEOUS.........................................................................................6
JOINT TECHNOLOGY DEVELOPMENT AND SUPPORT AGREEMENT THIS JOINT TECHNOLOGY DEVELOPMENT AND SUPPORT AGREEMENT (this "AGREEMENT"), is dated and effective as of October 4, 2000, by and among Cadence Design Systems, Inc., a Delaware corporation ("CADENCE") and Cadence Holdings, Inc., a Delaware corporation ("HOLDINGS" and, together with Cadence, the "CADENCE PARTIES"), on the one hand, and Tality, LP, a Delaware limited partnership (the "PARTNERSHIP"), and Tality Corporation, a Delaware corporation ("TALITY" and, together with the Partnership, the "TALITY PARTIES"), on the other hand. Capitalized terms used herein and not defined elsewhere herein shall have the meaning ascribed to them in Article I or in the Separation Agreement or Master Intellectual Property Agreement (each as defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Cadence is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality Corporation and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence associated with the Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement, dated as of July 14, 2000, as amended or restated (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries own and operate the entire Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Intellectual Property Ownership and License Agreement, dated as of October 4, 2000 (the "MASTER INTELLECTUAL PROPERTY AGREEMENT") and WHEREAS, all conditions to the Separation have been satisfied or waived, and Cadence, Holdings, the Partnership and Tality now desire to execute and deliver this Agreement to effect and implement future joint development and technology support as the parties deem mutually beneficial. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below. Section 1.1 "DELIVERABLES" means the specific services, software, materials, products or other deliverables provided by the Partnership to Cadence as a result of performing services which are specified in the Statement of Work of a MTD Project. Section 1.2 "JOINT DEVELOPMENT PLAN" or "JDP" shall have the meaning set forth in Section 3.2. Section 1.3 "JOINT DEVELOPMENT TEAM" or "JDT" shall have the meaning set forth in Section 3.1. Section 1.4 "METHODOLOGY TECHNOLOGY DEVELOPMENT" or "MTD" means those professional services, including without limitation methodology, design environment and design process services, to be provided by the Partnership pursuant to a Statement of Work, pursuant to an approved and authorized MTD Project, in the nature of applying engineering expertise to produce new Methodology Technology, or a new electronic design environment or an improvement thereto, or which otherwise could be adopted or incorporated into a product or service of Cadence, including Methodology Services, EDA Tools and Design Tool Technology. Section 1.5 "MTD INNOVATIONS" mean any invention development or innovation conceived or developed by the Parties solely or jointly during the term of this Agreement and in the performance of a MTD Project and whether or not forming part of a Deliverable, including, but not limited to, blocks, cells, models, libraries, formulas, algorithms, methods, libraries, design flows, processes, databases, mechanical and electronic hardware, electronic components, computers and their parts, computer languages, software, programs and their documentation, encoding techniques, articles, writings, compositions, works of authorship and improvements. Section 1.6 "MTD PROJECT" or "PROJECT" shall have the meaning set forth in Section 3.3. Section 1.7 "SERVICE TASK ORDER" means the description of the Specialized Services and deliverables thereto to be provided pursuant to Section 3.4 hereof from time to time, which may include single or multiple Service Task Orders. Section 1.8 "SPECIALIZED SERVICES" includes PDK development and support to EDA Tool Enhancement and other scientific and technical services, as previously have been provided to Cadence by resources of the Partnership, such as Silicon Test Services Support; calibration of 2 EDA tools and compatible library interfaces; third-party EDA tool "library" and technology validation support; confirmation of functionality of EDA Tools for specific client environments or system projects; and evaluation, calibration and interface check in established or new design platforms. Section 1.9 "SPONSORING EXECUTIVES" under this Agreement shall be, for each Party, the most senior Executive assigned to have responsibility for the performance of this Agreement. Section 1.10 "STATEMENT OF WORK" means the description of the MTD services and Deliverables to be provided hereunder from time to time, pursuant to an approved and ordered MTD project, which may include single or multiple Statements of Work. ARTICLE II PURPOSES OF THE JOINT DEVELOPMENT AND TECHNOLOGY SUPPORT AGREEMENT This Agreement is for the purposes of (a) enabling the Cadence Parties to benefit from the expertise, technology and resources of the Tality Parties for Methodology Technology Development, and to support the Methodology Services, Design Tool and EDA Tools business of the Cadence Parties; (b) to provide, for the Tality Parties, the support of the Cadence Parties for development and iteration of Electronic Design Technology, and for enhancement and support of the Tality Parties' Electronic Design products and services; and (c) for each Party, to provide to one another scientific and technical support, including Specialized Services, as further described below, for PDKs and other specialized needs. Methodology Technology Development shall be undertaken for jointly approved MTD Projects and in accordance with MTD Statement(s) of Work, issued pursuant to Section 3.3. ARTICLE III PLANNING AND MANAGEMENT OF JOINT DEVELOPMENT AND TECHNOLOGY SUPPORT Section 3.1 JOINT DEVELOPMENT TEAM. (a) Cadence and the Partnership will jointly manage the activities undertaken pursuant to this Agreement through a joint development team (the "JOINT DEVELOPMENT TEAM" or "JDT"). (b) The JDT will consist of three representatives of each of Cadence and the Partnership. One representative, the JDT Manager, shall be a senior executive of the assigning party. The second member of the JDT, the JDT Technical Lead, shall be a person of technical background and responsibilities. The third member of the JDT, the JDT Finance Lead, shall be a person of finance background and responsibilities. Either Party may change its designees on the JDT at any time and from time to time upon written notice to the other Party. (c) The JDT shall conduct regular meetings, to be conducted at least quarterly, and more frequently, if reasonably requested by either JDT Manager. Each such meeting shall be 3 convened after prior written notice has been provided to each member, unless otherwise agreed in writing by both parties. Each such notice shall set out the agenda for the meeting in sufficient detail to allow each party to prepare adequately therefore. Meetings of the JDT may be held in person, by teleconference, or by videoconference. (d) The JDT acts by consensus as to Methodology Technology Development and, accordingly, neither Party is obligated to perform or accept, or pay for or incur costs, for any Project, task or other assignment, where not approved by the JDT or, in its stead, both the Cadence and the Partnership JDT Manager. In the event of a deadlock regarding any JDT decision-making, either party shall have the option to refer the deadlocked matter to the Sponsoring Executives for resolution. In addition, the JDT and the Sponsoring Executives will attempt to resolve any disputes between Cadence and Tality arising out of or in connection with this Agreement. Where the JDT is unable to resolve a disagreement or dispute, the matter will be submitted to the Sponsoring Executives, who shall then meet and fully discuss such dispute in an attempt to achieve its prompt resolution. (e) The JDT will execute the JDP by preparation, approval, funding, oversight and management of MTD Projects, inclusive of Deliverables, Statements Of Work, budgets, specifications, schedules and such other elements of performance as the JDT may determine. The JDT shall review the key resources each performing party intends to assign to Projects. The JDT shall oversee the preparation of a mutually satisfactory means to account for costs expended on Project and tasks, to monitor and report on cost/performance. The JDT shall have responsibility and authority to approve changes to a Statement of Work, specification or schedule, as may be requested by either Party. The parties may agree to a separate and distinct means to manage and coordinate Specialized Services, reporting to the JDT. Section 3.2 JOINT DEVELOPMENT PLAN. (a) The JDT shall be responsible for the development of a mutually agreeable, annual joint development plan for each year of the Term ( a "JOINT DEVELOPMENT PLAN" or "JDP"). The JDP shall contain a detailed statement of the agreed-upon business and technology objectives for the applicable 12-month period. The annual JDP shall, to the extent feasible, define Projects, work scope, work plan and tasks and forecast funding. It shall also forecast needs for resources capable of performing Specialized Services. (b) The first JDP shall be prepared and submitted to the Sponsoring Executives no later than ninety (90) days from the effective date hereof. The JDT shall meet not less than quarterly, and otherwise as either Party's lead JDT Manager may reasonably request, to agree upon additional Projects and tasks, and to review progress on pending Projects and tasks, or otherwise to consider matters within the scope of the JDT's authority and responsibility. (c) No later than ninety (90) days prior to the end of each calendar year subject to this Agreement, the JDT shall meet to review and evaluate the results of this Agreement for the prior period and to commence preparation of the JDP for the successive year. On or before the last business day of 2001, and annually thereafter for the duration of the Term, the JDT shall produce and deliver a JDP for the next performance year to the Sponsoring Executives, such JDP to state technology objectives and planned Projects. 4 Section 3.3 MTD PROJECTS. (a) Methodology technology development projects ("MTD PROJECTS" or "PROJECTS") are to be performed only where mutually agreed and pursuant to the direction and authorization of the JDT. When so authorized, the JDT shall establish and provide to the Partnership a Statement of Work for each Project, and shall specify, as it deems applicable, the Project Deliverables, schedule, milestones and such other requirements or goals as it deems appropriate. For each MTD Project, the Parties shall mutually agree on an approved budget and expenditure plan, at or prior to the time that work on the Project is authorized to commence. The Parties may agree, for particular MTD Projects, to cost-sharing, whereby each will bear a portion of the total costs of performing the Project Scope of Work. In respect to each MTD Project as to which an MTD Innovation may result, the Parties shall specially negotiate and agree to Intellectual Property Rights that respect and recognize the respective financial contribution to the Project effort and results. (b) Cadence and the Partnership will agree, through the JDT, on a means to track MTD Project costs and achievement of Project objectives on a real-time basis. The Partnership is to notify Cadence when costs incurred on any Project equal or exceed approximately 85% of the budgeted Project amount. Except as the Parties may otherwise agree, Cadence is not obligated to reimburse greater than 110% of its agreed-upon share of each approved Project budget, where a Project is performed on the basis of time and materials, or in excess of the firm fixed price amount, for Projects performed on that basis. (c) During each performance year, the Parties may agree to increase, but not decrease, the actual funding in response to costs incurred on authorized MTD Projects. Subject to the foregoing, during each performance year, the Parties may add MTD Projects or increase (or decrease) scope for approved Projects, with corresponding increases (or decreases) to funding. (d) Notwithstanding anything to the contrary contained in this Agreement (or the Master Intellectual Property Agreement), neither the Partnership nor any other member of the Tality Group shall be entitled to use the Project Alba Methodologies or to grant any license or sublicense to the Project Alba Methodologies to any third-party for the use of the Project Alba Methodologies in relation to education, research or industrial retraining by any academic higher education institution or research institute or to enable any governmental agency economic development body or other educational establishment to commence a project to establish a design factory in the Project Alba Territory for research into the use of the Project Alba Methodologies for the design of system on chip products, including hardware products. Section 3.4 SPECIALIZED SERVICES. (a) Specialized Services are to be performed by the Partnership for Cadence only pursuant to mutual agreement and are to be ordered by the Cadence JDT Manager through the use of a Service Task Order. Prior to issuing a Service Task Order, the Cadence JDT Manager shall secure the consent of the Partnership JDT Manager for the contemplated scope of each Service Task Order. Each approved Service Task Order shall state the budgeted amount for the 5 services ordered and shall indicate whether the Partnership is to be paid for such services on a time and materials, firm fixed price, or other basis. (b) For mutually approved Service Task Orders for Specialized Services, Cadence shall pay the Partnership on a time & materials, firm fixed price or other basis as specified in the applicable Order. ARTICLE IV TERM Section 4.1 TERM. The term of this Agreement shall commence on the effective date hereof and shall continue for two (2) successive one-year terms. Should neither Party object prior to six (6) months before the expiration of the second performance year, the term shall extend automatically for a third and final year. Section 4.2 TERMINATION. Either Party may withdraw from this Agreement upon the giving of 60 days written notice to the other Party; PROVIDED, HOWEVER, that such termination shall not affect the Parties' then-existing obligations arising under this Agreement or under any Statement of Work. ARTICLE V MISCELLANEOUS Section 5.1 EXCLUSION OF CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL ANY PARTY HEREUNDER BE LIABLE TO ANOTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AS SET FORTH IN THE INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT. Section 5.2 INCORPORATION BY REFERENCE. Section 4.4 and all of the provisions of Article V (except for Sections 5.1, 5.7 and 5.13 thereof) of the Separation Agreement are incorporated into and made a part of this Agreement, as if fully set forth herein. 6 WHEREFORE, the Parties have executed and delivered this Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/ R.L. Smith McKeithen By: TALITY CORPORATION, ----------------------------- AS GENERAL PARTNER Name: R. L. Smith McKeithen By: /s/ Duane W. Bell Title: Senior Vice President and ---------------------------- General Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/ R.L. Smith McKeithen By: /s/ Duane W. Bell ----------------------------- ------------------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer 7 EX-2.14 15 a2029698zex-2_14.txt EX-2.14 Exhibit 2.14 JOINT SALES AGREEMENT BY AND AMONG CADENCE DESIGN SYSTEMS, INC., CADENCE HOLDINGS, INC., TALITY, LP AND TALITY CORPORATION DATED AS OF OCTOBER 4, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS...........................................................................................2 Section 1.1 Booking...............................................................................2 Section 1.2 Cadence Account Team..................................................................2 Section 1.3 Client................................................................................2 Section 1.4 Confidential Information..............................................................2 Section 1.5 District Manager......................................................................2 Section 1.6 Joint Target Account..................................................................2 Section 1.7 Party.................................................................................2 Section 1.8 Tality Account Team...................................................................3 Section 1.9 Tality Services.......................................................................3 Section 1.10 Target Account Manager................................................................3 Section 1.11 Territory.............................................................................3 ARTICLE II SCOPE OF REPRESENTATION AND GENERAL MARKETING AND SALES SUPPORT OBLIGATIONS...........................................................................3 Section 2.1 Appointment...........................................................................3 Section 2.2 Independent Contractors...............................................................3 Section 2.3 Cadence's Duties......................................................................3 Section 2.4 Duties of Tality Joint Account Team Members...........................................5 Section 2.5 Joint Escalation Procedure............................................................6 Section 2.6 Joint Sales Review....................................................................6 Section 2.7 Administration of Bookings and Payment of Commission..................................6 Section 2.8 Costs and Expenses....................................................................6 ARTICLE III JOINT TARGET ACCOUNT PROGRAM........................................................................7 Section 3.1 Scope.................................................................................7 Section 3.2 Identification of Joint Target Accounts...............................................7 Section 3.3 Performance and Payment...............................................................7 Section 3.4 Annual Review of Joint Target Account Program.........................................7 ARTICLE IV GEOGRAPHY CHANNEL PROGRAM............................................................................7 Section 4.1 Scope.................................................................................8 Section 4.2 Non-Joint Target Accounts.............................................................8 Section 4.3 Performance and Payment...............................................................8 Section 4.4 Annual Review of Geography Channel Program............................................8 ARTICLE V TERM AND TERMINATION..................................................................................9 Section 5.1 Initial Term and Renewal..............................................................9 Section 5.2 Termination for Cause.................................................................9 Section 5.3 Termination for Insolvency............................................................9 Section 5.4 Return of Materials...................................................................9 i TABLE OF CONTENTS (CONTINUED) PAGE ---- Section 5.5 Survival of Certain Terms.............................................................9 Section 5.6 Events of Default.....................................................................9 ARTICLE VI CONFIDENTIALITY......................................................................................9 Section 6.1 Master Confidentiality Agreement.....................................................10 Section 6.2 Client's Confidential Information....................................................10 ARTICLE VII CONFLICTS OF INTEREST..............................................................................10 ARTICLE VIII TRADEMARKS........................................................................................10 ARTICLE IX LIMITATION OF LIABILITY; CLAIMS.....................................................................11 Section 9.1 No Consequential Damages.............................................................11 Section 9.2 Warranty.............................................................................11 Section 9.3 Limitation of Claims.................................................................11 ARTICLE X DISPUTE RESOLUTION...................................................................................11 ARTICLE XI GENERAL PROVISIONS..................................................................................12 Section 11.1 Assignment...........................................................................12 Section 11.2 Governing Law........................................................................12 Section 11.3 Conflicting Agreements...............................................................12 Section 11.4 Incorporation by Reference...........................................................12
ii JOINT SALES AGREEMENT THIS JOINT SALES AGREEMENT (this "AGREEMENT"), dated and effective as of October 4, 2000, by and among Cadence Design Systems, Inc., a Delaware corporation ("CADENCE") and Cadence Holdings, Inc., a Delaware corporation ("HOLDINGS" and, together with Cadence, the "CADENCE PARTIES"), on the one hand, and Tality, LP, a Delaware limited partnership (the "PARTNERSHIP"), and Tality Corporation, a Delaware corporation ("TALITY" and, together with the Partnership, the "TALITY PARTIES"), on the other hand. Capitalized terms used herein and not defined elsewhere herein shall have the meaning ascribed to them in Article I or in the Separation Agreement (as defined below). RECITALS WHEREAS, Holdings currently owns approximately 98% of the issued and outstanding shares of the capital stock of Tality; WHEREAS, Tality is the sole general partner of, and owns both a general and limited partnership interest in, the Partnership; WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings determined that it would be appropriate and desirable for Cadence to transfer (or cause to be transferred) to the Partnership, on behalf of Holdings, and for the Partnership to receive and assume, directly or indirectly, as a contribution from Holdings, certain assets and liabilities of Cadence associated with the Tality Business; WHEREAS, Cadence, Tality and Holdings are parties to that certain Master Separation Agreement, dated as of July 14, 2000, as amended or restated (the "SEPARATION AGREEMENT"), pursuant to which Cadence, Tality, Holdings and the Partnership have agreed, subject to certain conditions, to the legal separation of the Tality Business from Cadence's other businesses and to have the Partnership and its Subsidiaries own and operate the entire Tality Business; and WHEREAS, all conditions to the Separation have been satisfied or waived, and Cadence, Holdings, the Partnership and Tality now desire to execute and deliver this Agreement to set forth certain arrangements regarding the establishment of Cadence as a non-exclusive independent representative for the promotion of Tality Services in certain geographical territories and to identified Joint Target Accounts. 1 AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below: Section 1.1 "BOOKING" means a binding order for Tality Services. A Booking occurs when an authorized Client representative executes an agreement to procure Tality Services. The booking amount will be determined by the then current booking policies of Tality. Section 1.2 "CADENCE ACCOUNT TEAM" means a team of Cadence sales persons with (i) a minimum of one (1) dedicated (i.e., full-time) Global Account Director and one (1) dedicated sales person, in the case of each Joint Target Account; (ii) a minimum of one (1) Territory Sales Manager and one (1) sales person, in the case of each other account. Section 1.3 "CLIENT" means a potential or existing purchaser of products or services provided by either or both of the Parties. Section 1.4 "CONFIDENTIAL INFORMATION" has the meaning set forth in the Master Confidentiality Agreement. Section 1.5 "DISTRICT MANAGER" means the Cadence manager responsible for a geographical region consisting of multiple Clients and whose responsibilities include selling Cadence's full product line into those Clients. Section 1.6 "JOINT TARGET ACCOUNT" means the Clients identified on EXHIBIT A. Section 1.7 "PARTY" means the Tality Parties, on the one hand, the Cadence Parties, on the other, and, in the plural, the Tality Parties together with the Cadence Parties. 2 Section 1.8 "TALITY ACCOUNT TEAM" means one or more of the Partnership's sales persons whose responsibilities include selling the Partnership's full design service product line to a specific Client or into a geographic region. Section 1.9 "TALITY SERVICES" means the professional design services provided by the Partnership to Clients, including printed circuit board and integrated circuit design services targeted at the wireless, data communication and telecommunication, information appliance and consumer market. Section 1.10 "TARGET ACCOUNT MANAGER" means the Cadence target account manager responsible for the worldwide relationship with a single, specific Client and whose responsibilities include selling Cadence's full product line to that Client. Section 1.11 "TERRITORY" means a geographic region identified on EXHIBIT C. ARTICLE II SCOPE OF REPRESENTATION AND GENERAL MARKETING AND SALES SUPPORT OBLIGATIONS Section 2.1 APPOINTMENT. The Partnership hereby appoints Cadence as a non-exclusive independent representative and authorizes Cadence to promote Tality Services to Clients as specified in Articles III and IV. Section 2.2 INDEPENDENT CONTRACTORS. The relationship between the Parties established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed to create an agency relationship between the Parties or to allow Cadence to create or assume any obligation on behalf of the Tality Parties for any purpose whatsoever. Section 2.3 CADENCE'S DUTIES. Each Cadence Account Team member participating in the joint sales program established by this Agreement shall, within its account responsibility: 3 (a) Use reasonable commercial efforts to identify potential Clients for the Partnership and other members of the Tality Group, share information concerning the Clients, assist the Partnership and other members of the Tality Group in acquiring access and influence with Client, especially at executive levels, and promote Tality Services; (b) Promptly report any sales opportunity and provide detail regarding such opportunities as the Partnership may reasonably request, including the Client's business objectives, organization, and competitive landscape; (c) Pre-qualify Clients in accordance with the guidelines which the Partnership may provide from time to time; (d) Maintain, during the term of this Agreement, and for at least three (3) years thereafter, accurate records of all Client contacts and copies of all Client correspondence relating to Cadence's performance of its obligations under this Agreement and allow the Partnership reasonable access to examine such records upon five (5) days' notice; (e) Assist the Partnership in generating Bookings by using reasonable commercial efforts to leverage Cadence's relationships with the Client's representatives and knowledge of the Client's procurement process; (f) Respond in a timely fashion to product and methodology services opportunities referred by the Partnership; (g) Provide the Partnership with reasonable access to account knowledge and support systems, including such tools as the "Introspect" analysis tool; (h) Each Cadence Account Team shall meet periodically with the corresponding Tality Account Team, at such frequency as the Parties may determine mutually, to (i) review the status of its Client and develop a plan to address areas of concern, if any, (ii) conduct joint project reviews, (iii) develop joint strategies for future business, beginning with, at the first such review(s), a joint initiative targeting the Parties' sales opportunities in the customer owned tooling ("COT") market; (i) Cadence shall provide continued access to Cadence's sales development training materials and courses. The pricing and terms of any such training program shall be subject to terms as the Parties may subsequently agree; 4 (j) Cadence shall establish links, as appropriate, to the Partnership's web site as soon as practicable; and (k) Cadence shall promote and advertise Tality Services. For this purpose, the Parties shall coordinate reasonably so that, for example, promotional or advertising campaigns featuring Tality Services are submitted to the Partnership for its review and approval prior to publication or use. Cadence must obtain written approval prior to use of the Tality name in promotional campaigns or advertising, such approval not to be unreasonably withheld or delayed. Section 2.4 DUTIES OF TALITY ACCOUNT TEAM MEMBERS. Each Tality Account Team member participating in the joint sales program established by this Agreement shall, within its account responsibility: (a) Review each identified sales opportunity to determine whether the opportunity should be approved. Such approval is at the sole discretion of the Partnership; (b) Assist Cadence Account Team members with joint sales activities and the promotion and representation of Tality Services, including providing Cadence with marketing and promotional information as Cadence may require; (c) Recommend Cadence products to Clients where appropriate; (d) Promptly respond to design services sales opportunities by identifying appropriate offerings of the Partnership and making them available to the Client in a timely and effective manner subject to the normal constraints of a services business; (e) Each Tality Account Team shall meet periodically with the corresponding Cadence Account Team, at such frequency as the parties may determine mutually, to (i) review the status of its Client and develop a plan to address areas of concern, if any, (ii) conduct joint project reviews, (iii) develop joint strategies for future business, beginning with, at the first such review(s), a joint initiative targeting the Parties' sales opportunities in the COT market; (f) The Partnership shall develop and implement a program to train Cadence Account Teams as Cadence may reasonably specify. The pricing and terms of any such training program shall be subject to terms as the Parties may subsequently agree; 5 (g) The Partnership shall maintain full responsibility for (i) design service project assessment and determination of project scope of work, generation and presentation of a written Statement of Work ("SOW") describing the services to be provided to the Client, (ii) execution of any and all agreements with the Client, (iii) providing Clients information related to the Partnership's business commitments, including budgetary proposals (also known as "YELLOW PADS"), Professional Service Agreements ("PSA's"), pricing, technical capabilities, and staffing capabilities, and (iv) addressing Client satisfaction, performance, and post-sales support issues; and (f) The Partnership shall establish links, as appropriate, to Cadence's web site as soon as practicable. Section 2.5 JOINT ESCALATION PROCEDURE. The Parties shall establish a coordinated "escalation" procedure to promptly and efficiently direct complaints and inquiries received from Cadence Account Teams, Tality Account Teams or Clients and direct these inquiries to the appropriate Party at the appropriate managerial level. Section 2.6 JOINT SALES REVIEW. Not later than three (3) months prior to the first anniversary date of this Agreement, the Parties shall schedule and conduct a joint sales review for the purpose of determining the success of the first year of operation of this Agreement, areas where improvement is needed, sales performance against quotas, and whether and to what extent to adjust this Agreement. Section 2.7 ADMINISTRATION OF BOOKINGS AND PAYMENT OF COMMISSION. Commissions are payable on Bookings in accordance with Articles III and IV. Commission will not be earned or paid on "pass-through" items or services. Reconciliation of commissions owed by the Partnership to Cadence shall be completed by the sixtieth (60th) day of the quarter following that in which a Booking was made, and payment by the Partnership to Cadence shall be provided within thirty (30) days after reconciliation. The Partnership's then current Booking policies and commission payment policies shall apply to Bookings made by Cadence, including policies associated with (i) commissions on Bookings over $3,000,000; and (ii) treatment of previous Bookings that are cancelled, in whole or in part, or modified by a Client. Section 2.8 COSTS AND EXPENSES. Except as expressly provided herein or agreed to in writing by the Parties, each Party will pay all costs and expenses incurred in its performance of its obligations under this Agreement. 6 ARTICLE III JOINT TARGET ACCOUNT PROGRAM Section 3.1 SCOPE. The Parties believe there are a number of mutually strategic Clients that the Parties wish to pursue in a highly coordinated fashion. This Article III describes the terms associated with this cooperative effort. Section 3.2 IDENTIFICATION OF JOINT TARGET ACCOUNTS. Before the thirtieth (30th) day of each calendar year, Cadence and the Partnership shall mutually agree on accounts to be included in the Joint Target Account Program. At any time by mutual consent, Cadence and the Partnership may add or remove any of the Joint Target Accounts. Joint Target Accounts may be removed from the list by either Cadence or the Partnership before the thirtieth (30th) day of each calendar year without mutual consent. EXHIBIT A shall be modified and updated as appropriate to reflect the then current list of accounts included in the Joint Target Account Program. Section 3.3 PERFORMANCE AND PAYMENT. Cadence shall provide the sales organization and perform the marketing and sales scope as specified on EXHIBIT B and, in consideration for such performance, the Partnership shall pay amounts to Cadence, for commissions to the Cadence Account Team, for Bookings to Joint Target Accounts, where made subsequent to the date hereof and during the term hereof, as further specified in and in accordance with EXHIBIT B and EXHIBIT E. Neither Party may change the terms of EXHIBIT B or EXHIBIT E without the express written consent of the other Party. Section 3.4 ANNUAL REVIEW OF JOINT TARGET ACCOUNT PROGRAM. Before the thirtieth (30th) day of each calendar year, Cadence and the Partnership shall agree on key elements of the Joint Target Account Program including (i) modifications to the general operating model described in Article II; (ii) Cadence Account Team compensation structure and quota related to both Cadence product and service offerings and service offerings of the Partnership; (iii) Cadence Account Team coverage of Joint Target Accounts; (iv) resolution of any outstanding payments obligation of the Parties; and (v) changes to EXHIBIT A, EXHIBIT B and EXHIBIT E to reflect any agreed-upon revisions to the Joint Target Account Program for the next calendar year. ARTICLE IV GEOGRAPHY CHANNEL PROGRAM 7 Section 4.1 SCOPE. The Parties believe cooperative sales efforts targeted on non-Joint Target Accounts are mutually beneficial and wish to pursue these Clients in a coordinated fashion. This Article IV describes the terms associated with this cooperative effort. Section 4.2 NON-JOINT TARGET ACCOUNTS. Before the thirtieth (30th) day of each calendar year, Cadence and the Partnership shall agree on Territories to be included in the Geography Channel Program. At any time by mutual consent, Cadence or the Partnership may add or remove any of the Territories. Territories may be removed from the list by either Cadence or the Partnership before the thirtieth (30th) day of each calendar year. EXHIBIT C shall be modified and updated as appropriate to reflect the then current list of Territories included in the Geography Channel Program. Section 4.3 PERFORMANCE AND PAYMENT. Cadence shall provide the sales organization and perform the marketing and sales services as specified in EXHIBIT D and, in consideration for such performance, the Partnership shall pay amounts to Cadence, for commissions to the Cadence Account Team, for Bookings to non-Joint Target Accounts, where made after the date hereof and during the term hereof, as further specified in and in accordance with EXHIBIT D and EXHIBIT F. Neither Party may change the terms of EXHIBIT D or EXHIBIT F without the express written consent of the other Party. Section 4.4 ANNUAL REVIEW OF GEOGRAPHY CHANNEL PROGRAM. Before the thirtieth (30th) day of each calendar year, Cadence and the Partnership shall agree on key elements of the Geography Channel Program, including (i) modifications to the general operating model described in Article II; (ii) Cadence Account Team compensation structure and quota related to both Cadence product and service offerings and Tality service offerings; (iii) Cadence Account Team coverage of Territories; (iv) resolution of any outstanding payments obligations of the Parties; and (v) changes to EXHIBIT C, EXHIBIT D and EXHIBIT F to reflect any agreed-upon revisions to the Geography Channel Program for the next calendar year. 8 ARTICLE V TERM AND TERMINATION Section 5.1 INITIAL TERM AND RENEWAL. The initial term of this Agreement will commence on the date hereof and, subject to Sections 5.2 and 5.3 terminate at the end of the Partnership's fiscal year 2001 (the "INITIAL TERM"). At the expiration of the Initial Term, this Agreement will automatically expire unless the Parties agree in writing to renew this Agreement for an additional fixed term prior to such automatic expiration. Section 5.2 TERMINATION FOR CAUSE. Either Party may terminate this Agreement upon an Event of Default as defined in Section 5.6. Section 5.3 TERMINATION FOR INSOLVENCY. Either Party may terminate this Agreement immediately, upon written notice, (i) upon the institution by or against the other Party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of the other's debts, (ii) upon the other Party's (except for Holdings') making an assignment for the benefit of creditors or (iii) upon the other Party's (except for Holdings') dissolution or ceasing to conduct business in the normal course. Section 5.4 RETURN OF MATERIALS. All of the Partnership's Confidential Information, data, literature, and sales aids of every kind shall remain the property of the Partnership. Within thirty (30) days after the termination of this Agreement, Cadence shall destroy or return all such items as the Partnership may direct at the Partnership's expense. Section 5.5 SURVIVAL OF CERTAIN TERMS. The provisions of this Article V, Sections 3.3 of Article III and 4.3 of Article IV, Article VI, Article VII, Article VIII, Article X and Article XI shall survive the termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon termination of this Agreement. Section 5.6 EVENTS OF DEFAULT. An "EVENT OF DEFAULT"occurs if either Party breaches any material provision of this Agreement and fails to correct such breach within thirty (30) days after its receipt of written notice thereof. Events constituting a "material breach" shall include the Partnership's failure to pay when due all or any portion of any amounts payable hereunder. ARTICLE VI CONFIDENTIALITY 9 Section 6.1 MASTER CONFIDENTIALITY AGREEMENT. With respect to the performance of this Agreement, the Parties agree that they are bound by the terms of the Master Confidentiality Agreement and, in accordance therewith, each Party acknowledges and agrees that, through their relationship, they may obtain Confidential Information of the other Party, which value would be impaired if such information were disclosed to third parties. Section 6.2 CLIENT'S CONFIDENTIAL INFORMATION. Neither Party shall be under any obligation to disclose confidential Client information to the other Party without the Client's written consent. The Parties shall use all commercially reasonable efforts to obtain such consent from a Client where disclosure of such Client's confidential information appears reasonably necessary to fulfill the purposes of this Agreement. If either Party discloses confidential Client information to the other Party without notifying the other Party in writing that such information is confidential, the disclosing Party shall defend and indemnify the other Party for any third party liability arising from such disclosure. ARTICLE VII CONFLICTS OF INTEREST Cadence shall not agree to formally represent, or promote for sale the products or services of, any other Person that engages in the Tality Business without first notifying the Partnership and receiving its written consent. Notwithstanding the foregoing, nothing in this Article VII shall restrict Cadence from selling EDA Tools or methodology services to any Client. ARTICLE VIII TRADEMARKS Neither Party may use the trademarks, trade names, logos, designations or copyrights of the other Party, except where prior written authorization has been obtained. Neither Party, at any time during or after this Agreement, shall assert or claim any interest in, or do anything that may adversely affect the validity or enforceability of, any trademark, trade name, logo, designation or copyright of the other Party, and each Party acknowledges that nothing in this Agreement shall give either Party any right, title or interest in any trademarks, trade names, logos, designations, copyrights and other proprietary rights in or associated with the products or services of the other Party. 10 ARTICLE IX LIMITATION OF LIABILITY; CLAIMS Section 9.1 NO CONSEQUENTIAL DAMAGES. NONE OF THE PARTIES OR OTHER MEMBERS OF THE CADENCE GROUP OR TALITY GROUP, AS THE CASE MAY BE, SHALL BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOSS OF DATA, LOSS OF USE, COST OF COVER, BUSINESS INTERRUPTION OR OTHER SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY, ARISING FROM THE PERFORMANCE OF, OR RELATING TO, THIS AGREEMENT. Section 9.2 WARRANTY. Tality Services to be marketed and sold pursuant to this Agreement shall be subject to the standard warranty policies and practices of the Partnership applicable at the time of sale, unless the Parties otherwise agree in writing. THE PARTIES MAKE NO WARRANTY TO EACH OTHER, OR TO OR FOR THE BENEFIT OF ANY CLIENT, with respect to any software, services or products to be sold hereunder; and no warranty of any kind, whether written, oral, implied or statutory, AND NO WARRANTIES OF MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE, non-infringement or arising from course of dealing or usage of trade, shall apply to any of such software, service or products. Section 9.3 LIMITATION OF CLAIMS. No action, regardless of form, arising out of the rights or obligations set forth in this Agreement, may be brought by either Party more than one (1) year after the cause of action has accrued, except that an action for non-payment by the Partnership of any amount due Cadence may be brought within one (1) year after the date of last payment. ARTICLE X DISPUTE RESOLUTION The Parties shall attempt in good faith to resolve any dispute, controversy or claim (a "DISPUTE") arising in connection with this Agreement informally according to the following procedure. Upon written request of a Party identifying a Dispute to be resolved, each Party will designate a management representative with the responsibility and authority to resolve the Dispute. The designated management representatives shall meet preliminarily within fifteen (15) days after the request is received from the requesting Party. At this first meeting, the designated management representatives shall identify the scope of the Dispute and the information needed to discuss and attempt to resolve the Dispute. These management 11 representatives shall then gather relevant information regarding the Dispute and shall meet to discuss the issues and negotiate in good faith to resolve the Dispute. Such second meeting shall occur within fifteen (15) days after the first meeting. If no resolution is reached following such second meeting, the designated management representatives from each Party shall meet again within fifteen (15) days and negotiate in good faith to resolve the Dispute. Should the designated executives be unable to produce a resolution, such continuing Dispute shall be resolved in accordance with Section 4.4 of the Separation Agreement. ARTICLE XI GENERAL PROVISIONS Section 11.1 ASSIGNMENT. Neither party may assign this Agreement or any of its rights or obligations hereunder, without the prior written consent of the other party (except in connection with a merger, consolidation or sale of all or substantially all of the party's assets), and any such attempted assignment in violation hereof shall be void. Section 11.2 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 4.4 of the Separation Agreement. Section 11.3 CONFLICTING AGREEMENTS. In the event of any irreconcilable conflict between this Agreement and the Separation Agreement, any other Ancillary Agreement or other agreement executed in connection herewith or therewith, the provisions of such other agreement shall prevail to the extent that they specifically address the subject matter of the conflict. Section 11.4 INCORPORATION BY REFERENCE. Section 4.4 (subject to Article X hereof) and all of the provisions of Article V (except for Sections 5.3 and 5.13 thereof) of the Separation Agreement are incorporated into and made a part of this Agreement, as if fully set forth herein. 12 WHEREFORE, the parties have executed and delivered this Agreement effective as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC. TALITY, LP By: /s/ R. L. Smith McKeithen By: TALITY CORPORATION, ------------------------------ AS GENERAL PARTNER Name: R. L. Smith McKeithen By: /s/ Duane W. Bell Title: Senior Vice President and ---------------------------- General Counsel Name: Duane W. Bell Title: Senior Vice President, Chief Financial Officer CADENCE HOLDINGS, INC. TALITY CORPORATION By: /s/ R.L. Smith McKeithen By: /s/ Duane W. Bell ------------------------------ ------------------------------- Name: R.L. Smith McKeithen Name: Duane W. Bell Title: Secretary Title: Senior Vice President, Chief Financial Officer 13 EX-10.01 16 a2029698zex-10_01.txt EX 10.01 EXHIBIT 10.01 - ------------------------------------------------------------------------------- CADENCE DESIGN SYSTEMS, INC. --------------------------------- $100,000,000 CREDIT AGREEMENT Dated as of September 29, 2000 --------------------------------- ABN AMRO BANK N.V., as Agent and as Sole Lead Arranger BANK ONE, N.A. KEYBANK NATIONAL ASSOCIATION, AND UBS AG, STAMFORD BRANCH, as Co-Agents - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS.............................................................................................1 Section 1.01 Certain Defined Terms....................................................................1 Section 1.02 Accounting Principles...................................................................14 (a) Accounting Terms................................................................14 (b) GAAP Changes....................................................................14 (c) "Fiscal Year" and "Fiscal Quarter"..............................................14 Section 1.03 Interpretation..........................................................................14 ARTICLE II THE LOANS.............................................................................................15 Section 2.01 The Revolving Credit....................................................................15 Section 2.02 Borrowing Procedure.....................................................................15 (a) Notice to the Agent.............................................................15 (b) Notice to the Banks.............................................................16 Section 2.03 Non-Receipt of Funds....................................................................16 Section 2.04 Lending Offices.........................................................................16 Section 2.05 Evidence of Indebtedness................................................................17 Section 2.06 Minimum Amounts.........................................................................17 Section 2.07 Required Notice.........................................................................17 ARTICLE III INTEREST AND FEES; CONVERSION OR CONTINUATION........................................................17 Section 3.01 Interest................................................................................17 (a) Interest Rate...................................................................17 (b) Interest Periods................................................................18 (c) Interest Payment Dates..........................................................18 (d) Notice to the Borrower and the Banks............................................19 Section 3.02 Default Rate of Interest................................................................19 Section 3.03 Fees....................................................................................19 (a) Revolving Commitment Fees.......................................................19 (b) Agency Fee......................................................................19 (c) Fees Nonrefundable..............................................................19 Section 3.04 Computations............................................................................19 Section 3.05 Conversion or Continuation..............................................................19 (a) Election........................................................................19 (b) Automatic Conversion............................................................20 (c) Notice to the Agent.............................................................20 (d) Notice to the Banks.............................................................20 Section 3.06 Replacement of Reference Banks..........................................................20 Section 3.07 Highest Lawful Rate.....................................................................20
i ARTICLE IV REDUCTION OF REVOLVING COMMITMENTS; REPAYMENT; PREPAYMENT.............................................21 Section 4.01 Reduction or Termination of the Revolving Commitments...................................21 (a) Optional Reduction or Termination...............................................21 (b) Mandatory Termination...........................................................21 (c) [Intentionally Omitted.]........................................................21 (d) [Intentionally Omitted.]........................................................21 (e) Notice..........................................................................21 (f) Adjustment of Revolving Commitment Fee; No Reinstatement........................21 Section 4.02 Repayment of Loans......................................................................21 Section 4.03 Prepayments.............................................................................21 (a) Optional Prepayments............................................................21 (b) [Intentionally Omitted.]........................................................21 (c) Notice; Application.............................................................22 ARTICLE V YIELD PROTECTION AND ILLEGALITY........................................................................22 Section 5.01 Inability to Determine Rates............................................................22 Section 5.02 Funding Losses..........................................................................22 Section 5.03 Regulatory Changes......................................................................22 (a) Increased Costs.................................................................22 (b) Capital Requirements............................................................23 (c) Requests........................................................................23 Section 5.04 Illegality..............................................................................23 Section 5.05 Funding Assumptions.....................................................................24 Section 5.06 Obligation to Mitigate..................................................................24 Section 5.07 Substitution of Banks...................................................................24 ARTICLE VI PAYMENTS..............................................................................................24 Section 6.01 Pro Rata Treatment......................................................................24 Section 6.02 Payments................................................................................25 (a) Payments........................................................................25 (b) Application.....................................................................25 (c) Extension.......................................................................25 Section 6.03 Taxes...................................................................................25 (a) No Reduction of Payments........................................................25 (b) Deduction or Withholding; Tax Receipts..........................................25 (c) Indemnity.......................................................................26 (d) Forms W-8BEN and W-8ECI.........................................................26 (e) Mitigation......................................................................26 Section 6.04 Non-Receipt of Funds....................................................................26 Section 6.05 Sharing of Payments.....................................................................27
ii ARTICLE VII CONDITIONS PRECEDENT.................................................................................27 Section 7.01 Conditions Precedent to the Initial Loans...............................................27 (a) Fees and Expenses...............................................................27 (b) Loan Documents..................................................................27 (c) Certificate of Responsible Officer..............................................27 (d) Corporate Documents.............................................................27 (e) Legal Opinion...................................................................28 (f) Compliance Certificate..........................................................28 (g) Material Adverse Effect.........................................................28 (h) Existing Credit Agreement.......................................................28 Section 7.02 Conditions Precedent to All Loans.......................................................28 (a) Notice..........................................................................28 (b) Representations and Warranties; No Default......................................28 (c) Additional Documents............................................................29 ARTICLE VIII REPRESENTATIONS AND WARRANTIES......................................................................29 Section 8.01 Representations and Warranties..........................................................29 (a) Organization and Powers.........................................................29 (b) Authorization; No Conflict......................................................29 (c) Binding Obligation..............................................................29 (d) Consents........................................................................29 (e) No Defaults.....................................................................30 (f) Title to Properties; Liens......................................................30 (g) Litigation......................................................................30 (h) Compliance with Environmental Laws..............................................30 (i) Governmental Regulation.........................................................30 (j) ERISA...........................................................................31 (k) Subsidiaries....................................................................31 (l) Margin Regulations..............................................................31 (m) Taxes...........................................................................31 (n) Patents and Other Rights........................................................32 (o) Insurance.......................................................................32 (p) Financial Statements............................................................32 (q) Liabilities.....................................................................32 (r) Labor Disputes, Etc.............................................................32 (s) Solvency........................................................................32 (t) Disclosure......................................................................32 ARTICLE IX COVENANTS.............................................................................................33 Section 9.01 Reporting Covenants.....................................................................33 (a) Financial Statements and Other Reports..........................................33 (b) Additional Information..........................................................34 Section 9.02 Financial Covenants.....................................................................35 (a) Minimum Consolidated EBITDA.....................................................35
iii (b) [Intentionally omitted.]........................................................35 (c) Minimum Fixed Charge Coverage Ratio.............................................35 (d) Minimum Current Ratio...........................................................35 (e) Maximum Funded Debt to EBITDA Ratio.............................................35 Section 9.03 Additional Affirmative Covenants........................................................35 (a) Preservation of Existence, Etc..................................................36 (b) Payment of Obligations..........................................................36 (c) Maintenance of Insurance........................................................36 (d) Keeping of Records and Books of Account.........................................36 (e) Inspection Rights...............................................................36 (f) Compliance with Laws, Etc.......................................................37 (g) Maintenance of Properties, Etc..................................................37 (h) Licenses........................................................................37 (i) Action Under Environmental Laws.................................................37 (j) Use of Proceeds.................................................................37 (k) Further Assurances and Additional Acts..........................................37 Section 9.04 Negative Covenants......................................................................37 (a) Liens; Negative Pledges.........................................................38 (b) Change in Nature of Business....................................................38 (c) Restrictions on Fundamental Changes.............................................38 (d) Sales of Assets.................................................................38 (e) Loans and Investments...........................................................39 (f) Transactions with Related Parties...............................................41 (g) Hazardous Substances............................................................41 (h) Accounting Changes..............................................................41 ARTICLE X EVENTS OF DEFAULT......................................................................................41 Section 10.01 Events of Default.......................................................................41 (a) Payments........................................................................41 (b) Representations and Warranties..................................................41 (c) Failure by Borrower to Perform Certain Covenants................................42 (d) Failure by Borrower to Perform Other Covenants..................................42 (e) Insolvency; Voluntary Proceedings...............................................42 (f) Involuntary Proceedings.........................................................42 (g) Default Under Other Indebtedness................................................42 (h) Judgments.......................................................................43 (i) ERISA...........................................................................43 (j) Dissolution, Etc................................................................43 (k) Subordination Provisions........................................................43 (l) Mergers and Acquisitions........................................................44 Section 10.02 Effect of Event of Default..............................................................44 ARTICLE XI THE AGENT.............................................................................................44 Section 11.01 Authorization and Action................................................................44 Section 11.02 Limitation on Liability of Agent; Notices; Closing......................................45
iv (a) Limitation on Liability of Agent................................................45 (b) Notices.........................................................................45 (c) Closing.........................................................................46 Section 11.03 Agent and Affiliates....................................................................46 Section 11.04 Notice of Defaults......................................................................46 Section 11.05 Non-Reliance on Agent...................................................................46 Section 11.06 Indemnification.........................................................................47 Section 11.07 Delegation of Duties....................................................................47 Section 11.08 Successor Agent.........................................................................47 Section 11.09 Co-Agents...............................................................................47 ARTICLE XII MISCELLANEOUS........................................................................................48 Section 12.01 Amendments and Waivers..................................................................48 Section 12.02 Notices.................................................................................49 (a) Notices.........................................................................49 (b) Facsimile and Telephonic Notice.................................................49 Section 12.03 No Waiver; Cumulative Remedies..........................................................49 Section 12.04 Costs and Expenses; Indemnification.....................................................49 (a) Costs and Expenses..............................................................49 (b) Indemnification.................................................................50 (c) Other Charges...................................................................50 Section 12.05 Right of Set-Off........................................................................50 Section 12.06 Survival................................................................................51 Section 12.07 Obligations Several.....................................................................51 Section 12.08 Benefits of Agreement...................................................................51 Section 12.09 Binding Effect; Assignment..............................................................51 (a) Binding Effect..................................................................51 (b) Assignment......................................................................51 Section 12.10 Governing Law...........................................................................53 Section 12.11 Submission to Jurisdiction..............................................................53 (a) SUBMISSION TO JURISDICTION......................................................53 (b) NO LIMITATION...................................................................54 Section 12.12 Waiver of Jury Trial....................................................................54 Section 12.13 Limitation on Liability.................................................................54 Section 12.14 Confidentiality.........................................................................54 Section 12.15 Entire Agreement........................................................................55 Section 12.16 Severability............................................................................55 Section 12.17 Counterparts............................................................................55
v SCHEDULES ANNEXES Annex 1 Pricing Grid Schedule 1 Revolving Commitments and Pro Rata Shares Schedule 2 Borrower's Account; Lending Offices; Addresses for Notices Schedule 8.01(a) Organization and Powers Schedule 8.01(g) Litigation Schedule 8.01(h) Environmental Matters Schedule 8.01(k) Subsidiaries Schedule 9.04(a) Existing Liens Schedule 9.04(e) Existing Investments EXHIBITS Exhibit A Form of Revolving Note Exhibit B [Intentionally omitted.] Exhibit C Form of Notice of Borrowing Exhibit D Form of Compliance Certificate Exhibit E Form of Opinion of Counsel to the Borrower Exhibit F Form of Assignment and Acceptance
vi CREDIT AGREEMENT THIS CREDIT AGREEMENT (this "Agreement"), dated as of September 29, 2000, is made among Cadence Design Systems, Inc., a Delaware corporation (the "Borrower"), the financial institutions listed on the signature pages of this Agreement under the heading "BANKS" (each a "Bank" and, collectively, the "Banks"), Bank One, N.A., KeyBank National Association and UBS AG, Stamford Branch, as co-agents hereunder, and ABN AMRO Bank N.V., as administrative agent for the Banks hereunder (in such capacity, the "Agent"). The Borrower has requested the Banks to make revolving loans to the Borrower in an aggregate principal amount of up to $100,000,000 at any time outstanding. The Banks are severally willing to make such loans to the Borrower upon the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "364-DAY CREDIT AGREEMENT" means that certain 364-Day Credit Agreement dated as of September 29, 2000, among the Borrower, the lenders party thereto and ABN AMRO, as administrative agent, as the same may be amended, restated, supplemented or otherwise modified in accordance with its terms. "ABN AMRO" means ABN AMRO Bank N.V. "AFFILIATE" means any Person which, directly or indirectly, controls, is controlled by or is under common control with another Person. For purposes of the foregoing, "control," "controlled by" and "under common control with" with respect to any Person shall mean the possession, directly or indirectly, of the power (i) to vote 10% or more of the securities having ordinary voting power of the election of directors of such Person, or (ii) 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" has the meaning set forth in the recitals to this Agreement. "AGENT'S ACCOUNT" means the account of the Agent set forth on Schedule 2 or such other account as the Agent from time to time shall designate in a written notice to the Borrower and the Banks. "ALCHEMY" means Alchemy Semiconductor, Inc. 1 "APPLICABLE FEE AMOUNT" means with respect to the commitment fee payable hereunder, the amount set forth opposite the indicated Level below the heading "Commitment Fee" in the pricing grid set forth on Annex I in accordance with the parameters for calculations of such amount also set forth on Annex I. "APPLICABLE MARGIN" means (i) with respect to Base Rate Loans, 0% per annum; and (ii) with respect to Eurodollar Rate Loans, the amount set forth opposite the indicated Level below the heading "Eurodollar Rate Spread" in the pricing grid set forth on Annex I in accordance with the parameters for calculations of such amounts also set forth on Annex I. "ASSIGNMENT AND ACCEPTANCE" has the meaning set forth in Section 11.02(a). "BANK" and "BANKS" each has the meaning set forth in the recitals to this Agreement. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy." "BASE RATE" means for any day the higher of: (i) the Federal Funds Rate, PLUS 1/2 of 1% per annum, and (ii) the prime commercial lending rate of ABN AMRO as announced from time to time at its Chicago, Illinois, office. Each change in the interest rate on the Loans or other Obligations bearing interest at the Base Rate based on a change in the Base Rate shall be effective as of the effective date of such change in the Base Rate. "BASE RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Base Rate. "BORROWER" has the meaning set forth in the recitals to this Agreement. "BORROWER'S ACCOUNT" means the account of the Borrower set forth on Schedule 2, or such other account as the Borrower from time to time shall designate in a written notice to the Agent. "BORROWING" means a borrowing consisting of simultaneous Loans made at any one time by the Borrower from the Banks pursuant to Article II. "BUSINESS DAY" means a day (i) other than Saturday or Sunday, (ii) on which commercial banks are open for business in Chicago, Illinois and New York, New York, and (iii) if the applicable Business Day relates to any Eurodollar Rate Loan, that is a Eurodollar Business Day. "CAPITAL LEASE" means, for any Person, any lease of property (whether real, personal or mixed) which, in accordance with GAAP, would, at the time a determination is made, be required to be recorded as a capital lease in respect of which such Person is liable as lessee. 2 "CLOSING DATE" means the date on which all conditions precedent set forth in Section 7.01 are satisfied or waived by all Banks (or, in the case of Section 7.01(a), waived by the Person entitled to receive such payment). "COMPLIANCE CERTIFICATE" means a certificate of a Responsible Officer of the Borrower, in substantially the form of Exhibit D, with such changes thereto as the Agent or any Bank may from time to time reasonably request. "CONSOLIDATED CASH FLOW" means, as of any date of determination for the 12-month period ended on such date, Consolidated Net Income for such period PLUS depreciation expense, amortization expense and other non-cash expenses (including write-offs of acquired in-process research and development costs) which were deducted in determining Consolidated Net Income, of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "CONSOLIDATED EBITDA" means, as of any date of determination for the 12-month period ended on such date, Consolidated Net Income PLUS Consolidated Interest Expense PLUS income tax expense PLUS depreciation expense, amortization expense and all other non-cash expenses (including write-offs of acquired in-process research and development costs) which were deducted in determining Consolidated Net Income, PLUS the quarterly increase in product license subscription bookings for any quarter included in such 12-month period ending on or prior to December 30, 2000, to the extent not included or reflected in Consolidated Net Income, in each case, of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "CONSOLIDATED INTEREST EXPENSE" means, for any period, interest expense (including that attributable to Capital Leases) of the Borrower and its Subsidiaries on a consolidated basis, including all commissions, discounts and other fees and charges owed with respect to standby letters of credit, as determined in accordance with GAAP. "CONSOLIDATED NET INCOME" means, for any period, the net income of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period, as determined in accordance with GAAP. "CONSOLIDATED TANGIBLE NET WORTH" means, as of any date of determination, Consolidated Total Assets MINUS Consolidated Total Liabilities; PROVIDED, HOWEVER, that there shall be excluded from Consolidated Total Assets the following: (i) all assets which would be classified as intangible assets in accordance with GAAP, including goodwill, organizational expense, research and development expense, patent applications, patents, trademarks, trade names, brands, copyrights, trade secrets, customer lists, licenses, franchises and covenants not to compete; and (ii) all treasury stock. "CONSOLIDATED TOTAL ASSETS" means, as of any date of determination, the total assets of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. 3 "CONSOLIDATED TOTAL LIABILITIES" means, as of any date of determination, the total liabilities of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "DEFAULT" means an Event of Default or an event or condition which with notice or lapse of time or both would constitute an Event of Default. "DOLLARS" and the sign "$" each means lawful money of the United States. "ELIGIBLE ASSIGNEE" means (i) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $5,000,000,000, (ii) 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 a combined capital and surplus of at least $5,000,000,000, PROVIDED that such bank is acting through a branch or agency located in the United States and licensed by the United States or any state thereof; and (iii) a Person that is primarily engaged in the business of commercial banking and that is (a) a Subsidiary of a Bank, (b) a Subsidiary of a Person of which a Bank is a Subsidiary, or (c) a Person of which a Bank is a Subsidiary. "ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directives, requests, licenses, authorizations and permits of, and agreements with (including consent decrees), any Governmental Authorities, in each case relating to or imposing liability or standards of conduct concerning public health, safety and environmental protection matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource Recovery and Recycling Act, the California Water Code and the California Health and Safety Code. "ERISA" means the Employee Retirement Income Security Act of 1974, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) which is under common control with the Borrower within the meaning of Section 4001(a)(14) of ERISA and Sections 414(b), (c) and (m) of the Internal Revenue Code. "EURODOLLAR BUSINESS DAY" means a Business Day on which dealings in Dollar deposits are carried on in the London interbank market. "EURODOLLAR RATE" means for each Interest Period for each Eurodollar Rate Loan the rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) determined by the Agent pursuant to the following formula: Eurodollar Rate = Interbank Rate ------------------------------------------ 100% - Eurodollar Reserve Percentage 4 The Eurodollar Rate shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Eurodollar Rate. "EURODOLLAR REFERENCE BANK" means ABN AMRO, subject to the provisions of Section 3.06. "EURODOLLAR RESERVE PERCENTAGE" means the maximum reserve requirement percentage (including any ordinary, supplemental, marginal and emergency reserves), if any, as determined by the Agent, then applicable under Regulation D in respect of Eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in the Federal Reserve System with deposits exceeding $1,000,000,000. "EVENT OF DEFAULT" has the meaning set forth in Section 10.01. "EXISTING CREDIT AGREEMENT" means that certain Credit Agreement dated as of September 29, 1998, by and among the Borrower, the lenders party thereto and ABN AMRO, as administrative agent, as amended. "FDIC" means the Federal Deposit Insurance Corporation, or any successor thereto. "FEE LETTER" means the mandate letter dated August 30, 2000, by and between the Borrower and the Agent. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%), as determined by the Agent, equal 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 any day of determination (or if such day of determination 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 the Agent from three Federal funds brokers of recognized standing selected by it. "FIXED CHARGE COVERAGE RATIO" has the meaning specified in Section 9.02(c). "FUNDED DEBT" of any Person means, without duplication, (a) all interest-bearing Indebtedness of such Person (whether on- or off-balance sheet), (b) all obligations of such Person in respect of any letter of credit, and (c) all obligations of such Person with respect to leases which are or should be capitalized on the balance sheet of such Person in accordance with GAAP. Notwithstanding the foregoing, for purposes of Section 9.02(c) and Section 9.02(e), Funded Debt shall not include (i) any Indebtedness which is subordinated to the Obligations on terms and conditions satisfactory to the Agent and the Majority Banks in their reasonable discretion and for which no principal payment is due before the 366th day after the Revolving 5 Termination Date, or (ii) any obligations of such Person under any Permitted Receivables Purchase Facility. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "GAAP" means generally accepted accounting principles in the U.S. as in effect from time to time. "GOVERNMENTAL AUTHORITY" means any federal, state, local or other governmental department, commission, board, bureau, agency, central bank, court, tribunal or other instrumentality or authority, domestic or foreign, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTY OBLIGATION" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations 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, (iv) in connection with any synthetic lease or other similar off balance sheet lease transaction, or (v) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. "HAZARDOUS SUBSTANCES" means any toxic or hazardous substances, materials, wastes, contaminants or pollutants, including asbestos, PCBs, petroleum products and byproducts, and any substances defined or listed as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic substances" (or similarly identified), regulated under or forming the basis for liability under any applicable Environmental Law. "IRS" means the Internal Revenue Service, or any successor thereto. "INDEBTEDNESS" means, for any Person: (i) all indebtedness or other obligations of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (iv) all obligations under Capital Leases; (v) all reimbursement or other obligations of such Person under or in respect of letters of credit and bankers acceptances, and all net obligations in respect of Rate Contracts; (vi) all reimbursement or other obligations of such Person in respect of any bank guaranties, shipside bonds, surety 6 bonds and similar instruments issued for the account of such Person or as to which such Person is otherwise liable for reimbursement of drawings or payments; (vii) all Guaranty Obligations; (viii) all indebtedness in respect of any synthetic lease or other similar off balance sheet lease transaction; and (ix) all indebtedness of another Person secured by any Lien upon or in property owned by the Person for whom Indebtedness is being determined, whether or not such Person has assumed or become liable for the payment of such indebtedness of such other Person. For all purposes of this Agreement, the Indebtedness of any Person shall include all recourse Indebtedness of any partnership or joint venture or limited liability company in which such Person is a general partner or a joint venturer or a member. "INSOLVENCY PROCEEDING" means (i) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (ii) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, in each case undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "INTERBANK RATE" means the rate per annum determined by the Agent, on the basis of quotations furnished to it by the Eurodollar Reference Bank, to be the average (rounded upward, if necessary, to the nearest 1/16 of 1%) of the rates at which deposits in Dollars are offered to the Eurodollar Reference Bank by prime banks in the London interbank market at approximately 11:00 A.M. (London time), two Eurodollar Business Days before the first day of such Interest Period, in an amount substantially equal to the proposed Eurodollar Rate Loan to be made, continued or converted by the Eurodollar Reference Bank and for a period of time comparable to such Interest Period. "INTEREST PAYMENT DATE" means a date specified for the payment of interest pursuant to Section 3.01(c). "INTEREST PERIOD" means, with respect to any Eurodollar Rate Loan, the period determined in accordance with Section 3.01(b) applicable thereto. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. "LENDING OFFICE" has the meaning set forth in Section 2.04. "LIEN" means any mortgage, deed of trust, pledge, security interest, assignment, deposit arrangement, charge or encumbrance, lien (statutory or other), or other preferential arrangement (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing or any agreement to give any security interest). "LOAN DOCUMENTS" means this Agreement, the Notes, the Fee Letter and all other certificates, documents, agreements and instruments delivered to the Agent and the Banks under or in connection with this Agreement. "LOANS" means the Revolving Loans. 7 "MAJORITY BANKS" means at any time Banks holding at least 51% of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, Banks having at least 51% of the aggregate Revolving Commitments. "MATERIAL ADVERSE EFFECT" means any event, matter, condition or circumstance which has or would reasonably be expected to have a material adverse effect on the business, properties, results of operations or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole. "MATERIAL SUBSIDIARY" means any Subsidiary the total assets of which constitute 20% or more of Consolidated Total Assets, measured as of the last day of the then most recent fiscal quarter. "MINIMUM AMOUNT" has the meaning set forth in Section 2.06. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Sections 3(37) and 4001(a)(3) of ERISA. "NET CASH PROCEEDS" means when used in respect of any issuance of any debt or equity securities of the Borrower or any Subsidiary, the gross proceeds received by the Borrower or such Subsidiary from such issuance less all direct costs and expenses incurred or to be incurred, and all federal, state, local and foreign taxes assessed or to be assessed, in connection therewith. "NOTES" means the Revolving Notes. "NOTICE" means a Notice of Borrowing, a Notice of Conversion or Continuation or a Notice of Prepayment. "NOTICE OF BORROWING" has the meaning set forth in Section 2.02(a). "NOTICE OF CONVERSION OR CONTINUATION" has the meaning set forth in Section 3.05(c). "NOTICE OF PREPAYMENT" has the meaning set forth in Section 4.03. "OBLIGATIONS" means the indebtedness, liabilities and other obligations of the Borrower to the Agent or any Bank under or in connection with the Loan Documents, including all Loans, all interest accrued thereon, all fees due under this Agreement and all other amounts payable by the Borrower to the Agent or any Bank thereunder or in connection therewith, whether now or hereafter existing or arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined. "OECD" means the Organization for Economic Cooperation and Development. "OPERATING LEASE" means, for any Person, any lease of any property of any kind by that Person as lessee which is not a Capital Lease. 8 "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "PENSION PLAN" means any employee pension benefit plan covered by Title IV of ERISA (other than a Multiemployer Plan) that is maintained for employees of the Borrower or any ERISA Affiliate or with regard to which the Borrower or an ERISA Affiliate is a contributing sponsor within the meaning of Sections 4001(a)(13) or 4069 of ERISA. "PERMITTED INVESTMENTS" means, in respect of the Borrower or any Subsidiary, short-term investment grade debt securities of any type authorized from time to time under an investment policy for short-term cash investments approved by the Borrower's board of directors or such Subsidiary's board of directors, as the case may be. "PERMITTED LIENS" means: (i) Liens in favor of the Banks or the Agent for the benefit of the Banks to secure the Obligations; (ii) the existing Liens listed in Schedule 9.04(a); (iii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and which are adequately reserved for in accordance with GAAP; (iv) Liens of materialmen, mechanics, warehousemen, carriers or employees or other like Liens arising in the ordinary course of business and securing obligations either not delinquent or being contested in good faith by appropriate proceedings which are adequately reserved for in accordance with GAAP and which do not in the aggregate materially impair the use or value of the property or risk the loss or forfeiture of title thereto; (v) Liens consisting of deposits or pledges to secure the payment of worker's compensation, unemployment insurance or other social security benefits or obligations, or to secure the performance of bids, trade contracts, leases (other than Capital Leases), public or statutory obligations, surety or appeal bonds or other obligations of a like nature incurred in the ordinary course of business (other than for indebtedness or any Liens arising under ERISA); (vi) easements, rights of way, servitudes or zoning or building restrictions and other minor encumbrances on real property and irregularities in the title to such property which do not in the aggregate materially impair the use or value of such property or risk the loss or forfeiture of title thereto; (vii) statutory landlord's Liens under leases to which the Borrower or any of its Subsidiaries is a party; (viii) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to 9 deposit accounts or other funds maintained with a creditor depository institution; PROVIDED that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Borrower in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Borrower or any Subsidiary to provide collateral to the depository institution; (ix) Liens (a) upon or in any property acquired or held by the Borrower or any of its Subsidiaries to secure the purchase price of such property or Indebtedness incurred solely for the purpose of financing the acquisition of such property, or (b) existing on such property at the time of its acquisition, PROVIDED that the Lien is confined solely to the property so acquired and improvements thereon; (x) Liens on assets of Persons which become Subsidiaries of the Borrower after the date hereof, PROVIDED that such Liens existed at the time any such Persons became Subsidiaries of the Borrower and were not created in anticipation thereof; (xi) Liens on Receivables and Receivables Related Assets in connection with any Permitted Receivables Purchase Facility; (xii) Leases or subleases and licenses and sublicenses granted to others in the ordinary course of business and not interfering in any material respect with the business of the Borrower and any interest or title of a lessor or licensor under any lease or license; (xiii) Liens on equipment leased by the Borrower pursuant to an operating lease in the ordinary course of business (including proceeds thereof and accessions thereto) incurred solely for the purpose of financing the lease of such equipment (including Liens arising from UCC financing statements regarding leases permitted by this Agreement); (xiv) Liens arising from judgments, decrees or attachments to the extent and only so long as such judgment, decree or attachment has not caused or resulted in an Event of Default; (xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvi) Liens incurred in connection with the extension, renewal, refunding, refinancing, modification, amendment or restatement of the Indebtedness secured by Liens of the type described in clauses (i) through (xv) above, PROVIDED that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien, the principal amount of Indebtedness being extended, renewed or refinanced does not increase and such Lien otherwise remains a Permitted Lien under clauses (i) through (xv) above; and 10 (xvii) Liens not otherwise permitted hereunder securing Indebtedness in an aggregate principal amount not to exceed 15% of Consolidated Tangible Net Worth, measured as of the last day of the then most recent fiscal quarter, at any time outstanding. "PERMITTED RECEIVABLES PURCHASE FACILITY" shall mean any receivables sales, financing or securitization programs now or hereafter entered into by the Borrower or any of its Subsidiaries, in each case for the purpose of financing Receivables, including, without limitation, the facilities identified on Attachment A hereto, in each case, as amended, restated or supplemented from time to time. "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization or any other entity of whatever nature or any Governmental Authority. "PLAN" means any employee pension benefit plan as defined in Section 3(2) of ERISA (including any Multiemployer Plan) and any employee welfare benefit plan, as defined in Section 3(1) of ERISA (including any plan providing benefits to former employees or their survivors). "PREMISES" means any and all real property, including all buildings and improvements now or hereafter located thereon and all appurtenances thereto, now or hereafter owned, leased, occupied or used by the Borrower and its Subsidiaries. "PRO RATA SHARE" means, as to any Bank at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Revolving Commitment divided by the combined Revolving Commitments of all Banks (or, if all Revolving Commitments have been terminated, the aggregate principal amount of such Bank's Loans divided by the aggregate principal amount of the Loans then held by all Banks). The initial Pro Rata Share of each Bank is set forth opposite such Bank's name in SCHEDULE 1 under the heading "Pro Rata Share." "RATE CONTRACTS" means interest rate swaps, caps, floors and collars, currency swaps, or other similar financial products designed to provide protection against fluctuations in interest, currency or exchange rates. "RECEIVABLES" means any rights to payment for license fees, whether in the form of accounts receivable, general intangibles, instruments, chattel paper or otherwise. "RECEIVABLES RELATED ASSETS" means (a) any rights arising under the documentation governing or relating to Receivables which are the subject of a Permitted Receivables Purchase Facility, including, without limitation, rights in respect of Liens securing such Receivables, (b) any proceeds of such Receivables and any lockboxes or accounts in which such proceeds are deposited, (c) spread accounts and other similar accounts, and any amounts on deposit therein, established in connection with any Permitted Receivables Purchase Facility, (d) any warranty, indemnity, dilution and other intercompany claim arising out of any Permitted Receivables Purchase Facility, and (e) other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with factoring or asset securitization transactions involving Receivables. 11 "REGULATION D" means Regulation D of the FRB. "REGULATORY CHANGE" has the meaning set forth in Section 5.03. "RELATED PERSON" has the meaning set forth in Section 11.06. "REQUIRED NOTICE DATE" has the meaning set forth in Section 2.07. "RESPONSIBLE OFFICER" means, with respect to any Person, the chief executive officer, the president, the chief financial officer, the vice president of corporate finance, the treasurer or the controller of such Person, or any other senior officer of such Person having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer, the treasurer or the controller of any such Person, or any other senior officer of such Person involved principally in the financial administration or controllership function of such Person and having substantially the same authority and responsibility. "REVOLVING COMMITMENT," as to each Bank, has the meaning specified in subsection 2.01. "REVOLVING LOAN" has the meaning specified in subsection 2.01. "REVOLVING NOTE" means a promissory note substantially in the form of Exhibit A. "REVOLVING TERMINATION DATE" means the earlier to occur of: (a) September 29, 2003, and (b) the date on which the Revolving Commitments terminate in accordance with the provisions of this Agreement. "SEC" means the Securities and Exchange Commission, or any successor thereto. "SEELY AVENUE CAMPUS" means the real property, taken either in whole or any part thereof, consisting of approximately 50.5 acres of land and 10 buildings that total approximately 778,000 square feet and is located on both the east and west sides of Seely Avenue, in San Jose, California. Specific street addresses for the property are: 535, 545, 555, 575 River Oaks Parkway, 2655 Seely Avenue (which consists of five buildings and entitled land for a sixth building), and 2670 Seely Avenue. "SOLVENT" means, as to any Person at any time, that (i) the fair value of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code; (ii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (iii) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "SPINCIRCUIT" means SpinCircuit, Inc. 12 "SUBSIDIARY" means, as 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 interest is owned directly or indirectly by such Person or one or more of the other Subsidiaries of such Person or a combination thereof. Unless the context otherwise clearly requires, references to a "Subsidiary" shall mean a Subsidiary of the Borrower. "SWAP TERMINATION VALUE" means, in respect of any one or more Rate Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Rate Contracts, (i) for any date on or after the date such Rate Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (ii) for any date prior to the date referenced in clause (i), the amount(s) determined as the mark-to-market value(s) for such Rate Contracts, as determined by the Borrower based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Rate Contracts (which may include any Bank). "TALITY IPO" means the initial public offering of the Borrower's design-services operation pursuant to the terms and conditions disclosed in the Borrower's Form S-1 filed with the Securities Exchange Commission on July 17, 2000 (registration number 333-41552). "TAXES" has the meaning set forth in Section 6.03. "TERMINATION EVENT" means any of the following: (i) with respect to a Pension Plan, a reportable event described in Section 4043 of ERISA and the regulations issued thereunder (other than a reportable event not subject to the provisions for 30-day notice to the PBGC under such regulations); (ii) the withdrawal of the Borrower or an ERISA Affiliate from a Pension Plan during a plan year in which the withdrawing employer was a "substantial employer" as defined in Section 4001(a)(2) or 4062(e) of ERISA; (iii) the taking of any actions (including the filing of a notice of intent to terminate) by the Borrower, an ERISA Affiliate, the PBGC, a Plan Administrator, or any other Person to terminate a Pension Plan or the treatment of a Plan amendment as a termination of a Pension Plan under Section 4041 of ERISA; (iv) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (v) the complete or partial withdrawal of the Borrower or an ERISA Affiliate from a Multiemployer Plan. "UCC" means the Uniform Commercial Code of the jurisdiction the law of which governs the Loan Document in which such term is used or the attachment, perfection or priority of the Lien on any collateral. 13 "UNFUNDED ACCRUED BENEFITS" means the excess of a Pension Plan's accrued benefits, as defined in Section 3(23) of ERISA, over the current value of that Plan's assets, as defined in Section 3(26) of ERISA. "UNITED STATES" and "U.S." each means the United States of America. "VENTURE FUND" means Telos Venture Partners, L.P. SECTION 1.02 ACCOUNTING PRINCIPLES. (a) ACCOUNTING TERMS. Unless otherwise defined or the context otherwise requires, all accounting terms not expressly defined herein shall be construed, and all accounting determinations and computations required under the Loan Documents shall be made, in accordance with GAAP, consistently applied. (b) GAAP CHANGES. If GAAP shall have been modified after the Closing Date and the application of such modified GAAP shall have a material effect on any financial computations hereunder (including the computations required for the purpose of determining compliance with the covenants set forth in Section 9.02), then such computations shall be made and the financial statements, certificates and reports due hereunder shall be prepared, and all accounting terms not otherwise defined herein shall be construed, in accordance with GAAP, as in effect prior to such modification, unless and until the Majority Banks and the Borrower shall have agreed upon the terms of the application of such modified GAAP which agreement shall not be unreasonably withheld. (c) "FISCAL YEAR" AND "FISCAL QUARTER." References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Borrower. SECTION 1.03 INTERPRETATION. In the Loan Documents, except to the extent the context otherwise requires: (i) Any reference to an Article, a Section, a Schedule or an Exhibit is a reference to an article or section thereof, or a schedule or an exhibit thereto, respectively, and to a subsection or a clause is, unless otherwise stated, a reference to a subsection or a clause of the Section or subsection in which the reference appears. (ii) The words "hereof," "herein," "hereto," "hereunder" and the like mean and refer to this Agreement or any other Loan Document as a whole and not merely to the specific Article, Section, subsection, paragraph or clause in which the respective word appears. (iii) The meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined. (iv) The words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation." 14 (v) References to agreements and other contractual instruments 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 the Loan Documents. (vi) References to statutes or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation referred to. (vii) Any table of contents, captions and headings are for convenience of reference only and shall not affect the construction of this Agreement or any other Loan Document. (viii) 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." (ix) The use of a word of any gender shall include each of the masculine, feminine and neuter genders. (x) This Agreement and the other Loan Documents are the result of negotiations among the Agent, the Borrower and the other parties, have been reviewed by counsel to the Agent, the Borrower and such other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. ARTICLE II THE LOANS SECTION 2.01 THE REVOLVING CREDIT. Each Bank severally agrees, on the terms and conditions set forth herein, to make loans to the Borrower (each such loan, a "Revolving Loan") from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Bank's name on Schedule 1 under the heading "Revolving Commitment" (such amount, as the same may be reduced under Section 4.01 or reduced or increased as a result of one or more assignments under Section 12.09, such Bank's "Revolving Commitment"); PROVIDED, HOWEVER, that, after giving effect to any Borrowing of Revolving Loans, the aggregate principal amount of all outstanding Revolving Loans shall not at any time exceed the combined Revolving Commitments. Within the limits of each Bank's Revolving Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this subsection 2.01, prepay under Section 4.03 and reborrow under this subsection 2.01. SECTION 2.02 BORROWING PROCEDURE. (a) NOTICE TO THE AGENT. Each Borrowing shall be made on a Business Day upon written or telephonic notice (in the latter case to be confirmed promptly in writing) from the Borrower to the Agent, which notice shall be received by the Agent not later than 2:00 P.M. (New York City time) on the Required Notice Date. Each such notice, except as provided in 15 Section 5.01 and 5.04, shall be irrevocable and binding on the Borrower, shall be in substantially the form of Exhibit C (a "Notice of Borrowing") and shall specify whether the Borrowing consists of Base Rate Loans or Eurodollar Rate Loans, and shall contain the other information required thereby. (b) NOTICE TO THE BANKS. The Agent shall give each Bank prompt notice by telephone (confirmed promptly in writing) or by facsimile of each Borrowing, specifying the information contained in the Borrower's Notice and such Bank's Pro Rata Share of the Borrowing. On the date of each Borrowing, each Bank shall make available such Bank's Pro Rata Share of such Borrowing, in same day or immediately available funds, to the Agent for the Agent's Account, not later than 3:00 P.M. (New York City time). Upon fulfillment of the applicable conditions set forth in Article VII and after receipt by the Agent of any such funds, and unless other payment instructions are provided by the Borrower, the Agent shall make such funds available to the Borrower by crediting the Borrower's Account with same day or immediately available funds on such Borrowing date. SECTION 2.03 NON-RECEIPT OF FUNDS. Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank shall not make available to the Agent such Bank's Pro Rata Share of such Borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such Borrowing in accordance with Section 2.02(b) and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent such Bank shall not have so made such Pro Rata Share available to the Agent, and the Agent in such circumstances shall have made available to the Borrower such amount, such Bank agrees 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 the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. If such amount is not made available by such Bank to the Agent on the Business Day following the Borrowing date, the Agent shall notify the Borrower of such failure to fund and, upon demand by the Agent, the Borrower shall pay such amount to the Agent for the Agent's Account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. SECTION 2.04 LENDING OFFICES. The Loans made by each Bank may be made from and maintained at such offices of such Bank (each a "Lending Office") as such Bank may from time to time designate (whether or not such office is specified on Schedule 2). A Bank shall not elect a Lending Office that, at the time of making such election, increases the amounts which would have been payable by the Borrower to such Bank under this Agreement in the absence of such election. With respect to Eurodollar Rate Loans made from and maintained at any Bank's non-U.S. offices, the obligation of the Borrower to repay such Eurodollar Rate Loans shall nevertheless be to such Bank and shall, for all purposes of this Agreement (including for purposes of the definition of the term "Majority Banks") be deemed made or maintained by it, for the account of any such office. 16 SECTION 2.05 EVIDENCE OF INDEBTEDNESS. The Loans made by each Bank shall be evidenced by one or more loan accounts maintained by such Bank in accordance with its usual practices. The loan accounts maintained by the Agent and each such Bank shall be rebuttable presumptive evidence of the amount of the Loans made by such Bank to the Borrower and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Loans. At the request of any Bank, as additional evidence of the Indebtedness of the Borrower to such Bank resulting from the Loans made by such Bank, the Borrower shall execute and deliver for account of such Bank pursuant to Article VII Notes setting forth such Bank's Revolving Commitment as the maximum principal amount thereof. SECTION 2.06 MINIMUM AMOUNTS. Any Borrowing, conversion, continuation, Revolving Commitment reduction or prepayment of Loans hereunder shall be in an aggregate amount determined as follows (each such specified amount a "Minimum Amount"): (i) any Borrowing or partial prepayment of Base Rate Loans shall be in the amount of $250,000 or a greater amount which is an integral multiple of $50,000; (ii) any Borrowing, continuation or partial prepayment of, or conversion into, Eurodollar Rate Loans shall be in the amount of $2,000,000 or a greater amount which is an integral multiple of $100,000; and (iii) any partial Revolving Commitment reduction under Section 4.01(a) shall be in the amount of $5,000,000 or a greater amount which is an integral multiple of $5,000,000. SECTION 2.07 REQUIRED NOTICE. Any Notice hereunder shall be given not later than the date determined as follows (each such specified date a "Required Notice Date"): (i) any Notice with respect to a Borrowing of, or conversion into, Base Rate Loans shall be given not later than the date of the proposed borrowing or conversion; (ii) any Notice with respect to any Borrowing or continuation of, or conversion into, Eurodollar Rate Loans shall be given at least three Eurodollar Business Days prior to the date of the proposed Borrowing, conversion or continuation; (iii) any Notice with respect to any prepayment under Section 4.03(a) shall be given at least one Business Day prior to the date of the proposed prepayment, in the case of Base Rate Loans, and at least three Eurodollar Business Days prior to the date of the proposed prepayment, in the case of Eurodollar Rate Loans; and (iv) any Notice with respect to any Revolving Commitment reduction or termination under Section 4.01(a) shall be given at least five Business Days prior to the proposed reduction or termination date. ARTICLE III INTEREST AND FEES; CONVERSION OR CONTINUATION SECTION 3.01 INTEREST. (a) INTEREST RATE. Subject to Section 3.02, the Borrower shall pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount shall be paid in full, at the following rates: (i) during such periods as such Loan is a Base Rate Loan, at a rate per annum equal at all times to the Base Rate PLUS the Applicable Margin; and 17 (ii) during such periods as such Loan is a Eurodollar Rate Loan, at a rate per annum equal at all times during each Interest Period for such Eurodollar Rate Loan to the Eurodollar Rate for such Interest Period PLUS the Applicable Margin. (b) INTEREST PERIODS. The initial and each subsequent Interest Period for Eurodollar Rate Loans shall be a period of one, two, three or six months. The determination of Interest Periods shall be subject to the following provisions: (A) in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (B) if any Interest Period pertaining to an Eurodollar Rate Loan would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (C) no Interest Period shall extend beyond the Revolving Termination Date with respect to any Revolving Loan; (D) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the ending calendar month of such Interest Period) shall end on the last Business Day of the ending calendar month of such Interest Period; (E) there shall be no more than ten Interest Periods in effect at any one time. (c) INTEREST PAYMENT DATES. Subject to Section 3.02, interest on the Loans shall be payable in arrears at the following times: (i) interest on each Base Rate Loan shall be payable quarterly in arrears on the last Business Day in each calendar quarter, on the date of any prepayment or conversion of any such Base Rate Loan, and at maturity; (ii) interest on each Eurodollar Rate Loan shall be payable on the last day of each Interest Period for such Eurodollar Rate Loan, PROVIDED that (a) in the case of any such Interest Period which is greater than three months, interest on such Eurodollar Rate Loan shall be payable on each date that is three months, or any integral multiple thereof, after the beginning of such Interest Period, and on the last day of such Interest Period, and (b) if any prepayment, conversion, or continuation is effected other than on the last day of such Interest Period, accrued interest on such Eurodollar Rate Loan shall be due on such prepayment, conversion or continuation date as to the principal amount of such Eurodollar Rate Loan prepaid, converted or continued PLUS all amounts required under Section 5.02. 18 (d) NOTICE TO THE BORROWER AND THE BANKS. Each determination by the Agent hereunder of a rate of interest and of any change therein, including any changes in (i) the Applicable Margin, (ii) the Base Rate during any periods in which Base Rate Loans shall be outstanding, and (iii) the Eurodollar Reserve Percentage (if any) during any periods in which Eurodollar Rate Loans shall be outstanding, in the absence of manifest error, shall be conclusive and binding on the parties hereto and shall be promptly notified by the Agent to the Borrower and the Banks. Such notice shall set forth in reasonable detail the basis for any such determination or change. The failure of the Agent to give any such notice specified in this subsection shall not affect the Borrower's obligation to pay such interest or fees. SECTION 3.02 DEFAULT RATE OF INTEREST. Notwithstanding Section 3.01, in the event that any amount of principal of or interest on any Loan, or any other amount payable hereunder or under the Loan Documents, is not paid in full when due (whether at stated maturity, by acceleration or otherwise), the Borrower shall pay interest on such unpaid principal, interest or other amount, from the date such amount becomes due until the date such amount is paid in full, and after as well as before any entry of judgment to the extent permitted by law, payable on demand, at a rate per annum equal at all times to the Base Rate PLUS 2% PLUS the Applicable Margin in respect of Base Rate Loans. SECTION 3.03 FEES. (a) REVOLVING COMMITMENT FEES. The Borrower agrees to pay to the Agent for the account of each Bank a fee on the average daily unused portion of such Bank's Revolving Commitment as in effect from time to time from the Closing Date until the Revolving Termination Date at a rate per annum equal to the Applicable Fee Amount, payable quarterly in arrears on the last Business Day of each calendar quarter (commencing on the first such date after the Closing Date), and on the earlier of the date such Revolving Commitment is terminated hereunder and the Revolving Termination Date. (b) AGENCY FEE. The Borrower agrees to pay to the Agent for its own account such fee for administrative agency services rendered by it as specified in the Fee Letter. (c) FEES NONREFUNDABLE. All fees payable under this Section 3.03 shall be nonrefundable. SECTION 3.04 COMPUTATIONS. All computations of interest based upon the Base Rate (including interest accruing based upon the Federal Funds Rate) shall be made on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days occurring in the period for which such interest is payable. All computations of Revolving Commitment fee and of interest based upon the Eurodollar Rate shall be made on the basis of a year of 360 days for the actual number of days occurring in the period for which such Revolving Commitment fee or interest is payable, which results in more interest being paid than if computed on the basis of a 365-day year, and in accordance with the pricing grid set forth in Annex 1. SECTION 3.05 CONVERSION OR CONTINUATION. (a) ELECTION. The Borrower may elect (i) to convert all or any part of (A) outstanding Base Rate Loans into Eurodollar Rate Loans, or (B) outstanding Eurodollar Rate 19 Loans into Base Rate Loans; or (ii) to continue all or any part of a Loan with one type of interest rate as such; PROVIDED, HOWEVER, that if the aggregate amount of Eurodollar Rate Loans in respect of any Borrowing shall have been reduced, by payment, prepayment, or conversion of part thereof to be less than $2,000,000, such Eurodollar Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Borrower to continue such Loans as, and convert such Loans into, Eurodollar Rate Loans, as the case may be, shall terminate. The continued or converted Base Rate and Eurodollar Rate Loans shall be allocated to the Banks ratably in accordance with their Pro Rata Shares. Any conversion or continuation of Eurodollar Rate Loans shall be made on the last day of the current Interest Period for such Eurodollar Rate Loans. No outstanding Loan may be converted into or continued as a Eurodollar Rate Loan if any Event of Default has occurred and is continuing. (b) AUTOMATIC CONVERSION. On the last day of any Interest Period for any Eurodollar Rate Loans, such Eurodollar Rate Loans shall, if not repaid, automatically convert into Base Rate Loans unless the Borrower shall have made a timely election to continue such Eurodollar Rate Loans as such for an additional Interest Period or to convert such Eurodollar Rate Loans, in each case as provided in subsection (a). (c) NOTICE TO THE AGENT. The conversion or continuation of any Loans contemplated by subsection (a) shall be made upon written or telephonic notice (in the latter case to be confirmed promptly in writing) from the Borrower to the Agent, which notice shall be received by the Agent not later than 11:00 A.M. (California time) on the Required Notice Date. Each such notice (a "Notice of Conversion or Continuation") shall, except as provided in Sections 5.01 and 5.04, be irrevocable and binding on the Borrower, shall refer to this Agreement and shall specify: (i) the proposed date of the conversion or continuation, which shall be a Business Day; (ii) the outstanding Loans (or parts thereof) to be converted into or continued as Base Rate or Eurodollar Rate Loans; (iii) the aggregate amount of the Loans which are the subject of such continuation or conversion, which shall be in a Minimum Amount; (iv) if the conversion or continuation consists of any Eurodollar Rate Loans, the duration of the Interest Period with respect thereto; and (v) that no Event of Default exists hereunder. (d) NOTICE TO THE BANKS. The Agent shall give each Bank prompt notice by telephone (confirmed promptly in writing) or by facsimile of (i) the proposed conversion or continuation of any Loans, specifying the information contained in the Borrower's Notice and such Bank's Pro Rata Share thereof or (ii), if timely notice was not received from the Borrower, the details of any automatic conversion under subsection (b). SECTION 3.06 REPLACEMENT OF REFERENCE BANKS. If the Loans of the Eurodollar Reference Bank are prepaid in full or its Revolving Commitment shall terminate (otherwise than on termination of all the Revolving Commitments), or if the Eurodollar Reference Bank transfers its Loans in full to an unaffiliated Person or otherwise shall cease to be a Bank hereunder, the Agent shall, in consultation with the Borrower and with the approval of the Majority Banks, appoint another similarly situated Bank to replace such Bank as Eurodollar Reference Bank. SECTION 3.07 HIGHEST LAWFUL RATE. Anything herein to the contrary notwithstanding, if during any period for which interest is computed hereunder, the applicable interest rate, together with all fees, charges and other payments which are treated as interest 20 under applicable law, as provided for herein or in any other Loan Document, would exceed the maximum rate of interest which may be charged, contracted for, reserved, received or collected by any Bank in connection with this Agreement under applicable law (the "Maximum Rate"), the Borrower shall not be obligated to pay, and such Bank shall not be entitled to charge, collect, receive, reserve or take, interest in excess of the Maximum Rate, and during any such period the interest payable hereunder to such Bank shall be limited to the Maximum Rate. ARTICLE IV REDUCTION OF REVOLVING COMMITMENTS; REPAYMENT; PREPAYMENT SECTION 4.01 REDUCTION OR TERMINATION OF THE REVOLVING COMMITMENTS. (a) OPTIONAL REDUCTION OR TERMINATION. The Borrower may, upon prior written notice to the Agent delivered not later than the Required Notice Date, terminate in whole or reduce ratably in part, as of the date specified by the Borrower in such notice, any then unused portion of the Revolving Commitments, PROVIDED that each partial reduction shall be in a Minimum Amount. (b) MANDATORY TERMINATION. The Revolving Commitments shall terminate on the Revolving Termination Date. (c) [INTENTIONALLY OMITTED.] (d) [INTENTIONALLY OMITTED.] (e) NOTICE. The Agent shall give each Bank prompt notice of any termination or reduction of its Revolving Commitments under this Section 4.01. (f) ADJUSTMENT OF REVOLVING COMMITMENT FEE; NO REINSTATEMENT. From the effective date of any reduction or termination prior to the Revolving Termination Date, the Revolving Commitment fee payable under Section 3.03(a) shall be computed on the basis of the Revolving Commitments as so reduced or terminated. Once reduced or terminated, the Revolving Commitments may not be increased or otherwise reinstated. SECTION 4.02 REPAYMENT OF LOANS. The Borrower shall repay to the Banks in full on the Revolving Termination Date the aggregate principal amount of the Revolving Loans outstanding on such date. SECTION 4.03 PREPAYMENTS. (a) OPTIONAL PREPAYMENTS. Subject to Section 5.02, the Borrower may, upon prior written notice to the Agent not later than the Required Notice Date, prepay the outstanding amount of the Loans in whole or ratably in part, without premium or penalty. Partial prepayments shall be in Minimum Amounts. (b) [INTENTIONALLY OMITTED.] 21 (c) NOTICE; APPLICATION. The notice given of any prepayment (a "Notice of Prepayment") shall specify the date and amount of the prepayment and whether the prepayment is of Base Rate or Eurodollar Rate Loans or a combination thereof, and if of a combination thereof the amount of the prepayment allocable to each. Upon receipt of the Notice of Prepayment the Agent shall promptly notify each Bank thereof. If the Notice of Prepayment is given, the Borrower shall make such prepayment and the prepayment amount specified in such Notice shall be due and payable on the date specified therein, with accrued interest to such date on the amount prepaid. ARTICLE V YIELD PROTECTION AND ILLEGALITY SECTION 5.01 INABILITY TO DETERMINE RATES. If the Agent shall determine that adequate and reasonable means do not exist to ascertain the Eurodollar Rate, or the Majority Banks shall determine that the Eurodollar Rate does not accurately reflect the cost to the Banks of making or maintaining Eurodollar Rate Loans, then the Agent shall give telephonic notice (promptly confirmed in writing) to the Borrower and each Bank of such determination. Such notice shall specify the basis for such determination and shall, in the absence of manifest error, be conclusive and binding for all purposes. Thereafter, the obligation of the Banks to make or maintain Eurodollar Rate Loans hereunder shall be suspended until the Agent (upon the instructions of the Majority Banks) revokes such notice. Upon receipt of such notice, the Borrower may revoke any Notice then submitted by it. If the Borrower does not revoke such Notice, the Banks shall make, convert or continue Loans, as proposed by the Borrower, in the amount specified in the Notice submitted by the Borrower, but such Loans shall be made, converted or continued as Base Rate Loans instead of Eurodollar Rate Loans, as the case may be. SECTION 5.02 FUNDING LOSSES. In addition to such amounts as are required to be paid by the Borrower pursuant to Section 5.03, the Borrower shall compensate each Bank, promptly upon receipt of such Bank's written request made to the Borrower (with a copy to the Agent), for all losses, costs and expenses (including any loss or expense incurred by such Bank in obtaining, liquidating or re-employing deposits or other funds to fund or maintain its Eurodollar Rate Loans), if any, which such Bank sustains: (I) if the Borrower repays, converts or prepays any Eurodollar Rate Loan on a date other than the last day of an Interest Period for such Eurodollar Rate Loan (whether as a result of an optional prepayment, mandatory prepayment, a payment as a result of acceleration or otherwise); (II) if the Borrower fails to borrow a Eurodollar Rate Loan after giving its Notice (other than as a result of the operation of Section 5.01 or 5.04); (III) if the Borrower fails to convert into or continue a Eurodollar Rate Loan after giving its Notice (other than as a result of the operation of Section 5.01 or 5.04); or (IV) if the Borrower fails to prepay a Eurodollar Rate Loan after giving its Notice. Any such request for compensation shall set forth the basis for the calculation of requested compensation and shall, in the absence of manifest error, be conclusive and binding for all purposes. SECTION 5.03 REGULATORY CHANGES. (a) INCREASED COSTS. If after the date hereof, the adoption of, or any change in, any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or 22 administration thereof (a "Regulatory Change"), or compliance by any Bank (or its Lending Office) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including any such requirement imposed by the FRB, but excluding with respect to any Eurodollar Rate Loan any such requirement included in the calculation of the Eurodollar Rate) against assets of, deposits with or for the account of, or credit extended by, any Bank's Lending Office or shall impose on any Bank (or its Lending Office) or on the United States market for the interbank eurodollar market any other condition affecting its Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans, and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining any Eurodollar Rate Loan hereunder, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement with respect thereto, by an amount deemed by such Bank, in good faith and on a non-discriminatory basis, to be material, then from time to time, within 30 days after written demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amounts as shall compensate such Bank for such increased cost or reduction in respect of its Eurodollar Rate Loans hereunder. (b) CAPITAL REQUIREMENTS. If any Bank shall have determined in good faith that any Regulatory Change regarding capital adequacy, or compliance by such Bank (or any corporation controlling such Bank) with any request, guideline or directive regarding capital adequacy (whether or not having the force of law) of any Governmental Authority, has or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of such Bank's obligations hereunder to a level below that which such Bank or such corporation would have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy), by an amount deemed, in good faith and on a non-discriminatory basis, by such Bank to be material, then from time to time, within 30 days after written demand by such Bank (with a copy to the Agent) in reasonable detail describing such reduction, the Borrower shall pay to such Bank such additional amounts as shall compensate such Bank for such reduction in respect of its obligations hereunder. (c) REQUESTS. Any such request for compensation by a Bank under this Section 5.03 shall set forth the basis of calculation thereof and shall, in the absence of manifest error, be conclusive and binding for all purposes. In determining the amount of such compensation, such Bank may use any reasonable averaging and attribution methods. SECTION 5.04 ILLEGALITY. If any Bank shall determine that it has become unlawful, as a result of any Regulatory Change, for such Bank to make, convert into or maintain Eurodollar Rate Loans as contemplated by this Agreement, such Bank shall promptly give notice of such determination to the Borrower (through the Agent), and (i) the obligation of such Bank to make or convert into Eurodollar Rate Loans, as the case may be, shall be suspended until such Bank gives notice that the circumstances causing such suspension no longer exist; and (ii) each of such Bank's outstanding Eurodollar Rate Loans, as the case may be, shall, if requested by such Bank, be converted into a Base Rate Loan not later than upon expiration of the Interest Period related to such Eurodollar Rate Loan, or, if earlier, on such date as may be required by the applicable Regulatory Change, as shall be specified in such request. Any such determination shall, in the absence of manifest error, be conclusive and binding for all purposes. 23 SECTION 5.05 FUNDING ASSUMPTIONS. Solely for purposes of calculating amounts payable by the Borrower to the Banks under this Article V, each Eurodollar Rate Loan made by a Bank (and any related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Interbank Rate used in determining the Eurodollar Rate for such Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan is in fact so funded. SECTION 5.06 OBLIGATION TO MITIGATE. Each Bank agrees that as promptly as practicable after it becomes aware of the occurrence of an event that would entitle it to give notice pursuant to Section 5.03(a), 5.03(b) or 5.04, and in any event if so requested by the Borrower, each Bank shall use reasonable efforts to make, fund or maintain its affected Eurodollar Rate Loans through another Lending Office if as a result thereof the increased costs would be avoided or materially reduced or the illegality would thereby cease to exist; PROVIDED, HOWEVER, that such Bank shall not be obligated to select an alternative Lending Office if such Bank determines that (a) as a result of such selection such Bank would be in violation of any applicable law, regulation, treaty, or guideline, or would incur additional costs or expenses or (b) such selection would be inadvisable for regulatory reasons or inconsistent with the interests of such Bank. SECTION 5.07 SUBSTITUTION OF BANKS. Upon the receipt by the Borrower from any Bank (an "Affected Bank") of a request for compensation under Section 5.03, a notice under Section 5.04 or a request for payment under Section 6.03, the Borrower may (i) request one more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Revolving Commitment; or (ii) designate an Eligible Assignee satisfactory to the Borrower to acquire and assume all or part of such Affected Bank's Loans and Revolving Commitment (in each case, a "Replacement Bank"). Any such designation of a Replacement Bank under clause (ii) shall be subject to the prior written consent of the Agent (which consent shall not be unreasonably withheld). In connection with any such assumption (a) the Replacement Bank shall pay to the Affected Bank in immediately available funds on the date of the assignment the principal amount of the Loans made by the Affected Bank hereunder which are being acquired by the Replacement Bank, and (b) the Borrower shall pay to the Affected Bank in immediately available funds on the date of the assignment the interest accrued to the date of the assignment on the Loans which are being acquired by the Replacement Bank and all other amounts then accrued for the Affected Bank's account or owed to it hereunder with respect to such Loans, including any amounts owing under Section 5.02. ARTICLE VI PAYMENTS SECTION 6.01 PRO RATA TREATMENT. Except as otherwise provided in this Agreement, each Borrowing hereunder, each Revolving Commitment reduction, each payment (including each prepayment) by the Borrower on account of the principal of and interest on the Loans and on account of any Revolving Commitment fee, and each conversion or continuation of Loans, shall be made ratably in accordance with the respective Pro Rata Shares of the Banks. 24 SECTION 6.02 PAYMENTS. (a) PAYMENTS. The Borrower shall make each payment under the Loan Documents, unconditionally in full without set-off, counterclaim or other defense, not later than 2:00 P.M. (California time) on the day when due to the Agent in Dollars and in same day or immediately available funds, to the Agent's Account. The Agent shall promptly thereafter distribute like funds relating to the payment of principal or interest, Revolving Commitment fee or any other amounts payable to the Banks, ratably (except as a result of the operation of Article V) to the Banks in accordance with their Pro Rata Shares. (b) APPLICATION. (i) Unless the Agent shall receive a timely election by the Borrower with respect to the application of any principal payments, each payment of principal by the Borrower shall be applied (a) first, to the Base Rate Loans then outstanding, and (b) second, to the Eurodollar Rate Loans. (c) EXTENSION. Whenever any payment hereunder shall be stated to be due, or whenever any Interest Payment Date or any other date specified hereunder would otherwise occur, on a day other than a Business Day, then, except as otherwise provided herein, such payment shall be made, and such Interest Payment Date or other date shall occur, on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or Revolving Commitment fee hereunder. SECTION 6.03 TAXES. (a) NO REDUCTION OF PAYMENTS. The Borrower shall pay all amounts of principal, interest, fees and other amounts due under the Loan Documents free and clear of, and without reduction for or on account of, any present and future taxes, levies, imposts, duties, fees, assessments, charges, deductions or withholdings and all liabilities with respect thereto excluding, in the case of each Bank and the Agent, income and franchise taxes imposed on it by the jurisdiction under the laws of which such Bank or the Agent is organized or in which its principal executive offices may be located or any political subdivision or taxing authority thereof or therein or by the jurisdiction of such Bank's Lending Office and any political subdivision or taxing authority thereof or therein (all such nonexcluded taxes, levies, imposts, duties, fees, assessments, charges, deductions, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Taxes shall be required by law to be deducted or withheld from any payment, the Borrower shall increase the amount paid so that the respective Bank or the Agent receives when due (and is entitled to retain), after deduction or withholding for or on account of such Taxes (including deductions or withholdings applicable to additional sums payable under this Section 6.03), the full amount of the payment provided for in the Loan Documents. (b) DEDUCTION OR WITHHOLDING; TAX RECEIPTS. If the Borrower makes any payment hereunder in respect of which it is required by law to make any deduction or withholding, it shall pay the full amount to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and promptly thereafter shall furnish to the Agent (for itself or for redelivery to the Bank to or for the account of which such payment was made) an original or certified copy of a receipt evidencing payment 25 thereof, together with such other information and documents as the Agent or any Bank (through the Agent) may reasonably request. (c) INDEMNITY. If any Bank or the Agent is required by law to make any payment on account of Taxes, or any liability in respect of any Tax is imposed, levied or assessed against any Bank or the Agent, the Borrower shall indemnify the Agent and the Banks for and against such payment or liability, together with any incremental taxes, interest or penalties, and all costs and expenses, payable or incurred in connection therewith, including Taxes imposed on amounts payable under this Section 6.03. A certificate of the Agent or any Bank as to the amount of any such payment shall, in the absence of manifest error, be conclusive and binding for all purposes. If any Bank shall obtain a credit with respect to all or part of any tax paid or indemnified by the Borrower pursuant to this Section 6.03, then, to the extent such items have not previously been taken into account in computing the amount of any payment pursuant to this sentence or the amount of indemnification payable under this Section 6.03, such Bank shall promptly pay to the Borrower an amount equal to the amount of such credit, reduced by the amount of any prior payments by such Bank to, or for the benefit of, the Borrower arising from the same claim. All computations required hereunder shall be made by such Bank, acting reasonably and in good faith and the results of such computations shall be delivered to the Borrower. At the request and expense of the Borrower the accuracy of such computations shall be verified by such Bank's independent accounts. (d) FORMS W-8BEN AND W-8ECI. Each Bank that is incorporated under the laws of any jurisdiction outside the United States agrees to deliver to the Agent and the Borrower on or prior to the Closing Date, and in a timely fashion thereafter, Internal Revenue Service Form W-8BEN, Form W-8ECI or such other documents and forms of the I.R.S., duly executed and completed by such Bank, as are required under United States law to establish such Bank's status for United States withholding tax purposes. (e) MITIGATION. Each Bank agrees that as promptly as practicable after it becomes aware of the occurrence of an event that would cause the Borrower to make any payment in respect of Taxes to such Bank or a payment in indemnification with respect to any Taxes, and in any event if so requested by the Borrower following such occurrence, each Bank shall use reasonable efforts to make, fund or maintain its affected Loan (or relevant part thereof) through another Lending Office if as a result thereof the additional amounts so payable by the Borrower would be avoided or materially reduced; PROVIDED, HOWEVER, that such Bank shall not be obligated to select an alternative Lending Office if such Bank determines that (a) as a result of such selection such Bank would be in violation of any applicable law, regulation, treaty, or guideline, or would incur additional costs or expenses or (b) such selection would be inadvisable for regulatory reasons or inconsistent with the interests of such Bank. SECTION 6.04 NON-RECEIPT OF FUNDS. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to any of the Banks hereunder that the Borrower shall 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 Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand 26 such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 6.05 SHARING OF PAYMENTS. If any Bank shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loans made by it (other than pursuant to a provision hereof providing for non-pro rata treatment) in excess of its Pro Rata Share of payments on account of the Loans obtained by all the Banks, such Bank shall forthwith advise the Agent of the receipt of such payment, and within five Business Days of such receipt purchase from the other Banks (through the Agent), without recourse, such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them in accordance with the respective Pro Rata Shares of the Banks; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered by or on behalf of the Borrower from such purchasing Bank, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. No documentation other than notices and the like referred to in this Section 6.05 shall be required to implement the terms of this Section 6.05. The Agent shall keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased pursuant to this Section 6.05 and shall in each case notify the Banks following any such purchases. ARTICLE VII CONDITIONS PRECEDENT SECTION 7.01 CONDITIONS PRECEDENT TO THE INITIAL LOANS. The obligation of each Bank to make its initial Loan shall be subject to the satisfaction of each of the following conditions precedent on or before the Closing Date: (a) FEES AND EXPENSES. The Borrower shall have paid (i) all invoiced fees then due in accordance with Section 3.03 and under the Fee Letter and (ii) all invoiced costs and expenses then due in accordance with Section 12.04(a). (b) LOAN DOCUMENTS. The Agent shall have received the following Loan Documents: (i) this Agreement, executed by the Borrower and each Bank (ii) the Notes, executed by the Borrower, for any Banks requesting Notes; and (iii) the Fee Letter, executed by each of the respective parties thereto. (c) CERTIFICATE OF RESPONSIBLE OFFICER. The Agent shall have received in form and substance satisfactory to it a certificate of a Responsible Officer of the Borrower, dated the Closing Date, stating that (a) the representations and warranties contained in Section 8.01 and in the other Loan Documents are true and correct on and as of the date of such certificate as though made on and as of such date and (b) on and as of the Closing Date, no Default shall have occurred and be continuing or shall result from the initial Borrowing. (d) CORPORATE DOCUMENTS. The Agent shall have received the following, in form and substance satisfactory to it: 27 (i) certified copies of the certificate or articles, as the case may be, of incorporation of the Borrower, together with certificates as to good standing and tax status, from the Secretary of State or other Governmental Authority, as applicable, of the Borrower's state of incorporation and California, each dated as of a recent date prior to the Closing Date; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower, dated the Closing Date, certifying (a) copies of the bylaws of the Borrower and the resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance of the Loan Documents and (b) the incumbency, authority and signatures of each officer of the Borrower authorized to execute and deliver the Loan Documents and act with respect thereto, upon which certificate the Agent and the Banks may conclusively rely until the Agent shall have received a further certificate of the Secretary or an Assistant Secretary of the Borrower canceling or amending such prior certificate; (e) LEGAL OPINION. The Agent shall have received the opinion of Gibson Dunn & Crutcher LLP, counsel to the Borrower, dated the Closing Date, in substantially the form of Exhibit E. (f) COMPLIANCE CERTIFICATE. The Agent shall have received a completed Compliance Certificate for the Borrower's fiscal quarter ended on July 1, 2000. (g) MATERIAL ADVERSE EFFECT. On and as of the date of such Borrowing, there shall have occurred no Material Adverse Effect since July 1, 2000. (h) EXISTING CREDIT AGREEMENT. All interest, principal, fees and other amounts owing under the Existing Credit Agreement shall have been paid in full (or shall have been paid in full concurrently with the initial Borrowing hereunder), and all commitments to lend thereunder terminated, and the Existing Credit Agreement shall have been cancelled and be of no further force or effect (except for such provisions thereof that expressly survive the termination thereof). Each Bank that is a party to the Existing Credit Agreement hereby waives its five-day advance notice of termination of the commitments thereunder. SECTION 7.02 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of each Bank to make a Loan (including its initial Loan) on the occasion of each Borrowing shall be subject to the satisfaction of each of the following conditions precedent: (a) NOTICE. The Borrower shall have given the Notice of Borrowing as provided in Section 2.02(a). (b) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. On the date of such Borrowing, both before and after giving effect thereto and to the application of proceeds therefrom: (i) the representations and warranties contained in Section 8.01 and in the other Loan Documents shall be true, correct and complete on and as of the date of such Borrowing as though made on and as of such date; and (ii) no Default shall have occurred and be continuing or shall result from such Borrowing. For purposes of this Section 7.02(b), the representation and warranty made in Section 8.01(p) shall be deemed instead to refer to the last day of the most 28 recent quarter and year for which financial statements have then been delivered; the preceding clause (i) shall not be deemed to refer to any other representations and warranties which relate solely to an earlier date (PROVIDED that such other representations and warranties shall be true, correct and complete as of such earlier date); and the preceding clause (i) shall take into account any amendments to the Schedules and other disclosures made in writing by the Borrower to the Agent and the Banks after the Closing Date and approved by the Agent and the Majority Banks. The giving of any Notice of Borrowing and the acceptance by the Borrower of the proceeds of each Borrowing on or following the Closing Date shall each be deemed a certification to the Agent and the Banks that on and as of the date of such Borrowing such statements are true. (c) ADDITIONAL DOCUMENTS. The Agent shall have received, in form and substance satisfactory to it, such additional approvals, opinions, documents and other information as the Agent or any Bank (through the Agent) may reasonably request. ARTICLE VIII REPRESENTATIONS AND WARRANTIES SECTION 8.01 REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to each Bank and the Agent that: (a) ORGANIZATION AND POWERS. Each of the Borrower and its Material Subsidiaries (i) is a corporation or partnership duly organized or formed, as the case may be, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) except as set forth on Schedule 8.01(a), is qualified to do business and is in good standing in each jurisdiction in which the failure so to qualify or be in good standing would result in a Material Adverse Effect and (iii) has all requisite power and authority to own its assets and carry on its business and, with respect to the Borrower, to execute, deliver and perform its obligations under the Loan Documents. (b) AUTHORIZATION; NO CONFLICT. The execution, delivery and performance by the Borrower of the Loan Documents have been duly authorized by all necessary corporate action of the Borrower and do not and will not (i) contravene the terms of the certificate or articles, as the case may be, of incorporation and the bylaws of the Borrower or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or the like binding on or affecting the Borrower; or (iii) except as contemplated by this Agreement, result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties of the Borrower. (c) BINDING OBLIGATION. The Loan Documents constitute, or when delivered under this Agreement will constitute, legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. (d) CONSENTS. No authorization, consent, approval, license, exemption of, or filing or registration with, any Governmental Authority, or approval or consent of any other 29 Person, is required for the due execution, delivery or performance by the Borrower of any of the Loan Documents. (e) NO DEFAULTS. Neither the Borrower nor any of its Material Subsidiaries is in default under any material contract, lease, agreement, judgment, decree or order to which it is a party or by which it or its properties may be bound. (f) TITLE TO PROPERTIES; LIENS. The Borrower and its Material Subsidiaries have good and marketable title to, or valid and subsisting leasehold interests in, their properties and assets, and there is no Lien upon or with respect to any of such properties or assets, except for Permitted Liens. (g) LITIGATION. Except as set forth on Schedule 8.01(g), there are no actions, suits or proceedings pending or, to the best of the Borrower's knowledge, threatened against or affecting the Borrower or any of its Subsidiaries or the properties of the Borrower or any of its Subsidiaries before any Governmental Authority or arbitrator which if determined adversely to the Borrower or any such Subsidiary would result in a Material Adverse Effect. (h) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as set forth on Schedule 8.01(h), and except in respect of matters that in the aggregate are not and cannot reasonably be expected to result in a Material Adverse Effect, the Borrower and each Material Subsidiary is in full compliance with all Environmental Laws, whether in connection with the ownership, use, maintenance or operation of its Premises or the conduct of any business thereon, or otherwise. Neither the Borrower, any Material Subsidiary, nor to the best of the Borrower's knowledge, any previous owner, tenant, occupant, user or operator of the Premises, or any present tenant or other present occupant, user or operator of the Premises has used, generated, manufactured, installed, treated, released, stored or disposed of any Hazardous Substances on, under, or at the Premises, except in compliance with all applicable Environmental Laws. To the best of the Borrower's knowledge, no Hazardous Substances have at any time been spilled, leaked, dumped, deposited, discharged, disposed of or released on, under, at or from the Premises, nor have any of the Premises been used at any time by any Person as a landfill or waste disposal site. Except as set forth on Schedule 8.01(h), there are no actions, suits, claims, notices of violation, hearings, investigations or proceedings pending or, to the best of the Borrower's knowledge, threatened against or affecting the Borrower, any Material Subsidiary or with respect to the ownership, use, maintenance and operation of the Premises, relating to Environmental Laws or Hazardous Substances. (i) GOVERNMENTAL REGULATION. Neither the Borrower nor any of its Material Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce Act, any state public utilities code or any other federal or state statute or regulation limiting its ability to incur Indebtedness. 30 (j) ERISA. (i) The Borrower and all ERISA Affiliates have satisfied all applicable contribution requirements under Section 412(c)(11) of the Internal Revenue Code and have never sought a waiver under Section 412(d) of the Internal Revenue Code; (ii) no Termination Event has occurred and is continuing, or is reasonably expected to occur; (iii) the aggregate amount of Unfunded Accrued Benefits under all Pension Plans (excluding in such computation Pension Plans with assets greater than accrued benefits) does not exceed $5,000,000; (iv) there is no condition or event under which the Borrower, any ERISA Affiliate, or any Plan maintained by the Borrower or any ERISA Affiliate could be subject to any risk of material liability under ERISA or the Internal Revenue Code, regardless of whether the Borrower or any ERISA Affiliate engaged in a transaction giving rise to the liability; (v) neither the Borrower nor any ERISA Affiliate has unfunded, contingent liability that exceeds $5,000,000 with respect to Plans that provide post-retirement welfare benefits; and (vi) all Plans maintained by, or contributed to by, the Borrower or any ERISA Affiliate comply in all material respects, and have been administered in material compliance with, the requirements of applicable law (including, if applicable, foreign law, ERISA and the Internal Revenue Code), and in accordance with each Plan's terms. (k) SUBSIDIARIES. The name, capital structure and ownership of each Subsidiary of the Borrower on the date of this Agreement is as set forth in Schedule 8.01(k). All of the outstanding capital stock of, or other interest in, each such Subsidiary has been validly issued, and is fully paid and nonassessable. Except as set forth in such Schedule, on the date of this Agreement the Borrower has no equity interest in any Person. Each Material Subsidiary of the Borrower, as of the date of this Agreement, is specified as such on Schedule 8.01(k). (l) MARGIN REGULATIONS. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying "margin stock" (within the meaning of Regulations G or U of the FRB). No part of the proceeds of the Loans will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock, except in accordance with the provisions of Regulations T, U, and X of the FRB. (m) TAXES. Each of the Borrower and its Material Subsidiaries has duly filed all tax and information returns required to be filed, and has paid all taxes, fees, assessments and other governmental charges or levies that have become due and payable, except to the extent such taxes or other charges are being contested in good faith and are adequately reserved against in accordance with GAAP. 31 (n) PATENTS AND OTHER RIGHTS. Each of the Borrower and its Subsidiaries possesses all permits, franchises, licenses, patents, trademarks, trade names, service marks, copyrights and all rights with respect thereto, free from burdensome restrictions, that are reasonably necessary for the ownership, maintenance and operation of its business and neither the Borrower nor any such Subsidiary is in violation of any rights of others with respect to the foregoing, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect. (o) INSURANCE. The properties of the Borrower and its Material Subsidiaries are insured, with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as is customarily carried by companies engaged in similar businesses and owning similar properties in the localities where the Borrower or such Material Subsidiary operates. (p) FINANCIAL STATEMENTS. The audited consolidated balance sheet of the Borrower and its Subsidiaries as at January 1, 2000, and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal year then ended, and the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at July 1, 2000, and the related consolidated statements of income, shareholders' equity and cash flows, for the quarter then ended and the 6-month period then ended, are complete and correct and fairly present the financial condition of the Borrower and its Subsidiaries as at such dates and the results of operations of the Borrower and its Subsidiaries for the periods covered by such statements, in each case in accordance with GAAP consistently applied, subject, in the case of the July 1, 2000 financial statements, to normal year-end adjustments and the absence of notes. (q) LIABILITIES. Neither the Borrower nor any of its Material Subsidiaries has any material liabilities, fixed or contingent, that are not reflected in the financial statements referred to in subsection (p), in the notes thereto or otherwise disclosed in writing to the Banks, other than liabilities arising in the ordinary course of business since July 1, 2000. (r) LABOR DISPUTES, ETC. There are no strikes, lockouts or other labor disputes against the Borrower or any of its Material Subsidiaries, or, to the best of the Borrower's knowledge, threatened against or affecting the Borrower or any of its Material Subsidiaries, and no event of loss has occurred with respect to any assets or property of the Borrower or any of its Subsidiaries, which would reasonably be expected to result in a Material Adverse Effect. (s) SOLVENCY. Each of the Borrower and its Material Subsidiaries is Solvent. (t) DISCLOSURE. None of the representations or warranties made by the Borrower in the Loan Documents as of the date of such representations and warranties, and none of the statements contained in each exhibit, report, certificate or written statement furnished by or on behalf of the Borrower or any of its Subsidiaries to the Agent and the Banks in connection with the Loan Documents, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they are made, not misleading, as of the time made or delivered. 32 ARTICLE IX COVENANTS SECTION 9.01 REPORTING COVENANTS. So long as any of the Obligations shall remain unpaid or any Bank shall have any Revolving Commitment, the Borrower agrees that: (a) FINANCIAL STATEMENTS AND OTHER REPORTS. The Borrower shall furnish to the Agent in sufficient copies for distribution to the Banks: (i) as soon as available and in any event within 55 days after the end of each of the first three fiscal quarters of each fiscal year, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter, and the related consolidated statements of income, shareholders' equity and cash flows of the Borrower and its Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the corresponding period in the preceding fiscal year, together with a certificate of a Responsible Officer of the Borrower stating that such financial statements fairly present the financial condition of the Borrower and its Subsidiaries as at such date and the results of operations of the Borrower and its Subsidiaries for the period ended on such date and have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal, year-end audit adjustments and except for the absence of notes; (ii) as soon as available and in any event within 100 days after the end of each fiscal year, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year, and the related consolidated statements of income, shareholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the previous fiscal year, accompanied by a report thereon of a firm of independent certified public accountants of recognized national standing, which report shall be unqualified as to scope of audit or the status of the Borrower and its Subsidiaries as a going concern; (iii) together with the financial statements required pursuant to clauses (i) and (ii), a Compliance Certificate of a Responsible Officer as of the end of the applicable accounting period; (iv) promptly after the giving, sending or filing thereof, copies of all reports, if any, which the Borrower sends to the holders of its respective capital stock or other securities and of all reports or filings, if any, by the Borrower with the SEC or any national securities exchange. As to any information contained in materials furnished pursuant to clause (iv), the Borrower shall not be separately required to furnish such information under clause (i) or (ii), but the foregoing shall not be in derogation of the obligation of the Borrower to furnish the information and materials described in clauses (i) and (ii) at the times specified therein. 33 (b) ADDITIONAL INFORMATION. The Borrower shall furnish to the Agent: (i) promptly after the Borrower has knowledge or becomes aware thereof, notice of the occurrence or existence of any Default; (ii) prompt written notice of (A) any proposed acquisition of stock, assets or property by the Borrower or any of its Material Subsidiaries that could reasonably be expected to result in material environmental liability under Environmental Laws, and (B)(1) any spillage, leakage, discharge, disposal, leaching, migration or release of any Hazardous Substances required to be reported to any Governmental Authority under applicable Environmental Laws, and (2) all actions, suits, claims, notices of violation, hearings, investigations or proceedings pending, or to the best of the Borrower's knowledge, threatened against or affecting the Borrower or any of its Material Subsidiaries or with respect to the ownership, use, maintenance and operation of the Premises, relating to Environmental Laws or Hazardous Substances; (iii) prompt written notice of all actions, suits and proceedings before any Governmental Authority or arbitrator pending, or to the best of the Borrower's knowledge, threatened against or affecting the Borrower or any of its Material Subsidiaries which if adversely determined would be reasonably expected to have a Material Adverse Effect; (iv) promptly after the Borrower has knowledge or becomes aware thereof, (a) notice of the occurrence of any Termination Event, together with a copy of any notice of such Termination Event to the PBGC, and (b) the details concerning any material action taken or proposed to be taken by the IRS, PBGC, Department of Labor or other Person with respect thereto; (v) the information regarding insurance maintained by the Borrower and its Material Subsidiaries as required under Section 9.03(c); (vi) within 30 days of the date thereof, or, if earlier, on the date of delivery of any financial statements pursuant to subsection (a), notice of any material change in accounting policies or financial reporting practices by the Borrower or any of its Material Subsidiaries; (vii) promptly after the occurrence thereof, notice of any labor controversy resulting in or threatening to result in any strike, work stoppage, boycott, shutdown or other material labor disruption against or involving the Borrower or any of its Material Subsidiaries; (viii) upon the reasonable request from time to time, but no more often than once per fiscal quarter, of the Agent or any Bank (through the Agent), the Swap Termination Values, together with a description of the method by which such values were determined, relating to any then-outstanding Rate Contracts to which the Borrower or any of its Material Subsidiaries is party; 34 (ix) prompt written notice of any other condition or event which has resulted, or that could reasonably be expected to result, in a Material Adverse Effect; and (x) such other information respecting the operations, properties, business or condition (financial or otherwise) of the Borrower or its Subsidiaries as any Bank (through the Agent) may from time to time reasonably request. Each notice pursuant to this subsection (b) shall be accompanied by a written statement by a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein, and stating what action the Borrower proposes to take with respect thereto. SECTION 9.02 FINANCIAL COVENANTS. So long as any of the Obligations shall remain unpaid or any Bank shall have any Revolving Commitment, the Borrower agrees that: (a) MINIMUM CONSOLIDATED EBITDA. The Borrower shall maintain as of the last day of each fiscal quarter a minimum Consolidated EBITDA for the period of four fiscal quarters ended on such date (taken as a single accounting period) of not less than $200,000,000; (b) [INTENTIONALLY OMITTED.] (c) MINIMUM FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain as of the last day of each fiscal quarter a ratio (such ratio, the "Fixed Charge Coverage Ratio") of (i) Consolidated EBITDA to (ii) the sum of (without duplication) (A) Consolidated Interest Expense PLUS (B) 20% of Funded Debt PLUS (C) taxes paid in cash, PLUS (D) payments in respect of Capital Leases, in each case, of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP, for the 12-month period ended on such date, of not less than 1.50 to 1.00. (d) MINIMUM CURRENT RATIO. The Borrower shall maintain as of the last day of each fiscal quarter a ratio of (i) current assets to (ii) current liabilities, in each case, of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP, of not less than 1.00 to 1.00. For purposes of calculating the Borrower's compliance with this Section 9.02(d) as of the last day of any fiscal quarter, current liabilities shall include (A) off-balance sheet Indebtedness having a maturity of less than one year from such fiscal quarter-end, (B) reimbursement obligations in respect of letters of credit having an expiry date less than one year from such fiscal quarter-end and (C) the current portion of (1) all Loans then outstanding hereunder and (2) all loans then outstanding under the 364-Day Credit Agreement. (e) MAXIMUM FUNDED DEBT TO EBITDA RATIO. The Borrower shall maintain as of the last day of each fiscal quarter a ratio of (i) Funded Debt of the Borrower and its Subsidiaries on a consolidated basis, to (ii) Consolidated EBITDA for the twelve-month period ended on such date, of not more than 2.00 to 1.00. SECTION 9.03 ADDITIONAL AFFIRMATIVE COVENANTS. So long as any of the Obligations shall remain unpaid or any Bank shall have any Revolving Commitment, the Borrower agrees that: 35 (a) PRESERVATION OF EXISTENCE, ETC. The Borrower shall, and shall cause each of its Material Subsidiaries to, (i) maintain and preserve its legal existence, and (ii) maintain and preserve its rights to transact business and all other rights, franchises and privileges necessary or desirable in the normal course of its business and operations and the ownership of its properties, except in connection with transactions permitted by Section 9.04. (b) PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each of its Material Subsidiaries to, pay and discharge (i) all taxes, fees, assessments and governmental charges or levies imposed upon it or upon its properties or assets prior to the date on which penalties attach thereto, and all lawful claims for labor, materials and supplies which, if unpaid, might become a Lien upon any properties or assets of the Borrower or any Material Subsidiary, except to the extent such taxes, fees, assessments or governmental charges or levies, or such claims, are being contested in good faith by appropriate proceedings and are adequately reserved against in accordance with GAAP; (ii) all lawful claims which, if unpaid, would by law become a Lien upon its property not constituting a Permitted Lien; and (iii) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. (c) MAINTENANCE OF INSURANCE. The Borrower shall, and shall cause each of its Material Subsidiaries to, carry and maintain in full force and effect, at its own expense and with financially sound and reputable insurance companies, insurance in such amounts, with such deductibles and covering such risks as is customarily carried by companies engaged in the same or similar businesses and owning similar properties in the localities where the Borrower or such Subsidiary operates, including fire, extended coverage, business interruption, public liability, property damage and worker's compensation. Upon the request of the Agent or any Bank, the Borrower shall furnish to the Agent from time to time a certificate of the Borrower's insurance broker or other insurance specialist stating that all premiums then due on the policies relating to insurance have been paid, that such policies are in full force and effect and that such insurance coverage and such policies comply with all the requirements of this subsection. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Borrower shall, and shall cause each of its Material Subsidiaries to, keep adequate records and books of account, in which complete entries shall be made in accordance with GAAP, reflecting all financial transactions of the Borrower and its Material Subsidiaries. (e) INSPECTION RIGHTS. Upon reasonable prior notice to the Borrower (except during the existence of an Event of Default, in which case no prior notice shall be required), the Borrower shall at any reasonable time and from time to time permit the Agent and the Banks or any of their respective agents or representatives to visit and inspect any of the properties of the Borrower and its Material Subsidiaries and to examine and make copies of and abstracts from the records and books of account of the Borrower and its Material Subsidiaries, and to discuss the business affairs, finances and accounts of the Borrower and any such Material Subsidiary with any of the officers or accountants of the Borrower or such Material Subsidiary; PROVIDED that with respect to any such discussions with the Borrower's or any Material Subsidiary's accountants, the Borrower shall be given a reasonable opportunity to have a representative participate in or otherwise be present at any such discussion; and PROVIDED FURTHER that so long as no Event of Default has occurred and is continuing, the Borrower's prior written consent (which 36 consent shall not be unreasonably withheld) shall be required prior to any discussions between the Agent or any Bank or any of their respective agents or representatives, on the one hand, and the Borrower's or any Material Subsidiary's accountants, on the other. (f) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause each of its Material Subsidiaries to, comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws) and the terms of any indenture, contract or other instrument to which it may be a party or under which it or its properties may be bound, except to the extent that the failure to so comply would not reasonably be expected to result in a Material Adverse Effect. (g) MAINTENANCE OF PROPERTIES, ETC. The Borrower shall, and shall cause each of its Material Subsidiaries to, maintain and preserve all of its properties necessary or useful in the proper conduct of its business in good working order and condition in accordance with the general practice of other corporations of similar character and size, ordinary wear and tear excepted. (h) LICENSES. The Borrower shall, and shall cause each of its Material Subsidiaries to, obtain and maintain all licenses, authorizations, consents, filings, exemptions, registrations and other governmental approvals necessary in connection with (i) the execution, delivery and performance of the Loan Documents and the consummation of the transactions therein contemplated and (ii) the operation and conduct of its business and ownership of its properties, except, in the case of this clause (ii), where the failure to do so would not reasonably be expected to have a Material Adverse Effect. (i) ACTION UNDER ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each of its Material Subsidiaries to, upon becoming aware of the presence of any Hazardous Substance or the existence of any environmental liability under applicable Environmental Laws with respect to the Premises, take all actions, at their cost and expense, as shall be necessary or advisable to investigate and clean up the condition of the Premises, including all removal, containment and remedial actions, and restore the Premises to a condition in compliance with applicable Environmental Laws. (j) USE OF PROCEEDS. The Borrower shall use the proceeds of the Loans solely for general corporate purposes, including the repurchase of the Borrower's stock for immediate cancellation and for acquisitions, in each case, in compliance herewith. (k) FURTHER ASSURANCES AND ADDITIONAL ACTS. The Borrower shall execute, acknowledge, deliver, file, notarize and register at its own expense all such further agreements, instruments, certificates, documents and assurances and perform such acts as the Agent or the Majority Banks shall reasonably deem necessary or appropriate to effectuate the purposes of the Loan Documents, and promptly provide the Agent with evidence of the foregoing satisfactory in form and substance to the Agent or the Majority Banks. SECTION 9.04 NEGATIVE COVENANTS. So long as any of the Obligations shall remain unpaid or any Bank shall have any Revolving Commitment, the Borrower agrees that: 37 (a) LIENS; NEGATIVE PLEDGES. The Borrower shall not create, incur, assume or suffer to exist any Lien upon or with respect to any of its properties, revenues or assets, whether now owned or hereafter acquired, other than Permitted Liens. (b) CHANGE IN NATURE OF BUSINESS. The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by it at the date hereof or other businesses incidental or reasonably related thereto. Without limiting the generality of the preceding sentence, the parties hereto agree that this subsection 9.04(b) shall not operate to prohibit any Permitted Receivables Purchase Facility otherwise permitted hereunder. (c) RESTRICTIONS ON FUNDAMENTAL CHANGES. The Borrower shall not, and shall not permit any of its Subsidiaries to, merge with or consolidate into, or acquire all or substantially all of the assets of, any Person, or sell, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets, except that: (i) any of the Borrower's wholly owned Subsidiaries may merge with, consolidate into or transfer all or substantially all of its assets to another of the Borrower's wholly owned Subsidiaries or to the Borrower and in connection therewith such Subsidiary may be liquidated or dissolved; (ii) the Borrower or any of its Subsidiaries may sell or dispose of assets in accordance with the provisions of subsection 9.04(d); (iii) the Borrower or any of its Subsidiaries may make any investment permitted by subsection 9.04(e); (iv) the Borrower or any of its Subsidiaries may merge with or consolidate into any other Person, PROVIDED that (a) the Borrower is the surviving corporation in respect of any merger or consolidation involving the Borrower, (b) subject to the preceding clause (a), after giving effect to any such merger or consolidation, the surviving entity in respect thereof shall be a wholly owned Subsidiary, and (c) no such merger or consolidation shall be made if a Default would exist, or with the giving of notice or a passage of time, or both, would come into existence after giving effect thereto; and (v) the Borrower or any of its Subsidiaries may sell, transfer or dispose of any Receivables and Receivables Related Assets pursuant to any Permitted Receivables Purchase Facility. (d) SALES OF ASSETS. The Borrower shall not convey, sell, lease, transfer, or otherwise dispose of, or part with control of (whether in one transaction or a series of transactions) all or any or any material part of its business, property or assets (including any shares of stock in any Subsidiary or other Person), whether now owned or hereafter acquired, except sales or other dispositions of any of the following: 38 (i) any inventory in the ordinary course of business; (ii) any Permitted Investments; (iii) any assets which have become worn out or obsolete or which are promptly being replaced, in the ordinary course of business; (iv) any Receivables and Receivables Related Assets pursuant to any Permitted Receivables Purchase Facility; (v) assets constituting the Borrower's design-services operation pursuant to the Tality IPO; (vi) the Seely Avenue Campus pursuant to a sale-leaseback transaction, PROVIDED that such sale is made for fair value and the aggregate sales price from such sale is paid in cash; (vii) any other assets to the extent not otherwise permitted hereunder; PROVIDED that such assets do not constitute Substantial Assets and such sale or disposition is made for fair value; and PROVIDED FURTHER that (A) at the time of any such sale or disposition, no Default shall exist or shall result therefrom, (B) the aggregate sales price from such sale or disposition shall be paid in cash, or, if approved by the board of directors of the Borrower, capital stock or debt obligations so long as the aggregate sales price paid in capital stock or debt obligations, when added to the non-cash sales price of all other assets sold, leased, transferred or otherwise disposed of pursuant to this clause (vii) after the Closing Date pursuant to this Section 9.04(d)(vii), does not exceed 5% of Consolidated Tangible Net Worth measured as of the last day of the then most recent fiscal quarter, and (C) no dispositions of accounts or notes receivable shall be permitted under this clause (vii) unless in connection with the sale of all or substantially all of a business unit, division or Subsidiary of the Borrower and such sale is otherwise permitted hereunder. For purposes of clause (vii), a sale, lease, transfer or other disposition of assets shall be deemed to be of "Substantial Assets" if such assets, when added to all other assets sold, leased, transferred or otherwise disposed of after the Closing Date (other than assets sold in the ordinary course of business), shall exceed 15% of Consolidated Tangible Net Worth measured as of the last day of the then most recent fiscal quarter. (e) LOANS AND INVESTMENTS. The Borrower shall not, and shall not permit any of its Subsidiaries to, purchase or otherwise acquire the capital stock, assets (constituting a business unit), obligations or other securities of or any interest in any Person, or otherwise extend any credit to, guarantee the obligations of or make any additional investments in any Person, other than in connection with: (i) extensions of credit in the nature of accounts receivable, general intangibles or notes receivable arising from the licensing of software or the sales of goods or services in the ordinary course of business; 39 (ii) investments by the Borrower in the capital stock of wholly-owned Subsidiaries, and extensions of credit by the Borrower to any of its wholly owned Subsidiaries or by any of its wholly owned direct or indirect Subsidiaries to another of its wholly owned direct or indirect Subsidiaries or the Borrower, in each case in the ordinary course of business; (iii) Permitted Investments; (iv) investments permitted under Section 9.04 (c)(iv); (v) to the extent not otherwise permitted under this subsection 9.04(e), additional purchases of, loans to or investments in joint ventures or the capital stock, assets, obligations or other securities of or interest in other Persons not exceeding 15% of Consolidated Tangible Net Worth, measured as of the last day of the then most recent fiscal quarter, as to all such investments, loans and purchases in the aggregate, PROVIDED that (A) in the case of any such acquisition or investment the prior, effective written consent or approval to such acquisition or investment of the board of directors or equivalent governing body of the acquiree is obtained and (B) immediately after giving effect thereto, no Default shall have occurred and be continuing; (vi) investments in the Venture Fund, so long as the aggregate unrecovered investment made therein (not counting recoveries fairly characterized as income) does not exceed $100,000,000; (vii) investments existing on the Closing Date disclosed in Schedule 9.04(e); (viii) investments consisting of the endorsement of negotiable instruments for deposit; (ix) investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (x) extensions of credit in the ordinary course of business consisting of (a) compensation of employees, officers and directors of the Borrower or a Subsidiary, as the case may be, so long as the board of directors of the Borrower or such Subsidiary determines that such compensation is in the best interests of the Borrower or such Subsidiary, (b) travel advances, employee relocation loans and other employee loans and advances, (c) loans to employees, officers or directors relating to the purchase of equity securities of the Borrower, and (d) other loans to officers and employees approved by the board of directors; (xi) investments in connection with any Permitted Receivables Purchase Facility; and 40 (xii) investments consisting of shares in Tality Corporation retained by the Borrower resulting from the Tality IPO. (f) TRANSACTIONS WITH RELATED PARTIES. Except in connection with (i) any Permitted Receivables Purchase Facility otherwise permitted hereunder, or (ii) investments in Alchemy or SpinCircuit or resulting from the Tality IPO which are otherwise permitted by subsection (e) above, the Borrower shall not, and shall not permit any of its Material Subsidiaries to, enter into any transaction, including the purchase, sale or exchange of property or the rendering of any services, with any Affiliate, any officer or director thereof or any Person which beneficially owns or holds 5% or more of the equity securities, or 5% or more of the equity interest, thereof (a "Related Party"), or enter into, assume or suffer to exist, or permit any Material Subsidiary to enter into, assume or suffer to exist, any employment or consulting contract with any Related Party, except a transaction or contract which is in the ordinary course of the Borrower's or such Material Subsidiary's business and which, when considered in the aggregate with all such transactions between the Related Party and the Borrower or such Material Subsidiary, such aggregate transactions are upon fair and reasonable terms not less favorable to the Borrower or such Material Subsidiary than it would obtain in a comparable arm's length transaction (or series of transactions) with a Person not a Related Party. (g) HAZARDOUS SUBSTANCES. The Borrower shall not, and shall not permit any of its Material Subsidiaries to, use, generate, manufacture, install, treat, release, store or dispose of any Hazardous Substances, except in compliance with all applicable Environmental Laws. (h) ACCOUNTING CHANGES. The Borrower shall not, and shall not suffer or permit any of its Material Subsidiaries to, (i) make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP, or, in respect of any non-U.S. Subsidiary, as required or permitted by generally accepted accounting principles as then in effect in the jurisdiction in which such non-U.S. Subsidiary is located or (ii) without the prior written consent of the Majority Banks (not to be unreasonably withheld), change its fiscal year or that of any of its consolidated Subsidiaries, except to change the fiscal year of a Subsidiary acquired in connection with a permitted acquisition to conform its fiscal year to the Borrower's. ARTICLE X EVENTS OF DEFAULT SECTION 10.01 EVENTS OF DEFAULT. Any of the following events which shall occur shall constitute an "Event of Default": (a) PAYMENTS. The Borrower shall fail to pay (i) when due any amount of principal of any Loan or Note, or (ii) within three days after the date due, any amount of interest on any Loan or Note or any fee or other amount payable hereunder or under any of the Loan Documents. (b) REPRESENTATIONS AND WARRANTIES. Any representation or warranty by the Borrower under or in connection with the Loan Documents shall prove to have been incorrect in any material respect when made or deemed made. 41 (c) FAILURE BY BORROWER TO PERFORM CERTAIN COVENANTS. The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 9.02, subsections (a)(i) or (j) of Section 9.03 or Section 9.04 other than Subsection 9.04(g). (d) FAILURE BY BORROWER TO PERFORM OTHER COVENANTS. The Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any other Loan Document on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after either (i) a Responsible Officer of the Borrower knew or reasonably should have known of such failure or (ii) the Borrower receives written notice thereof by the Agent or any Bank. (e) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower or any Material Subsidiary (i) generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (f) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Borrower or any Material Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Borrower's or any Material Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Borrower or any Material Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Borrower or any Material Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (g) DEFAULT UNDER OTHER INDEBTEDNESS. (i) The Borrower or any of its Material Subsidiaries shall fail (A) to make any payment of any principal of, or interest or premium on, any single Indebtedness (other than in respect of the Loans) having a principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000 (or its equivalent in another currency) when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace or notice period, if any, specified in the agreement or instrument relating to such Indebtedness as of the date of such failure; or (B) to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such Indebtedness, when required to be performed or observed, or any other event shall occur or condition shall exist under any such agreement or instrument, and such failure, event or condition shall continue after the applicable grace or notice period, if any, specified in such agreement or instrument, if the effect of such failure, event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or (ii) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled 42 required prepayment), prior to the stated maturity thereof; (iii) there occurs under any Rate Contract an Early Termination Date (as defined in such Rate Contract) resulting from (A) any event of default under such Rate Contract as to which the Borrower or any Material Subsidiary is the Defaulting Party (as defined in such Rate Contract) or (B) any Termination Event (as so defined) as to which the Borrower or any Material Subsidiary is an Affected Party (as so defined), and, in either event, the Swap Termination Value owed by the Borrower or such Material Subsidiary as a result thereof is greater than $10,000,000 (or its equivalent in another currency). (h) JUDGMENTS. (i) A final judgment or order for the payment of money in excess of $50,000,000 (or its equivalent in another currency) which is not fully covered by third-party insurance shall be rendered against the Borrower or any of its Material Subsidiaries; or (ii) any non-monetary judgment or order shall be rendered against the Borrower or any Material Subsidiary which has or would reasonably be expected to have a Material Adverse Effect; and in each case there shall be any period of 30 consecutive days during which such judgment continues unsatisfied or during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. (i) ERISA. (i) The Borrower or an ERISA Affiliate shall fail to satisfy its contribution requirements in an amount in excess of $5,000,000 under Section 412(c)(11) of the Internal Revenue Code, whether or not it has sought a waiver under Section 412(d) of the Internal Revenue Code; (ii) in the case of a Termination 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 Borrower's or an ERISA Affiliate's proportionate share of that Pension Plan's Unfunded Accrued Benefits is more than $5,000,000; (iii) in the case of a Termination Event involving the complete or partial withdrawal from a Multiemployer Plan, the Borrower or an ERISA Affiliate has incurred a withdrawal liability in an aggregate amount exceeding $5,000,000; (iv) in the case of a Termination Event not described in clause (ii) or (iii), the Unfunded Accrued Benefits of the relevant Pension Plan or Plans exceed $5,000,000; (v) a Plan of the Borrower or an ERISA Affiliate that is intended to be qualified under Section 401(a) of the Internal Revenue Code shall lose its qualification, and the loss can reasonably be expected to impose on the Borrower or an ERISA Affiliate liability (for additional taxes, to Plan participants, or otherwise) in the aggregate amount of $5,000,000 or more; (vi) the commencement or increase of contributions to, the adoption of, or the amendment of a Plan by, the Borrower or an ERISA Affiliate shall result in a net increase in unfunded liabilities to the Borrower or an ERISA Affiliate in excess of $5,000,000; or (vii) the occurrence of any combination of events listed in clauses (ii) through (vi) that involves a net increase in aggregate Unfunded Accrued Benefits and unfunded liabilities in excess of $5,000,000. (j) DISSOLUTION, ETC. The Borrower or any of its Material Subsidiaries shall (i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or dissolution), except to the extent expressly permitted by Section 9.04, (ii) suspend its operations other than in the ordinary course of business, or (iii) take any corporate or similar action to authorize any of the actions or events set forth above in this subsection (j). (k) SUBORDINATION PROVISIONS. The subordination provisions of any agreement or instrument governing any Indebtedness subordinated to the Obligations shall for any reason be 43 revoked or invalidated, or otherwise cease to be in full force and effect, any Person shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Indebtedness hereunder shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or such subordination provisions. (l) MERGERS AND ACQUISITIONS. The Borrower or any Subsidiary shall acquire or otherwise merge or consolidate with any Person for cash consideration (in whole or in part), without the prior, effective written consent or approval to such acquisition, merger or consolidation of the board of directors or equivalent governing body of such Person. SECTION 10.02 EFFECT OF EVENT OF DEFAULT. If any Event of Default shall occur and be continuing, the Agent shall, at the request of, or may, with the consent of, the Majority Banks, (i) by notice to the Borrower, (a) declare the Revolving Commitments of the Banks to be terminated, whereupon the same shall forthwith terminate, and (b) declare the entire unpaid principal amount of the Loans and the Notes, all interest accrued and unpaid thereon and all other Obligations to be forthwith due and payable, whereupon the Loans and the Notes, all such accrued interest and all such other Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, PROVIDED that if an event described in Sections 10.01(e) or 10.01(f) shall occur, the result which would otherwise occur only upon giving of notice by the Agent to the Borrower as specified in this clause (I) shall occur automatically, without the giving of any such notice; and (ii) whether or not the actions referred to in clause (I) have been taken, proceed to enforce all other rights and remedies available to the Agent and the Banks under the Loan Documents and applicable law. ARTICLE XI THE AGENT SECTION 11.01 AUTHORIZATION AND ACTION. Each Bank hereby appoints ABN AMRO as Agent and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and perform such duties under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. The duties and obligations of the Agent are strictly limited to those expressly provided for herein, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. As to any matters not expressly provided for by the Loan Documents (including enforcement or collection of the Loan Documents), 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 the Majority Banks, and such instructions shall be binding upon all Banks; PROVIDED, HOWEVER, that except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act under any Loan Document unless it shall be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by reason of taking or continuing to take any such action, and that the Agent shall not in any event be required to take any action which exposes the Agent to liability or which is contrary to any Loan Document or applicable law. Nothing in any Loan Document shall, or shall be construed to, constitute the Agent a trustee or fiduciary for any Bank. In performing its functions and 44 duties hereunder, the Agent shall act solely as the agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. Without limiting the generality of the foregoing, the use of the term "agent" in this Agreement and the other Loan Documents with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. SECTION 11.02 LIMITATION ON LIABILITY OF AGENT; NOTICES; CLOSING. (a) LIMITATION ON LIABILITY OF AGENT. Neither the Agent nor any Affiliate thereof nor any of their respective directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them under or in connection with any Loan Document, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent (i) may treat a Bank as the holder of its Loans for all purposes hereof unless and until such Bank and its assignee shall have delivered to the Agent and the Borrower an Assignment and Acceptance Agreement substantially in the form of Exhibit F (an "Assignment and Acceptance"), and the Agent receives written notice of the assignment in substantially the form of Schedule 1 to the Assignment and Acceptance and the other conditions to assignment set forth in Section 12.09 shall have been satisfied; (ii) may consult with legal counsel (including counsel to 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; and (iii) shall incur no liability to any Bank under or in respect of any Loan Document by acting upon any notice, consent, certificate, telegram, facsimile, telex or teletype message, statement or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties or by acting upon any representation or warranty made or deemed to be made hereunder or under any other Loan Document. Further, the Agent (A) makes no warranty or representation to any Bank and shall not be responsible to any Bank for the accuracy or completeness of any information, exhibit or report furnished under any Loan Document, for any statements, warranties or representations (whether written or oral) made or deemed made in or in connection with any Loan Documents; (B) shall have no duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Borrower or any other Person or to inspect the property, books or records of the Borrower or any other Person; and (C) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency, value or collectibility of this Agreement or any other Loan Document or of any collateral. (b) NOTICES. Promptly upon receipt thereof, the Agent shall forward to each Bank originals or copies, as specified in this Agreement or any other Loan Document, of all agreements, instruments, opinions, financial statements, notices and other documents delivered by the Borrower or any other Person to the Agent pursuant to any Loan Document for distribution to the Banks. Except for any of the foregoing expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may 45 come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. (c) CLOSING. For purposes of determining compliance with the conditions specified in Section 7.01, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent (or made available) by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank, unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Bank prior to the Closing Date specifying its objection thereto and either such objection shall not have been withdrawn by notice to the Agent to that effect on or prior to the Closing Date or, if any Borrowing on the Closing Date has been requested, the Bank shall not have made available to the Agent on or prior to the Closing Date the Bank's Pro Rata Share of any Borrowing. SECTION 11.03 AGENT AND AFFILIATES. With respect to its Revolving Commitment, the Loans made by it, the Notes issued to it and all other Obligations owing to it as a Bank, the Agent shall have the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include the Agent in its individual capacity. The Agent 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, and any Affiliate thereof, all as if the Agent were not the Agent hereunder and without any duty to account therefor to the Banks. SECTION 11.04 NOTICE OF DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default hereunder (other than nonpayment of principal of or interest on the Loans or of any fees or any of its costs and expenses) unless the Agent has actual knowledge thereof or has received notice in writing from a Bank or the Borrower referring to this Agreement, describing such event or condition and expressly stating that such notice is a "notice of default." Should the Agent receive such notice of the occurrence of a Default, the Agent shall promptly give notice thereof to the Banks. The Agent thereupon shall take such action with respect to such Default as shall be reasonably directed by the Majority Banks; PROVIDED that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Banks. SECTION 11.05 NON-RELIANCE ON AGENT. Each Bank has itself been, and will continue to be, based on such documents and information as it has deemed appropriate, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of the Borrower or any of its Subsidiaries. Accordingly, each Bank confirms to the Agent that it has not relied, and will not hereafter rely, on the Agent (i) to check or inquire on such Bank's behalf into the adequacy, accuracy or completeness of any information provided by the Borrower or any other Person under or in connection with the Loan Documents or the transactions herein contemplated (whether or not such information has been or is hereafter distributed to such Bank by the Agent), or (ii) to assess or keep under review on such Bank's behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrower or any Subsidiary. 46 SECTION 11.06 INDEMNIFICATION. The Banks agree to indemnify the Agent, and any Affiliates, directors, officers, employees, agents, counsel and other advisors (collectively, the "Related Persons") of the Agent (to the extent not reimbursed by the Borrower), ratably in accordance with the respective Pro Rata Shares of the Banks, against and hold each of them harmless from any and all liabilities, obligations, losses, claims, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including the reasonable fees and disbursements of counsel to the Agent (including allocated costs of internal counsel), which may be imposed on, incurred by, or asserted against the Agent or any such Related Person to be indemnified, in any way relating to or arising out of the Loan Documents, the use or intended use of the proceeds of the Loans or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent or other such Related Person to be indemnified in connection with any of the foregoing; PROVIDED that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent they are found by a final decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Agent, or any other Related Person to be indemnified. SECTION 11.07 DELEGATION OF DUTIES. The Agent may, in its discretion, employ from time to time one or more agents or attorneys-in-fact (including any of the Agent's Affiliates) to perform any of the Agent's duties under the Loan Documents. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 11.08 SUCCESSOR AGENT. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving 90 days' written notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower shall have the right to appoint a successor Agent from among the Banks, with the consent of the Majority Banks (which shall not be unreasonably withheld), and the Borrower and the Banks shall use their best efforts so to appoint a successor Agent. If no successor Agent shall have been so appointed by the Borrower and the Majority Banks, and shall have accepted such appointment, prior to the effective date of the retiring Agent's resignation, the retiring Agent may, on behalf of the Banks, appoint a successor Agent from among the Banks. Upon the effectiveness of 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, duties and obligations of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents. SECTION 11.09 CO-AGENTS. None of the Banks identified on the facing page or signature pages of this Agreement as a "co-agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Banks as such. Without limiting the foregoing, none of the Banks so identified as a "co-agent" shall have or be deemed to have any fiduciary relationship with any Bank. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. 47 ARTICLE XII MISCELLANEOUS SECTION 12.01 AMENDMENTS AND WAIVERS. Except as otherwise provided herein or in any other Loan Document, (I) no amendment to any provision of this Agreement or any of the other Loan Documents shall in any event be effective unless the same shall be in writing and signed by the Borrower, the Agent and the Majority Banks (or the Agent with the written consent of the Majority Banks); and (II) no waiver of any provision of this Agreement or any other Loan Document, or consent to any departure by the Borrower, shall in any event be effective unless the same shall be in writing and signed by the Agent and the Majority Banks (or the Agent with the consent of the Majority Banks). Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that, notwithstanding the foregoing provisions of this Section 12.01, any term or provision of Article XI (other than the provisions of Section 11.08 pertaining to Borrower consent) may be amended without the agreement or consent of, or prior notice to, the Borrower; and PROVIDED FURTHER, HOWEVER, that, unless in writing and signed by all of the Banks (or by the Agent with the written consent of all the Banks), no amendment, waiver or consent shall do any of the following: (A) increase the amount, or extend the stated expiration or termination date, of the Revolving Commitments of the Banks (or any of them); (B) reduce the principal of, or interest on, the Loans or any fee or other amount payable to the Banks (or any of them) hereunder; (C) postpone any date fixed for any payment in respect of principal of, or interest on, the Loans or any fee or other amount payable to the Banks (or any of them) hereunder; (D) change the definition of "Majority Banks" or any definition or provision of this Agreement requiring the approval of Majority Banks or some other specified amount of Banks; (E) consent to the assignment or transfer by the Borrower of any of its rights and obligations under the Loan Documents; (F) waive any of the conditions specified in Article VII; (G) amend, modify or waive the provisions of Section 6.01, 6.05 or 12.07; or (H) amend, modify or waive the provisions of this Section 12.01; and PROVIDED, FURTHER, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Banks required hereinabove to take such action, affect the rights, obligations or duties of the Agent under any Loan Document, and (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 48 SECTION 12.02 NOTICES. (a) NOTICES. All notices and other communications provided for hereunder and under the other Loan Documents shall, unless otherwise stated herein, be in writing (including by facsimile transmission followed by a telephone call by the sender to confirm receipt by the recipient party) and mailed, sent or delivered to the respective parties hereto at or to their respective addresses or facsimile numbers set forth in Schedule 2, or at or to such other address or facsimile number as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail, upon the earlier of the date of receipt and five Business Days after deposit in the mail, first class (or air mail, with respect to communications to be sent to or from the United States), postage prepaid; and (iii) if sent by facsimile transmission, upon verbal confirmation of receipt by the recipient party; PROVIDED, HOWEVER, that notices and communications to the Agent shall not be effective until received. (b) FACSIMILE AND TELEPHONIC NOTICE. The Borrower acknowledges and agrees that the agreement of the Agent and the Banks herein and in any other Loan Document to receive certain notices by telephone and facsimile is solely for the convenience and at the request of the Borrower. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Agent and the Banks shall not have any liability to the Borrower or any other Person on account of any action taken or not taken by the Agent and the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and the other Obligations shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. SECTION 12.03 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right, remedy, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights and remedies under the Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges that may otherwise be available to the Agent or any Bank. SECTION 12.04 COSTS AND EXPENSES; INDEMNIFICATION. (a) COSTS AND EXPENSES. The Borrower agrees to pay not later than 30 days after written demand therefor, including a statement of account, whether or not the transactions contemplated hereby shall be consummated: (i) the reasonable out-of-pocket costs and expenses of the Agent and any of its Affiliates, and the reasonable fees and disbursements of outside counsel to the Agent, in connection with the negotiation, preparation, execution, delivery and syndication of the Loan Documents, and any amendments, modifications or waivers requested by the Borrower of the terms thereof; and 49 (ii) all costs and expenses of the Agent, its Affiliates and the Banks, and fees and disbursements of counsel (including allocated costs of internal counsel), in connection with (a) any Default, (b) the enforcement or attempted enforcement of, and preservation of any rights or interests under, the Loan Documents, and (c) any out-of-court workout or other refinancing or restructuring or any bankruptcy case, including any losses, costs and expenses sustained by the Agent and any Bank as a result of any failure by the Borrower to perform or observe its obligations contained in the Loan Documents. (b) INDEMNIFICATION. Whether or not the transactions contemplated hereby shall be consummated, the Borrower hereby agrees to indemnify the Agent, each Bank and any Related Person thereof (each an "Indemnified Person") against, and hold each of them harmless from, any and all liabilities, obligations, losses, claims, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including the reasonable fees and disbursements of counsel to an Indemnified Person (including allocated costs of internal counsel), which may be imposed on, incurred by, or asserted against any Indemnified Person, (i) in any way relating to or arising out of any of the Loan Documents, the use or intended use of the proceeds of the Loans, or the transactions contemplated hereby, (ii) with respect to any investigation, litigation or other proceeding relating to any of the foregoing, irrespective of whether the Indemnified Person shall be designated a party thereto, or (iii) in any way relating to or arising out of the use, generation, manufacture, installation, treatment, storage or presence, or the spillage, leakage, leaching, migration, dumping, deposit, discharge, disposal or release, at any time, of any Hazardous Substances on, under, at or from any Premises, including any personal injury or property damage suffered by any Person, and any investigation, site assessment, environmental audit, feasibility study, monitoring, clean-up, removal, containment, restoration, remedial response or remedial work undertaken by or on behalf of the any Indemnified Person at any time, voluntarily or involuntarily, with respect to the Premises (the "Indemnified Liabilities"); PROVIDED that the Borrower shall not be liable to any Indemnified Person for any portion of such Indemnified Liabilities to the extent they are found by a final decision of a court of competent jurisdiction to have resulted from such Indemnified Person's gross negligence or willful misconduct. Subject to the preceding proviso, if and to the extent that the foregoing indemnification is for any reason held unenforceable, the Borrower agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. (c) OTHER CHARGES. The Borrower agrees to indemnify the Agent and each of the Banks against and hold each of them harmless from any and all present and future stamp, transfer, documentary and other such taxes, levies, fees, assessments and other charges made by any jurisdiction by reason of the execution, delivery, performance and enforcement of the Loan Documents. SECTION 12.05 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each Bank hereby is authorized, to the extent permitted by applicable statute, at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under this Agreement and the other Loan 50 Documents, irrespective of whether or not such Bank shall have made any demand under this Agreement or any such other Loan Document and although such Obligations may be unmatured. Each Bank agrees promptly to notify the Borrower (through the Agent) after any such set-off and application made by such Bank; PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 12.05 are in addition to other rights and remedies (including other rights of set-off) which such Bank may have. SECTION 12.06 SURVIVAL. All covenants, agreements, representations and warranties made in any Loan Documents shall, except to the extent otherwise provided therein, survive the execution and delivery of this Agreement, the making of the Loans and the execution and delivery of the Notes, and shall continue in full force and effect so long as the Banks have any Revolving Commitments, any Loans remain outstanding or any other Obligations remain unpaid or any obligation to perform any other act under any Loan Document remains unsatisfied. Without limiting the generality of the foregoing, the obligations of the Borrower under Sections 5.02, 5.03, 6.03 and 12.04, and of the Banks under Sections 6.03 and 11.06, and all similar obligations under the other Loan Documents (including all obligations to pay costs and expenses and all indemnity obligations), shall survive the repayment of the Loans and the termination of the Revolving Commitments. SECTION 12.07 OBLIGATIONS SEVERAL. The obligations of the Banks under the Loan Documents are several. The failure of any Bank or the Agent to carry out its obligations thereunder shall not relieve any other Bank or the Agent of any obligation thereunder, nor shall any Bank or the Agent be responsible for the obligations of, or any action taken or omitted by, any other Person hereunder or thereunder. Nothing contained in any Loan Document shall be deemed to cause any Bank or the Agent to be considered a partner of or joint venturer with any other Bank or Banks, the Agent or the Borrower. SECTION 12.08 BENEFITS OF AGREEMENT. The Loan Documents are entered into for the sole protection and benefit of the parties hereto and their successors and assigns, and no other Person other than Affiliates of the Agent and the Related Persons referred to in Sections 11.06, 12.04 and 12.14 shall be a direct or indirect beneficiary of, or shall have any direct or indirect cause of action or claim in connection with, any Loan Document. SECTION 12.09 BINDING EFFECT; ASSIGNMENT. (a) BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified by each Bank that such Bank has executed it and thereafter shall be binding upon, inure to the benefit of and be enforceable by the Borrower, the Agent and each Bank and their respective successors and assigns. (b) ASSIGNMENT. The Borrower shall not have the right to assign its rights and obligations hereunder or under the other Loan Documents or any interest herein or therein without the prior written consent of the Banks. Each Bank may sell, assign, transfer or grant participations in all or any portion of such Bank's rights and obligations hereunder and under the 51 other Loan Documents to any Bank or Eligible Assignee on the basis set forth below in this subsection (b). (i) Any Bank may, with the written consent of the Borrower and the Agent (which in each case shall not be unreasonably withheld), at any time assign and delegate to one or more Eligible Assignees all, or any ratable part of all, of the Revolving Loans and Revolving Commitment and the other rights and obligations of such Bank hereunder; PROVIDED, HOWEVER, that (A) no consent of the Borrower shall be required during the existence of an Event of Default; (B) no consent of the Borrower or the Agent shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is another Bank or an Affiliate of such Bank; and (C) except in connection with an assignment of all of a Bank's rights and obligations with respect to its Revolving Commitment and Loans, any such assignment to an Eligible Assignee that is not a Bank hereunder shall be equal to or greater than $15,000,000. (ii) In the event of any such assignment, unless and until (A) an Assignment and Acceptance and notice of assignment shall have been delivered pursuant to clause (i) of Section 11.02(a), (B) the Agent shall have received payment of an administrative transfer charge in the amount of $3,500 from the assigning Bank (unless the assignee shall otherwise agree to pay such charge), and (C) the Agent and the Borrower shall have received all tax forms and documents required under Section 6.03(d), such assignee shall not be entitled to exercise the rights of a Bank under this Agreement and the other Loan Documents with respect to such assignment and the Agent shall not be obligated to make payment of any amount to which such assignee may become entitled thereunder other than to the assigning Bank. Subject to satisfaction of the foregoing conditions in connection with any assignment, upon the effectiveness of such assignment, the assignee shall be deemed a "Bank" for all purposes of this Agreement and the other Loan Documents with respect to the rights and obligations assigned to it, and the assigning Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents; PROVIDED, HOWEVER, that the assigning Bank shall not relinquish its rights under Article V or under Sections 6.03 and 12.04 to the extent such rights relate to the time prior to the effective date of the Assignment and Acceptance. (iii) In connection with any partial assignment, upon the request of the assigning Bank or the assignee, (A) the Borrower shall execute and deliver substitute Notes to the assigning Bank or the assignee, dated the effective date of such assignment, setting forth the respective Revolving Commitment of such assigning Bank and assignee as the respective maximum principal amounts thereof, and containing other appropriate insertions, and the assigning Bank shall thereupon return the Notes previously held by it; and (B) Schedules 1 and 2 shall be deemed amended to reflect the adjustment of the Revolving Commitments and Pro Rata Shares of the Banks resulting therefrom and the Lending Office, if any, and address for notices of the assignee. (iv) In the event of any grant of a participation, the granting Bank shall remain a "Bank" for purposes of this Agreement, the Borrower, the other Banks and the 52 Agent shall continue to deal solely and directly with such Bank in connection with this Agreement and the other Loan Documents, and no Bank shall transfer or grant any participating interest under which the participant shall have rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require the consent of the Bank granting such participation as described in the second proviso to Section 12.01 or the unanimous consent of all of the Banks as described in the third proviso to Section 12.01. In the case of any such participation, the participant shall not have any of the rights of a Bank under this Agreement or the other Loan Documents, except that the participant shall (A) be deemed to have a right of setoff under Section 12.05 in respect of its participation to the same extent as if it were a "Bank" hereunder, PROVIDED that such participant shall also be considered a "Bank" for purposes of Section 6.05; and (B) such participant shall also be entitled to the benefits of Sections 5.02, 5.03, 6.03 and 12.04, PROVIDED that any amounts payable under Sections 5.03 or 6.03 to any participant shall not exceed the amounts which would have been payable by the Borrower thereunder to the Bank granting such participation. (v) The Borrower agrees that in connection with any such grant or assignment, such Bank may deliver to the prospective participant or assignee financial statements and other relevant information relating to the Borrower and its Subsidiaries. (vi) Each Bank shall obtain from any such prospective participant or assignee a confidentiality agreement in which such participant or assignee agrees to an obligation of confidentiality substantially similar to the terms of Section 12.14. (vii) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and any Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. SECTION 12.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA. Section 12.11 SUBMISSION TO JURISDICTION. (a) SUBMISSION TO JURISDICTION. The Borrower hereby (i) submits to the non-exclusive jurisdiction of the courts of the State of California and the Federal courts of the United States sitting in the State of California for the purpose of any action or proceeding arising out of or relating to the Loan Documents, (ii) agrees that all claims in respect of any such action or proceeding may be heard and determined in such courts, (iii) irrevocably waives (to the extent permitted by applicable law) any objection which it now or hereafter may have to the laying of venue of any such action or proceeding brought in any of the foregoing courts, and any objection on the ground that any such action or proceeding in any such court has been brought in an inconvenient forum and (iv) agrees that a final judgment in any such action or proceeding shall 53 be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner permitted by law. (b) NO LIMITATION. Nothing in this Section 12.11 shall limit the right of the Agent or the Banks to bring any action or proceeding against the Borrower or its property in the courts of other jurisdictions. SECTION 12.12 WAIVER OF JURY TRIAL. THE BORROWER, THE BANKS AND THE AGENT HEREBY AGREE TO 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, 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. THE BORROWER, THE BANKS AND THE AGENT HEREBY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION 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. A COPY OF THIS SECTION 12.12 MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY COURT. SECTION 12.13 LIMITATION ON LIABILITY. No claim shall be made by the Borrower or its Affiliates against the Agent, the Banks or any of their respective Related Persons for any special, indirect, exemplary, consequential or punitive damages in respect of any breach or wrongful conduct (whether or not the claim therefor is based on contract, tort or duty imposed by law), in connection with, arising out of or in any way related to the transactions contemplated by the Loan Documents or any act or omission or event occurring in connection therewith; and the Borrower hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. SECTION 12.14 CONFIDENTIALITY. Each Bank and the Agent shall hold all non-public information relating to the Borrower and its Subsidiaries obtained by it under this Agreement in accordance with its customary procedures for handling confidential information of this nature, except for: (i) disclosure to its Affiliates or to its counsel or to any agent or advisor acting on its behalf in connection with the negotiation, execution or performance of the Loan Documents; (ii) disclosure as reasonably required in connection with a transfer to a prospective assignee or participant of all or part of its Loans or Revolving Commitment or any participation therein, as provided in Section 12.09(b); (iii) disclosure as may be required or requested by any 54 Governmental Authority or representative thereof or pursuant to legal process; (iv) disclosure to any Person and in any proceeding necessary in such Bank's or the Agent's judgment to protect its interests in connection with any claim or dispute involving such Bank or the Agent; and (v) any other disclosure with the prior written consent of the Borrower. Prior to any disclosure by any Bank or the Agent of such non-public information permitted under clause (iii) (other than in connection with an examination of the financial condition of such Bank, the Agent or any of their Affiliates by any Governmental Authority), it shall, if permitted by applicable laws or judicial order, notify the Borrower of such pending disclosure. In no event shall any Bank or the Agent be obligated or required to return any materials furnished by the Borrower or its Subsidiaries. Notwithstanding the foregoing, such obligation of confidentiality shall not apply if the information or substantially similar information (a) is rightfully received by any Bank or the Agent from a Person other than the Borrower or any of its Affiliates without such Bank or the Agent being under an obligation to such Person not to disclose such information, or (b) is or becomes part of the public domain. SECTION 12.15 ENTIRE AGREEMENT. The Loan Documents reflect the entire agreement among the Borrower, the Banks and the Agent with respect to the matters set forth herein and therein and supersede any prior agreements, Revolving Commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. SECTION 12.16 SEVERABILITY. Whenever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of any of the Loan Documents shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of such Loan Document, or the validity or effectiveness of such provision in any other jurisdiction. SECTION 12.17 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 but one and the same agreement. [SIGNATURE PAGES FOLLOW.] 55 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the date first above written. THE BORROWER CADENCE DESIGN SYSTEMS, INC. By ------------------------------ Name: Title: THE AGENT ABN AMRO BANK N.V., AS AGENT By ----------------------------- Name: Title: By ----------------------------- Name: Title: THE BANKS ABN AMRO BANK N.V., AS A BANK By ------------------------------- Name: Title: By ------------------------------- Name: Title: BANK OF AMERICA, N.A. By ------------------------------ Name: Title: BANK ONE, N.A. By ------------------------------ Name: Title: KEYBANK NATIONAL ASSOCIATION By ------------------------------ Name: Title: UBS AG, STAMFORD BRANCH By ----------------------------- Name: Title: By ----------------------------- Name: Title: BARCLAYS BANK PLC By ------------------------------ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED By ------------------------------- Name: Title: FLEET NATIONAL BANK By -------------------------------- Name: Title: MELLON BANK, N.A. By ------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By -------------------------------- Name: Title: BANK HAPOALIM B.M. By --------------------------------- Name: Title: WELLS FARGO BANK, NATIONAL ASSOCIATION By ---------------------------------- Name: Title: By ---------------------------------- Name: Title: THE FUJI BANK LIMITED By --------------------------------- Name: Title: ATTACHMENT A Permitted Receivables Purchase Facilities 1. Purchase and Sale Program Agreement executed and delivered as of February 25, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation ("Seller"), Cadence Design Systems, Inc., a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and BancBoston Leasing Inc., a Massachusetts corporation ("BancBoston"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of December 31, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation (in its individual capacity "Cadence Design"), Servicer, Cadence Credit Corporation, a Delaware corporation ("Cadence Credit"), Cadence Receivables Consolidation Corporation, a Delaware corporation and BancBoston. 2. Amended and Restated Purchase and Sale Program Agreement executed and delivered as of March 19, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Bane One Leasing Corporation, an Ohio corporation ("Banc One"), as supplemented by that certain Addendum to Amended and Restated Purchase and Sale Program Agreement executed and delivered as of March 19, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Banc one. 3. Purchase and Sale Program Agreement executed and delivered as of January 18, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Servicer, and Dresdner Kleinwort Benson North America Leasing, Inc. ("Dresdner"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of April 21, 1999, by and among Cadence Design, Cadence Credit Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation ("Cadence Consolidation"), and Dresdner. 4. Amended and Restated Purchase and Sale Program Agreement executed and delivered as of December 31, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Sanwa Business Credit Corporation, a Delaware corporation ("Sanwa"), as supplemented by that certain Addendum to Amended and Restated Purchase and Sale Program Agreement executed and delivered as of December 31, 1998, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation ("Cadence Consolidation"), and Sanwa. 5. Purchase and Sale Program Agreement executed and delivered as of March 24, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design, Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Schedule 1-1 Contracts thereunder, "Servicer", and Heller Financial Leasing, Inc., a Delaware corporation ("Heller"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of March 24, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Heller. 6. Purchase and Sale Program Agreement executed and delivered as of March 29, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Hitachi Credit America Corp., a Delaware corporation ("Hitachi"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of March 29, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Hitachi. 7. Purchase and Sale Program Agreement and amendment thereto executed and delivered as of December 1, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation, Cadence Design Systems, Inc., a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder), and International Software Finance Corporation, a Delaware corporation. 8. Purchase and Sale Program Agreement executed and delivered as of April 16, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit'), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Leasetec Corporation, a Delaware corporation ("Leasetec"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of April 16, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Leasetec. 9. Amended and Restated Purchase and Sale Program Agreement executed and delivered as of May 21, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Mellon US Leasing, a division of Mellon Leasing Corporation, a Pennsylvania corporation ("Mellon"), as supplemented by that certain Addendum to Amended and Restated Purchase and Sale Program executed and delivered as of May 21, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Mellon. 10. Amended and Restated Purchase and Sale Program executed and delivered as of March 12, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Prime Leasing, Inc., an Illinois corporation ("Prime Leasing"), as supplemented by that certain Addendum to Amended and Restated Purchase and Sale Program Agreement executed and delivered as of March 12, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Prime Leasing. 11. Purchase and Sale Program Agreement s executed and delivered as of March 31, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Siemens Credit Corporation, a Delaware corporation ("Siemens"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of March 31, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Siemens. 12. Purchase and Sale Program Agreement executed and delivered as of June 24, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation, Cadence Design Systems, Inc., a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder), and Software Lease Finance Group, Inc., a California corporation. 13. Purchase and Sale Program Agreement (United Kingdom) executed and delivered as of June 30, 2000, by and between Cadence Design Systems Limited ("Sellee") and Leasetec UK Limited ("Purchaser"). 14. Receivables Sale Agreement dated as of September 30, 1998, among Cadence Receivables Corporation, Cadence Credit Corporation, Cadence Design Systems, Inc., Windmill Funding Corporation, the liquidity providers from time to time party thereto, and ABN AMRO Bank N.V., as the enhancer and the agent, together with the other agreements in connection therewith. EX-10.02 17 a2029698zex-10_02.txt EX 10.02 Exhibit 10.02 - ------------------------------------------------------------------------------- CADENCE DESIGN SYSTEMS, INC. --------------------------------- $250,000,000 364-DAY CREDIT AGREEMENT Dated as of September 29, 2000 --------------------------------- ABN AMRO BANK N.V., as Agent and as Sole Lead Arranger BANK ONE, N.A. KEYBANK NATIONAL ASSOCIATION, AND UBS AG, STAMFORD BRANCH, as Co-Agents - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS.............................................................................................1 SECTION 1.01 Certain Defined Terms....................................................................1 SECTION 1.02 Accounting Principles...................................................................14 (a) Accounting Terms................................................................14 (b) GAAP Changes....................................................................14 (c) "Fiscal Year" and "Fiscal Quarter"..............................................14 SECTION 1.03 Interpretation..........................................................................14 ARTICLE II THE LOANS.............................................................................................15 SECTION 2.01 Amounts and Terms of Commitments........................................................15 (a) The Revolving Credit............................................................15 (b) The Term Loans..................................................................16 SECTION 2.02 Borrowing Procedure.....................................................................16 (a) Notice to the Agent.............................................................16 (b) Notice to the Banks.............................................................16 SECTION 2.03 Non-Receipt of Funds....................................................................16 SECTION 2.04 Lending Offices.........................................................................17 SECTION 2.05 Evidence of Indebtedness................................................................17 SECTION 2.06 Minimum Amounts.........................................................................17 SECTION 2.07 Required Notice.........................................................................17 ARTICLE III INTEREST AND FEES; CONVERSION OR CONTINUATION........................................................18 SECTION 3.01 Interest................................................................................18 (a) Interest Rate...................................................................18 (b) Interest Periods................................................................18 (c) Interest Payment Dates..........................................................19 (d) Notice to the Borrower and the Banks............................................19 SECTION 3.02 Default Rate of Interest................................................................19 SECTION 3.03 Fees....................................................................................19 (a) Revolving Commitment Fees.......................................................19 (b) Agency Fee......................................................................20 (c) Fees Nonrefundable..............................................................20 SECTION 3.04 Computations............................................................................20 SECTION 3.05 Conversion or Continuation..............................................................20 (a) Election........................................................................20 (b) Automatic Conversion............................................................20 (c) Notice to the Agent.............................................................20 (d) Notice to the Banks.............................................................21 SECTION 3.06 Replacement of Reference Banks..........................................................21
i.
Page ---- SECTION 3.07 Highest Lawful Rate.....................................................................21 ARTICLE IV REDUCTION OF REVOLVING COMMITMENTS; REPAYMENT; PREPAYMENT.............................................21 SECTION 4.01 Reduction or Termination of the Revolving Commitments...................................21 (a) Optional Reduction or Termination...............................................21 (b) Mandatory Termination...........................................................21 (c) Extension of Revolving Termination Date.........................................21 (d) [Intentionally Omitted.]........................................................22 (e) Notice..........................................................................22 (f) Adjustment of Revolving Commitment Fee; No Reinstatement........................22 SECTION 4.02 Repayment of Loans......................................................................22 (a) Revolving Loans.................................................................22 (b) Term Loans......................................................................22 SECTION 4.03 Prepayments.............................................................................22 (a) Optional Prepayments............................................................22 (b) [Intentionally Omitted.]........................................................23 (c) Notice; Application.............................................................23 ARTICLE V YIELD PROTECTION AND ILLEGALITY........................................................................23 SECTION 5.01 Inability to Determine Rates............................................................23 SECTION 5.02 Funding Losses..........................................................................23 SECTION 5.03 Regulatory Changes......................................................................24 (a) Increased Costs.................................................................24 (b) Capital Requirements............................................................24 (c) Requests........................................................................24 SECTION 5.04 Illegality..............................................................................24 SECTION 5.05 Funding Assumptions.....................................................................25 SECTION 5.06 Obligation to Mitigate..................................................................25 SECTION 5.07 Substitution of Banks...................................................................25 ARTICLE VI PAYMENTS..............................................................................................26 SECTION 6.01 Pro Rata Treatment......................................................................26 SECTION 6.02 Payments................................................................................26 (a) Payments........................................................................26 (b) Application.....................................................................26 (c) Extension.......................................................................26 SECTION 6.03 Taxes...................................................................................26 (a) No Reduction of Payments........................................................26 (b) Deduction or Withholding; Tax Receipts..........................................27 (c) Indemnity.......................................................................27 (d) Forms W-8BEN and W-8ECI.........................................................27
ii.
Page ---- (e) Mitigation......................................................................27 SECTION 6.04 Non-Receipt of Funds....................................................................28 SECTION 6.05 Sharing of Payments.....................................................................28 ARTICLE VII CONDITIONS PRECEDENT.................................................................................28 SECTION 7.01 Conditions Precedent to the Initial Loans...............................................28 (a) Fees and Expenses...............................................................28 (b) Loan Documents..................................................................28 (c) Certificate of Responsible Officer..............................................29 (d) Corporate Documents.............................................................29 (e) Legal Opinion...................................................................29 (f) Compliance Certificate..........................................................29 (g) Material Adverse Effect.........................................................29 (h) Existing Credit Agreement.......................................................29 SECTION 7.02 Conditions Precedent to All Loans.......................................................29 (a) Notice..........................................................................30 (b) Representations and Warranties; No Default......................................30 (c) Additional Documents............................................................30 ARTICLE VIII REPRESENTATIONS AND WARRANTIES......................................................................30 SECTION 8.01 Representations and Warranties..........................................................30 (a) Organization and Powers.........................................................30 (b) Authorization; No Conflict......................................................30 (c) Binding Obligation..............................................................31 (d) Consents........................................................................31 (e) No Defaults.....................................................................31 (f) Title to Properties; Liens......................................................31 (g) Litigation......................................................................31 (h) Compliance with Environmental Laws..............................................31 (i) Governmental Regulation.........................................................32 (j) ERISA...........................................................................32 (k) Subsidiaries....................................................................32 (l) Margin Regulations..............................................................32 (m) Taxes...........................................................................33 (n) Patents and Other Rights........................................................33 (o) Insurance.......................................................................33 (p) Financial Statements............................................................33 (q) Liabilities.....................................................................33 (r) Labor Disputes, Etc.............................................................33 (s) Solvency........................................................................33 (t) Disclosure......................................................................33
iii.
Page ---- ARTICLE IX COVENANTS.............................................................................................34 SECTION 9.01 Reporting Covenants.....................................................................34 (a) Financial Statements and Other Reports..........................................34 (b) Additional Information..........................................................35 SECTION 9.02 Financial Covenants.....................................................................36 (a) Minimum Consolidated EBITDA.....................................................36 (b) [Intentionally omitted.]........................................................36 (c) Minimum Fixed Charge Coverage Ratio.............................................36 (d) Minimum Current Ratio...........................................................36 (e) Maximum Funded Debt to EBITDA Ratio.............................................36 SECTION 9.03 Additional Affirmative Covenants........................................................37 (a) Preservation of Existence, Etc..................................................37 (b) Payment of Obligations..........................................................37 (c) Maintenance of Insurance........................................................37 (d) Keeping of Records and Books of Account.........................................37 (e) Inspection Rights...............................................................37 (f) Compliance with Laws, Etc.......................................................38 (g) Maintenance of Properties, Etc..................................................38 (h) Licenses........................................................................38 (i) Action Under Environmental Laws.................................................38 (j) Use of Proceeds.................................................................38 (k) Further Assurances and Additional Acts..........................................38 SECTION 9.04 Negative Covenants......................................................................39 (a) Liens; Negative Pledges.........................................................39 (b) Change in Nature of Business....................................................39 (c) Restrictions on Fundamental Changes.............................................39 (d) Sales of Assets.................................................................39 (e) Loans and Investments...........................................................40 (f) Transactions with Related Parties...............................................42 (g) Hazardous Substances............................................................42 (h) Accounting Changes..............................................................42 ARTICLE X EVENTS OF DEFAULT......................................................................................42 SECTION 10.01 Events of Default.......................................................................42 (a) Payments........................................................................42 (b) Representations and Warranties..................................................43 (c) Failure by Borrower to Perform Certain Covenants................................43 (d) Failure by Borrower to Perform Other Covenants..................................43 (e) Insolvency; Voluntary Proceedings...............................................43 (f) Involuntary Proceedings.........................................................43 (g) Default Under Other Indebtedness................................................43 (h) Judgments.......................................................................44 (i) ERISA...........................................................................44 (j) Dissolution, Etc................................................................44
iv.
Page ---- (k) Subordination Provisions........................................................45 (l) Mergers and Acquisitions........................................................45 SECTION 10.02 Effect of Event of Default..............................................................45 ARTICLE XI THE AGENT.............................................................................................45 SECTION 11.01 Authorization and Action................................................................45 SECTION 11.02 Limitation on Liability of Agent; Notices; Closing......................................46 (a) Limitation on Liability of Agent................................................46 (b) Notices.........................................................................46 (c) Closing.........................................................................47 SECTION 11.03 Agent and Affiliates....................................................................47 SECTION 11.04 Notice of Defaults......................................................................47 SECTION 11.05 Non-Reliance on Agent...................................................................47 SECTION 11.06 Indemnification.........................................................................48 SECTION 11.07 Delegation of Duties....................................................................48 SECTION 11.08 Successor Agent.........................................................................48 SECTION 11.09 Co-Agents...............................................................................48 ARTICLE XII MISCELLANEOUS........................................................................................49 SECTION 12.01 Amendments and Waivers..................................................................49 SECTION 12.02 Notices.................................................................................50 (a) Notices.........................................................................50 (b) Facsimile and Telephonic Notice.................................................50 SECTION 12.03 No Waiver; Cumulative Remedies..........................................................50 SECTION 12.04 Costs and Expenses; Indemnification.....................................................50 (a) Costs and Expenses..............................................................51 (b) Indemnification.................................................................51 (c) Other Charges...................................................................51 SECTION 12.05 Right of Set-Off........................................................................52 SECTION 12.06 Survival................................................................................52 SECTION 12.07 Obligations Several.....................................................................52 SECTION 12.08 Benefits of Agreement...................................................................52 SECTION 12.09 Binding Effect; Assignment..............................................................52 (a) Binding Effect..................................................................53 (b) Assignment......................................................................53 SECTION 12.10 Governing Law...........................................................................55 SECTION 12.11 Submission to Jurisdiction..............................................................55 (a) SUBMISSION TO JURISDICTION......................................................55 (b) NO LIMITATION...................................................................55 SECTION 12.12 Waiver of Jury Trial....................................................................55 SECTION 12.13 Limitation on Liability.................................................................55 SECTION 12.14 Confidentiality.........................................................................56 SECTION 12.15 Entire Agreement........................................................................56 SECTION 12.16 Severability............................................................................56
v.
Page ---- SECTION 12.17 Counterparts............................................................................56 SCHEDULES ANNEXES Annex 1 Pricing Grid Schedule 1 Revolving Commitments and Pro Rata Shares Schedule 2 Borrower's Account; Lending Offices; Addresses for Notices Schedule 8.01(a) Organization and Powers Schedule 8.01(g) Litigation Schedule 8.01(h) Environmental Matters Schedule 8.01(k) Subsidiaries Schedule 9.04(a) Existing Liens Schedule 9.04(e) Existing Investments EXHIBITS Exhibit A Form of Revolving Note Exhibit B Form of Term Note Exhibit C Form of Notice of Borrowing Exhibit D Form of Compliance Certificate Exhibit E Form of Opinion of Counsel to the Borrower Exhibit F Form of Assignment and Acceptance
vi. 364-DAY CREDIT AGREEMENT THIS 364-DAY CREDIT AGREEMENT (this "Agreement"), dated as of September 29, 2000, is made among Cadence Design Systems, Inc., a Delaware corporation (the "Borrower"), the financial institutions listed on the signature pages of this Agreement under the heading "BANKS" (each a "Bank" and, collectively, the "Banks"), Bank One, N.A., KeyBank National Association and UBS AG, Stamford Branch, as co-agents hereunder, and ABN AMRO Bank N.V., as administrative agent for the Banks hereunder (in such capacity, the "Agent"). The Borrower has requested the Banks to make revolving loans to the Borrower in an aggregate principal amount of up to $250,000,000 at any time outstanding. The Banks are severally willing to make such loans to the Borrower upon the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ABN AMRO" means ABN AMRO Bank N.V. "AFFILIATE" means any Person which, directly or indirectly, controls, is controlled by or is under common control with another Person. For purposes of the foregoing, "control," "controlled by" and "under common control with" with respect to any Person shall mean the possession, directly or indirectly, of the power (i) to vote 10% or more of the securities having ordinary voting power of the election of directors of such Person, or (ii) 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" has the meaning set forth in the recitals to this Agreement. "AGENT'S ACCOUNT" means the account of the Agent set forth on Schedule 2 or such other account as the Agent from time to time shall designate in a written notice to the Borrower and the Banks. "ALCHEMY" means Alchemy Semiconductor, Inc. "APPLICABLE FEE AMOUNT" means with respect to the commitment fee payable hereunder, the amount set forth opposite the indicated Level below the heading "Commitment Fee" in the pricing grid set forth on Annex I in accordance with the parameters for calculations of such amount also set forth on Annex I. 1. "APPLICABLE MARGIN" means (i) with respect to Base Rate Loans, 0% per annum; and (ii) with respect to Eurodollar Rate Loans, the amount set forth opposite the indicated Level below the heading "Eurodollar Rate Spread" in the pricing grid set forth on Annex I in accordance with the parameters for calculations of such amounts also set forth on Annex I. "ASSIGNMENT AND ACCEPTANCE" has the meaning set forth in Section 11.02(a). "BANK" and "BANKS" each has the meaning set forth in the recitals to this Agreement. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy." "BASE RATE" means for any day the higher of: (i) the Federal Funds Rate, PLUS 1/2 of 1% per annum, and (ii) the prime commercial lending rate of ABN AMRO as announced from time to time at its Chicago, Illinois, office. Each change in the interest rate on the Loans or other Obligations bearing interest at the Base Rate based on a change in the Base Rate shall be effective as of the effective date of such change in the Base Rate. "BASE RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Base Rate. "BORROWER" has the meaning set forth in the recitals to this Agreement. "BORROWER'S ACCOUNT" means the account of the Borrower set forth on Schedule 2, or such other account as the Borrower from time to time shall designate in a written notice to the Agent. "BORROWING" means a borrowing consisting of simultaneous Loans made at any one time by the Borrower from the Banks pursuant to Article II. "BUSINESS DAY" means a day (i) other than Saturday or Sunday, (ii) on which commercial banks are open for business in Chicago, Illinois and New York, New York, and (iii) if the applicable Business Day relates to any Eurodollar Rate Loan, that is a Eurodollar Business Day. "CAPITAL LEASE" means, for any Person, any lease of property (whether real, personal or mixed) which, in accordance with GAAP, would, at the time a determination is made, be required to be recorded as a capital lease in respect of which such Person is liable as lessee. "CLOSING DATE" means the date on which all conditions precedent set forth in Section 7.01 are satisfied or waived by all Banks (or, in the case of Section 7.01(a), waived by the Person entitled to receive such payment). "COMPLIANCE CERTIFICATE" means a certificate of a Responsible Officer of the Borrower, in substantially the form of Exhibit D, with such changes thereto as the Agent or any Bank may from time to time reasonably request. 2. "CONSOLIDATED CASH FLOW" means, as of any date of determination for the 12-month period ended on such date, Consolidated Net Income for such period PLUS depreciation expense, amortization expense and other non-cash expenses (including write-offs of acquired in-process research and development costs) which were deducted in determining Consolidated Net Income, of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "CONSOLIDATED EBITDA" means, as of any date of determination for the 12-month period ended on such date, Consolidated Net Income PLUS Consolidated Interest Expense PLUS income tax expense PLUS depreciation expense, amortization expense and all other non-cash expenses (including write-offs of acquired in-process research and development costs) which were deducted in determining Consolidated Net Income, PLUS the quarterly increase in product license subscription bookings for any quarter included in such 12-month period ending on or prior to December 30, 2000, to the extent not included or reflected in Consolidated Net Income, in each case, of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "CONSOLIDATED INTEREST EXPENSE" means, for any period, interest expense (including that attributable to Capital Leases) of the Borrower and its Subsidiaries on a consolidated basis, including all commissions, discounts and other fees and charges owed with respect to standby letters of credit, as determined in accordance with GAAP. "CONSOLIDATED NET INCOME" means, for any period, the net income of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period, as determined in accordance with GAAP. "CONSOLIDATED TANGIBLE NET WORTH" means, as of any date of determination, Consolidated Total Assets MINUS Consolidated Total Liabilities; PROVIDED, HOWEVER, that there shall be excluded from Consolidated Total Assets the following: (i) all assets which would be classified as intangible assets in accordance with GAAP, including goodwill, organizational expense, research and development expense, patent applications, patents, trademarks, trade names, brands, copyrights, trade secrets, customer lists, licenses, franchises and covenants not to compete; and (ii) all treasury stock. "CONSOLIDATED TOTAL ASSETS" means, as of any date of determination, the total assets of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "CONSOLIDATED TOTAL LIABILITIES" means, as of any date of determination, the total liabilities of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "DEFAULT" means an Event of Default or an event or condition which with notice or lapse of time or both would constitute an Event of Default. "DOLLARS" and the sign "$" each means lawful money of the United States. 3. "ELIGIBLE ASSIGNEE" means (i) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $5,000,000,000, (ii) 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 a combined capital and surplus of at least $5,000,000,000, PROVIDED that such bank is acting through a branch or agency located in the United States and licensed by the United States or any state thereof; and (iii) a Person that is primarily engaged in the business of commercial banking and that is (a) a Subsidiary of a Bank, (b) a Subsidiary of a Person of which a Bank is a Subsidiary, or (c) a Person of which a Bank is a Subsidiary. "ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directives, requests, licenses, authorizations and permits of, and agreements with (including consent decrees), any Governmental Authorities, in each case relating to or imposing liability or standards of conduct concerning public health, safety and environmental protection matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource Recovery and Recycling Act, the California Water Code and the California Health and Safety Code. "ERISA" means the Employee Retirement Income Security Act of 1974, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) which is under common control with the Borrower within the meaning of Section 4001(a)(14) of ERISA and Sections 414(b), (c) and (m) of the Internal Revenue Code. "EURODOLLAR BUSINESS DAY" means a Business Day on which dealings in Dollar deposits are carried on in the London interbank market. "EURODOLLAR RATE" means for each Interest Period for each Eurodollar Rate Loan the rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) determined by the Agent pursuant to the following formula: Eurodollar Rate = Interbank Rate ------------------------------------------------ 100% - Eurodollar Reserve Percentage The Eurodollar Rate shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Eurodollar Rate. 4. "EURODOLLAR REFERENCE BANK" means ABN AMRO, subject to the provisions of Section 3.06. "EURODOLLAR RESERVE PERCENTAGE" means the maximum reserve requirement percentage (including any ordinary, supplemental, marginal and emergency reserves), if any, as determined by the Agent, then applicable under Regulation D in respect of Eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in the Federal Reserve System with deposits exceeding $1,000,000,000. "EVENT OF DEFAULT" has the meaning set forth in Section 10.01. "EXISTING CREDIT AGREEMENT" means that certain Credit Agreement dated as of September 29, 1998, by and among the Borrower, the lenders party thereto and ABN AMRO, as administrative agent, as amended. "FDIC" means the Federal Deposit Insurance Corporation, or any successor thereto. "FEE LETTER" means the mandate letter dated August 30, 2000, by and between the Borrower and the Agent. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%), as determined by the Agent, equal 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 any day of determination (or if such day of determination 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 the Agent from three Federal funds brokers of recognized standing selected by it. "FIXED CHARGE COVERAGE RATIO" has the meaning specified in Section 9.02(c). "FUNDED DEBT" of any Person means, without duplication, (a) all interest-bearing Indebtedness of such Person (whether on- or off-balance sheet), (b) all obligations of such Person in respect of any letter of credit, and (c) all obligations of such Person with respect to leases which are or should be capitalized on the balance sheet of such Person in accordance with GAAP. Notwithstanding the foregoing, for purposes of Section 9.02(c) and Section 9.02(e), Funded Debt shall not include (i) any Indebtedness which is subordinated to the Obligations on terms and conditions satisfactory to the Agent and the Majority Banks in their reasonable discretion and for which no principal payment is due before the 366th day after the Term Loan Maturity Date, or (ii) any obligations of such Person under any Permitted Receivables Purchase Facility. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "GAAP" means generally accepted accounting principles in the U.S. as in effect from time to time. 5. "GOVERNMENTAL AUTHORITY" means any federal, state, local or other governmental department, commission, board, bureau, agency, central bank, court, tribunal or other instrumentality or authority, domestic or foreign, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTY OBLIGATION" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations 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, (iv) in connection with any synthetic lease or other similar off balance sheet lease transaction, or (v) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. "HAZARDOUS SUBSTANCES" means any toxic or hazardous substances, materials, wastes, contaminants or pollutants, including asbestos, PCBs, petroleum products and byproducts, and any substances defined or listed as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic substances" (or similarly identified), regulated under or forming the basis for liability under any applicable Environmental Law. "IRS" means the Internal Revenue Service, or any successor thereto. "INDEBTEDNESS" means, for any Person: (i) all indebtedness or other obligations of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (iv) all obligations under Capital Leases; (v) all reimbursement or other obligations of such Person under or in respect of letters of credit and bankers acceptances, and all net obligations in respect of Rate Contracts; (vi) all reimbursement or other obligations of such Person in respect of any bank guaranties, shipside bonds, surety bonds and similar instruments issued for the account of such Person or as to which such Person is otherwise liable for reimbursement of drawings or payments; (vii) all Guaranty Obligations; (viii) all indebtedness in respect of any synthetic lease or other similar off balance sheet lease transaction; and (ix) all indebtedness of another Person secured by any Lien upon or in property owned by the Person for whom Indebtedness is being determined, whether or not such Person has assumed or become liable for the payment of such indebtedness of such other Person. For all purposes of this Agreement, the Indebtedness of any Person shall include all recourse Indebtedness of any partnership or joint venture or limited liability company in which such Person is a general partner or a joint venturer or a member. 6. "INSOLVENCY PROCEEDING" means (i) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (ii) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, in each case undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "INTERBANK RATE" means the rate per annum determined by the Agent, on the basis of quotations furnished to it by the Eurodollar Reference Bank, to be the average (rounded upward, if necessary, to the nearest 1/16 of 1%) of the rates at which deposits in Dollars are offered to the Eurodollar Reference Bank by prime banks in the London interbank market at approximately 11:00 A.M. (London time), two Eurodollar Business Days before the first day of such Interest Period, in an amount substantially equal to the proposed Eurodollar Rate Loan to be made, continued or converted by the Eurodollar Reference Bank and for a period of time comparable to such Interest Period. "INTEREST PAYMENT DATE" means a date specified for the payment of interest pursuant to Section 3.01(c). "INTEREST PERIOD" means, with respect to any Eurodollar Rate Loan, the period determined in accordance with Section 3.01(b) applicable thereto. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. "LENDING OFFICE" has the meaning set forth in Section 2.04. "LIEN" means any mortgage, deed of trust, pledge, security interest, assignment, deposit arrangement, charge or encumbrance, lien (statutory or other), or other preferential arrangement (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing or any agreement to give any security interest). "LOAN DOCUMENTS" means this Agreement, the Notes, the Fee Letter and all other certificates, documents, agreements and instruments delivered to the Agent and the Banks under or in connection with this Agreement. "LOANS" means the Revolving Loans and the Term Loans. "MAJORITY BANKS" means at any time Banks holding at least 51% of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, Banks having at least 51% of the aggregate Revolving Commitments. "MATERIAL ADVERSE EFFECT" means any event, matter, condition or circumstance which has or would reasonably be expected to have a material adverse effect on the business, properties, results of operations or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole. 7. "MATERIAL SUBSIDIARY" means any Subsidiary the total assets of which constitute 20% or more of Consolidated Total Assets, measured as of the last day of the then most recent fiscal quarter. "MINIMUM AMOUNT" has the meaning set forth in Section 2.06. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Sections 3(37) and 4001(a)(3) of ERISA. "MULTI-YEAR COMMITMENTS" means the commitments of the lenders party to the Multi-Year Credit Agreement to make loans to the Borrower, as provided therein. "MULTI-YEAR CREDIT AGREEMENT" means that certain Credit Agreement dated as of September 29, 2000, among the Borrower, the lenders party thereto and ABN AMRO, as administrative agent, as the same may be amended, restated, supplemented or otherwise modified in accordance with its terms. "NET CASH PROCEEDS" means when used in respect of any issuance of any debt or equity securities of the Borrower or any Subsidiary, the gross proceeds received by the Borrower or such Subsidiary from such issuance less all direct costs and expenses incurred or to be incurred, and all federal, state, local and foreign taxes assessed or to be assessed, in connection therewith. "NOTES" means the Revolving Notes and the Term Notes. "NOTICE" means a Notice of Borrowing, a Notice of Conversion or Continuation or a Notice of Prepayment. "NOTICE OF BORROWING" has the meaning set forth in Section 2.02(a). "NOTICE OF CONVERSION OR CONTINUATION" has the meaning set forth in Section 3.05(c). "NOTICE OF PREPAYMENT" has the meaning set forth in Section 4.03. "OBLIGATIONS" means the indebtedness, liabilities and other obligations of the Borrower to the Agent or any Bank under or in connection with the Loan Documents, including all Loans, all interest accrued thereon, all fees due under this Agreement and all other amounts payable by the Borrower to the Agent or any Bank thereunder or in connection therewith, whether now or hereafter existing or arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined. "OECD" means the Organization for Economic Cooperation and Development. "OPERATING LEASE" means, for any Person, any lease of any property of any kind by that Person as lessee which is not a Capital Lease. 8. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "PENSION PLAN" means any employee pension benefit plan covered by Title IV of ERISA (other than a Multiemployer Plan) that is maintained for employees of the Borrower or any ERISA Affiliate or with regard to which the Borrower or an ERISA Affiliate is a contributing sponsor within the meaning of Sections 4001(a)(13) or 4069 of ERISA. "PERMITTED INVESTMENTS" means, in respect of the Borrower or any Subsidiary, short-term investment grade debt securities of any type authorized from time to time under an investment policy for short-term cash investments approved by the Borrower's board of directors or such Subsidiary's board of directors, as the case may be. "PERMITTED LIENS" means: (i) Liens in favor of the Banks or the Agent for the benefit of the Banks to secure the Obligations; (ii) the existing Liens listed in Schedule 9.04(a); (iii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and which are adequately reserved for in accordance with GAAP; (iv) Liens of materialmen, mechanics, warehousemen, carriers or employees or other like Liens arising in the ordinary course of business and securing obligations either not delinquent or being contested in good faith by appropriate proceedings which are adequately reserved for in accordance with GAAP and which do not in the aggregate materially impair the use or value of the property or risk the loss or forfeiture of title thereto; (v) Liens consisting of deposits or pledges to secure the payment of worker's compensation, unemployment insurance or other social security benefits or obligations, or to secure the performance of bids, trade contracts, leases (other than Capital Leases), public or statutory obligations, surety or appeal bonds or other obligations of a like nature incurred in the ordinary course of business (other than for indebtedness or any Liens arising under ERISA); (vi) easements, rights of way, servitudes or zoning or building restrictions and other minor encumbrances on real property and irregularities in the title to such property which do not in the aggregate materially impair the use or value of such property or risk the loss or forfeiture of title thereto; (vii) statutory landlord's Liens under leases to which the Borrower or any of its Subsidiaries is a party; (viii) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to 9. deposit accounts or other funds maintained with a creditor depository institution; PROVIDED that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Borrower in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Borrower or any Subsidiary to provide collateral to the depository institution; (ix) Liens (a) upon or in any property acquired or held by the Borrower or any of its Subsidiaries to secure the purchase price of such property or Indebtedness incurred solely for the purpose of financing the acquisition of such property, or (b) existing on such property at the time of its acquisition, PROVIDED that the Lien is confined solely to the property so acquired and improvements thereon; (x) Liens on assets of Persons which become Subsidiaries of the Borrower after the date hereof, PROVIDED that such Liens existed at the time any such Persons became Subsidiaries of the Borrower and were not created in anticipation thereof; (xi) Liens on Receivables and Receivables Related Assets in connection with any Permitted Receivables Purchase Facility; (xii) Leases or subleases and licenses and sublicenses granted to others in the ordinary course of business and not interfering in any material respect with the business of the Borrower and any interest or title of a lessor or licensor under any lease or license; (xiii) Liens on equipment leased by the Borrower pursuant to an operating lease in the ordinary course of business (including proceeds thereof and accessions thereto) incurred solely for the purpose of financing the lease of such equipment (including Liens arising from UCC financing statements regarding leases permitted by this Agreement); (xiv) Liens arising from judgments, decrees or attachments to the extent and only so long as such judgment, decree or attachment has not caused or resulted in an Event of Default; (xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvi) Liens incurred in connection with the extension, renewal, refunding, refinancing, modification, amendment or restatement of the Indebtedness secured by Liens of the type described in clauses (i) through (xv) above, PROVIDED that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien, the principal amount of Indebtedness being extended, renewed or refinanced does not increase and such Lien otherwise remains a Permitted Lien under clauses (i) through (xv) above; and 10. (xvii) Liens not otherwise permitted hereunder securing Indebtedness in an aggregate principal amount not to exceed 15% of Consolidated Tangible Net Worth, measured as of the last day of the then most recent fiscal quarter, at any time outstanding. "PERMITTED RECEIVABLES PURCHASE FACILITY" shall mean any receivables sales, financing or securitization programs now or hereafter entered into by the Borrower or any of its Subsidiaries, in each case for the purpose of financing Receivables, including, without limitation, the facilities identified on Attachment A hereto, in each case, as amended, restated or supplemented from time to time. "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization or any other entity of whatever nature or any Governmental Authority. "PLAN" means any employee pension benefit plan as defined in Section 3(2) of ERISA (including any Multiemployer Plan) and any employee welfare benefit plan, as defined in Section 3(1) of ERISA (including any plan providing benefits to former employees or their survivors). "PREMISES" means any and all real property, including all buildings and improvements now or hereafter located thereon and all appurtenances thereto, now or hereafter owned, leased, occupied or used by the Borrower and its Subsidiaries. "PRO RATA SHARE" means, as to any Bank at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Revolving Commitment divided by the combined Revolving Commitments of all Banks (or, if all Revolving Commitments have been terminated, the aggregate principal amount of such Bank's Loans divided by the aggregate principal amount of the Loans then held by all Banks). The initial Pro Rata Share of each Bank is set forth opposite such Bank's name in SCHEDULE 1 under the heading "Pro Rata Share." "RATE CONTRACTS" means interest rate swaps, caps, floors and collars, currency swaps, or other similar financial products designed to provide protection against fluctuations in interest, currency or exchange rates. "RECEIVABLES" means any rights to payment for license fees, whether in the form of accounts receivable, general intangibles, instruments, chattel paper or otherwise. "RECEIVABLES RELATED ASSETS" means (a) any rights arising under the documentation governing or relating to Receivables which are the subject of a Permitted Receivables Purchase Facility, including, without limitation, rights in respect of Liens securing such Receivables, (b) any proceeds of such Receivables and any lockboxes or accounts in which such proceeds are deposited, (c) spread accounts and other similar accounts, and any amounts on deposit therein, established in connection with any Permitted Receivables Purchase Facility, (d) any warranty, indemnity, dilution and other intercompany claim arising out of any Permitted Receivables Purchase Facility, and (e) other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with factoring or asset securitization transactions involving Receivables. 11. "REGULATION D" means Regulation D of the FRB. "REGULATORY CHANGE" has the meaning set forth in Section 5.03. "RELATED PERSON" has the meaning set forth in Section 11.06. "REQUIRED NOTICE DATE" has the meaning set forth in Section 2.07. "RESPONSIBLE OFFICER" means, with respect to any Person, the chief executive officer, the president, the chief financial officer, the vice president of corporate finance, the treasurer or the controller of such Person, or any other senior officer of such Person having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer, the treasurer or the controller of any such Person, or any other senior officer of such Person involved principally in the financial administration or controllership function of such Person and having substantially the same authority and responsibility. "REVOLVING COMMITMENT," as to each Bank, has the meaning specified in subsection 2.01(a). "REVOLVING LOAN" has the meaning specified in subsection 2.01(a). "REVOLVING NOTE" means a promissory note substantially in the form of Exhibit A. "REVOLVING TERMINATION DATE" means the earlier to occur of: (a) the date which is 364 calendar days after the Closing Date, as such date may be extended in accordance with subsection 4.01(c); and (b) the date on which the Revolving Commitments terminate in accordance with the provisions of this Agreement. "SEC" means the Securities and Exchange Commission, or any successor thereto. "SEELY AVENUE CAMPUS" means the real property, taken either in whole or any part thereof, consisting of approximately 50.5 acres of land and 10 buildings that total approximately 778,000 square feet and is located on both the east and west sides of Seely Avenue, in San Jose, California. Specific street addresses for the property are: 535, 545, 555, 575 River Oaks Parkway, 2655 Seely Avenue (which consists of five buildings and entitled land for a sixth building), and 2670 Seely Avenue. "SOLVENT" means, as to any Person at any time, that (i) the fair value of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code; (ii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (iii) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "SPINCIRCUIT" means SpinCircuit, Inc. 12. "SUBSIDIARY" means, as 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 interest is owned directly or indirectly by such Person or one or more of the other Subsidiaries of such Person or a combination thereof. Unless the context otherwise clearly requires, references to a "Subsidiary" shall mean a Subsidiary of the Borrower. "SWAP TERMINATION VALUE" means, in respect of any one or more Rate Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Rate Contracts, (i) for any date on or after the date such Rate Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (ii) for any date prior to the date referenced in clause (i), the amount(s) determined as the mark-to-market value(s) for such Rate Contracts, as determined by the Borrower based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Rate Contracts (which may include any Bank). "TALITY IPO" means the initial public offering of the Borrower's design-services operation pursuant to the terms and conditions disclosed in the Borrower's Form S-1 filed with the Securities Exchange Commission on July 17, 2000 (registration number 333-41552). "TAXES" has the meaning set forth in Section 6.03. "TERM LOAN" has the meaning specified in subsection 2.01(b). "TERM LOAN MATURITY DATE" means September 29, 2003. "TERM NOTE" means a promissory note substantially in the form of Exhibit B. "TERMINATION EVENT" means any of the following: (i) with respect to a Pension Plan, a reportable event described in Section 4043 of ERISA and the regulations issued thereunder (other than a reportable event not subject to the provisions for 30-day notice to the PBGC under such regulations); (ii) the withdrawal of the Borrower or an ERISA Affiliate from a Pension Plan during a plan year in which the withdrawing employer was a "substantial employer" as defined in Section 4001(a)(2) or 4062(e) of ERISA; (iii) the taking of any actions (including the filing of a notice of intent to terminate) by the Borrower, an ERISA Affiliate, the PBGC, a Plan Administrator, or any other Person to terminate a Pension Plan or the treatment of a Plan amendment as a termination of a Pension Plan under Section 4041 of ERISA; (iv) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or 13. (v) the complete or partial withdrawal of the Borrower or an ERISA Affiliate from a Multiemployer Plan. "UCC" means the Uniform Commercial Code of the jurisdiction the law of which governs the Loan Document in which such term is used or the attachment, perfection or priority of the Lien on any collateral. "UNFUNDED ACCRUED BENEFITS" means the excess of a Pension Plan's accrued benefits, as defined in Section 3(23) of ERISA, over the current value of that Plan's assets, as defined in Section 3(26) of ERISA. "UNITED STATES" and "U.S." each means the United States of America. "VENTURE FUND" means Telos Venture Partners, L.P. SECTION 1.02 ACCOUNTING PRINCIPLES. (a) ACCOUNTING TERMS. Unless otherwise defined or the context otherwise requires, all accounting terms not expressly defined herein shall be construed, and all accounting determinations and computations required under the Loan Documents shall be made, in accordance with GAAP, consistently applied. (b) GAAP CHANGES. If GAAP shall have been modified after the Closing Date and the application of such modified GAAP shall have a material effect on any financial computations hereunder (including the computations required for the purpose of determining compliance with the covenants set forth in Section 9.02), then such computations shall be made and the financial statements, certificates and reports due hereunder shall be prepared, and all accounting terms not otherwise defined herein shall be construed, in accordance with GAAP, as in effect prior to such modification, unless and until the Majority Banks and the Borrower shall have agreed upon the terms of the application of such modified GAAP which agreement shall not be unreasonably withheld. (c) "FISCAL YEAR" AND "FISCAL QUARTER." References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Borrower. SECTION 1.03 INTERPRETATION. In the Loan Documents, except to the extent the context otherwise requires: (i) Any reference to an Article, a Section, a Schedule or an Exhibit is a reference to an article or section thereof, or a schedule or an exhibit thereto, respectively, and to a subsection or a clause is, unless otherwise stated, a reference to a subsection or a clause of the Section or subsection in which the reference appears. (ii) The words "hereof," "herein," "hereto," "hereunder" and the like mean and refer to this Agreement or any other Loan Document as a whole and not merely to the specific Article, Section, subsection, paragraph or clause in which the respective word appears. 14. (iii) The meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined. (iv) The words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation." (v) References to agreements and other contractual instruments 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 the Loan Documents. (vi) References to statutes or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation referred to. (vii) Any table of contents, captions and headings are for convenience of reference only and shall not affect the construction of this Agreement or any other Loan Document. (viii) 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." (ix) The use of a word of any gender shall include each of the masculine, feminine and neuter genders. (x) This Agreement and the other Loan Documents are the result of negotiations among the Agent, the Borrower and the other parties, have been reviewed by counsel to the Agent, the Borrower and such other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. ARTICLE II THE LOANS SECTION 2.01 AMOUNTS AND TERMS OF COMMITMENTS. (a) THE REVOLVING CREDIT. Each Bank severally agrees, on the terms and conditions set forth herein, to make loans to the Borrower (each such loan, a "Revolving Loan") from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Bank's name on Schedule 1 under the heading "Revolving Commitment" (such amount, as the same may be reduced under Section 4.01 or reduced or increased as a result of one or more assignments under Section 12.09, such Bank's "Revolving Commitment"); PROVIDED, HOWEVER, that, after giving effect to any Borrowing of Revolving Loans, the aggregate principal amount of all outstanding Revolving Loans shall not at any time exceed the combined Revolving Commitments; and PROVIDED FURTHER that no Borrowings of Revolving Loans shall be permitted hereunder at any time that any portion of the Multi-Year Commitments remains 15. unused. Within the limits of each Bank's Revolving Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this subsection 2.01(a), prepay under Section 4.03 and reborrow under this subsection 2.01(a). (b) THE TERM LOANS. Each Bank severally agrees, on the terms and conditions set forth herein, to make a single term loan (each a "Term Loan" and, collectively, the "Term Loans") to the Borrower on the Revolving Termination Date in a principal amount up to but not exceeding such Bank's Revolving Commitment PROVIDED, HOWEVER, that no Borrowings of Term Loans shall be permitted hereunder at any time that any portion of the Multi-Year Commitments remain unused. No Term Loans shall be made after the Revolving Termination Date, and any portion of the Revolving Commitments not borrowed as Term Loans on the Revolving Termination Date may not be borrowed thereafter. Any amount of the Term Loans repaid may not be reborrowed. SECTION 2.02 BORROWING PROCEDURE. (a) NOTICE TO THE AGENT. Each Borrowing shall be made on a Business Day upon written or telephonic notice (in the latter case to be confirmed promptly in writing) from the Borrower to the Agent, which notice shall be received by the Agent not later than 2:00 P.M. (New York City time) on the Required Notice Date. Each such notice, except as provided in Section 5.01 and 5.04, shall be irrevocable and binding on the Borrower, shall be in substantially the form of Exhibit C (a "Notice of Borrowing") and shall specify whether the Borrowing consists of Base Rate Loans or Eurodollar Rate Loans, and whether such Borrowing shall be of Revolving Loans or Term Loans, and shall contain the other information required thereby. (b) NOTICE TO THE BANKS. The Agent shall give each Bank prompt notice by telephone (confirmed promptly in writing) or by facsimile of each Borrowing, specifying the information contained in the Borrower's Notice and such Bank's Pro Rata Share of the Borrowing. On the date of each Borrowing, each Bank shall make available such Bank's Pro Rata Share of such Borrowing, in same day or immediately available funds, to the Agent for the Agent's Account, not later than 3:00 P.M. (New York City time). Upon fulfillment of the applicable conditions set forth in Article VII and after receipt by the Agent of any such funds, and unless other payment instructions are provided by the Borrower, the Agent shall make such funds available to the Borrower by crediting the Borrower's Account with same day or immediately available funds on such Borrowing date. SECTION 2.03 NON-RECEIPT OF FUNDS. Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank shall not make available to the Agent such Bank's Pro Rata Share of such Borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such Borrowing in accordance with Section 2.02(b) and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent such Bank shall not have so made such Pro Rata Share available to the Agent, and the Agent in such circumstances shall have made available to the Borrower such amount, such Bank agrees 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 the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, 16. such amount so repaid shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. If such amount is not made available by such Bank to the Agent on the Business Day following the Borrowing date, the Agent shall notify the Borrower of such failure to fund and, upon demand by the Agent, the Borrower shall pay such amount to the Agent for the Agent's Account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. SECTION 2.04 LENDING OFFICES. The Loans made by each Bank may be made from and maintained at such offices of such Bank (each a "Lending Office") as such Bank may from time to time designate (whether or not such office is specified on Schedule 2). A Bank shall not elect a Lending Office that, at the time of making such election, increases the amounts which would have been payable by the Borrower to such Bank under this Agreement in the absence of such election. With respect to Eurodollar Rate Loans made from and maintained at any Bank's non-U.S. offices, the obligation of the Borrower to repay such Eurodollar Rate Loans shall nevertheless be to such Bank and shall, for all purposes of this Agreement (including for purposes of the definition of the term "Majority Banks") be deemed made or maintained by it, for the account of any such office. SECTION 2.05 EVIDENCE OF INDEBTEDNESS. The Loans made by each Bank shall be evidenced by one or more loan accounts maintained by such Bank in accordance with its usual practices. The loan accounts maintained by the Agent and each such Bank shall be rebuttable presumptive evidence of the amount of the Loans made by such Bank to the Borrower and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Loans. At the request of any Bank, as additional evidence of the Indebtedness of the Borrower to such Bank resulting from the Loans made by such Bank, the Borrower shall execute and deliver for account of such Bank pursuant to Article VII Notes setting forth such Bank's Revolving Commitment as the maximum principal amount thereof and, if the Term Loans are borrowed on the Revolving Termination Date under subsection 2.01(b), Notes setting forth the principal amount of the Term Loans so made by such Bank. SECTION 2.06 MINIMUM AMOUNTS. Any Borrowing, conversion, continuation, Revolving Commitment reduction or prepayment of Loans hereunder shall be in an aggregate amount determined as follows (each such specified amount a "Minimum Amount"): (i) any Borrowing or partial prepayment of Base Rate Loans shall be in the amount of $250,000 or a greater amount which is an integral multiple of $50,000; (ii) any Borrowing, continuation or partial prepayment of, or conversion into, Eurodollar Rate Loans shall be in the amount of $2,000,000 or a greater amount which is an integral multiple of $100,000; and (iii) any partial Revolving Commitment reduction under Section 4.01(a) shall be in the amount of $5,000,000 or a greater amount which is an integral multiple of $5,000,000. SECTION 2.07 REQUIRED NOTICE. Any Notice hereunder shall be given not later than the date determined as follows (each such specified date a "Required Notice Date"): (i) any Notice with respect to a Borrowing of, or conversion into, Base Rate Loans shall be given not later than the date of the proposed borrowing or conversion; (ii) any Notice with respect to any Borrowing or continuation of, or conversion into, Eurodollar Rate Loans shall be given at least 17. three Eurodollar Business Days prior to the date of the proposed Borrowing, conversion or continuation; (iii) any Notice with respect to any prepayment under Section 4.03(a) shall be given at least one Business Day prior to the date of the proposed prepayment, in the case of Base Rate Loans, and at least three Eurodollar Business Days prior to the date of the proposed prepayment, in the case of Eurodollar Rate Loans; and (iv) any Notice with respect to any Revolving Commitment reduction or termination under Section 4.01(a) shall be given at least five Business Days prior to the proposed reduction or termination date. ARTICLE III INTEREST AND FEES; CONVERSION OR CONTINUATION SECTION 3.01 INTEREST. (a) INTEREST RATE. Subject to Section 3.02, the Borrower shall pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount shall be paid in full, at the following rates: (i) during such periods as such Loan is a Base Rate Loan, at a rate per annum equal at all times to the Base Rate PLUS the Applicable Margin; and (ii) during such periods as such Loan is a Eurodollar Rate Loan, at a rate per annum equal at all times during each Interest Period for such Eurodollar Rate Loan to the Eurodollar Rate for such Interest Period PLUS the Applicable Margin. (b) INTEREST PERIODS. The initial and each subsequent Interest Period for Eurodollar Rate Loans shall be a period of one, two, three or six months. The determination of Interest Periods shall be subject to the following provisions: (A) in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (B) if any Interest Period pertaining to an Eurodollar Rate Loan would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (C) no Interest Period shall extend beyond (1) the Revolving Termination Date with respect to any Revolving Loan, and (2) the Term Loan Maturity Date with respect to any Term Loan; (D) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the ending calendar month of such Interest Period) shall end on the last Business Day of the ending calendar month of such Interest Period; 18. (E) there shall be no more than ten Interest Periods in effect at any one time. (c) INTEREST PAYMENT DATES. Subject to Section 3.02, interest on the Loans shall be payable in arrears at the following times: (i) interest on each Base Rate Loan shall be payable quarterly in arrears on the last Business Day in each calendar quarter, on the date of any prepayment or conversion of any such Base Rate Loan, and at maturity; (ii) interest on each Eurodollar Rate Loan shall be payable on the last day of each Interest Period for such Eurodollar Rate Loan, PROVIDED that (a) in the case of any such Interest Period which is greater than three months, interest on such Eurodollar Rate Loan shall be payable on each date that is three months, or any integral multiple thereof, after the beginning of such Interest Period, and on the last day of such Interest Period, and (b) if any prepayment, conversion, or continuation is effected other than on the last day of such Interest Period, accrued interest on such Eurodollar Rate Loan shall be due on such prepayment, conversion or continuation date as to the principal amount of such Eurodollar Rate Loan prepaid, converted or continued PLUS all amounts required under Section 5.02. (d) NOTICE TO THE BORROWER AND THE BANKS. Each determination by the Agent hereunder of a rate of interest and of any change therein, including any changes in (i) the Applicable Margin, (ii) the Base Rate during any periods in which Base Rate Loans shall be outstanding, and (iii) the Eurodollar Reserve Percentage (if any) during any periods in which Eurodollar Rate Loans shall be outstanding, in the absence of manifest error, shall be conclusive and binding on the parties hereto and shall be promptly notified by the Agent to the Borrower and the Banks. Such notice shall set forth in reasonable detail the basis for any such determination or change. The failure of the Agent to give any such notice specified in this subsection shall not affect the Borrower's obligation to pay such interest or fees. SECTION 3.02 DEFAULT RATE OF INTEREST. Notwithstanding Section 3.01, in the event that any amount of principal of or interest on any Loan, or any other amount payable hereunder or under the Loan Documents, is not paid in full when due (whether at stated maturity, by acceleration or otherwise), the Borrower shall pay interest on such unpaid principal, interest or other amount, from the date such amount becomes due until the date such amount is paid in full, and after as well as before any entry of judgment to the extent permitted by law, payable on demand, at a rate per annum equal at all times to the Base Rate PLUS 2% PLUS the Applicable Margin in respect of Base Rate Loans. SECTION 3.03 FEES. (a) REVOLVING COMMITMENT FEES. The Borrower agrees to pay to the Agent for the account of each Bank a fee on the average daily unused portion of such Bank's Revolving Commitment as in effect from time to time from the Closing Date until the Revolving Termination Date at a rate per annum equal to the Applicable Fee Amount, payable quarterly in arrears on the last Business Day of each calendar quarter (commencing on the first such date 19. after the Closing Date), and on the earlier of the date such Revolving Commitment is terminated hereunder and the Revolving Termination Date. (b) AGENCY FEE. The Borrower agrees to pay to the Agent for its own account such fee for administrative agency services rendered by it as specified in the Fee Letter. (c) FEES NONREFUNDABLE. All fees payable under this Section 3.03 shall be nonrefundable. SECTION 3.04 COMPUTATIONS. All computations of interest based upon the Base Rate (including interest accruing based upon the Federal Funds Rate) shall be made on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days occurring in the period for which such interest is payable. All computations of Revolving Commitment fee and of interest based upon the Eurodollar Rate shall be made on the basis of a year of 360 days for the actual number of days occurring in the period for which such Revolving Commitment fee or interest is payable, which results in more interest being paid than if computed on the basis of a 365-day year, and in accordance with the pricing grid set forth in Annex 1. SECTION 3.05 CONVERSION OR CONTINUATION. (a) ELECTION. The Borrower may elect (i) to convert all or any part of (A) outstanding Base Rate Loans into Eurodollar Rate Loans, or (B) outstanding Eurodollar Rate Loans into Base Rate Loans; or (ii) to continue all or any part of a Loan with one type of interest rate as such; PROVIDED, HOWEVER, that if the aggregate amount of Eurodollar Rate Loans in respect of any Borrowing shall have been reduced, by payment, prepayment, or conversion of part thereof to be less than $2,000,000, such Eurodollar Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Borrower to continue such Loans as, and convert such Loans into, Eurodollar Rate Loans, as the case may be, shall terminate. The continued or converted Base Rate and Eurodollar Rate Loans shall be allocated to the Banks ratably in accordance with their Pro Rata Shares. Any conversion or continuation of Eurodollar Rate Loans shall be made on the last day of the current Interest Period for such Eurodollar Rate Loans. No outstanding Loan may be converted into or continued as a Eurodollar Rate Loan if any Event of Default has occurred and is continuing. (b) AUTOMATIC CONVERSION. On the last day of any Interest Period for any Eurodollar Rate Loans, such Eurodollar Rate Loans shall, if not repaid, automatically convert into Base Rate Loans unless the Borrower shall have made a timely election to continue such Eurodollar Rate Loans as such for an additional Interest Period or to convert such Eurodollar Rate Loans, in each case as provided in subsection (a). (c) NOTICE TO THE AGENT. The conversion or continuation of any Loans contemplated by subsection (a) shall be made upon written or telephonic notice (in the latter case to be confirmed promptly in writing) from the Borrower to the Agent, which notice shall be received by the Agent not later than 11:00 A.M. (California time) on the Required Notice Date. Each such notice (a "Notice of Conversion or Continuation") shall, except as provided in Sections 5.01 and 5.04, be irrevocable and binding on the Borrower, shall refer to this Agreement and shall specify: (i) the proposed date of the conversion or continuation, which shall 20. be a Business Day; (ii) the outstanding Loans (or parts thereof) to be converted into or continued as Base Rate or Eurodollar Rate Loans; (iii) the aggregate amount of the Loans which are the subject of such continuation or conversion, which shall be in a Minimum Amount; (iv) if the conversion or continuation consists of any Eurodollar Rate Loans, the duration of the Interest Period with respect thereto; and (v) that no Event of Default exists hereunder. (d) NOTICE TO THE BANKS. The Agent shall give each Bank prompt notice by telephone (confirmed promptly in writing) or by facsimile of (i) the proposed conversion or continuation of any Loans, specifying the information contained in the Borrower's Notice and such Bank's Pro Rata Share thereof or (ii), if timely notice was not received from the Borrower, the details of any automatic conversion under subsection (b). SECTION 3.06 REPLACEMENT OF REFERENCE BANKS. If the Loans of the Eurodollar Reference Bank are prepaid in full or its Revolving Commitment shall terminate (otherwise than on termination of all the Revolving Commitments), or if the Eurodollar Reference Bank transfers its Loans in full to an unaffiliated Person or otherwise shall cease to be a Bank hereunder, the Agent shall, in consultation with the Borrower and with the approval of the Majority Banks, appoint another similarly situated Bank to replace such Bank as Eurodollar Reference Bank. SECTION 3.07 HIGHEST LAWFUL RATE. Anything herein to the contrary notwithstanding, if during any period for which interest is computed hereunder, the applicable interest rate, together with all fees, charges and other payments which are treated as interest under applicable law, as provided for herein or in any other Loan Document, would exceed the maximum rate of interest which may be charged, contracted for, reserved, received or collected by any Bank in connection with this Agreement under applicable law (the "Maximum Rate"), the Borrower shall not be obligated to pay, and such Bank shall not be entitled to charge, collect, receive, reserve or take, interest in excess of the Maximum Rate, and during any such period the interest payable hereunder to such Bank shall be limited to the Maximum Rate. ARTICLE IV REDUCTION OF REVOLVING COMMITMENTS; REPAYMENT; PREPAYMENT SECTION 4.01 REDUCTION OR TERMINATION OF THE REVOLVING COMMITMENTS. (a) OPTIONAL REDUCTION OR TERMINATION. The Borrower may, upon prior written notice to the Agent delivered not later than the Required Notice Date, terminate in whole or reduce ratably in part, as of the date specified by the Borrower in such notice, any then unused portion of the Revolving Commitments, PROVIDED that each partial reduction shall be in a Minimum Amount. (b) MANDATORY TERMINATION. The Revolving Commitments shall terminate on the Revolving Termination Date (including such date, if any, that the Term Loans are made pursuant to subsection 2.01(b), it being understood that once the Term Loans are made, if at all, the Revolving Commitments of all of the Banks shall thereupon terminate). (c) EXTENSION OF REVOLVING TERMINATION DATE. Notwithstanding the preceding subsection 4.01(b), the Borrower may give written notice to the Banks (through the Agent) no 21. more than 60 days and no less than 30 days prior to the Revolving Termination Date then in effect that it requests that the Agent and the Banks extend the Revolving Termination Date for an additional 364-day period. Each Bank and the Agent may grant or reject such request in its sole discretion, and the Borrower acknowledges that there is no commitment or understanding that the Revolving Termination Date will be extended. If such request is granted by the Agent and one or more of the Banks, the Revolving Termination Date then in effect shall be so extended in respect of the Revolving Commitment of each consenting Bank (but NOT in respect of the Revolving Commitments of any non-consenting Banks), subject to such changed terms and payment of such fee (if any) as shall have been agreed upon by the Borrower, such consenting Banks and the Agent. Any Bank that does not consent in writing to an extension request delivered by the Borrower under this subsection 4.01(c) by the date which is 10 days prior to the Revolving Termination Date then in effect shall be deemed to have rejected such extension request in respect of its Revolving Commitment. The Revolving Commitment of each non-consenting Bank under this subsection 4.01(c) shall terminate on the Revolving Termination Date then in effect, subject to such Bank's obligations under subsection 2.01(b) on such date (if the Term Loans are made on such date). The parties agree and acknowledge that effective immediately upon any extension of the Revolving Termination Date pursuant to this subsection 4.01(c), the obligation to make Loans hereunder of any Bank that has not consented to such extension shall be terminated, and such Bank shall immediately thereupon relinquish its rights and be released from its obligations under this Agreement; PROVIDED, HOWEVER, that such Bank shall not be deemed to have relinquished any of such rights or be released from any of such obligations to the extent arising or accruing prior to such time. In no event shall the Revolving Termination Date be extended beyond the Term Loan Maturity Date. (d) [INTENTIONALLY OMITTED.] (e) NOTICE. The Agent shall give each Bank prompt notice of any termination, reduction or extension of its Revolving Commitments under this Section 4.01. (f) ADJUSTMENT OF REVOLVING COMMITMENT FEE; NO REINSTATEMENT. From the effective date of any reduction or termination prior to the Revolving Termination Date, the Revolving Commitment fee payable under Section 3.03(a) shall be computed on the basis of the Revolving Commitments as so reduced or terminated. Once reduced or terminated, the Revolving Commitments may not be increased or otherwise reinstated. SECTION 4.02 REPAYMENT OF LOANS. (a) REVOLVING LOANS. The Borrower shall repay to the Banks in full on the Revolving Termination Date the aggregate principal amount of the Revolving Loans outstanding on such date. (b) TERM LOANS. The Borrower shall repay to the Banks the aggregate principal amount of the Term Loans on the Term Loan Maturity Date. SECTION 4.03 PREPAYMENTS. (a) OPTIONAL PREPAYMENTS. Subject to Section 5.02, the Borrower may, upon prior written notice to the Agent not later than the Required Notice Date, prepay the outstanding 22. amount of the Loans in whole or ratably in part, without premium or penalty. Partial prepayments shall be in Minimum Amounts. (b) [INTENTIONALLY OMITTED.] (c) NOTICE; APPLICATION. The notice given of any prepayment (a "Notice of Prepayment") shall specify the date and amount of the prepayment and whether the prepayment is of Base Rate or Eurodollar Rate Loans or a combination thereof, and if of a combination thereof the amount of the prepayment allocable to each. Such Notice of Prepayment shall also specify whether the prepayment is of Revolving Loans or Term Loans. Upon receipt of the Notice of Prepayment the Agent shall promptly notify each Bank thereof. If the Notice of Prepayment is given, the Borrower shall make such prepayment and the prepayment amount specified in such Notice shall be due and payable on the date specified therein, with accrued interest to such date on the amount prepaid. ARTICLE V YIELD PROTECTION AND ILLEGALITY SECTION 5.01 INABILITY TO DETERMINE RATES. If the Agent shall determine that adequate and reasonable means do not exist to ascertain the Eurodollar Rate, or the Majority Banks shall determine that the Eurodollar Rate does not accurately reflect the cost to the Banks of making or maintaining Eurodollar Rate Loans, then the Agent shall give telephonic notice (promptly confirmed in writing) to the Borrower and each Bank of such determination. Such notice shall specify the basis for such determination and shall, in the absence of manifest error, be conclusive and binding for all purposes. Thereafter, the obligation of the Banks to make or maintain Eurodollar Rate Loans hereunder shall be suspended until the Agent (upon the instructions of the Majority Banks) revokes such notice. Upon receipt of such notice, the Borrower may revoke any Notice then submitted by it. If the Borrower does not revoke such Notice, the Banks shall make, convert or continue Loans, as proposed by the Borrower, in the amount specified in the Notice submitted by the Borrower, but such Loans shall be made, converted or continued as Base Rate Loans instead of Eurodollar Rate Loans, as the case may be. SECTION 5.02 FUNDING LOSSES. In addition to such amounts as are required to be paid by the Borrower pursuant to Section 5.03, the Borrower shall compensate each Bank, promptly upon receipt of such Bank's written request made to the Borrower (with a copy to the Agent), for all losses, costs and expenses (including any loss or expense incurred by such Bank in obtaining, liquidating or re-employing deposits or other funds to fund or maintain its Eurodollar Rate Loans), if any, which such Bank sustains: (i) if the Borrower repays, converts or prepays any Eurodollar Rate Loan on a date other than the last day of an Interest Period for such Eurodollar Rate Loan (whether as a result of an optional prepayment, mandatory prepayment, a payment as a result of acceleration or otherwise); (ii) if the Borrower fails to borrow a Eurodollar Rate Loan after giving its Notice (other than as a result of the operation of Section 5.01 or 5.04); (iii) if the Borrower fails to convert into or continue a Eurodollar Rate Loan after giving its Notice (other than as a result of the operation of Section 5.01 or 5.04); or (iv) if the Borrower fails to prepay a Eurodollar Rate Loan after giving its Notice. Any such request for compensation shall set forth the basis for the calculation of requested compensation and shall, in the absence of manifest error, be conclusive and binding for all purposes. 23. Section 5.03 REGULATORY CHANGES. (a) INCREASED COSTS. If after the date hereof, the adoption of, or any change in, any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (a "Regulatory Change"), or compliance by any Bank (or its Lending Office) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including any such requirement imposed by the FRB, but excluding with respect to any Eurodollar Rate Loan any such requirement included in the calculation of the Eurodollar Rate) against assets of, deposits with or for the account of, or credit extended by, any Bank's Lending Office or shall impose on any Bank (or its Lending Office) or on the United States market for the interbank eurodollar market any other condition affecting its Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans, and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining any Eurodollar Rate Loan hereunder, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement with respect thereto, by an amount deemed by such Bank, in good faith and on a non-discriminatory basis, to be material, then from time to time, within 30 days after written demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amounts as shall compensate such Bank for such increased cost or reduction in respect of its Eurodollar Rate Loans hereunder. (b) CAPITAL REQUIREMENTS. If any Bank shall have determined in good faith that any Regulatory Change regarding capital adequacy, or compliance by such Bank (or any corporation controlling such Bank) with any request, guideline or directive regarding capital adequacy (whether or not having the force of law) of any Governmental Authority, has or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of such Bank's obligations hereunder to a level below that which such Bank or such corporation would have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy), by an amount deemed, in good faith and on a non-discriminatory basis, by such Bank to be material, then from time to time, within 30 days after written demand by such Bank (with a copy to the Agent) in reasonable detail describing such reduction, the Borrower shall pay to such Bank such additional amounts as shall compensate such Bank for such reduction in respect of its obligations hereunder. (c) REQUESTS. Any such request for compensation by a Bank under this Section 5.03 shall set forth the basis of calculation thereof and shall, in the absence of manifest error, be conclusive and binding for all purposes. In determining the amount of such compensation, such Bank may use any reasonable averaging and attribution methods. SECTION 5.04 ILLEGALITY. If any Bank shall determine that it has become unlawful, as a result of any Regulatory Change, for such Bank to make, convert into or maintain Eurodollar Rate Loans as contemplated by this Agreement, such Bank shall promptly give notice of such determination to the Borrower (through the Agent), and (I) the obligation of such Bank to make or convert into Eurodollar Rate Loans, as the case may be, shall be suspended until such Bank gives notice that the circumstances causing such suspension no longer exist; and (II) each 24. of such Bank's outstanding Eurodollar Rate Loans, as the case may be, shall, if requested by such Bank, be converted into a Base Rate Loan not later than upon expiration of the Interest Period related to such Eurodollar Rate Loan, or, if earlier, on such date as may be required by the applicable Regulatory Change, as shall be specified in such request. Any such determination shall, in the absence of manifest error, be conclusive and binding for all purposes. SECTION 5.05 FUNDING ASSUMPTIONS. Solely for purposes of calculating amounts payable by the Borrower to the Banks under this Article V, each Eurodollar Rate Loan made by a Bank (and any related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Interbank Rate used in determining the Eurodollar Rate for such Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan is in fact so funded. SECTION 5.06 OBLIGATION TO MITIGATE. Each Bank agrees that as promptly as practicable after it becomes aware of the occurrence of an event that would entitle it to give notice pursuant to Section 5.03(a), 5.03(b) or 5.04, and in any event if so requested by the Borrower, each Bank shall use reasonable efforts to make, fund or maintain its affected Eurodollar Rate Loans through another Lending Office if as a result thereof the increased costs would be avoided or materially reduced or the illegality would thereby cease to exist; PROVIDED, HOWEVER, that such Bank shall not be obligated to select an alternative Lending Office if such Bank determines that (a) as a result of such selection such Bank would be in violation of any applicable law, regulation, treaty, or guideline, or would incur additional costs or expenses or (b) such selection would be inadvisable for regulatory reasons or inconsistent with the interests of such Bank. SECTION 5.07 SUBSTITUTION OF BANKS. Upon the receipt by the Borrower from any Bank (an "Affected Bank") of a request for compensation under Section 5.03, a notice under Section 5.04 or a request for payment under Section 6.03, or upon notice to the Agent from any Bank that it shall not consent to a request by the Borrower for an extension of the Revolving Termination Date pursuant to subsection 4.01(c), the Borrower may (i) request one more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Revolving Commitment; or (ii) designate an Eligible Assignee satisfactory to the Borrower to acquire and assume all or part of such Affected Bank's Loans and Revolving Commitment (in each case, a "Replacement Bank"). Any such designation of a Replacement Bank under clause (ii) shall be subject to the prior written consent of the Agent (which consent shall not be unreasonably withheld). In connection with any such assumption (a) the Replacement Bank shall pay to the Affected Bank in immediately available funds on the date of the assignment the principal amount of the Loans made by the Affected Bank hereunder which are being acquired by the Replacement Bank, and (b) the Borrower shall pay to the Affected Bank in immediately available funds on the date of the assignment the interest accrued to the date of the assignment on the Loans which are being acquired by the Replacement Bank and all other amounts then accrued for the Affected Bank's account or owed to it hereunder with respect to such Loans, including any amounts owing under Section 5.02. 25. ARTICLE VI PAYMENTS SECTION 6.01 PRO RATA TREATMENT. Except as otherwise provided in this Agreement, each Borrowing hereunder, each Revolving Commitment reduction, each payment (including each prepayment) by the Borrower on account of the principal of and interest on the Loans and on account of any Revolving Commitment fee, and each conversion or continuation of Loans, shall be made ratably in accordance with the respective Pro Rata Shares of the Banks. SECTION 6.02 PAYMENTS. (a) PAYMENTS. The Borrower shall make each payment under the Loan Documents, unconditionally in full without set-off, counterclaim or other defense, not later than 2:00 P.M. (California time) on the day when due to the Agent in Dollars and in same day or immediately available funds, to the Agent's Account. The Agent shall promptly thereafter distribute like funds relating to the payment of principal or interest, Revolving Commitment fee or any other amounts payable to the Banks, ratably (except as a result of the operation of Article V) to the Banks in accordance with their Pro Rata Shares. (b) APPLICATION. (i) Unless the Agent shall receive a timely election by the Borrower with respect to the application of any principal payments, each payment of principal by the Borrower shall be applied (a) first, to the Base Rate Loans then outstanding, and (b) second, to the Eurodollar Rate Loans. (c) EXTENSION. Whenever any payment hereunder shall be stated to be due, or whenever any Interest Payment Date or any other date specified hereunder would otherwise occur, on a day other than a Business Day, then, except as otherwise provided herein, such payment shall be made, and such Interest Payment Date or other date shall occur, on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or Revolving Commitment fee hereunder. SECTION 6.03 TAXES. (a) NO REDUCTION OF PAYMENTS. The Borrower shall pay all amounts of principal, interest, fees and other amounts due under the Loan Documents free and clear of, and without reduction for or on account of, any present and future taxes, levies, imposts, duties, fees, assessments, charges, deductions or withholdings and all liabilities with respect thereto excluding, in the case of each Bank and the Agent, income and franchise taxes imposed on it by the jurisdiction under the laws of which such Bank or the Agent is organized or in which its principal executive offices may be located or any political subdivision or taxing authority thereof or therein or by the jurisdiction of such Bank's Lending Office and any political subdivision or taxing authority thereof or therein (all such nonexcluded taxes, levies, imposts, duties, fees, assessments, charges, deductions, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Taxes shall be required by law to be deducted or withheld from any payment, the Borrower shall increase the amount paid so that the respective Bank or the Agent receives when due (and is entitled to retain), after deduction or withholding for or on account of such 26. Taxes (including deductions or withholdings applicable to additional sums payable under this Section 6.03), the full amount of the payment provided for in the Loan Documents. (b) DEDUCTION OR WITHHOLDING; TAX RECEIPTS. If the Borrower makes any payment hereunder in respect of which it is required by law to make any deduction or withholding, it shall pay the full amount to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and promptly thereafter shall furnish to the Agent (for itself or for redelivery to the Bank to or for the account of which such payment was made) an original or certified copy of a receipt evidencing payment thereof, together with such other information and documents as the Agent or any Bank (through the Agent) may reasonably request. (c) INDEMNITY. If any Bank or the Agent is required by law to make any payment on account of Taxes, or any liability in respect of any Tax is imposed, levied or assessed against any Bank or the Agent, the Borrower shall indemnify the Agent and the Banks for and against such payment or liability, together with any incremental taxes, interest or penalties, and all costs and expenses, payable or incurred in connection therewith, including Taxes imposed on amounts payable under this Section 6.03. A certificate of the Agent or any Bank as to the amount of any such payment shall, in the absence of manifest error, be conclusive and binding for all purposes. If any Bank shall obtain a credit with respect to all or part of any tax paid or indemnified by the Borrower pursuant to this Section 6.03, then, to the extent such items have not previously been taken into account in computing the amount of any payment pursuant to this sentence or the amount of indemnification payable under this Section 6.03, such Bank shall promptly pay to the Borrower an amount equal to the amount of such credit, reduced by the amount of any prior payments by such Bank to, or for the benefit of, the Borrower arising from the same claim. All computations required hereunder shall be made by such Bank, acting reasonably and in good faith and the results of such computations shall be delivered to the Borrower. At the request and expense of the Borrower the accuracy of such computations shall be verified by such Bank's independent accounts. (d) FORMS W-8BEN AND W-8ECI. Each Bank that is incorporated under the laws of any jurisdiction outside the United States agrees to deliver to the Agent and the Borrower on or prior to the Closing Date, and in a timely fashion thereafter, Internal Revenue Service Form W-8BEN, Form W-8ECI or such other documents and forms of the I.R.S., duly executed and completed by such Bank, as are required under United States law to establish such Bank's status for United States withholding tax purposes. (e) MITIGATION. Each Bank agrees that as promptly as practicable after it becomes aware of the occurrence of an event that would cause the Borrower to make any payment in respect of Taxes to such Bank or a payment in indemnification with respect to any Taxes, and in any event if so requested by the Borrower following such occurrence, each Bank shall use reasonable efforts to make, fund or maintain its affected Loan (or relevant part thereof) through another Lending Office if as a result thereof the additional amounts so payable by the Borrower would be avoided or materially reduced; PROVIDED, HOWEVER, that such Bank shall not be obligated to select an alternative Lending Office if such Bank determines that (a) as a result of such selection such Bank would be in violation of any applicable law, regulation, treaty, or 27. guideline, or would incur additional costs or expenses or (b) such selection would be inadvisable for regulatory reasons or inconsistent with the interests of such Bank. SECTION 6.04 NON-RECEIPT OF FUNDS. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to any of the Banks hereunder that the Borrower shall 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 Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 6.05 SHARING OF PAYMENTS. If any Bank shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loans made by it (other than pursuant to a provision hereof providing for non-pro rata treatment) in excess of its Pro Rata Share of payments on account of the Loans obtained by all the Banks, such Bank shall forthwith advise the Agent of the receipt of such payment, and within five Business Days of such receipt purchase from the other Banks (through the Agent), without recourse, such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them in accordance with the respective Pro Rata Shares of the Banks; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered by or on behalf of the Borrower from such purchasing Bank, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. No documentation other than notices and the like referred to in this Section 6.05 shall be required to implement the terms of this Section 6.05. The Agent shall keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased pursuant to this Section 6.05 and shall in each case notify the Banks following any such purchases. ARTICLE VII CONDITIONS PRECEDENT SECTION 7.01 CONDITIONS PRECEDENT TO THE INITIAL LOANS. The obligation of each Bank to make its initial Loan shall be subject to the satisfaction of each of the following conditions precedent on or before the Closing Date: (a) FEES AND EXPENSES. The Borrower shall have paid (i) all invoiced fees then due in accordance with Section 3.03 and under the Fee Letter and (ii) all invoiced costs and expenses then due in accordance with Section 12.04(a). (b) LOAN DOCUMENTS. The Agent shall have received the following Loan Documents: (i) this Agreement, executed by the Borrower and each Bank (ii) the Notes, executed by the Borrower, for any Banks requesting Notes; and (iii) the Fee Letter, executed by each of the respective parties thereto. 28. (c) CERTIFICATE OF RESPONSIBLE OFFICER. The Agent shall have received in form and substance satisfactory to it a certificate of a Responsible Officer of the Borrower, dated the Closing Date, stating that (a) the representations and warranties contained in Section 8.01 and in the other Loan Documents are true and correct on and as of the date of such certificate as though made on and as of such date and (b) on and as of the Closing Date, no Default shall have occurred and be continuing or shall result from the initial Borrowing. (d) CORPORATE DOCUMENTS. The Agent shall have received the following, in form and substance satisfactory to it: (i) certified copies of the certificate or articles, as the case may be, of incorporation of the Borrower, together with certificates as to good standing and tax status, from the Secretary of State or other Governmental Authority, as applicable, of the Borrower's state of incorporation and California, each dated as of a recent date prior to the Closing Date; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower, dated the Closing Date, certifying (a) copies of the bylaws of the Borrower and the resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance of the Loan Documents and (b) the incumbency, authority and signatures of each officer of the Borrower authorized to execute and deliver the Loan Documents and act with respect thereto, upon which certificate the Agent and the Banks may conclusively rely until the Agent shall have received a further certificate of the Secretary or an Assistant Secretary of the Borrower canceling or amending such prior certificate; (e) LEGAL OPINION. The Agent shall have received the opinion of Gibson Dunn & Crutcher LLP, counsel to the Borrower, dated the Closing Date, in substantially the form of Exhibit E. (f) COMPLIANCE CERTIFICATE. The Agent shall have received a completed Compliance Certificate for the Borrower's fiscal quarter ended on July 1, 2000. (g) MATERIAL ADVERSE EFFECT. On and as of the date of such Borrowing, there shall have occurred no Material Adverse Effect since July 1, 2000. (h) EXISTING CREDIT AGREEMENT. All interest, principal, fees and other amounts owing under the Existing Credit Agreement shall have been paid in full (or shall have been paid in full concurrently with the initial Borrowing hereunder), and all commitments to lend thereunder terminated, and the Existing Credit Agreement shall have been cancelled and be of no further force or effect (except for such provisions thereof that expressly survive the termination thereof). Each Bank that is a party to the Existing Credit Agreement hereby waives its five-day advance notice of termination of the commitments thereunder. SECTION 7.02 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of each Bank to make a Loan (including its initial Loan) on the occasion of each Borrowing shall be subject to the satisfaction of each of the following conditions precedent: 29. (a) NOTICE. The Borrower shall have given the Notice of Borrowing as provided in Section 2.02(a). (b) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. On the date of such Borrowing, both before and after giving effect thereto and to the application of proceeds therefrom: (i) the representations and warranties contained in Section 8.01 and in the other Loan Documents shall be true, correct and complete on and as of the date of such Borrowing as though made on and as of such date; and (ii) no Default shall have occurred and be continuing or shall result from such Borrowing. For purposes of this Section 7.02(b), the representation and warranty made in Section 8.01(p) shall be deemed instead to refer to the last day of the most recent quarter and year for which financial statements have then been delivered; the preceding clause (i) shall not be deemed to refer to any other representations and warranties which relate solely to an earlier date (PROVIDED that such other representations and warranties shall be true, correct and complete as of such earlier date); and the preceding clause (i) shall take into account any amendments to the Schedules and other disclosures made in writing by the Borrower to the Agent and the Banks after the Closing Date and approved by the Agent and the Majority Banks. The giving of any Notice of Borrowing and the acceptance by the Borrower of the proceeds of each Borrowing on or following the Closing Date shall each be deemed a certification to the Agent and the Banks that on and as of the date of such Borrowing such statements are true. (c) ADDITIONAL DOCUMENTS. The Agent shall have received, in form and substance satisfactory to it, such additional approvals, opinions, documents and other information as the Agent or any Bank (through the Agent) may reasonably request. ARTICLE VIII REPRESENTATIONS AND WARRANTIES SECTION 8.01 REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to each Bank and the Agent that: (a) ORGANIZATION AND POWERS. Each of the Borrower and its Material Subsidiaries (i) is a corporation or partnership duly organized or formed, as the case may be, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) except as set forth on Schedule 8.01(a), is qualified to do business and is in good standing in each jurisdiction in which the failure so to qualify or be in good standing would result in a Material Adverse Effect and (iii) has all requisite power and authority to own its assets and carry on its business and, with respect to the Borrower, to execute, deliver and perform its obligations under the Loan Documents. (b) AUTHORIZATION; NO CONFLICT. The execution, delivery and performance by the Borrower of the Loan Documents have been duly authorized by all necessary corporate action of the Borrower and do not and will not (i) contravene the terms of the certificate or articles, as the case may be, of incorporation and the bylaws of the Borrower or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or the like binding on or affecting the Borrower; or (iii) except as 30. contemplated by this Agreement, result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties of the Borrower. (c) BINDING OBLIGATION. The Loan Documents constitute, or when delivered under this Agreement will constitute, legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. (d) CONSENTS. No authorization, consent, approval, license, exemption of, or filing or registration with, any Governmental Authority, or approval or consent of any other Person, is required for the due execution, delivery or performance by the Borrower of any of the Loan Documents. (e) NO DEFAULTS. Neither the Borrower nor any of its Material Subsidiaries is in default under any material contract, lease, agreement, judgment, decree or order to which it is a party or by which it or its properties may be bound. (f) TITLE TO PROPERTIES; LIENS. The Borrower and its Material Subsidiaries have good and marketable title to, or valid and subsisting leasehold interests in, their properties and assets, and there is no Lien upon or with respect to any of such properties or assets, except for Permitted Liens. (g) LITIGATION. Except as set forth on Schedule 8.01(g), there are no actions, suits or proceedings pending or, to the best of the Borrower's knowledge, threatened against or affecting the Borrower or any of its Subsidiaries or the properties of the Borrower or any of its Subsidiaries before any Governmental Authority or arbitrator which if determined adversely to the Borrower or any such Subsidiary would result in a Material Adverse Effect. (h) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as set forth on Schedule 8.01(h), and except in respect of matters that in the aggregate are not and cannot reasonably be expected to result in a Material Adverse Effect, the Borrower and each Material Subsidiary is in full compliance with all Environmental Laws, whether in connection with the ownership, use, maintenance or operation of its Premises or the conduct of any business thereon, or otherwise. Neither the Borrower, any Material Subsidiary, nor to the best of the Borrower's knowledge, any previous owner, tenant, occupant, user or operator of the Premises, or any present tenant or other present occupant, user or operator of the Premises has used, generated, manufactured, installed, treated, released, stored or disposed of any Hazardous Substances on, under, or at the Premises, except in compliance with all applicable Environmental Laws. To the best of the Borrower's knowledge, no Hazardous Substances have at any time been spilled, leaked, dumped, deposited, discharged, disposed of or released on, under, at or from the Premises, nor have any of the Premises been used at any time by any Person as a landfill or waste disposal site. Except as set forth on Schedule 8.01(h), there are no actions, suits, claims, notices of violation, hearings, investigations or proceedings pending or, to the best of the Borrower's knowledge, threatened against or affecting the Borrower, any Material Subsidiary or with respect to the ownership, use, maintenance and operation of the Premises, relating to Environmental Laws or Hazardous Substances. 31. (i) GOVERNMENTAL REGULATION. Neither the Borrower nor any of its Material Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce Act, any state public utilities code or any other federal or state statute or regulation limiting its ability to incur Indebtedness. (j) ERISA. (i) The Borrower and all ERISA Affiliates have satisfied all applicable contribution requirements under Section 412(c)(11) of the Internal Revenue Code and have never sought a waiver under Section 412(d) of the Internal Revenue Code; (ii) no Termination Event has occurred and is continuing, or is reasonably expected to occur; (iii) the aggregate amount of Unfunded Accrued Benefits under all Pension Plans (excluding in such computation Pension Plans with assets greater than accrued benefits) does not exceed $5,000,000; (iv) there is no condition or event under which the Borrower, any ERISA Affiliate, or any Plan maintained by the Borrower or any ERISA Affiliate could be subject to any risk of material liability under ERISA or the Internal Revenue Code, regardless of whether the Borrower or any ERISA Affiliate engaged in a transaction giving rise to the liability; (v) neither the Borrower nor any ERISA Affiliate has unfunded, contingent liability that exceeds $5,000,000 with respect to Plans that provide post-retirement welfare benefits; and (vi) all Plans maintained by, or contributed to by, the Borrower or any ERISA Affiliate comply in all material respects, and have been administered in material compliance with, the requirements of applicable law (including, if applicable, foreign law, ERISA and the Internal Revenue Code), and in accordance with each Plan's terms. (k) SUBSIDIARIES. The name, capital structure and ownership of each Subsidiary of the Borrower on the date of this Agreement is as set forth in Schedule 8.01(k). All of the outstanding capital stock of, or other interest in, each such Subsidiary has been validly issued, and is fully paid and nonassessable. Except as set forth in such Schedule, on the date of this Agreement the Borrower has no equity interest in any Person. Each Material Subsidiary of the Borrower, as of the date of this Agreement, is specified as such on Schedule 8.01(k). (l) MARGIN REGULATIONS. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying "margin stock" (within the meaning of Regulations G or U of the FRB). No part of the proceeds of the Loans will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock, except in accordance with the provisions of Regulations T, U, and X of the FRB. 32. (m) TAXES. Each of the Borrower and its Material Subsidiaries has duly filed all tax and information returns required to be filed, and has paid all taxes, fees, assessments and other governmental charges or levies that have become due and payable, except to the extent such taxes or other charges are being contested in good faith and are adequately reserved against in accordance with GAAP. (n) PATENTS AND OTHER RIGHTS. Each of the Borrower and its Subsidiaries possesses all permits, franchises, licenses, patents, trademarks, trade names, service marks, copyrights and all rights with respect thereto, free from burdensome restrictions, that are reasonably necessary for the ownership, maintenance and operation of its business and neither the Borrower nor any such Subsidiary is in violation of any rights of others with respect to the foregoing, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect. (o) INSURANCE. The properties of the Borrower and its Material Subsidiaries are insured, with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as is customarily carried by companies engaged in similar businesses and owning similar properties in the localities where the Borrower or such Material Subsidiary operates. (p) FINANCIAL STATEMENTS. The audited consolidated balance sheet of the Borrower and its Subsidiaries as at January 1, 2000, and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal year then ended, and the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at July 1, 2000, and the related consolidated statements of income, shareholders' equity and cash flows, for the quarter then ended and the 6-month period then ended, are complete and correct and fairly present the financial condition of the Borrower and its Subsidiaries as at such dates and the results of operations of the Borrower and its Subsidiaries for the periods covered by such statements, in each case in accordance with GAAP consistently applied, subject, in the case of the July 1, 2000 financial statements, to normal year-end adjustments and the absence of notes. (q) LIABILITIES. Neither the Borrower nor any of its Material Subsidiaries has any material liabilities, fixed or contingent, that are not reflected in the financial statements referred to in subsection (p), in the notes thereto or otherwise disclosed in writing to the Banks, other than liabilities arising in the ordinary course of business since July 1, 2000. (r) LABOR DISPUTES, ETC. There are no strikes, lockouts or other labor disputes against the Borrower or any of its Material Subsidiaries, or, to the best of the Borrower's knowledge, threatened against or affecting the Borrower or any of its Material Subsidiaries, and no event of loss has occurred with respect to any assets or property of the Borrower or any of its Subsidiaries, which would reasonably be expected to result in a Material Adverse Effect. (s) SOLVENCY. Each of the Borrower and its Material Subsidiaries is Solvent. (t) DISCLOSURE. None of the representations or warranties made by the Borrower in the Loan Documents as of the date of such representations and warranties, and none of the statements contained in each exhibit, report, certificate or written statement furnished by 33. or on behalf of the Borrower or any of its Subsidiaries to the Agent and the Banks in connection with the Loan Documents, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they are made, not misleading, as of the time made or delivered. ARTICLE IX COVENANTS SECTION 9.01 REPORTING COVENANTS. So long as any of the Obligations shall remain unpaid or any Bank shall have any Revolving Commitment, the Borrower agrees that: (a) FINANCIAL STATEMENTS AND OTHER REPORTS. The Borrower shall furnish to the Agent in sufficient copies for distribution to the Banks: (i) as soon as available and in any event within 55 days after the end of each of the first three fiscal quarters of each fiscal year, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter, and the related consolidated statements of income, shareholders' equity and cash flows of the Borrower and its Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the corresponding period in the preceding fiscal year, together with a certificate of a Responsible Officer of the Borrower stating that such financial statements fairly present the financial condition of the Borrower and its Subsidiaries as at such date and the results of operations of the Borrower and its Subsidiaries for the period ended on such date and have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal, year-end audit adjustments and except for the absence of notes; (ii) as soon as available and in any event within 100 days after the end of each fiscal year, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year, and the related consolidated statements of income, shareholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the previous fiscal year, accompanied by a report thereon of a firm of independent certified public accountants of recognized national standing, which report shall be unqualified as to scope of audit or the status of the Borrower and its Subsidiaries as a going concern; (iii) together with the financial statements required pursuant to clauses (i) and (ii), a Compliance Certificate of a Responsible Officer as of the end of the applicable accounting period; (iv) promptly after the giving, sending or filing thereof, copies of all reports, if any, which the Borrower sends to the holders of its respective capital stock or other securities and of all reports or filings, if any, by the Borrower with the SEC or any national securities exchange. 34. As to any information contained in materials furnished pursuant to clause (iv), the Borrower shall not be separately required to furnish such information under clause (i) or (ii), but the foregoing shall not be in derogation of the obligation of the Borrower to furnish the information and materials described in clauses (i) and (ii) at the times specified therein. (b) ADDITIONAL INFORMATION. The Borrower shall furnish to the Agent: (i) promptly after the Borrower has knowledge or becomes aware thereof, notice of the occurrence or existence of any Default; (ii) prompt written notice of (A) any proposed acquisition of stock, assets or property by the Borrower or any of its Material Subsidiaries that could reasonably be expected to result in material environmental liability under Environmental Laws, and (B)(1) any spillage, leakage, discharge, disposal, leaching, migration or release of any Hazardous Substances required to be reported to any Governmental Authority under applicable Environmental Laws, and (2) all actions, suits, claims, notices of violation, hearings, investigations or proceedings pending, or to the best of the Borrower's knowledge, threatened against or affecting the Borrower or any of its Material Subsidiaries or with respect to the ownership, use, maintenance and operation of the Premises, relating to Environmental Laws or Hazardous Substances; (iii) prompt written notice of all actions, suits and proceedings before any Governmental Authority or arbitrator pending, or to the best of the Borrower's knowledge, threatened against or affecting the Borrower or any of its Material Subsidiaries which if adversely determined would be reasonably expected to have a Material Adverse Effect; (iv) promptly after the Borrower has knowledge or becomes aware thereof, (a) notice of the occurrence of any Termination Event, together with a copy of any notice of such Termination Event to the PBGC, and (b) the details concerning any material action taken or proposed to be taken by the IRS, PBGC, Department of Labor or other Person with respect thereto; (v) the information regarding insurance maintained by the Borrower and its Material Subsidiaries as required under Section 9.03(c); (vi) within 30 days of the date thereof, or, if earlier, on the date of delivery of any financial statements pursuant to subsection (a), notice of any material change in accounting policies or financial reporting practices by the Borrower or any of its Material Subsidiaries; (vii) promptly after the occurrence thereof, notice of any labor controversy resulting in or threatening to result in any strike, work stoppage, boycott, shutdown or other material labor disruption against or involving the Borrower or any of its Material Subsidiaries; (viii) upon the reasonable request from time to time, but no more often than once per fiscal quarter, of the Agent or any Bank (through the Agent), the Swap 35. Termination Values, together with a description of the method by which such values were determined, relating to any then-outstanding Rate Contracts to which the Borrower or any of its Material Subsidiaries is party; (ix) prompt written notice of any other condition or event which has resulted, or that could reasonably be expected to result, in a Material Adverse Effect; and (x) such other information respecting the operations, properties, business or condition (financial or otherwise) of the Borrower or its Subsidiaries as any Bank (through the Agent) may from time to time reasonably request. Each notice pursuant to this subsection (b) shall be accompanied by a written statement by a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein, and stating what action the Borrower proposes to take with respect thereto. SECTION 9.02 FINANCIAL COVENANTS. So long as any of the Obligations shall remain unpaid or any Bank shall have any Revolving Commitment, the Borrower agrees that: (a) MINIMUM CONSOLIDATED EBITDA. The Borrower shall maintain as of the last day of each fiscal quarter a minimum Consolidated EBITDA for the period of four fiscal quarters ended on such date (taken as a single accounting period) of not less than $200,000,000; (b) [INTENTIONALLY OMITTED.] (c) MINIMUM FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain as of the last day of each fiscal quarter a ratio (such ratio, the "Fixed Charge Coverage Ratio") of (i) Consolidated EBITDA to (ii) the sum of (without duplication) (A) Consolidated Interest Expense PLUS (B) 20% of Funded Debt PLUS (C) taxes paid in cash, PLUS (D) payments in respect of Capital Leases, in each case, of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP, for the 12-month period ended on such date, of not less than 1.50 to 1.00. (d) MINIMUM CURRENT RATIO. The Borrower shall maintain as of the last day of each fiscal quarter a ratio of (i) current assets to (ii) current liabilities, in each case, of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP, of not less than 1.00 to 1.00. For purposes of calculating the Borrower's compliance with this Section 9.02(d) as of the last day of any fiscal quarter, current liabilities shall include (A) off-balance sheet Indebtedness having a maturity of less than one year from such fiscal quarter-end, (B) reimbursement obligations in respect of letters of credit having an expiry date less than one year from such fiscal quarter-end and (C) the current portion of (1) all Loans then outstanding hereunder and (2) all loans then outstanding under the Multi-Year Credit Agreement. (e) MAXIMUM FUNDED DEBT TO EBITDA RATIO. The Borrower shall maintain as of the last day of each fiscal quarter a ratio of (i) Funded Debt of the Borrower and its Subsidiaries on a consolidated basis, to (ii) Consolidated EBITDA for the twelve-month period ended on such date, of not more than 2.00 to 1.00. 36. SECTION 9.03 ADDITIONAL AFFIRMATIVE COVENANTS. So long as any of the Obligations shall remain unpaid or any Bank shall have any Revolving Commitment, the Borrower agrees that: (a) PRESERVATION OF EXISTENCE, ETC. The Borrower shall, and shall cause each of its Material Subsidiaries to, (i) maintain and preserve its legal existence, and (ii) maintain and preserve its rights to transact business and all other rights, franchises and privileges necessary or desirable in the normal course of its business and operations and the ownership of its properties, except in connection with transactions permitted by Section 9.04. (b) PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each of its Material Subsidiaries to, pay and discharge (i) all taxes, fees, assessments and governmental charges or levies imposed upon it or upon its properties or assets prior to the date on which penalties attach thereto, and all lawful claims for labor, materials and supplies which, if unpaid, might become a Lien upon any properties or assets of the Borrower or any Material Subsidiary, except to the extent such taxes, fees, assessments or governmental charges or levies, or such claims, are being contested in good faith by appropriate proceedings and are adequately reserved against in accordance with GAAP; (ii) all lawful claims which, if unpaid, would by law become a Lien upon its property not constituting a Permitted Lien; and (iii) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. (c) MAINTENANCE OF INSURANCE. The Borrower shall, and shall cause each of its Material Subsidiaries to, carry and maintain in full force and effect, at its own expense and with financially sound and reputable insurance companies, insurance in such amounts, with such deductibles and covering such risks as is customarily carried by companies engaged in the same or similar businesses and owning similar properties in the localities where the Borrower or such Subsidiary operates, including fire, extended coverage, business interruption, public liability, property damage and worker's compensation. Upon the request of the Agent or any Bank, the Borrower shall furnish to the Agent from time to time a certificate of the Borrower's insurance broker or other insurance specialist stating that all premiums then due on the policies relating to insurance have been paid, that such policies are in full force and effect and that such insurance coverage and such policies comply with all the requirements of this subsection. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Borrower shall, and shall cause each of its Material Subsidiaries to, keep adequate records and books of account, in which complete entries shall be made in accordance with GAAP, reflecting all financial transactions of the Borrower and its Material Subsidiaries. (e) INSPECTION RIGHTS. Upon reasonable prior notice to the Borrower (except during the existence of an Event of Default, in which case no prior notice shall be required), the Borrower shall at any reasonable time and from time to time permit the Agent and the Banks or any of their respective agents or representatives to visit and inspect any of the properties of the Borrower and its Material Subsidiaries and to examine and make copies of and abstracts from the records and books of account of the Borrower and its Material Subsidiaries, and to discuss the business affairs, finances and accounts of the Borrower and any such Material Subsidiary with any of the officers or accountants of the Borrower or such Material Subsidiary; PROVIDED that 37. with respect to any such discussions with the Borrower's or any Material Subsidiary's accountants, the Borrower shall be given a reasonable opportunity to have a representative participate in or otherwise be present at any such discussion; and PROVIDED FURTHER that so long as no Event of Default has occurred and is continuing, the Borrower's prior written consent (which consent shall not be unreasonably withheld) shall be required prior to any discussions between the Agent or any Bank or any of their respective agents or representatives, on the one hand, and the Borrower's or any Material Subsidiary's accountants, on the other. (f) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause each of its Material Subsidiaries to, comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws) and the terms of any indenture, contract or other instrument to which it may be a party or under which it or its properties may be bound, except to the extent that the failure to so comply would not reasonably be expected to result in a Material Adverse Effect. (g) MAINTENANCE OF PROPERTIES, ETC. The Borrower shall, and shall cause each of its Material Subsidiaries to, maintain and preserve all of its properties necessary or useful in the proper conduct of its business in good working order and condition in accordance with the general practice of other corporations of similar character and size, ordinary wear and tear excepted. (h) LICENSES. The Borrower shall, and shall cause each of its Material Subsidiaries to, obtain and maintain all licenses, authorizations, consents, filings, exemptions, registrations and other governmental approvals necessary in connection with (i) the execution, delivery and performance of the Loan Documents and the consummation of the transactions therein contemplated and (ii) the operation and conduct of its business and ownership of its properties, except, in the case of this clause (ii), where the failure to do so would not reasonably be expected to have a Material Adverse Effect. (i) ACTION UNDER ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each of its Material Subsidiaries to, upon becoming aware of the presence of any Hazardous Substance or the existence of any environmental liability under applicable Environmental Laws with respect to the Premises, take all actions, at their cost and expense, as shall be necessary or advisable to investigate and clean up the condition of the Premises, including all removal, containment and remedial actions, and restore the Premises to a condition in compliance with applicable Environmental Laws. (j) USE OF PROCEEDS. The Borrower shall use the proceeds of the Loans solely for general corporate purposes, including the repurchase of the Borrower's stock for immediate cancellation and for acquisitions, in each case, in compliance herewith. (k) FURTHER ASSURANCES AND ADDITIONAL ACTS. The Borrower shall execute, acknowledge, deliver, file, notarize and register at its own expense all such further agreements, instruments, certificates, documents and assurances and perform such acts as the Agent or the Majority Banks shall reasonably deem necessary or appropriate to effectuate the purposes of the Loan Documents, and promptly provide the Agent with evidence of the foregoing satisfactory in form and substance to the Agent or the Majority Banks. 38. SECTION 9.04 NEGATIVE COVENANTS. So long as any of the Obligations shall remain unpaid or any Bank shall have any Revolving Commitment, the Borrower agrees that: (a) LIENS; NEGATIVE PLEDGES. The Borrower shall not create, incur, assume or suffer to exist any Lien upon or with respect to any of its properties, revenues or assets, whether now owned or hereafter acquired, other than Permitted Liens. (b) CHANGE IN NATURE OF BUSINESS. The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by it at the date hereof or other businesses incidental or reasonably related thereto. Without limiting the generality of the preceding sentence, the parties hereto agree that this subsection 9.04(b) shall not operate to prohibit any Permitted Receivables Purchase Facility otherwise permitted hereunder. (c) RESTRICTIONS ON FUNDAMENTAL CHANGES. The Borrower shall not, and shall not permit any of its Subsidiaries to, merge with or consolidate into, or acquire all or substantially all of the assets of, any Person, or sell, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets, except that: (i) any of the Borrower's wholly owned Subsidiaries may merge with, consolidate into or transfer all or substantially all of its assets to another of the Borrower's wholly owned Subsidiaries or to the Borrower and in connection therewith such Subsidiary may be liquidated or dissolved; (ii) the Borrower or any of its Subsidiaries may sell or dispose of assets in accordance with the provisions of subsection 9.04(d); (iii) the Borrower or any of its Subsidiaries may make any investment permitted by subsection 9.04(e); (iv) the Borrower or any of its Subsidiaries may merge with or consolidate into any other Person, PROVIDED that (a) the Borrower is the surviving corporation in respect of any merger or consolidation involving the Borrower, (b) subject to the preceding clause (a), after giving effect to any such merger or consolidation, the surviving entity in respect thereof shall be a wholly owned Subsidiary, and (c) no such merger or consolidation shall be made if a Default would exist, or with the giving of notice or a passage of time, or both, would come into existence after giving effect thereto; and (v) the Borrower or any of its Subsidiaries may sell, transfer or dispose of any Receivables and Receivables Related Assets pursuant to any Permitted Receivables Purchase Facility. (d) SALES OF ASSETS. The Borrower shall not convey, sell, lease, transfer, or otherwise dispose of, or part with control of (whether in one transaction or a series of transactions) all or any or any material part of its business, property or assets (including any 39. shares of stock in any Subsidiary or other Person), whether now owned or hereafter acquired, except sales or other dispositions of any of the following: (i) any inventory in the ordinary course of business; (ii) any Permitted Investments; (iii) any assets which have become worn out or obsolete or which are promptly being replaced, in the ordinary course of business; (iv) any Receivables and Receivables Related Assets pursuant to any Permitted Receivables Purchase Facility; (v) assets constituting the Borrower's design-services operation pursuant to the Tality IPO; (vi) the Seely Avenue Campus pursuant to a sale-leaseback transaction, PROVIDED that such sale is made for fair value and the aggregate sales price from such sale is paid in cash; (vii) any other assets to the extent not otherwise permitted hereunder; PROVIDED that such assets do not constitute Substantial Assets and such sale or disposition is made for fair value; and PROVIDED FURTHER that (A) at the time of any such sale or disposition, no Default shall exist or shall result therefrom, (B) the aggregate sales price from such sale or disposition shall be paid in cash, or, if approved by the board of directors of the Borrower, capital stock or debt obligations so long as the aggregate sales price paid in capital stock or debt obligations, when added to the non-cash sales price of all other assets sold, leased, transferred or otherwise disposed of pursuant to this clause (vii) after the Closing Date pursuant to this Section 9.04(d)(vii), does not exceed 5% of Consolidated Tangible Net Worth measured as of the last day of the then most recent fiscal quarter, and (C) no dispositions of accounts or notes receivable shall be permitted under this clause (vii) unless in connection with the sale of all or substantially all of a business unit, division or Subsidiary of the Borrower and such sale is otherwise permitted hereunder. For purposes of clause (vii), a sale, lease, transfer or other disposition of assets shall be deemed to be of "Substantial Assets" if such assets, when added to all other assets sold, leased, transferred or otherwise disposed of after the Closing Date (other than assets sold in the ordinary course of business), shall exceed 15% of Consolidated Tangible Net Worth measured as of the last day of the then most recent fiscal quarter. (e) LOANS AND INVESTMENTS. The Borrower shall not, and shall not permit any of its Subsidiaries to, purchase or otherwise acquire the capital stock, assets (constituting a business unit), obligations or other securities of or any interest in any Person, or otherwise extend any credit to, guarantee the obligations of or make any additional investments in any Person, other than in connection with: 40. (i) extensions of credit in the nature of accounts receivable, general intangibles or notes receivable arising from the licensing of software or the sales of goods or services in the ordinary course of business; (ii) investments by the Borrower in the capital stock of wholly-owned Subsidiaries, and extensions of credit by the Borrower to any of its wholly owned Subsidiaries or by any of its wholly owned direct or indirect Subsidiaries to another of its wholly owned direct or indirect Subsidiaries or the Borrower, in each case in the ordinary course of business; (iii) Permitted Investments; (iv) investments permitted under Section 9.04 (c)(iv); (v) to the extent not otherwise permitted under this subsection 9.04(e), additional purchases of, loans to or investments in joint ventures or the capital stock, assets, obligations or other securities of or interest in other Persons not exceeding 15% of Consolidated Tangible Net Worth, measured as of the last day of the then most recent fiscal quarter, as to all such investments, loans and purchases in the aggregate, PROVIDED that (A) in the case of any such acquisition or investment the prior, effective written consent or approval to such acquisition or investment of the board of directors or equivalent governing body of the acquiree is obtained and (B) immediately after giving effect thereto, no Default shall have occurred and be continuing; (vi) investments in the Venture Fund, so long as the aggregate unrecovered investment made therein (not counting recoveries fairly characterized as income) does not exceed $100,000,000; (vii) investments existing on the Closing Date disclosed in Schedule 9.04(e); (viii) investments consisting of the endorsement of negotiable instruments for deposit; (ix) investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (x) extensions of credit in the ordinary course of business consisting of (a) compensation of employees, officers and directors of the Borrower or a Subsidiary, as the case may be, so long as the board of directors of the Borrower or such Subsidiary determines that such compensation is in the best interests of the Borrower or such Subsidiary, (b) travel advances, employee relocation loans and other employee loans and advances, (c) loans to employees, officers or directors relating to the purchase of equity securities of the Borrower, and (d) other loans to officers and employees approved by the board of directors; 41. (xi) investments in connection with any Permitted Receivables Purchase Facility; and (xii) investments consisting of shares in Tality Corporation retained by the Borrower resulting from the Tality IPO. (f) TRANSACTIONS WITH RELATED PARTIES. Except in connection with (i) any Permitted Receivables Purchase Facility otherwise permitted hereunder, or (ii) investments in Alchemy or SpinCircuit or resulting from the Tality IPO which are otherwise permitted by subsection (e) above, the Borrower shall not, and shall not permit any of its Material Subsidiaries to, enter into any transaction, including the purchase, sale or exchange of property or the rendering of any services, with any Affiliate, any officer or director thereof or any Person which beneficially owns or holds 5% or more of the equity securities, or 5% or more of the equity interest, thereof (a "Related Party"), or enter into, assume or suffer to exist, or permit any Material Subsidiary to enter into, assume or suffer to exist, any employment or consulting contract with any Related Party, except a transaction or contract which is in the ordinary course of the Borrower's or such Material Subsidiary's business and which, when considered in the aggregate with all such transactions between the Related Party and the Borrower or such Material Subsidiary, such aggregate transactions are upon fair and reasonable terms not less favorable to the Borrower or such Material Subsidiary than it would obtain in a comparable arm's length transaction (or series of transactions) with a Person not a Related Party. (g) HAZARDOUS SUBSTANCES. The Borrower shall not, and shall not permit any of its Material Subsidiaries to, use, generate, manufacture, install, treat, release, store or dispose of any Hazardous Substances, except in compliance with all applicable Environmental Laws. (h) ACCOUNTING CHANGES. The Borrower shall not, and shall not suffer or permit any of its Material Subsidiaries to, (i) make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP, or, in respect of any non-U.S. Subsidiary, as required or permitted by generally accepted accounting principles as then in effect in the jurisdiction in which such non-U.S. Subsidiary is located or (ii) without the prior written consent of the Majority Banks (not to be unreasonably withheld), change its fiscal year or that of any of its consolidated Subsidiaries, except to change the fiscal year of a Subsidiary acquired in connection with a permitted acquisition to conform its fiscal year to the Borrower's. ARTICLE X EVENTS OF DEFAULT SECTION 10.01 EVENTS OF DEFAULT. Any of the following events which shall occur shall constitute an "Event of Default": (a) PAYMENTS. The Borrower shall fail to pay (i) when due any amount of principal of any Loan or Note, or (ii) within three days after the date due, any amount of interest on any Loan or Note or any fee or other amount payable hereunder or under any of the Loan Documents. 42. (b) REPRESENTATIONS AND WARRANTIES. Any representation or warranty by the Borrower under or in connection with the Loan Documents shall prove to have been incorrect in any material respect when made or deemed made. (c) FAILURE BY BORROWER TO PERFORM CERTAIN COVENANTS. The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 9.02, subsections (a)(i) or (j) of Section 9.03 or Section 9.04 other than Subsection 9.04(g). (d) FAILURE BY BORROWER TO PERFORM OTHER COVENANTS. The Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any other Loan Document on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after either (I) a Responsible Officer of the Borrower knew or reasonably should have known of such failure or (II) the Borrower receives written notice thereof by the Agent or any Bank. (e) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower or any Material Subsidiary (i) generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (f) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Borrower or any Material Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Borrower's or any Material Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Borrower or any Material Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Borrower or any Material Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (g) DEFAULT UNDER OTHER INDEBTEDNESS. (i) The Borrower or any of its Material Subsidiaries shall fail (A) to make any payment of any principal of, or interest or premium on, any single Indebtedness (other than in respect of the Loans) having a principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000 (or its equivalent in another currency) when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace or notice period, if any, specified in the agreement or instrument relating to such Indebtedness as of the date of such failure; or (B) to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such Indebtedness, when required to be performed or observed, or any other event shall occur or condition shall exist under any such agreement or instrument, and such failure, event or 43. condition shall continue after the applicable grace or notice period, if any, specified in such agreement or instrument, if the effect of such failure, event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or (ii) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (iii) there occurs under any Rate Contract an Early Termination Date (as defined in such Rate Contract) resulting from (A) any event of default under such Rate Contract as to which the Borrower or any Material Subsidiary is the Defaulting Party (as defined in such Rate Contract) or (B) any Termination Event (as so defined) as to which the Borrower or any Material Subsidiary is an Affected Party (as so defined), and, in either event, the Swap Termination Value owed by the Borrower or such Material Subsidiary as a result thereof is greater than $10,000,000 (or its equivalent in another currency). (h) JUDGMENTS. (i) A final judgment or order for the payment of money in excess of $50,000,000 (or its equivalent in another currency) which is not fully covered by third-party insurance shall be rendered against the Borrower or any of its Material Subsidiaries; or (ii) any non-monetary judgment or order shall be rendered against the Borrower or any Material Subsidiary which has or would reasonably be expected to have a Material Adverse Effect; and in each case there shall be any period of 30 consecutive days during which such judgment continues unsatisfied or during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. (i) ERISA. (i) The Borrower or an ERISA Affiliate shall fail to satisfy its contribution requirements in an amount in excess of $5,000,000 under Section 412(c)(11) of the Internal Revenue Code, whether or not it has sought a waiver under Section 412(d) of the Internal Revenue Code; (ii) in the case of a Termination 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 Borrower's or an ERISA Affiliate's proportionate share of that Pension Plan's Unfunded Accrued Benefits is more than $5,000,000; (iii) in the case of a Termination Event involving the complete or partial withdrawal from a Multiemployer Plan, the Borrower or an ERISA Affiliate has incurred a withdrawal liability in an aggregate amount exceeding $5,000,000; (iv) in the case of a Termination Event not described in clause (ii) or (iii), the Unfunded Accrued Benefits of the relevant Pension Plan or Plans exceed $5,000,000; (v) a Plan of the Borrower or an ERISA Affiliate that is intended to be qualified under Section 401(a) of the Internal Revenue Code shall lose its qualification, and the loss can reasonably be expected to impose on the Borrower or an ERISA Affiliate liability (for additional taxes, to Plan participants, or otherwise) in the aggregate amount of $5,000,000 or more; (vi) the commencement or increase of contributions to, the adoption of, or the amendment of a Plan by, the Borrower or an ERISA Affiliate shall result in a net increase in unfunded liabilities to the Borrower or an ERISA Affiliate in excess of $5,000,000; or (vii) the occurrence of any combination of events listed in clauses (ii) through (vi) that involves a net increase in aggregate Unfunded Accrued Benefits and unfunded liabilities in excess of $5,000,000. (j) DISSOLUTION, ETC. The Borrower or any of its Material Subsidiaries shall (i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or dissolution), except to the extent expressly permitted by Section 9.04, (ii) suspend its operations other than in the ordinary 44. course of business, or (iii) take any corporate or similar action to authorize any of the actions or events set forth above in this subsection (j). (k) SUBORDINATION PROVISIONS. The subordination provisions of any agreement or instrument governing any Indebtedness subordinated to the Obligations shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, any Person shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Indebtedness hereunder shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or such subordination provisions. (l) MERGERS AND ACQUISITIONS. The Borrower or any Subsidiary shall acquire or otherwise merge or consolidate with any Person for cash consideration (in whole or in part), without the prior, effective written consent or approval to such acquisition, merger or consolidation of the board of directors or equivalent governing body of such Person. SECTION 10.02 EFFECT OF EVENT OF DEFAULT. If any Event of Default shall occur and be continuing, the Agent shall, at the request of, or may, with the consent of, the Majority Banks, (I) by notice to the Borrower, (a) declare the Revolving Commitments of the Banks to be terminated, whereupon the same shall forthwith terminate, and (b) declare the entire unpaid principal amount of the Loans and the Notes, all interest accrued and unpaid thereon and all other Obligations to be forthwith due and payable, whereupon the Loans and the Notes, all such accrued interest and all such other Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, PROVIDED that if an event described in Sections 10.01(e) or 10.01(f) shall occur, the result which would otherwise occur only upon giving of notice by the Agent to the Borrower as specified in this clause (I) shall occur automatically, without the giving of any such notice; and (II) whether or not the actions referred to in clause (I) have been taken, proceed to enforce all other rights and remedies available to the Agent and the Banks under the Loan Documents and applicable law. ARTICLE XI THE AGENT SECTION 11.01 AUTHORIZATION AND ACTION. Each Bank hereby appoints ABN AMRO as Agent and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and perform such duties under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. The duties and obligations of the Agent are strictly limited to those expressly provided for herein, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. As to any matters not expressly provided for by the Loan Documents (including enforcement or collection of the Loan Documents), 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 the Majority Banks, and such instructions shall be binding upon all Banks; PROVIDED, HOWEVER, that except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act under any Loan Document unless it shall be indemnified to 45. its satisfaction by the Banks against any and all liability and expense which may be incurred by reason of taking or continuing to take any such action, and that the Agent shall not in any event be required to take any action which exposes the Agent to liability or which is contrary to any Loan Document or applicable law. Nothing in any Loan Document shall, or shall be construed to, constitute the Agent a trustee or fiduciary for any Bank. In performing its functions and duties hereunder, the Agent shall act solely as the agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. Without limiting the generality of the foregoing, the use of the term "agent" in this Agreement and the other Loan Documents with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. SECTION 11.02 LIMITATION ON LIABILITY OF AGENT; NOTICES; CLOSING. (a) LIMITATION ON LIABILITY OF AGENT. Neither the Agent nor any Affiliate thereof nor any of their respective directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them under or in connection with any Loan Document, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent (i) may treat a Bank as the holder of its Loans for all purposes hereof unless and until such Bank and its assignee shall have delivered to the Agent and the Borrower an Assignment and Acceptance Agreement substantially in the form of Exhibit F (an "Assignment and Acceptance"), and the Agent receives written notice of the assignment in substantially the form of Schedule 1 to the Assignment and Acceptance and the other conditions to assignment set forth in Section 12.09 shall have been satisfied; (ii) may consult with legal counsel (including counsel to 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; and (iii) shall incur no liability to any Bank under or in respect of any Loan Document by acting upon any notice, consent, certificate, telegram, facsimile, telex or teletype message, statement or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties or by acting upon any representation or warranty made or deemed to be made hereunder or under any other Loan Document. Further, the Agent (A) makes no warranty or representation to any Bank and shall not be responsible to any Bank for the accuracy or completeness of any information, exhibit or report furnished under any Loan Document, for any statements, warranties or representations (whether written or oral) made or deemed made in or in connection with any Loan Documents; (B) shall have no duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Borrower or any other Person or to inspect the property, books or records of the Borrower or any other Person; and (C) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency, value or collectibility of this Agreement or any other Loan Document or of any collateral. (b) NOTICES. Promptly upon receipt thereof, the Agent shall forward to each Bank originals or copies, as specified in this Agreement or any other Loan Document, of all agreements, instruments, opinions, financial statements, notices and other documents delivered 46. by the Borrower or any other Person to the Agent pursuant to any Loan Document for distribution to the Banks. Except for any of the foregoing expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. (c) CLOSING. For purposes of determining compliance with the conditions specified in Section 7.01, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent (or made available) by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank, unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Bank prior to the Closing Date specifying its objection thereto and either such objection shall not have been withdrawn by notice to the Agent to that effect on or prior to the Closing Date or, if any Borrowing on the Closing Date has been requested, the Bank shall not have made available to the Agent on or prior to the Closing Date the Bank's Pro Rata Share of any Borrowing. SECTION 11.03 AGENT AND AFFILIATES. With respect to its Revolving Commitment, the Loans made by it, the Notes issued to it and all other Obligations owing to it as a Bank, the Agent shall have the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include the Agent in its individual capacity. The Agent 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, and any Affiliate thereof, all as if the Agent were not the Agent hereunder and without any duty to account therefor to the Banks. SECTION 11.04 NOTICE OF DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default hereunder (other than nonpayment of principal of or interest on the Loans or of any fees or any of its costs and expenses) unless the Agent has actual knowledge thereof or has received notice in writing from a Bank or the Borrower referring to this Agreement, describing such event or condition and expressly stating that such notice is a "notice of default." Should the Agent receive such notice of the occurrence of a Default, the Agent shall promptly give notice thereof to the Banks. The Agent thereupon shall take such action with respect to such Default as shall be reasonably directed by the Majority Banks; PROVIDED that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Banks. SECTION 11.05 NON-RELIANCE ON AGENT. Each Bank has itself been, and will continue to be, based on such documents and information as it has deemed appropriate, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of the Borrower or any of its Subsidiaries. Accordingly, each Bank confirms to the Agent that it has not relied, and will not hereafter rely, on the Agent (I) to check or inquire on such Bank's behalf into the adequacy, 47. accuracy or completeness of any information provided by the Borrower or any other Person under or in connection with the Loan Documents or the transactions herein contemplated (whether or not such information has been or is hereafter distributed to such Bank by the Agent), or (ii) to assess or keep under review on such Bank's behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrower or any Subsidiary. SECTION 11.06 INDEMNIFICATION. The Banks agree to indemnify the Agent, and any Affiliates, directors, officers, employees, agents, counsel and other advisors (collectively, the "Related Persons") of the Agent (to the extent not reimbursed by the Borrower), ratably in accordance with the respective Pro Rata Shares of the Banks, against and hold each of them harmless from any and all liabilities, obligations, losses, claims, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including the reasonable fees and disbursements of counsel to the Agent (including allocated costs of internal counsel), which may be imposed on, incurred by, or asserted against the Agent or any such Related Person to be indemnified, in any way relating to or arising out of the Loan Documents, the use or intended use of the proceeds of the Loans or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent or other such Related Person to be indemnified in connection with any of the foregoing; PROVIDED that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent they are found by a final decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Agent, or any other Related Person to be indemnified. SECTION 11.07 DELEGATION OF DUTIES. The Agent may, in its discretion, employ from time to time one or more agents or attorneys-in-fact (including any of the Agent's Affiliates) to perform any of the Agent's duties under the Loan Documents. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 11.08 SUCCESSOR AGENT. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving 90 days' written notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower shall have the right to appoint a successor Agent from among the Banks, with the consent of the Majority Banks (which shall not be unreasonably withheld), and the Borrower and the Banks shall use their best efforts so to appoint a successor Agent. If no successor Agent shall have been so appointed by the Borrower and the Majority Banks, and shall have accepted such appointment, prior to the effective date of the retiring Agent's resignation, the retiring Agent may, on behalf of the Banks, appoint a successor Agent from among the Banks. Upon the effectiveness of 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, duties and obligations of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents. SECTION 11.09 CO-AGENTS. None of the Banks identified on the facing page or signature pages of this Agreement as a "co-agent" shall have any right, power, obligation, 48. liability, responsibility or duty under this Agreement other than those applicable to all Banks as such. Without limiting the foregoing, none of the Banks so identified as a "co-agent" shall have or be deemed to have any fiduciary relationship with any Bank. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE XII MISCELLANEOUS SECTION 12.01 AMENDMENTS AND WAIVERS. Except as otherwise provided herein or in any other Loan Document, (I) no amendment to any provision of this Agreement or any of the other Loan Documents shall in any event be effective unless the same shall be in writing and signed by the Borrower, the Agent and the Majority Banks (or the Agent with the written consent of the Majority Banks); and (II) no waiver of any provision of this Agreement or any other Loan Document, or consent to any departure by the Borrower, shall in any event be effective unless the same shall be in writing and signed by the Agent and the Majority Banks (or the Agent with the consent of the Majority Banks). Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that, notwithstanding the foregoing provisions of this Section 12.01, any term or provision of Article XI (other than the provisions of Section 11.08 pertaining to Borrower consent) may be amended without the agreement or consent of, or prior notice to, the Borrower; and PROVIDED FURTHER, HOWEVER, that, unless in writing and signed by all of the Banks (or by the Agent with the written consent of all the Banks), no amendment, waiver or consent shall do any of the following: (A) increase the amount, or extend the stated expiration or termination date, of the Revolving Commitments of the Banks (or any of them), except as otherwise provided in subsection 4.01(c) with respect to the extension of the Revolving Termination Date as provided therein; (B) reduce the principal of, or interest on, the Loans or any fee or other amount payable to the Banks (or any of them) here under; (C) postpone any date fixed for any payment in respect of principal of, or interest on, the Loans or any fee or other amount payable to the Banks (or any of them) hereunder; (D) change the definition of "Majority Banks" or any definition or provision of this Agreement requiring the approval of Majority Banks or some other specified amount of Banks; (E) consent to the assignment or transfer by the Borrower of any of its rights and obligations under the Loan Documents; (F) waive any of the conditions specified in Article VII; (G) amend, modify or waive the provisions of Section 6.01, 6.05 or 12.07; 49. (H) amend, modify or waive the provisions of this Section 12.01; and PROVIDED, FURTHER, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Banks required hereinabove to take such action, affect the rights, obligations or duties of the Agent under any Loan Document, and (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. SECTION 12.02 NOTICES. (a) NOTICES. All notices and other communications provided for hereunder and under the other Loan Documents shall, unless otherwise stated herein, be in writing (including by facsimile transmission followed by a telephone call by the sender to confirm receipt by the recipient party) and mailed, sent or delivered to the respective parties hereto at or to their respective addresses or facsimile numbers set forth in Schedule 2, or at or to such other address or facsimile number as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail, upon the earlier of the date of receipt and five Business Days after deposit in the mail, first class (or air mail, with respect to communications to be sent to or from the United States), postage prepaid; and (iii) if sent by facsimile transmission, upon verbal confirmation of receipt by the recipient party; PROVIDED, HOWEVER, that notices and communications to the Agent shall not be effective until received. (b) FACSIMILE AND TELEPHONIC NOTICE. The Borrower acknowledges and agrees that the agreement of the Agent and the Banks herein and in any other Loan Document to receive certain notices by telephone and facsimile is solely for the convenience and at the request of the Borrower. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Agent and the Banks shall not have any liability to the Borrower or any other Person on account of any action taken or not taken by the Agent and the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and the other Obligations shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. SECTION 12.03 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right, remedy, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights and remedies under the Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges that may otherwise be available to the Agent or any Bank. SECTION 12.04 COSTS AND EXPENSES; INDEMNIFICATION. 50. (a) COSTS AND EXPENSES. The Borrower agrees to pay not later than 30 days after written demand therefor, including a statement of account, whether or not the transactions contemplated hereby shall be consummated: (i) the reasonable out-of-pocket costs and expenses of the Agent and any of its Affiliates, and the reasonable fees and disbursements of outside counsel to the Agent, in connection with the negotiation, preparation, execution, delivery and syndication of the Loan Documents, and any amendments, modifications or waivers requested by the Borrower of the terms thereof; and (ii) all costs and expenses of the Agent, its Affiliates and the Banks, and fees and disbursements of counsel (including allocated costs of internal counsel), in connection with (a) any Default, (b) the enforcement or attempted enforcement of, and preservation of any rights or interests under, the Loan Documents, and (c) any out-of-court workout or other refinancing or restructuring or any bankruptcy case, including any losses, costs and expenses sustained by the Agent and any Bank as a result of any failure by the Borrower to perform or observe its obligations contained in the Loan Documents. (b) INDEMNIFICATION. Whether or not the transactions contemplated hereby shall be consummated, the Borrower hereby agrees to indemnify the Agent, each Bank and any Related Person thereof (each an "Indemnified Person") against, and hold each of them harmless from, any and all liabilities, obligations, losses, claims, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including the reasonable fees and disbursements of counsel to an Indemnified Person (including allocated costs of internal counsel), which may be imposed on, incurred by, or asserted against any Indemnified Person, (i) in any way relating to or arising out of any of the Loan Documents, the use or intended use of the proceeds of the Loans, or the transactions contemplated hereby, (ii) with respect to any investigation, litigation or other proceeding relating to any of the foregoing, irrespective of whether the Indemnified Person shall be designated a party thereto, or (iii) in any way relating to or arising out of the use, generation, manufacture, installation, treatment, storage or presence, or the spillage, leakage, leaching, migration, dumping, deposit, discharge, disposal or release, at any time, of any Hazardous Substances on, under, at or from any Premises, including any personal injury or property damage suffered by any Person, and any investigation, site assessment, environmental audit, feasibility study, monitoring, clean-up, removal, containment, restoration, remedial response or remedial work undertaken by or on behalf of the any Indemnified Person at any time, voluntarily or involuntarily, with respect to the Premises (the "Indemnified Liabilities"); PROVIDED that the Borrower shall not be liable to any Indemnified Person for any portion of such Indemnified Liabilities to the extent they are found by a final decision of a court of competent jurisdiction to have resulted from such Indemnified Person's gross negligence or willful misconduct. Subject to the preceding proviso, if and to the extent that the foregoing indemnification is for any reason held unenforceable, the Borrower agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. (c) OTHER CHARGES. The Borrower agrees to indemnify the Agent and each of the Banks against and hold each of them harmless from any and all present and future stamp, transfer, documentary and other such taxes, levies, fees, assessments and other charges made by 51. any jurisdiction by reason of the execution, delivery, performance and enforcement of the Loan Documents. SECTION 12.05 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each Bank hereby is authorized, to the extent permitted by applicable statute, at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under this Agreement and the other Loan Documents, irrespective of whether or not such Bank shall have made any demand under this Agreement or any such other Loan Document and although such Obligations may be unmatured. Each Bank agrees promptly to notify the Borrower (through the Agent) after any such set-off and application made by such Bank; PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 12.05 are in addition to other rights and remedies (including other rights of set-off) which such Bank may have. SECTION 12.06 SURVIVAL. All covenants, agreements, representations and warranties made in any Loan Documents shall, except to the extent otherwise provided therein, survive the execution and delivery of this Agreement, the making of the Loans and the execution and delivery of the Notes, and shall continue in full force and effect so long as the Banks have any Revolving Commitments, any Loans remain outstanding or any other Obligations remain unpaid or any obligation to perform any other act under any Loan Document remains unsatisfied. Without limiting the generality of the foregoing, the obligations of the Borrower under Sections 5.02, 5.03, 6.03 and 12.04, and of the Banks under Sections 6.03 and 11.06, and all similar obligations under the other Loan Documents (including all obligations to pay costs and expenses and all indemnity obligations), shall survive the repayment of the Loans and the termination of the Revolving Commitments. SECTION 12.07 OBLIGATIONS SEVERAL. The obligations of the Banks under the Loan Documents are several. The failure of any Bank or the Agent to carry out its obligations thereunder shall not relieve any other Bank or the Agent of any obligation thereunder, nor shall any Bank or the Agent be responsible for the obligations of, or any action taken or omitted by, any other Person hereunder or thereunder. Nothing contained in any Loan Document shall be deemed to cause any Bank or the Agent to be considered a partner of or joint venturer with any other Bank or Banks, the Agent or the Borrower. SECTION 12.08 BENEFITS OF AGREEMENT. The Loan Documents are entered into for the sole protection and benefit of the parties hereto and their successors and assigns, and no other Person other than Affiliates of the Agent and the Related Persons referred to in Sections 11.06, 12.04 and 12.14 shall be a direct or indirect beneficiary of, or shall have any direct or indirect cause of action or claim in connection with, any Loan Document. SECTION 12.09 BINDING EFFECT; ASSIGNMENT. 52. (a) BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified by each Bank that such Bank has executed it and thereafter shall be binding upon, inure to the benefit of and be enforceable by the Borrower, the Agent and each Bank and their respective successors and assigns. (b) ASSIGNMENT. The Borrower shall not have the right to assign its rights and obligations hereunder or under the other Loan Documents or any interest herein or therein without the prior written consent of the Banks. Each Bank may sell, assign, transfer or grant participations in all or any portion of such Bank's rights and obligations hereunder and under the other Loan Documents to any Bank or Eligible Assignee on the basis set forth below in this subsection (b). (i) Any Bank may, with the written consent of the Borrower and the Agent (which in each case shall not be unreasonably withheld), at any time assign and delegate to one or more Eligible Assignees all, or any ratable part of all, of the Revolving Loans and Revolving Commitment, or the Term Loans, as the case may be, and the other rights and obligations of such Bank hereunder; PROVIDED, HOWEVER, that (A) no consent of the Borrower shall be required during the existence of an Event of Default; (B) no consent of the Borrower or the Agent shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is another Bank or an Affiliate of such Bank; and (C) except in connection with an assignment of all of a Bank's rights and obligations with respect to its Revolving Commitment and Loans, any such assignment to an Eligible Assignee that is not a Bank hereunder shall be equal to or greater than $15,000,000. (ii) In the event of any such assignment, unless and until (A) an Assignment and Acceptance and notice of assignment shall have been delivered pursuant to clause (i) of Section 11.02(a), (B) the Agent shall have received payment of an administrative transfer charge in the amount of $3,500 from the assigning Bank (unless the assignee shall otherwise agree to pay such charge), and (C) the Agent and the Borrower shall have received all tax forms and documents required under Section 6.03(d), such assignee shall not be entitled to exercise the rights of a Bank under this Agreement and the other Loan Documents with respect to such assignment and the Agent shall not be obligated to make payment of any amount to which such assignee may become entitled thereunder other than to the assigning Bank. Subject to satisfaction of the foregoing conditions in connection with any assignment, upon the effectiveness of such assignment, the assignee shall be deemed a "Bank" for all purposes of this Agreement and the other Loan Documents with respect to the rights and obligations assigned to it, and the assigning Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents; PROVIDED, HOWEVER, that the assigning Bank shall not relinquish its rights under Article V or under Sections 6.03 and 12.04 to the extent such rights relate to the time prior to the effective date of the Assignment and Acceptance. 53. (iii) In connection with any partial assignment, upon the request of the assigning Bank or the assignee, (A) the Borrower shall execute and deliver substitute Notes to the assigning Bank or the assignee, dated the effective date of such assignment, setting forth the respective Revolving Commitment, or Term Loans, as the case may be, of such assigning Bank and assignee as the respective maximum principal amounts thereof, and containing other appropriate insertions, and the assigning Bank shall thereupon return the Notes previously held by it; and (B) Schedules 1 and 2 shall be deemed amended to reflect the adjustment of the Revolving Commitments and Pro Rata Shares of the Banks resulting therefrom and the Lending Office, if any, and address for notices of the assignee. (iv) In the event of any grant of a participation, the granting Bank shall remain a "Bank" for purposes of this Agreement, the Borrower, the other Banks and the Agent shall continue to deal solely and directly with such Bank in connection with this Agreement and the other Loan Documents, and no Bank shall transfer or grant any participating interest under which the participant shall have rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require the consent of the Bank granting such participation as described in the second proviso to Section 12.01 or the unanimous consent of all of the Banks as described in the third proviso to Section 12.01. In the case of any such participation, the participant shall not have any of the rights of a Bank under this Agreement or the other Loan Documents, except that the participant shall (A) be deemed to have a right of setoff under Section 12.05 in respect of its participation to the same extent as if it were a "Bank" hereunder, PROVIDED that such participant shall also be considered a "Bank" for purposes of Section 6.05; and (B) such participant shall also be entitled to the benefits of Sections 5.02, 5.03, 6.03 and 12.04, PROVIDED that any amounts payable under Sections 5.03 or 6.03 to any participant shall not exceed the amounts which would have been payable by the Borrower thereunder to the Bank granting such participation. (v) The Borrower agrees that in connection with any such grant or assignment, such Bank may deliver to the prospective participant or assignee financial statements and other relevant information relating to the Borrower and its Subsidiaries. (vi) Each Bank shall obtain from any such prospective participant or assignee a confidentiality agreement in which such participant or assignee agrees to an obligation of confidentiality substantially similar to the terms of Section 12.14. (vii) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and any Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 54. SECTION 12.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA. SECTION 12.11 SUBMISSION TO JURISDICTION. (a) SUBMISSION TO JURISDICTION. The Borrower hereby (i) submits to the non-exclusive jurisdiction of the courts of the State of California and the Federal courts of the United States sitting in the State of California for the purpose of any action or proceeding arising out of or relating to the Loan Documents, (ii) agrees that all claims in respect of any such action or proceeding may be heard and determined in such courts, (iii) irrevocably waives (to the extent permitted by applicable law) any objection which it now or hereafter may have to the laying of venue of any such action or proceeding brought in any of the foregoing courts, and any objection on the ground that any such action or proceeding in any such court has been brought in an inconvenient forum and (iv) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner permitted by law. (b) NO LIMITATION. Nothing in this Section 12.11 shall limit the right of the Agent or the Banks to bring any action or proceeding against the Borrower or its property in the courts of other jurisdictions. SECTION 12.12 WAIVER OF JURY TRIAL. THE BORROWER, THE BANKS AND THE AGENT HEREBY AGREE TO 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, 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. THE BORROWER, THE BANKS AND THE AGENT HEREBY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION 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. A COPY OF THIS SECTION 12.12 MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY COURT. SECTION 12.13 LIMITATION ON LIABILITY. No claim shall be made by the Borrower or its Affiliates against the Agent, the Banks or any of their respective Related Persons for any 55. special, indirect, exemplary, consequential or punitive damages in respect of any breach or wrongful conduct (whether or not the claim therefor is based on contract, tort or duty imposed by law), in connection with, arising out of or in any way related to the transactions contemplated by the Loan Documents or any act or omission or event occurring in connection therewith; and the Borrower hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. SECTION 12.14 CONFIDENTIALITY. Each Bank and the Agent shall hold all non-public information relating to the Borrower and its Subsidiaries obtained by it under this Agreement in accordance with its customary procedures for handling confidential information of this nature, except for: (i) disclosure to its Affiliates or to its counsel or to any agent or advisor acting on its behalf in connection with the negotiation, execution or performance of the Loan Documents; (ii) disclosure as reasonably required in connection with a transfer to a prospective assignee or participant of all or part of its Loans or Revolving Commitment or any participation therein, as provided in Section 12.09(b); (iii) disclosure as may be required or requested by any Governmental Authority or representative thereof or pursuant to legal process; (iv) disclosure to any Person and in any proceeding necessary in such Bank's or the Agent's judgment to protect its interests in connection with any claim or dispute involving such Bank or the Agent; and (v) any other disclosure with the prior written consent of the Borrower. Prior to any disclosure by any Bank or the Agent of such non-public information permitted under clause (iii) (other than in connection with an examination of the financial condition of such Bank, the Agent or any of their Affiliates by any Governmental Authority), it shall, if permitted by applicable laws or judicial order, notify the Borrower of such pending disclosure. In no event shall any Bank or the Agent be obligated or required to return any materials furnished by the Borrower or its Subsidiaries. Notwithstanding the foregoing, such obligation of confidentiality shall not apply if the information or substantially similar information (a) is rightfully received by any Bank or the Agent from a Person other than the Borrower or any of its Affiliates without such Bank or the Agent being under an obligation to such Person not to disclose such information, or (b) is or becomes part of the public domain. SECTION 12.15 ENTIRE AGREEMENT. The Loan Documents reflect the entire agreement among the Borrower, the Banks and the Agent with respect to the matters set forth herein and therein and supersede any prior agreements, Revolving Commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. SECTION 12.16 SEVERABILITY. Whenever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of any of the Loan Documents shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of such Loan Document, or the validity or effectiveness of such provision in any other jurisdiction. SECTION 12.17 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so 56. executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. [SIGNATURE PAGES FOLLOW.] 57. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the date first above written. THE BORROWER CADENCE DESIGN SYSTEMS, INC. By ------------------------------ Name: Title: THE AGENT ABN AMRO BANK N.V., AS AGENT By ----------------------------- Name: Title: By ----------------------------- Name: Title: THE BANKS ABN AMRO BANK N.V., AS A BANK By ------------------------------- Name: Title: By ------------------------------- Name: Title: BANK OF AMERICA, N.A. By ------------------------------ Name: Title: BANK ONE, N.A. By ------------------------------ Name: Title: KEYBANK NATIONAL ASSOCIATION By ------------------------------ Name: Title: UBS AG, STAMFORD BRANCH By ----------------------------- Name: Title: By ----------------------------- Name: Title: BARCLAYS BANK PLC By ------------------------------ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED By ------------------------------- Name: Title: FLEET NATIONAL BANK By -------------------------------- Name: Title: MELLON BANK, N.A. By ------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By -------------------------------- Name: Title: BANK HAPOALIM B.M. By --------------------------------- Name: Title: WELLS FARGO BANK, NATIONAL ASSOCIATION By ---------------------------------- Name: Title: By ---------------------------------- Name: Title: THE FUJI BANK LIMITED By --------------------------------- Name: Title: ATTACHMENT A Permitted Receivables Purchase Facilities 1. Purchase and Sale Program Agreement executed and delivered as of February 25, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation ("Seller"), Cadence Design Systems, Inc., a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and BancBoston Leasing Inc., a Massachusetts corporation ("BancBoston"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of December 31, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation (in its individual capacity "Cadence Design"), Servicer, Cadence Credit Corporation, a Delaware corporation ("Cadence Credit"), Cadence Receivables Consolidation Corporation, a Delaware corporation and BancBoston. 2. Amended and Restated Purchase and Sale Program Agreement executed and delivered as of March 19, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Bane One Leasing Corporation, an Ohio corporation ("Banc One"), as supplemented by that certain Addendum to Amended and Restated Purchase and Sale Program Agreement executed and delivered as of March 19, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Banc one. 3. Purchase and Sale Program Agreement executed and delivered as of January 18, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Servicer, and Dresdner Kleinwort Benson North America Leasing, Inc. ("Dresdner"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of April 21, 1999, by and among Cadence Design, Cadence Credit Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation ("Cadence Consolidation"), and Dresdner. 4. Amended and Restated Purchase and Sale Program Agreement executed and delivered as of December 31, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Sanwa Business Credit Corporation, a Delaware corporation ("Sanwa"), as supplemented by that certain Addendum to Amended and Restated Purchase and Sale Program Agreement executed and delivered as of December 31, 1998, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation ("Cadence Consolidation"), and Sanwa. 5. Purchase and Sale Program Agreement executed and delivered as of March 24, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design, Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer", and Heller Financial Leasing, Inc., a Delaware corporation ("Heller"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of March 24, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Heller. 6. Purchase and Sale Program Agreement executed and delivered as of March 29, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Schedule 1-1 Contracts thereunder, "Servicer"), and Hitachi Credit America Corp., a Delaware corporation ("Hitachi"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of March 29, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Hitachi. 7. Purchase and Sale Program Agreement and amendment thereto executed and delivered as of December 1, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation, Cadence Design Systems, Inc., a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder), and International Software Finance Corporation, a Delaware corporation. 8. Purchase and Sale Program Agreement executed and delivered as of April 16, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit'), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Leasetec Corporation, a Delaware corporation ("Leasetec"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of April 16, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Leasetec. 9. Amended and Restated Purchase and Sale Program Agreement executed and delivered as of May 21, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Mellon US Leasing, a division of Mellon Leasing Corporation, a Pennsylvania corporation ("Mellon"), as supplemented by that certain Addendum to Amended and Restated Purchase and Sale Program executed and delivered as of May 21, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Mellon. 10. Amended and Restated Purchase and Sale Program executed and delivered as of March 12, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Prime Leasing, Inc., an Illinois corporation ("Prime Leasing"), as supplemented by that certain Addendum to Amended and Restated Purchase and Sale Program Agreement executed and delivered as of March 12, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Prime Leasing. 11. Purchase and Sale Program Agreement s executed and delivered as of March 31, 1999, by and among Cadence Design Systems, Inc., a Delaware corporation ("Cadence Design"), Cadence Credit Corporation, a Delaware corporation, ("Cadence Credit"), Cadence Credit Corporation, a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder, "Servicer"), and Siemens Credit Corporation, a Delaware corporation ("Siemens"), as supplemented by that certain Addendum to Purchase and Sale Program Agreement executed and delivered as of March 31, 1999, by and among Cadence Design, Cadence Credit, Servicer, Cadence Receivables Consolidation Corporation, a Delaware corporation, and Siemens. 12. Purchase and Sale Program Agreement executed and delivered as of June 24, 1998, by and among Cadence Design Systems, Inc., a Delaware corporation, Cadence Design Systems, Inc., a Delaware corporation (solely in its capacity as the servicer of the Contracts thereunder), and Software Lease Finance Group, Inc., a California corporation. 13. Purchase and Sale Program Agreement (United Kingdom) executed and delivered as of June 30, 2000, by and between Cadence Design Systems Limited ("Sellee") and Leasetec UK Limited ("Purchaser"). 14. Receivables Sale Agreement dated as of September 30, 1998, among Cadence Receivables Corporation, Cadence Credit Corporation, Cadence Design Systems, Inc., Windmill Funding Corporation, the liquidity providers from time to time party thereto, and ABN AMRO Bank N.V., as the enhancer and the agent, together with the other agreements in connection therewith. EX-10.03 18 a2029698zex-10_03.txt EX-10.03 Exhibit 10.03 CADENCE DESIGN SYSTEMS, INC. AMENDED AND RESTATED 1997 NONSTATUTORY STOCK OPTION PLAN EFFECTIVE AS AMENDED NOVEMBER 1, 2000 STOCKHOLDER APPROVAL NOT REQUIRED TERMINATION DATE: ABOVE 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 Employees and Consultants (as such terms are defined below) of the Company and its Affiliates, and to promote the success of the Company's business. Only "nonstatutory stock options" may be granted hereunder. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "AFFILIATE" shall mean any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code, or such other parent corporation or subsidiary corporation designated by the Board. (b) "BOARD" shall mean the Committee, if one has been appointed, or the Board of Directors, if no Committee is appointed. (c) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company. (d) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (e) "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. (f) "COMMON STOCK" shall mean the Common Stock of the Company. (g) "COMPANY" shall mean CADENCE DESIGN SYSTEMS, INC., a Delaware corporation. (h) "CONSULTANT" shall mean any consultants, independent contractors or advisers to the Company or an Affiliate (provided that such persons render bona fide services not in connection with the offering and sale of securities in capital raising transactions). (i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the absence of any interruption or termination of service to the Company or an Affiliate, whether as an Employee or Consultant. The Board or the Chief Executive Officer of the Company may determine, in that party's sole discretion, whether Continuous Status as an Employee or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the Chief Executive Officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between the Company, Affiliates or their successors. (j) "EMPLOYEE" shall mean any person employed by the Company or by any Affiliate. (k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (l) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (m) "OPTION" shall mean a nonstatutory stock option granted pursuant to the Plan. (n) "OPTION AGREEMENT" shall mean a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (o) "OPTIONED STOCK" shall mean the Common Stock subject to an Option. (p) "OPTIONEE" shall mean an Employee or Consultant who receives an Option. (q) "PLAN" shall mean this 1997 Nonstatutory Stock Option Plan. (r) "SHARE" shall mean a share of Common Stock, as adjusted in accordance with Section 11 of the Plan. 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 thirty million (30,000,000) 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. 2 4. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. The Plan shall be administered by the Board of Directors. 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. Notwithstanding anything in this Section 4 to the contrary, at any time the Board of Directors or the Committee may delegate to a committee of one or more members of the Board of Directors the authority to grant Options to all Employees and Consultants or any portion or class thereof. (b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the Board shall have such authority with regard to the Plan and the options as determined by the Board of Directors, including the authority, in its discretion: (i) to grant options under the Plan, provided, however, that only nonstatutory options may be granted under the Plan; (ii) to determine, upon review of relevant information and in accordance with Section 8(c) 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 nor 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) in accordance with the Plan, and, with the consent of the holder thereof with respect to any adverse change, modify or amend each Option; (viii) to accelerate or defer (the latter with the consent of the Optionee) the exercise date and vesting 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. 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 or she is otherwise eligible, be granted an additional Option or Options. Notwithstanding the foregoing, no Employee or Consultant who is an executive officer of the Company within the meaning of Section 16 of the Exchange Act, who is a member of the Board of Directors or who beneficially owns 10% or more of the Company's Common Stock shall be entitled to receive the grant of an Option under the Plan. 3 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 the Optionee's right or the Company's right to terminate the Optionee's employment at any time or the Optionee's consultancy pursuant to the terms of the Consultant's agreement with the Company. 6. TERM OF THE PLAN. The Plan shall become effective upon its adoption by the Board of Directors. It shall continue in effect until 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 as may be provided in the Option Agreement. 8. EXERCISE PRICE, CONSIDERATION AND VESTING. (a) EXERCISE PRICE. 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. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner which substantially satisfies the provisions of Section 424(a) of the Code. (b) FAIR MARKET VALUE. 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) CONSIDERATION. 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 (i) cash or check; (ii) promissory note (except that payment of the common stock's "par value", as defined in the Delaware General Corporation Law, shall not be made by deferred payment); (iii) other shares of the Common Stock of the Company having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option shall be exercised, including by delivering to the Company an attestation of ownership of owned and unencumbered shares of the Common Stock of the Company in a form approved by the Company; (iv) payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds; (v) any combination of such methods of payment; or (vi) 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. (d) VESTING. The total number of Shares subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that, from time to time during each of such installment periods, the 4 Option may become exercisable ("vest") with respect to some or all of the Shares allotted to that period, and may be exercised with respect to some or all of the Shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this Section 8(d) are subject to any Option provisions governing the minimum number of Shares as to which an Option may be exercised. 9. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. 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 stockholder 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. 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. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee or Consultant (or while an officer or director of the Company) to exercise the Option as to any part or all of the shares subject to the Option, subject to a repurchase right in favor of the Company on such terms as the Board shall establish. (b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If an Optionee ceases to serve as an Employee or Consultant for any reason other than death or disability, the Optionee may, but only within three (3) months (or such other period of time as is determined by the Board) after the date the Optionee ceases to be an Employee or Consultant, exercise the Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise such Option (which the Optionee was entitled to exercise) within the time specified herein, the Option shall terminate. 5 (c) DEATH OF OPTIONEE. In the event of the death of an Optionee during the term of the Option who is at the time of his or her death an Employee or Consultant 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 twelve (12) months (or such other period of time as is determined by the Board) 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, to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Option is not exercised (to the extent the Optionee was entitled to exercise) within the time specified herein, the Option shall terminate. (d) DISABILITY OF OPTIONEE. In the event of the disability of an Optionee during the term of the Option who is at the time of his or her disability an Employee or Consultant and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Optionee (or the Optionee's legal guardian or conservator) may, but only within twelve (12) months (or such other period of time as is determined by the Board) after the date the Optionee ceases to be an Employee or Consultant on account of such disability, exercise the Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise such Option (which the Optionee was entitled to exercise) within the time specified herein, the Option shall terminate. (e) WITHHOLDING. To the extent provided by the terms of the Option Agreement, the Optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such Option by any of the following means or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold Shares from the Shares otherwise issuable to the Optionee as a result of the exercise of the Option; or (iii) delivering to the Company owned and unencumbered shares of the common stock of the Company. 10. TRANSFERABILITY OF OPTIONS. Except as otherwise expressly provided in the terms of the Option Agreement, 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. Notwithstanding the foregoing, the Optionee may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. The number of Shares covered by each outstanding Option, and the number of Shares 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 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 6 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. For purposes of the Plan, a "Change in Control" shall be deemed to occur upon the consummation of any one of the following events: (a) a sale of all or substantially all of the assets of the Company; (b) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least 50% of the voting securities of the controlling acquiring corporation); (c) a merger or consolidation in which the Company is the surviving corporation and less than 50% of the voting securities of the Company which are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (d) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, becomes the beneficial owner of voting securities of the Company representing 40% or more of the combined voting power of all of the voting securities of the Company; (e) during any period of two consecutive years, individuals who at the beginning of such period constitute the membership of the Company's Board of Directors ("Incumbent Directors") cease for any reason to have authority to cast at least a majority of the votes which all directors on the Board of Directors are entitled to cast, unless the election, or the nomination for election by the Company's stockholders, of a new director was approved by a vote of at least two-thirds of the votes entitled to be cast by the Incumbent Directors, in which case such director shall also be treated as an Incumbent Director in the future; or (f) the liquidation or dissolution of the Company. In the event of a Change in Control, then: (a) any surviving or acquiring corporation shall assume Options outstanding under the Plan or shall substitute similar options (including an option to acquire the same consideration paid to stockholders in the transaction described in this Section 11 for those outstanding under the Plan, or (b) in the event any surviving or acquiring corporation refuses to assume such Options or to substitute similar options for those outstanding under the Plan, (i) with respect to Options held by persons then performing services as Employees or Consultants, the vesting of such Options and the time during which such Options may be exercised shall be accelerated prior to such event and the Options terminated if not exercised after such acceleration and at or prior to such event, and (ii) with respect to any other Options outstanding under the Plan, such Options shall be terminated if not exercised prior to such event. 7 Notwithstanding the foregoing, the Board shall at all times have the complete and sole discretion to accelerate the vesting and exercisability of some or all of the shares of Common Stock subject to any or all of then outstanding Options granted under the Plan and to establish the date as of which any such Option shall terminate (and all other terms and conditions relating to such termination.) 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. (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. The Company may require any Optionee, or any person to whom an Option is transferred under Section 10, as a condition of exercising any such Option, (i) to give written assurances satisfactory to the Company as to the Optionee's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the Shares subject to the Option for such person's own account and not with any present intention of selling or otherwise distributing the Shares. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the Shares upon the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended, or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may require the Optionee to provide such other representations, written assurances or information which the Company shall determine is necessary, desirable or appropriate to comply with applicable securities and other laws as a condition of granting an Option to such Optionee or permitting the Optionee to exercise such Option. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the shares. 8 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 or forms as the Board or the Committee shall approve. 17. EFFECTIVE DATE. The Plan initially became effective on May 1, 1997. The Plan, as amended and restated, shall become effective on November 1, 2000. 9 EX-10.05 19 a2029698zex-10_05.txt EX 10.05 Exhibit 10.05 TALITY CORPORATION EMPLOYMENT AGREEMENT This Employment Agreement (this "AGREEMENT") is entered into as of July 14, 2000, by and between ROBERT P. WIEDERHOLD, an individual residing in the State of California ("EXECUTIVE"), and TALITY CORPORATION, a Delaware corporation (the "COMPANY"), with its principal place of business in San Jose, California. WHEREAS, the Company is engaged in the business of providing design services for electronic devices, electronic system components and electronic systems and related businesses; WHEREAS, Executive is currently employed by Cadence Design Systems, Inc. ("CADENCE") as a senior executive; and WHEREAS, as part of the separation of the Company and Cadence, the Company desires to secure the services of Executive as its President and Chief Executive Officer, and Executive desires to perform such services for the Company, on the terms and conditions as set forth herein; NOW, THEREFORE, in consideration of the promises and of the covenants and agreements set forth below, it is mutually agreed as follows: 1. EMPLOYMENT BY THE COMPANY. 1.1 EFFECTIVE DATE. The Company agrees to employ Executive as its President and Chief Executive Officer, and Executive hereby accepts such employment, subject to the terms and conditions set forth herein. Executive's employment by the Company hereunder shall commence upon the date of this Agreement and shall continue thereafter on the same terms and conditions unless earlier terminated pursuant to Section 4 hereof. 1.2 DUTIES. Executive shall report directly to the Board of Directors (the "BOARD") and shall have such duties as are consistent with his position as President and Chief Executive Officer and as otherwise may be reasonably required by the Company. Executive agrees that he shall devote all of his business time and best efforts solely and exclusively to the performance of his duties hereunder and to the business and affairs of the Company, whether such business is operated directly by the Company or through one or more affiliates of the Company. 1.3 PLACE OF PERFORMANCE. Executive shall perform his duties under this Agreement at the Company's principal place of business in San Jose, California, or as relocated by the Company after the date hereof. 1.4 MEMBER OF THE BOARD OF DIRECTORS. Executive shall be elected a member of the Board as of the date hereof and the Company shall use its best efforts, subject to the fiduciary duties of the members of the Board, to nominate Executive for re-election to the Board at each Annual Stockholder's Meeting at which Executive is eligible for re-election during his period of service as President and Chief Executive Officer of the Company. 2. COMPENSATION. As full consideration for his services rendered hereunder, the Company shall pay to Executive the following compensation: 2.1 SALARY. Executive shall receive an annual base salary of Three Hundred Fifty Thousand dollars ($350,000) the ("BASE SALARY"), payable in installments in accordance with the Company's normal payroll practices, less such deductions or withholdings as may be required by law. 2.2 BONUS. Executive shall participate in the Company's Executive Bonus Plan (the "BONUS PLAN") and shall be entitled to receive an annual bonus targeted at $250,000 pursuant to the terms of the Bonus Plan, as adopted and as may be modified from time to time. Such bonus shall be pro-rated for the remainder of the year 2000. 2.3 STOCK OPTIONS. Executive shall be entitled to a grant of stock options of the Company on the terms and conditions set forth in a separate Option Agreement entered into by and between Executive and the Company on July 14, 2000 (a copy of the grant sheet for the Option Agreement is attached hereto as EXHIBIT A). 2.4 INDEMNIFICATION. In the event Executive is made, or threatened to be made, a party to any legal action or proceeding, whether civil or criminal, by reason of the fact that Executive is or was a director or officer of the Company or serves or served any other corporation fifty percent (50%) or more owned or controlled by the Company in any capacity at the Company's request, Executive shall be indemnified by the Company, and the Company shall pay Executive's related expenses when and as incurred, all to the fullest extent permitted by law, as more fully described in the Indemnity Agreement attached hereto as EXHIBIT B. 3. BENEFITS. Executive shall receive such pension, profit sharing and fringe benefits as the Board of Directors of the Company may, from time to time, determine to provide for the key executives of the Company. 4. TERMINATION OF EMPLOYMENT. Executive's employment by the Company shall terminate immediately upon Executive's receipt of written notice of termination by the Company, upon the Company's receipt of written notice of termination by Executive, or upon Executive's death or permanent disability. 4.1 TERMINATION UPON DEATH, DISABILITY. The Company may terminate Executive's employment in the event of his death or if Executive suffers a disability that renders him unable, as determined in good faith by the Board, to perform the essential functions of his position as President and Chief Executive Officer, even with reasonable accommodation, for any consecutive three (3) months within any twelve (12) month period. If Executive's employment is terminated under this Section 4.1, Executive (or Executive's estate or other designated beneficiary(s) as shown in the records of the Company) shall receive payment for any earned but unpaid Base Salary, a pro rata share of any target bonus Executive would be entitled to receive during the calendar year in which the termination occurs, and benefits under benefit plans of the Company that Executive may then be entitled to receive, if any, less standard withholdings for tax and social security purposes, through the termination date. The Company shall have no further obligation to pay any compensation of any kind nor to make any payment in lieu of 2 notice to Executive. All benefits provided to Executive by the Company under this Agreement or otherwise, shall cease as of the termination date. 4.2 VOLUNTARY TERMINATION. Executive may voluntarily terminate his employment with the Company at any time upon one (1) month's prior written notice. The Company may accelerate the termination of Executive's employment to a date prior to one (1) month after Executive's notice of resignation upon written notice thereof being delivered to Executive by the Company. If Executive's employment is terminated under this Section 4.2, Executive shall receive payment for any earned but unpaid Base Salary, and benefits under benefit plans of the Company that Executive may then be entitled to receive, if any, less standard withholdings for tax and social security purposes, through the termination date. The Company shall have no further obligation to pay any compensation of any kind nor to make any payment in lieu of notice to Executive. All benefits provided to Executive by the Company under this Agreement or otherwise, shall cease as of the termination date. 4.3 TERMINATION FOR CAUSE. (a) TERMINATION. The Company may terminate Executive's employment at any time for "CAUSE" (as defined below). If Executive's employment is terminated under this Section 4.3, Executive shall receive payment for any earned but unpaid base salary, and benefits under benefit plans of the Company that Executive may then be entitled to receive, if any, less standard withholdings for tax and social security purposes, through the termination date. The Company shall have no further obligation to pay any compensation of any kind nor to make any payment in lieu of notice to Executive. All benefits provided to Executive by the Company under this Agreement or otherwise, shall cease as of the termination date. (b) DEFINITION OF CAUSE. For purposes of this Agreement, the Company shall have "CAUSE" to terminate Executive's employment upon any of the following: (i) a material breach by Executive of this Agreement or the Employee Proprietary Information and Inventions Agreement referenced in Section 9 hereof; (ii) any breach of fiduciary duty or act of theft, misappropriation, embezzlement, intentional fraud or other violation of the law or similar conduct by Executive involving the Company or any affiliate; (iii) a conviction or a plea of NOLO CONTENDERE or the equivalent in respect of a felony involving an act of dishonesty, moral turpitude, deceit or fraud by Executive; (iv) any damage of a material nature to the business or property of the Company or any Affiliate caused by Executive's willful or grossly negligent conduct; (v) the willful failure by Executive to perform reasonable duties, responsibilities or instructions from the Board of Directors after fifteen (15) days written notice thereof; or (vi) any act of dishonesty or misconduct by Executive in connection with his responsibilities as President and Chief Executive Officer or otherwise. 4.4 TERMINATION WITHOUT CAUSE. The Company may, at any time, terminate Executive without cause. In the event that Executive's employment with the Company is terminated without cause, upon execution by Executive of an effective release of claims substantially in the form attached as EXHIBIT C, the final wording of which shall be determined by the Company (the "RELEASE"), (a) Executive shall receive payment for any earned but unpaid Base Salary, and benefits under benefit plans of the Company that Executive may then be entitled to receive, if any, less standard withholdings for tax and social security purposes, 3 through the termination date; (b) the Company shall continue to pay Executive his Base Salary for the twelve (12) months immediately following the termination date; (c) Executive shall receive the annual target bonus he would otherwise have been entitled to receive for the year in which such termination occurs, prorated through the termination date, plus an additional twelve (12) months' bonus at the same annual target rate; and (d) all of the unvested options held by Executive on the date of such termination shall immediately vest and become exercisable in full. The options shall remain exercisable for the period specified in the Option Agreement. 4.5 CONSTRUCTIVE TERMINATION. Notwithstanding anything in this Section 4 or Section 5 to the contrary, Executive may voluntarily end his employment with the Company and receive the benefits detailed in Section 4.4 upon or within ninety (90) days following the occurrence of an event constituting a "Constructive Termination," which for purposes of this Section 4.5 shall mean: (a) a material adverse change in Executive's position causing it to be of materially less stature or responsibility without Executive's written consent, and such a materially adverse change shall in all events be deemed to occur if Executive no longer serves as President and Chief Executive Officer reporting to the Board of Directors, unless Executive consents in writing to such change; (b) a reduction, without Executive's written consent, in his level of base compensation (including Base Salary and fringe benefits) by more than ten percent (10%) or a reduction by more than ten percent (10%) in his target bonus under the Bonus Plan; or (c) the Company's failure to obtain the agreement of a successor (after merger, consolidation, or sale of all assets) to assume the obligations set forth in this Agreement; or (d) a relocation of Executive's principal place of employment by more than thirty (30) miles, unless Executive consents in writing to such relocation. 4.6 AT-WILL EMPLOYMENT. Executive understands and agrees that employment with the Company is at-will, which means that either Executive or the Company may terminate this Agreement at any time, with or without cause, as set forth in this Agreement. Any modification of the at-will nature of this Agreement must be in writing and executed by Executive and the Company. 5. CHANGE IN CONTROL BENEFITS. 5.1 Should Executive's employment with the Company terminate upon a Change in Control (as defined below) then the following provisions shall become applicable in lieu of severance benefits otherwise payable under Section 4: (a) Upon execution of the Release, (i) Executive shall receive payment for any earned but unpaid Base Salary, and benefits under benefit plans of the Company that Executive may then be entitled to receive, if any, less standard withholdings for tax and social security purposes, through the termination date; (ii) the Company shall continue to pay Executive his Base Salary for the twelve (12) months immediately following the termination date; and (iii) 4 Executive shall receive the annual target bonus he would otherwise have been entitled to receive for the year in which such termination occurs, prorated through the termination date, plus an additional twelve (12) months' bonus at the same annual target rate. (b) All of the unvested options and other stock awards held by Executive on the date of such Change in Control shall immediately vest and become exercisable in full on the date of Executive's termination of employment, but not prior to the eighth (8th) day following Executive's execution of the Release, and shall remain exercisable for the period specified in the applicable option grant. (c) For purposes of this Section 5.1, a Change in Control shall be deemed to occur upon the consummation of any one of the following events: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least a majority of the voting securities of the acquiring corporation); (iii) a merger or consolidation in which the Company is the surviving corporation and less than fifty percent (50%) of the voting securities of the Company that are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (iv) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Exchange Act), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, becomes the beneficial owner of voting securities of the Company representing a majority of the combined voting power of all of the voting securities of the Company; (v) the acquisition, by an entity which is the beneficial owner of at least fifty-one percent (51%) of the voting securities of the Company, of all or substantially all of the voting securities of the Company; (vi) during any period of two consecutive years, individuals who at the beginning of such period constitute the membership of the Company's Board of Directors ("Incumbent Directors") cease for any reason to have authority to cast at least a majority of the votes which all Directors are entitled to cast, unless the election, or the nomination for election by the Company's stockholders, of a new Director was approved by a vote of at least two-thirds of the votes entitled to be cast by the Incumbent Directors, in which case such director shall also be treated as an Incumbent Director in the future; or (vii) the liquidation or dissolution of the Company. For purposes of Section 5.1(c)(iii) above, any person who acquired securities of the Company prior to the occurrence of the specified transaction in contemplation of such transaction and who immediately after such transaction possesses direct or indirect beneficial ownership of at least ten percent (10%) of the securities of the Company or the surviving corporation, as appropriate, (or if the Company or the surviving corporation is a controlled affiliate, then of the appropriate entity as determined above) shall not be included in the calculation of the group of persons who owned such voting securities immediately prior to such transaction. 5 5.2 In the event that the benefits payable hereunder to Executive (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "CODE"), or any comparable successor provisions, and (ii) but for this Section 5.2 would be subject to the excise tax imposed by Section 4999 of the Code, or any comparable successor provisions (the "EXCISE TAX"), then Executive's benefits hereunder shall be either: (i) provided to Executive in full, or (ii) provided to Executive as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, when taking into account applicable federal, state, local and foreign income and employment taxes, the Excise Tax, and any other applicable taxes, results in the receipt by Executive, on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5.2 shall be made in writing in good faith by a nationally recognized accounting firm which is then serving as the Company's independent auditors (the "ACCOUNTANTS"). In the event of a reduction of benefits hereunder, Executive shall be given the choice of which benefits to reduce. If Executive does not provide written identification to the Company of which benefits he chooses to reduce within ten (10) days of his receipt of the Accountants' determination, and Executive has not disputed the Accountants' determination, then the Company shall select the benefits to be reduced. For purposes of making the calculations required by this Section 5.2, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code, and other applicable legal authority. The Company and Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 5.2. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 5.2. If notwithstanding any reduction described in this Section 5.2, the Internal Revenue Service (the "IRS") determines that Executive is liable for the Excise Tax as a result of the receipt of the payment of benefits as described above, the Executive shall be obligated to pay back to the Company, within thirty (30) days after a final IRS determination or in the event that Executive challenges the final IRS determination, a final judicial determination, a portion of the payment equal to the "REPAYMENT AMOUNT." The Repayment Amount with respect to the payment of benefits shall be the smallest such amount, if any, as shall be required to be paid to the Company so that Executive's net after-tax proceeds with respect to any payment of benefits (after taking into account the payment of the Excise Tax an all other applicable taxes imposed on such payment) shall be maximized. The Repayment Amount with respect to the payment of benefits shall be zero if a Repayment Amount of more than zero would not result in Executive's net after-tax proceeds with respect to the payment of such benefits being maximized. If the Excise Tax is not eliminated pursuant to this paragraph, Executive shall pay the Excise Tax. 6 Notwithstanding any other provision of this Section 5.2, if (i) there is a reduction in the payment of benefits as described in this Section 5.2, (ii) the IRS later determines that Executive is liable for the Excise Tax, the payment of which would result in the maximization of Executive's net after-tax proceeds (calculated as if Executive's benefits had not previously been reduced), and (iii) Executive pays the Excise Tax, then the Company shall pay to Executive those benefits which were reduced pursuant to this subsection contemporaneously or as soon as administratively possible after Executive pays the Excise Tax so that Executive's net after-tax proceeds with respect to the payment of benefits are maximized. 6. INJUNCTIVE RELIEF. The parties hereto agree that damages would be an inadequate remedy for the Company in the event of a breach or threatened breach of Section 9, 10 or 11 of this Agreement by Executive, and in the event of any such breach or threatened breach, the Company may, either with or without pursuing any potential damage remedies, obtain and enforce an injunction prohibiting Executive from violating this Agreement and requiring Executive to comply with the terms of this Agreement. 7. DISPUTE RESOLUTION. The Company and Executive agree that any dispute regarding the interpretation or enforcement of this Agreement or any dispute arising out of Executive's employment or the termination of that employment with the Company, except for disputes regarding the interpretation of those sections referred to in Section 6 and disputes involving the protection of the Company's intellectual property, shall be decided by confidential, final and binding arbitration conducted by Judicial Arbitration and Mediation Services ("JAMS") under the then-existing JAMS rules, rather than by litigation in court, trial by jury, administrative proceeding, or in any other forum. 8. COOPERATION WITH THE COMPANY AFTER TERMINATION. Following termination by Executive, Executive shall fully cooperate with the Company in all matters relating to his employment, the winding up of his pending work on behalf of the Company and the orderly transfer of any such pending work to other employees of the Company as may be designated by the Company. 9. PROPRIETARY INFORMATION OBLIGATIONS. Executive acknowledges and incorporates herein by reference his obligations under the Employee Proprietary Information and Inventions Agreement executed by Executive on July 14, 2000 and attached hereto as EXHIBIT D. 10. NON-COMPETITION. Executive agrees that, during the Term and for a period of one (1) year after the last day of Executive's employment with the Company, he will not, directly or indirectly, provide services on behalf of any competing corporation, limited liability company, partnership, or other competing entity or person, whether as an employee, consultant, independent contractor, agent, sole proprietor, partner, joint venturer, corporate officer or director; nor shall Executive acquire by reason of purchase during the term of his employment with the Company the ownership of more than one percent (1%) of the outstanding equity interest in any such competing entity. For purposes of this Section 10 a "competing" entity is one engaged in the business of independent electronic design services and/or intellectual property licensing. Subject to the foregoing, Executive may serve on boards of directors of non-competing unaffiliated corporations, subject to advance approval by the Board, and may serve on the boards of charitable organizations. 7 11. NONINTERFERENCE. During the Term and for a period of one (1) year after the last day of Executive's employment with the Company, Executive agrees that he will not, except with the advance approval of the Company, voluntarily or involuntarily, for any reason whatsoever, directly or indirectly, individually or on behalf of Persons not now parties to this Agreement, or as a partner, stockholder, director, officer, principal, agent, employee or in any other capacity or relationship, for his own account or for the benefit of any other Person: (a) encourage, induce, attempt to induce, solicit or attempt to solicit anyone who is employed at that time, or was employed during the previous one (1) year, by the Company or any affiliate to leave his or her employment with the Company or any affiliate; or (b) interfere or attempt to interfere with the relationship or prospective relationship of the Company or any affiliate with any former, present or future client, customer, joint venture partner, or financial backer of the Company or any affiliate; or (c) solicit, divert or accept business, in any line or area of business engaged in by the Company or any affiliate, from any former, present or future client, customer or joint venture partner of the Company or any affiliate (other than on behalf of the Company). 12. GENERAL. 12.1 WAIVER. Neither party shall, by mere lapse of time, without giving notice or taking other action hereunder be deemed to have waived any breach by the other party of any of the provisions of this Agreement. Further, the waiver by either party of a particular breach of this Agreement by the other shall neither be construed as, nor constitute, a continuing waiver of such breach or of other breaches by the same or any other provision of this Agreement. 12.2 SEVERABILITY. If for any reason a court of competent jurisdiction or arbitrator finds any provision of this Agreement to be unenforceable, the provision shall be deemed amended as necessary to conform to applicable laws or regulations, or if it cannot be so amended without materially altering the intention of the parties, the remainder of the Agreement shall continue in full force and effect as if the offending provision were not contained herein. 12.3 NOTICES. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be considered effective either (a) upon personal service or (b) upon delivery by facsimile and depositing such notice in the U.S. Mail, postage prepaid, return receipt requested and addressed to the Chairman of the Board of the Company at its principal corporate address, and to Executive at his most recent address shown on the Company's corporate records, or at any other address which he may specify in any appropriate notice to the Company, or (c) upon only depositing such notice in the U.S. Mail as described in (b) above. 12.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together constitutes one and the same instrument and in making proof hereof it shall not be necessary to produce or account for more than one such counterpart. 12.5 ENTIRE AGREEMENT. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. The parties further agree that this Agreement, including the agreements referenced herein and attached as Exhibits hereto, constitute the complete and exclusive statement of the agreement between the parties and 8 supersede any and all prior or contemporaneous understandings, agreements, representations, conditions, covenants, proposals, and all other communications between the parties, whether written or oral, relating to the subject matter hereof. 12.6 GOVERNING LAW. This Agreement shall be governed by the laws of the State of California, excluding its conflict of laws rules. 12.7 ASSIGNMENT AND SUCCESSORS. The Company shall have the right to assign its rights and obligations under this Agreement to an entity which acquires substantially all of the assets of the Company. The rights and obligation of the Company under this Agreement shall inure to the benefit and shall be binding upon the successors and assigns of the Company. Executive shall not have any right to assign his obligations under this Agreement and shall only be entitled to assign his rights under this Agreement by will or the Laws of descent and distribution. 12.8 SURVIVAL. Sections 6 through 12 shall survive any termination of this Agreement. 12.9 AMENDMENTS. This Agreement and the terms and conditions of the matters addressed in this Agreement may only be amended in writing executed both by the Executive and a duly authorized representative of the Company. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. EXECUTIVE: /s/ Robert P. Wiederhold - ------------------------------------------ Robert P. Wiederhold TALITY CORPORATION: By: /s/ Duane M. Bell --------------------------------------- Name: Duane M. Bell Title: Senior Vice President, Chief Financial Officer 9 EX-10.06 20 a2029698zex-10_06.txt EX-10.06 Exhibit 10.06 TALITY CORPORATION 2000 EQUITY INCENTIVE PLAN EFFECTIVE JULY 13, 2000 1. PURPOSES. (a) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means by which eligible participants may be given an opportunity to benefit from increases in value of the Common Stock of Tality Corporation, a Delaware corporation and through the granting of the following Stock Awards: (i) statutory stock options, (ii) non-statutory stock options, (iii) stock appreciation rights and (iv) restricted stock awards. (b) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. CERTAIN DEFINITIONS. (a) "ADMINISTRATOR" means the Committee, and if no Committee is appointed, the Board. (b) "AFFILIATE" means any entity approved by the Board in which the Company holds an ownership interest (by value or voting rights) of at least 50%, or any other entity approved by the Board which has an ownership interest (by value or voting rights) of at least 30% in the Company (a "Parent"), or any other entity approved by the Board in which a Parent has an ownership interest (by value or voting rights) of at least 50%; provided that with respect to any ISO, the term Affiliate shall mean any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c). (f) "COMMON STOCK" means the Class A Common Stock of the Company. (g) "COMPANY" means Tality Corporation, a Delaware corporation. (h) "CONSULTANT" means any person, including an advisor, engaged by the Company 1 or an Affiliate to render consulting or advisory services and who is compensated for such services. However, the term "Consultant" shall not include Directors or members of the Board of Directors of an Affiliate. (i) "CONTINUOUS SERVICE" shall mean the absence of any interruption or termination of service to the Company or an Affiliate, whether as an Employee, Director or Consultant. The Board or the Chief Executive Officer of the Company may determine, in that party's sole discretion, whether Continuous Service shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the Chief Executive Officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between the Company, Affiliates or their successors. (j) "COVERED PARTICIPANT" means a Participant who is (or, in the judgment of the Administrator, could reasonably be expected to become) a "covered employee" defined in Section 162(m)(3) of the Code. (k) "DIRECTOR" means a member of the Board of Directors of the Company. (l) "EMPLOYEE" means any officer or employee of the Company or an Affiliate. (m) "EMPLOYER" means the Company and any other Affiliate that has adopted the Plan with the Company's permission. (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (o) "FAIR MARKET VALUE" means, as of any date, the average of the high and low prices of the Common Stock, as reported on the NASDAQ National Market on such date, or if such date is not a date on which the Common Stock is traded, the first preceding trading date. In the absence of such market for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (p) "INCENTIVE STOCK OPTION" OR "ISO" means a statutory stock option granted pursuant to the Plan that is intended to quality as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (q) "INITIAL PUBLIC OFFERING" means the effectiveness of a registration statement under the Securities Act covering any of the capital stock of the Company and the completion of a sale of such stock thereunder, if as a result of such sale (i) the issuer becomes a reporting company under Section 12(b) or 12(g) of the Exchange Act, and (ii) such stock is traded on the New York Stock Exchange or the American Stock Exchange, or is quoted on the Nasdaq Stock Market or is traded or quoted on any other national stock exchange or securities system. (r) "NON-QUALIFIED STOCK OPTION" OR "NQSO" means a stock option granted pursuant to the Plan not intended to qualify as an ISO. (s) "OPTION" means an ISO or NQSO. 2 (t) "OPTION AGREEMENT" means a written agreement between an Employer and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (v) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award. (w) "PLAN" means this Tality Corporation 2000 Equity Incentive Plan. (x) "RESTRICTED STOCK AWARD" means a Stock Award as described in section 7(b) of the Plan. (y) "SECURITIES ACT" means the Securities Act of 1933, as amended. (z) "SHARES" means shares of Common Stock. (aa) "STOCK APPRECIATION RIGHT" OR "SAR" means the right to receive an amount equal to the excess of the Fair Market Value of a Share of Common Stock (as determined on the date of exercise) over the exercise price of the related Stock Award. (bb) "STOCK AWARD" means any right granted under the Plan, including an Option, a SAR and a Restricted Stock Award. (cc) "STOCK AWARD AGREEMENT" means a written agreement between an Employer and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (dd) "TEN PERCENT OWNER" means a Participant who owns, directly or by reason of the applicable attribution rules of Code Section 424(d), more than 10% of the total combined voting power of all classes of capital stock of the Company or its parent or subsidiary corporations, if any, as defined in Code Sections 424(e) and (f). 3. ADMINISTRATION. (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) POWERS OF BOARD. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine from time to time which Employees and/or Consultants shall be eligible to receive Stock Awards under the Plan; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a 3 Stock Award shall become vested and/or free of any restrictions; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person. The Board furthermore may delegate to one or more executive officers of the Company the authority to make Stock Awards to Participants who are not executive officers of the Company (as designated by the Company or otherwise covered as such under Rule 16b-3 of the Exchange Act ("Rule 16b-3")) ("Executive Officers") or Covered Participants. Awards made to the Executive Officers or Covered Participants shall be determined by the Board or the Committee. The Board shall also have the authority to establish subplans or other arrangements not inconsistent with the Plan which the Board deems necessary or advisable to comply with laws or requirements of foreign jurisdictions. (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective; (iii) To amend the Plan or a Stock Award as provided in Section 12; and (iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company that are not in conflict with the provisions of the Plan. (c) DELEGATION TO COMMITTEE. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. For any Stock Award intended to qualify as "performance-based compensation "under Code Section 162(m) or as an exempt award under Rule 16b-3, the Committee shall consist of two or more "outside directors" as defined for purposes of applying Code Section 162(m), and two or more "non-employee directors" as defined in Rule 16b-3. (d) EFFECT OF ADMINISTRATOR'S DECISION. All determinations, interpretations and constructions made by the Administrator in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. (e) INDEMNIFICATION OF COMMITTEE. In addition to such other rights of indemnification as they may have as directors or as members of the Committee or otherwise, the members of the Committee, and any executive officers to whom the Committee has delegated any of its rights and responsibilities, shall be indemnified by the Company against reasonable 4 expenses incurred from their administration of the Plan, including, without limitation, related attorneys' fees actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, and against all reasonable amounts paid by them in settlement thereof or paid by them in satisfaction of a judgment in any such action, suit or proceeding, if such members acted in good faith and in a manner which they believed to be in, and not opposed to, the best interests of the Employer. 4. SHARES SUBJECT TO THE PLAN. (a) SHARE RESERVE. Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, and Sections 4(b) and 4(d) hereof, the number of shares of Common Stock with respect to which Stock Awards may be issued pursuant to the Plan shall not exceed in the aggregate 10,000,000 Shares. (b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the number of shares of Common Stock with respect to which the Stock Award was not exercised or settled shall revert to and again become available for issuance under the Plan. If the Company repurchases any unvested shares of Common Stock acquired pursuant to an Award, such repurchased shares of Common Stock shall revert to and again become available for issuance under the Plan. (c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. (d) EVERGREEN. The number of Shares reserved under Section 4(a) shall be increased annually for four (4) years on each July 2, beginning on July 2, 2001 and ending on July 2, 2004, by 2,500,000 Shares per year. (e) ANNUAL LIMIT. No Participant under the Plan shall be issued Stock Awards, whether underlying Options or SARs, or as Restricted Stock Awards, for more than 5,000,000 Shares in any calendar year. (f) ISO LIMITS. Notwithstanding Sections 4(b) and 4(d), the maximum number of Shares that may be acquired by Participants hereunder pursuant to ISOs shall not exceed 10,000,000, subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock. 5. ELIGIBILITY. (a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. The Board may grant Stock Awards only to Directors, Employees or Consultants as defined in Section 2 hereof. The Board may grant an additional Stock Award or Stock Awards to a Director, Employee or a Consultant who has been granted a Stock Award previously if he or she is otherwise eligible. However, only Employees of the Company or any parent corporation or subsidiary corporation (as those terms are defined in Code Section 424(e) and (f), respectively) shall be eligible to receive ISOs under the Plan. 5 (b) CONSULTANTS. (i) A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("Form S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (E.G., on a Form S-3 Registration Statement) or (B) does not require registration under Rule 701 of the Securities Act, or any other applicable exemption, in order to comply with the requirements of the Securities Act (if applicable), and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. (ii) Consultants shall not be eligible to receive ISOs under the Plan. (c) Notwithstanding any other provision of the Plan, the Board or the Committee may impose such conditions on any Stock Award (including approval of any Stock Award by the Board of Directors or Compensation Committee of the Company), and the Board may amend the Plan in any such respects, as may be required to satisfy the requirements of Rule 16b-3 under the Exchange Act, Code Section 162(m), or Code Section 422. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. Options may be granted by the Company or an Employer directly to a Participant, or may be granted to a Participant by an Affiliate by way of reassignment of options held by such Affiliate to purchase Shares of Common Stock of the Company. The provisions of separate Options need not be identical, but each Option shall state whether it is intended to be an ISO or NQSO, and shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) TERM. The Board shall determine the term of each Option, which shall not be greater than ten (10) years following the date granted, or five (5) years for an ISO granted to a Ten Percent Owner. No Stock Award shall be granted later than 10 years following the Effective Date (as defined in Section 14) of the Plan. (b) EXERCISE PRICE. The exercise price of each Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted (one hundred ten percent (110%) of Fair Market Value for ISOs granted to a Ten Percent Owner). Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) NUMBER OF SHARES. Each Option shall state the number of Shares to which it pertains. 6 (d) ISOS. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of Common Stock with respect to which ISOs are exercisable for the first time by any Optionholder in any calendar year (under all plans of the Employer and its parent or subsidiary corporations) exceeds $100,000, such Options shall be treated as NQSOs. In addition, no Options shall be deemed ISOs hereunder unless the Plan is approved by the stockholders of the Company within 12 months before or after the Effective Date. (e) CONSIDERATION. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option or subsequently (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. 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. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (f) TRANSFERABILITY. Unless otherwise provided in the Agreement, an Option shall not be transferable by the Optionholder other than by will or by the laws of descent and distribution or, except with respect to ISOs, a domestic relations order; provided, however, that the designation of a beneficiary of an Option by an Optionholder shall not be deemed a transfer prohibited by this Section. Notwithstanding the foregoing, transfers of NQSOs may be made with the prior approval of the Committee and on such terms and conditions as the Committee in its sole discretion shall approve, to the following permitted transferees: (a) in the case of a transfer without the payment of any consideration, any "family member" as such term is defined in Section 1(a)(5) of the General Instructions to Form S-8 under the Securities Act as in effect at the time of such transfer, (b) to any person or entity described in clause (ii) of Section 1(a)(5) of the General Instructions to Form S-8 under the Securities Act as in effect at the time of such transfer, and (iii) upon an Optionholder's death, Optionholder's executors, administrators, testamentary trustees, legatees and beneficiaries. Further, no right or interest of any Optionholder in an Option may be assigned in satisfaction of any lien, obligation, or liability of the Optionholder. Except as provided in this Section, an Option shall be exercisable, during the Optionholder's lifetime, only by such Optionholder (or by his or her legal representative) and no Option shall be assigned, pledged, or hypothecated in any way (whether by operation of law or 7 otherwise) or be subject to execution, attachment, or similar process. Any attempted transfer, assignment, pledge, hypothecation, or other disposition of any Option or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon an Option, shall be null and void. (g) VESTING GENERALLY. (i) The total number of Shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. Such provisions may furthermore provide for accelerated vesting in the event the Participant takes one or more actions and/or meets various performance criteria within a stated period of time or by a date certain. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of Shares of Common Stock as to which an Option may be exercised. (ii) Unless otherwise set forth in an Option Agreement, all Options granted under the Plan to any Participant who holds, unvested at the date of grant of such Options, options to purchase common stock of Cadence Design Systems, Inc. ("Cadence Options") will remain unvested and unexercisable until the date that is seven (7) years from the date of grant, at which time the Option will become fully vested and exercisable unless earlier terminated in accordance with the terms of the Option Agreement. However, unless otherwise set forth in the Option Agreement, all Options granted to any Participant who holds, at the date of grant of such Options, unvested Candence Options, and who executes a Consent, Waiver and Release ("Consent") in the form as attached to the applicable Option Agreement (if applicable), thereby surrendering such Participant's unvested Cadence Options, on or before the thirtieth (30th) day after the effective date of an Initial Public Offering (the "Consent Date"), then the subject Option shall vest over four (4) years as follows: One year from the Consent Date: 1/4 Each month thereafter over the subsequent three years: 1/48 (h) TERMINATION OF CONTINUOUS SERVICE. (i) FOR CAUSE. Except as otherwise provided in an Option Agreement, if an Optionholder's Continuous Service if terminated for cause (as hereinafter defined), all outstanding and unexercised Options shall immediately be terminated as of the date such Optionholder is notified that his or her Continuous Service is terminated for cause. (ii) NOT FOR CAUSE. In the event an Optionholder's Continuous Service terminates (other than for cause, or upon the Optionholder's death or disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's 8 Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (iii) DEFINITION OF CAUSE. The Company or an Affiliate shall have "cause" to terminate the Continuous Service of an Optionholder upon any of the following: (A) a material breach by an Optionholder of this Agreement or any written confidentiality or trade secrets agreement entered into between Optionholder and the Company or any Affiliate; (B) any act of theft, misappropriation, embezzlement, intentional fraud or other violation of the law or similar conduct by the Optionholder involving the Company or any Affiliate; (C) a conviction or a plea of NOLO CONTENDERE or the equivalent in respect of a felony involving an act of dishonesty, moral turpitude, deceit or fraud by Optionholder; (D) any damage of a material nature to the business or property of the Company or any Affiliate caused by the Optionholder's willful or grossly negligent conduct; (E) the willful failure by Optionholder to perform reasonable duties, responsibilities or instructions from the Company's Board of Directors or other officers or management of the Company or its Affiliates that the Optionholder reports to, after fifteen (15) days written notice thereof; or (F) any act of dishonesty or misconduct by Optionholder in connection with his or her Continuous Service or otherwise. Notwithstanding the foregoing, any definition of "cause" in a written agreement between an Optionholder and the Company or an Affiliate, which contains a conflicting definition of "cause" for termination and which is in effect at the time of such termination, shall supersede the definition in this Plan with respect to such Optionholder. (i) EXTENSION OF TERMINATION DATE. Solely with respect to a NQSO, an Optionholder's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (j) DISABILITY OF OPTIONHOLDER. Except as otherwise set forth in an Option Agreement, in the event that an Optionholder's Continuous Service terminates as a result of the Optionholder's disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement for termination upon disability) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (k) DEATH OF OPTIONHOLDER. Except as otherwise set forth in an Option Agreement, in the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's 9 death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder's death pursuant to subsection 6(f), but only within the period ending on the earlier of (1) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement for termination upon death) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. (l) EARLY EXERCISE. The Option Agreement may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased shall be subject to a repurchase option in favor of the Company or to any other additional restrictions the Board determines to be appropriate. (m) RE-LOAD OPTIONS. (i) Without in any way limiting the authority of the Board to make or not to make grants of Options hereunder, the Board shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionholder to a further Option (a "Re-Load Option") in the event the Optionholder exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Unless otherwise specifically provided in the Option, the Optionholder shall not surrender shares of Common Stock acquired, directly or indirectly from the Company, unless such shares have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). (ii) Any such Re-Load Option shall (1) provide for a number of shares of Common Stock equal to the number of shares of Common Stock surrendered as part or all of the exercise price of such Option; (2) have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (3) have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option shall be subject to the same exercise price and term provisions heretofore described for Options under the Plan. (iii) There shall be no Re-Load Options granted with respect to a Participant's exercise of a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares of Common Stock under subsection 4(a) and shall be subject to such other terms and conditions as the Board may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options. 10 7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS. (a) GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and provisions of the Plan and applicable law, the Board, at any time and from time to time, may grant freestanding Stock Appreciation Rights, Stock Appreciation Rights in tandem with an Option, or Stock Appreciation Rights in addition to an Option. Stock Appreciation Rights granted in tandem with an Option or in addition to an Option may be granted at the time the Option is granted or at a later time. No Stock Appreciation Rights granted under the Plan may be exercisable after the expiration of ten years from the grant date. (i) EXERCISE PRICE. The Exercise Price of each Stock Appreciation Right shall be determined on the grant date by the Committee, subject to the limitation that the Exercise Price shall not be less than 100% of Fair Market Value on the grant date. However, Stock Appreciation Rights issued upon assumption of, or in substitution for, stock appreciation rights of a company with which the Company or an Affiliate participates in an acquisition, separation or similar corporate transaction may be issued at an Exercise Price less than 100% of the Fair Market Value. (ii) EXERCISE. The Participant is entitled to receive an amount equal to the excess of the Fair Market Value over the Exercise Price thereof on the date of exercise of the Stock Appreciation Right. (iii) PAYMENT. Payment upon exercise of the Stock Appreciation Right shall be made in the form of cash, Shares (valued at Fair Market Value on the date of exercise), or a combination thereof, as determined in the sole and complete discretion of the Committee. However, if any payment in the form of Shares results in a fractional share, the payment for the fractional share shall be made in cash. (b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: (i) PURCHASE PRICE. The purchase price under each restricted stock purchase agreement shall be such amount as the Board shall determine and designate in such restricted stock purchase agreement. (ii) CONSIDERATION. The purchase price of Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, then payment of the Common Stock's "par value," as defined in the 11 Delaware General Corporation Law, shall not be made by deferred payment. (iii) VESTING. Shares of Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a Participant's Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the Shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the restricted stock purchase agreement. (v) TRANSFERABILITY. Rights to acquire Shares of Common Stock under the restricted stock purchase agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement. 8. COVENANTS OF THE COMPANY. (a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the Company shall keep available at all times the number of Shares of Common Stock required to satisfy such Stock Awards. (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell Shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. 9. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of Common Stock pursuant to Stock Awards shall be used in any manner the Company deems appropriate. 10. MISCELLANEOUS. (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest, and such acceleration may be contingent upon the happening of any 12 event or the taking of any action as specified in the Board within its complete discretion. (b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, or (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate. (d) INVESTMENT ASSURANCES. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant's own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. (e) TAX OBLIGATIONS. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any foreign, federal, state or local tax withholding obligation or other tax obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold Shares from the Shares otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no Shares are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered Shares. 13 (f) ISSUANCES OF SECURITIES. Except as expressly provided herein or in the applicable Stock Award Agreement, 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 subject to Stock Awards. Except as expressly provided herein or in the applicable Stock Award Agreement, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company. (g) FRACTIONAL SHARES. No fractional Share shall be issued under the Plan and the person exercising such right shall receive from the Employer cash in lieu of such fractional share equal to the Fair Market Value thereof. (h) NATURE OF PAYMENTS. All Stock Awards shall constitute a special incentive payment to the Participant and shall not be taken into account in computing the amount of salary or compensation of the Participant for the purpose of determining any benefits under any pension, retirement, profit-sharing, bonus, life insurance, or other benefit plan of the Employer or under any agreement between the Employer and the Participant, unless such plan or agreement specifically provides otherwise. 11. ADJUSTMENTS UPON CHANGES IN STOCK. (a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to Section 4, and outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.) (b) CHANGE IN CONTROL. (i) A "Change in Control" shall be deemed to occur upon the consummation of any one of the following events: (a) a sale of all or substantially all of the assets of the Company; (b) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least a majority of the voting securities of the controlling acquiring corporation); (c) a merger or consolidation in which the Company is the surviving corporation and less than a majority of the voting securities of the Company that are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (d) any 14 transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Exchange Act), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, becomes the beneficial owner of voting securities of the Company representing a majority of the combined voting power of all of the voting securities of the Company; PROVIDED, HOWEVER, that so long as Cadence Design Systems, Inc., a Delaware corporation, or its affiliates other than the Company (collectively, "Cadence"), own any voting securities of the Company and no other Change in Control has occurred, acquisition of any amount of voting securities of the Company by Cadence or its Affiliates shall not constitute a "Change in Control" hereunder; (e) during any period of two consecutive years, individuals who at the beginning of such period constitute the membership of the Company's Board of Directors ("Incumbent Directors") cease for any reason to have authority to cast at least a majority of the votes which all directors are entitled to cast, unless the election, or the nomination for election by the Company's stockholders, of a new Director was approved by a vote of at least two-thirds of the votes entitled to be cast by the Incumbent Directors, in which case such Director shall also be treated as an Incumbent Director in the future; or (f) the liquidation or dissolution of the Company. (ii) In the event of a Change in Control, then: (a) any surviving or acquiring corporation shall assume Stock Awards outstanding under the Plan or shall substitute similar Stock Awards (including an option to acquire the same consideration paid to stockholders in the transaction described in this subsection 11(b) for those outstanding under the Plan), or (b) in the event any surviving or acquiring corporation refuses to assume such Stock Awards or to substitute similar Stock Awards for those outstanding under the Plan, (i) with respect to Stock Awards held by persons whose Continuous Service has not terminated, the vesting both of such Stock Awards and of any shares of Common Stock acquired pursuant to a Stock Award as well as the time during which such Stock Awards may be exercised shall be accelerated prior to such event and the Stock Awards terminated if not exercised after such acceleration and at or prior to such event, and (ii) with respect to any other Stock Awards outstanding under the Plan, if there is a successor corporation, such Stock Awards shall be terminated if not exercised prior to such event. (c) Notwithstanding anything else contained herein to the contrary, in no event shall a Change in Control be deemed to occur solely by reason of (1) a distribution to the direct and/or indirect stockholders of any Affiliate, whether as dividend or otherwise, of all or any portion of the Shares held, directly or indirectly, by such Affiliate; (2) a sale of all or any portion of the Shares held, directly or indirectly, by any Affiliate in an underwritten public offering (including, without limitation, a sale of securities of the Company in an underwritten public offering); or (3) any Person (the "Subject Person") acquiring beneficial ownership of more than the permitted amount of the then outstanding voting securities as a result of the acquisition of Shares by the Company or Affiliate which, by reducing the number of Shares then outstanding, increases the percentage of Shares beneficially owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares by the Company or an Affiliate, and after such Share acquisition by the Company or an Affiliate, the Subject Person becomes the beneficial owner of any additional Shares which further increases the percentage of the then outstanding Shares beneficially owned by the Subject 15 Person, then a Change in Control shall occur. (d) Notwithstanding the foregoing, any adjustments made pursuant to subsection (a) above with respect to ISOs shall be made only after the Administrator determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424(h) of the Code). If the Administrator determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments, unless the holder of an ISO specifically requests in writing that such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such "modification" on his or her income tax treatment with respect to the ISO. 12. AMENDMENT OF THE PLAN AND STOCK AWARDS. (a) AMENDMENT OF PLAN. The Plan may be amended by the Board, including, without limitation, to the extent necessary to ensure the qualification of any Award under Rule 16b-3 or Code Section 162(m), or any ISO under Code Section 422, and to the extent necessary to qualify the Shares issuable upon exercise of any outstanding Stock Awards granted, or Stock Awards to be granted, under the Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers. Any amendment that requires shareholder approval under applicable law or in order to ensure favorable federal income tax treatment for any ISOs shall be subject to obtaining such approval. (b) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. (c) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights of a Participant under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. 13. TERMINATION OR SUSPENSION OF THE PLAN. (a) PLAN TERM. The Plan shall terminate as of July 13, 2010, the date that is ten (10) years following the earlier of the date the Plan was adopted by the Company or approved by the shareholders of the Company. The Board may furthermore suspend or terminate the Plan at any time. (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant. 14. EFFECTIVE DATE OF PLAN. The Plan shall become effective on July 13, 2000, the date on which it was approved by the Board. 16 15. GOVERNING LAW. The Plan shall be governed by laws of the state of Delaware. In the event any provision of the Plan shall be held invalid, illegal or unenforceable, in whole or in part, for any reason, such determination shall not affect the validity, legality or enforceability of any remaining provision, portion of provision or the Plan overall, which shall remain in full force and effect as if the Plan had been absent the invalid, illegal or unenforceable provision or portion thereof. 16. CERTAIN PARTICIPANTS. All Stock Award Agreements with Participants subject to Section 16(b) of the Exchange Act shall be deemed to include any such additional terms, conditions, limitations and provisions as Rule 16b-3 requires, unless the Administrator in its discretion determines that any such Stock Award should not be governed by Rule 16b-3. To the extent any provision of the Plan or any action by the Administrator fails to so comply with Rule 16b-3, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator. All performance-based Stock Awards to Covered Participants shall be deemed to include any such additional terms, conditions, limitations and provisions as are necessary to comply with the performance-based compensation exception of Section 162(m) of the Code unless the Administrator in its discretion determines that any such Award to a Covered Participant is not intended to qualify for the exception for performance-based compensation under Section 162(m). All Agreements awarding ISOs shall be deemed to include any such additional terms conditions, limitations, and provisions as Code Section 422 requires unless the Administrator in its discretion determines that any such Option is not intended or is no longer intended to qualify as an ISO. 17. LISTING, REGISTRATION AND OTHER LEGAL COMPLIANCE. Notwithstanding any other provision of this Plan, no Stock Awards or Shares of the Common Stock shall be required to be issued or granted under the Plan unless legal counsel to the Company shall be satisfied that such issuance or grant will be in compliance with all applicable federal and state securities laws and regulations and any other applicable laws or regulations. The Administrator may require, as a condition of any payment or share issuance, that certain agreements, undertakings, representations, certificates, and/or information, as the Administrator may deem necessary or advisable, be executed or provided to the Company to assure compliance with all such applicable laws or regulations. Any certificates for Shares of the Common Stock delivered under the Plan may be subject to such legends, stock-transfer orders and such other restrictions as the Administrator may deem advisable under the rules, regulations, or other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, the NASDAQ National Market System, and any applicable federal or state securities law. In addition, if, at any time specified herein (or in any Agreement or otherwise) for (a) the making of any Stock Award, or the making of any determination, (b) the issuance or other distribution of Common Stock, or (c) the payment of amounts to or through a Participant with respect to any Stock Award, any law, rule, regulation, or other requirement of any governmental authority or agency shall require the Company or any Affiliate, or any Participant (or any estate, designated beneficiary, or other legal representative thereof) to take any action in connection with any such determination, any such Shares to be 17 issued or distributed, any such payment, or the making of any such determination, as the case may be, shall be deferred until such required action is taken. 18 EX-10.07 21 a2029698zex-10_07.txt EX-10.07 Exhibit 10.07 TALITY CORPORATION 2000 DIRECTORS STOCK OPTION PLAN 1. PURPOSE The purpose of the Tality Corporation Directors Stock Option Plan (the "Plan") is to advance the interests of Tality Corporation, a Delaware corporation (hereinafter the "Company"), by enabling the Company to attract, retain and motivate qualified individuals to serve on the Company's Board of Directors and to align the financial interests of such individuals with those of the Company's stockholders by providing for or increasing their proprietary interest in the Company. The stock options granted pursuant to this Plan are not qualified under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. DEFINITIONS (a) "Board" means the Board of Directors of the Company. (b) "Committee" means the Board and/or a committee of the Board acting pursuant to its authorization to administer this Plan under Section 7. (c) "Common Stock" means the Company's Class A Common Stock, as presently constituted, subject to adjustment as provided in Section 9. (d) "Fair Market Value" means, as of any date, the mean average of the high and low prices of the Common Stock for each of the last 20 trading days prior to the such date on the national securities exchange, national market system or other trading market on which the Common Stock has the highest average trading volume. In the absence of such market for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (e) "Non-Employee Director" means a member of the Board who is not at the time also an employee of the Company or any of its direct or indirect majority-owned subsidiaries (regardless of whether such subsidiary is organized as a corporation, partnership or other entity). For purposes of this Plan, the Chairman of the Board's status as an employee shall be determined by the Board. 3. SHARES SUBJECT TO THE PLAN Subject to adjustment as provided in Section 9, the maximum number of shares of Common Stock which may be issued pursuant to this Plan shall not exceed Six Hundred Seventy-Five Thousand (675,000) Shares issued under this Plan may be authorized and unissued shares of Common Stock or shares of Common Stock reacquired by the Company. All or any shares of Common Stock subject to a stock option which for any reason are not issued or are reacquired under the stock option may again be made subject to a stock option under the Plan. -1- 4. PARTICIPANTS Any person who is a Non-Employee Director shall be eligible for the award of stock options hereunder. Non-Employee Directors who are granted stock options hereunder shall be referred to as "Participants." 5. NON-EMPLOYEE DIRECTOR AWARDS (a) Each person who becomes a Non-Employee Director during any calendar year shall, upon election to the Board, automatically be granted an option to purchase 50,000 shares of Common Stock. If such person is also elected as the Chairman of the Board, such person shall, upon election as Chairman of the Board, automatically be granted an additional option to purchase 50,000 shares of Common Stock. (b) Other than the calendar year in which such person becomes a Non-Employee Director, each Non-Employee Director, on July 1 of each calendar year, beginning July 1, 2001, shall automatically be granted an option to purchase 12,500 shares of Common Stock. In addition, if such Non-Employee Director is serving as Chairman of the Board, such Non-Employee Director shall automatically be granted an option to purchase an additional 12,500 shares of Common Stock. 6. TERMS AND CONDITIONS OF STOCK OPTIONS (a) GENERAL TERMS AND CONDITIONS: Stock options awarded pursuant to the Plan need not be identical but each stock option shall be subject to the following general terms and conditions: (1) TERMS AND RESTRICTIONS UPON SHARES: The Board may provide that the shares of Common Stock issued upon exercise of a stock option shall be subject to such further conditions, restrictions or agreements as the Board in its discretion may specify prior to the exercise of such stock option, including without limitation, deferrals on issuance, conditions on vesting or transferability, and forfeiture or repurchase provisions. The Committee may establish rules for the deferred delivery of Common Stock upon exercise of a stock option with the deferral evidenced by use of "Stock Units" equal in number to the number of shares of Common Stock whose delivery is so deferred. A "Stock Unit" is a bookkeeping entry representing an amount equivalent to the Fair Market Value of one share of Common Stock. Stock Units represent an unfunded and unsecured obligation of the Corporation except as otherwise provided by the Board. Settlement of Stock Units upon expiration of the deferral period shall be made in Common Stock or otherwise as determined by the Committee. The amount of Common Stock, or other settlement medium, to be so distributed may be increased by an interest factor or by dividend equivalents. Until a Stock Unit is settled, the number of shares of Common Stock represented by a Stock Unit shall be subject to adjustment pursuant to Section 9. -2- (2) TRANSFERABILITY OF OPTION: Unless otherwise provided by the Committee, each stock option shall be transferable only by will or the laws of descent and distribution. (3) VESTING. Options granted pursuant to Section 5 shall vest over a four year period, with 25% of each option vesting on the first through fourth anniversaries of the date of grant of such option. (4) OTHER TERMS AND CONDITIONS: No holder of a stock option shall have any rights as a stockholder with respect to any shares of Common Stock subject to a stock option hereunder until said shares have been issued. Stock options may also contain such other provisions, which shall not be inconsistent with any of the foregoing terms, as the Board or the Committee shall deem appropriate. The Board may waive conditions to and/or accelerate exercisability of a stock option, either automatically upon the occurrence of specified events (including in connection with a change of control of the Company) or otherwise in its discretion. No stock option, however, nor anything contained in the Plan, shall confer upon any Participant any right to serve as a director of the Company. (b) STOCK OPTION PRICE: The exercise price for each stock option shall be established by the Board or under a formula established by the Board. The exercise price shall not be less than the Fair Market Value of the stock on the date of grant. The exercise price shall be payable in cash, by payment under an arrangement with a broker where payment is made pursuant to an irrevocable direction to the broker to deliver all or part of the proceeds from the sale of the option shares to the Company, by the surrender of shares of Common Stock owned by the optionholder exercising the option and having a fair market value on the date of exercise equal to the exercise price but only if such will not result in an accounting charge to the Company, or by any combination of the foregoing. In addition, the exercise price shall be payable in such other form(s) of consideration as the Committee in its discretion shall specify, including without limitation by loan (as described in Section 8) or by techniques that may result in an accounting charge to the Company. For the purposes of determining the fair market value of shares of Common Stock surrendered to pay the exercise price of an option, "fair market value" shall mean the average of the high and low prices of the Common Stock on the last trading day preceding the date of delivery of such Common Stock to the Company on the national securities exchange, national market system or other trading market on which the Common Stock has the highest average trading volume. 7. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Board, except that as provided herein the Plan may be administered by a Committee of the Board, as appointed from time to time by the Board. The Board shall fill vacancies on and from time to time may remove or add members to the Committee. The Committee shall act pursuant to a majority vote or unanimous written consent. -3- Subject to the express provisions of this Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of this Plan, including, without limitation: (a) to prescribe, amend and rescind rules relating to this Plan and to define terms not otherwise defined herein; (b) to prescribe the form of documentation used to evidence any stock option awarded hereunder, including provision for such terms as it considers necessary or desirable, not inconsistent with the terms established by the Board; (c) to establish and verify the extent of satisfaction of any conditions to exercisability applicable to stock options; (d) to determine whether, and the extent to which, adjustments are required pursuant to Section 9 hereof; and (e) to interpret and construe this Plan, any rules and regulations under the Plan and the terms and conditions of any stock option awarded hereunder, and to make exceptions to any procedural provisions in good faith and for the benefit of the Company. Notwithstanding any provision of this Plan, the Board may at any time limit the authority of the Committee to administer this Plan. The Board shall have the authority to establish subplans or other arrangements not inconsistent with this Plan which the Board deems necessary or advisable to comply with laws or requirements of foreign jurisdictions. All decisions, determinations and interpretations by the Board or, except as to the Board, the Committee, regarding the Plan, any rules and regulations under the Plan and the terms and conditions of any stock option awarded hereunder, shall be final and binding on all Participants and holders of stock options. The Board and the Committee may consider such factors as it deems relevant, in its sole and absolute discretion, in making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as it may select. 8. LOANS The Company may, if authorized by the Board, make loans for the purpose of enabling a Participant to exercise stock options and to pay the tax liability resulting from a stock option exercise under the Plan. The Board shall have full authority to determine the terms and conditions of such loans. Such loans may be secured by the shares of Common Stock received upon exercise of such stock option. 9. ADJUSTMENT OF AND CHANGES IN THE STOCK If the outstanding securities of the class then subject to this Plan are increased, decreased or exchanged for or converted into cash, property or a different number or kind of shares or securities, or if cash, property or shares or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, reclassification, dividend (other than a regular cash dividend) or other distribution, stock split, reverse stock split, spin-off or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the maximum number and type of shares or other securities that may be issued under this Plan shall be appropriately adjusted. The Committee shall determine in its sole discretion the -4- appropriate adjustment to be effected pursuant to the immediately preceding sentence. In addition, in connection with any such change in the class of securities then subject to this Plan, the Committee may make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may be acquired pursuant to stock options theretofore awarded under this Plan and the exercise price of such stock options. No right to purchase or receive fractional shares shall result from any adjustment in stock options pursuant to this Section 9. In case of any such adjustment, the shares subject to the stock option shall be rounded up to the nearest whole share of Common Stock. 10. REGISTRATION, LISTING OR QUALIFICATION OF STOCK In the event that the Board or the Committee determines in its discretion that the registration, listing or qualification of the shares of Common Stock issuable under the Plan on any securities exchange or under any applicable law or governmental regulation is necessary as a condition to the issuance of such shares under the stock option, the stock option shall not be exercisable or exercised in whole or in part unless such registration, listing, qualification, consent or approval has been unconditionally obtained. 11. TAXES The Board or Committee may make such provisions or impose such conditions as it may deem appropriate for the withholding or payment by a Participant of any taxes which it determines are necessary or appropriate in connection with any issuance of shares under this Plan, and the rights of a holder of a stock option in any shares are subject to satisfaction of such conditions. The Company shall not be required to issue shares of Common Stock or to recognize the disposition of such shares until such obligations are satisfied. At the Participant's election, any such obligations may be satisfied by having the Company withhold a portion of the shares of Common Stock that otherwise would be issued to the holder of the stock option upon exercise of the stock option or by surrendering to the Company shares of Common Stock previously acquired. The Company and any affiliate of the Company shall not be liable to a Participant or any other persons as to any tax consequence expected, but not realized, by any Participant or other person due to the receipt of any stock options awarded hereunder. 12. EFFECTIVE DATE, AMENDMENT AND TERMINATION OF PLAN This Plan shall become effective upon its approval by a majority of the outstanding shares of the Company in accordance with applicable law. Any stock options awarded prior to the such date shall be contingent on such approval and, if such approval is not obtained, shall be null and of no effect. Unless earlier suspended or terminated by the Board, no stock options may be awarded after the tenth anniversary of the date the Plan is approved by the Company's stockholders. The Board may periodically amend the Plan as determined appropriate, without further action by the Company's stockholders except to the extent required by applicable law. Notwithstanding the foregoing, and subject to adjustment pursuant to Section 9, the Plan may not be amended -5- to materially increase the number of shares of Common Stock authorized for issuance under the Plan, unless any such amendment is approved by the Company's stockholders. The Plan may be earlier terminated at such earlier time as the Board may determine. Termination and expiration of the Plan will not affect the rights and obligations arising under stock options theretofore awarded and then in effect. -6- EX-27.1 22 a2029698zex-27_1.txt EX-27 .1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CADENCE DESIGN SYSTEMS, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-30-2000 JAN-02-2000 SEP-30-2000 122,190 5,788 256,302 50,416 17,285 488,577 654,723 306,435 1,415,989 447,303 0 0 0 567,773 349,643 1,415,989 0 888,636 0 327,967 554,507 1,443 1,814 10,188 2,700 7,488 0 0 0 7,488 0.03 0.03
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