Exhibit 10.92
Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
Attention: Manager, Fixed Income Settlements
Facsimile: 44 207 995 2004
Telephone: 44 207 995 3769
December 14, 2006
To: Cadence Design Systems, Inc.
Bldg. 5, MS 5B1
2655 Seely Avenue
San Jose, CA 95134
Attention: Legal Department
Telephone No.: (408) 943-1234
Facsimile No.: (408) 943-0513
Re: Convertible Note Hedge Transaction
Reference: 06824051
The purpose of this letter agreement is to confirm the terms and conditions of
the Transaction entered into between Merrill Lynch International (“Dealer”),
represented by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Agent”), as
its agent, and Cadence Design Systems, Inc., a Delaware corporation
(“Counterparty”), on the Trade Date specified below (the “Transaction”). This
letter agreement constitutes a “Confirmation” as referred to in the ISDA Master
Agreement specified below. This Confirmation shall replace any previous letter
and serve as the final documentation for the Transaction.
     The definitions and provisions contained in the 2002 ISDA Equity
Derivatives Definitions (the “Equity Definitions”), as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. Certain
defined terms used herein have the meanings assigned to them in the Offering
Memorandum dated December 14, 2006 (the "Offering Memorandum”) relating to the
USD 250,000,000 principal amount of Convertible Senior Notes due December 15,
2011 (the “Convertible Notes” and each USD 1,000 principal amount of Convertible
Notes, a “Convertible Note”) issued by Counterparty pursuant to an Indenture to
be dated on or about December 19, 2006 between Counterparty and Deutsche Bank
Trust Company Americas, as trustee (the “Indenture”). In the event of any
inconsistency between the terms defined in the Offering Memorandum and this
Confirmation, the Confirmation shall govern. For the avoidance of doubt,
references herein to sections of the Indenture are based on the draft of the
Indenture most recently reviewed by the parties at the time of execution of this
Confirmation. If any relevant sections of the Indenture are changed, added or
renumbered following execution of this Confirmation, the parties will amend this
Confirmation in good faith to preserve the economic intent of the parties. The
Transaction is subject to early unwind if the closing of the Convertible Notes
is not consummated for any reason, as set forth below in Section 9(g).
     Each party is hereby advised, and each such party acknowledges, that the
other party has engaged in, or refrained from engaging in, substantial financial
transactions and has taken other material actions in reliance upon the parties’
entry into the Transaction to which this Confirmation relates on the terms and
conditions set forth below.
1. This Confirmation evidences a complete and binding agreement between Dealer
and Counterparty as to the terms of the Transaction to which this Confirmation
relates. This Confirmation shall supplement, form

 

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a part of, and be subject to an agreement in the form of the 2002 ISDA Master
Agreement (the “Agreement”) as if Dealer and Counterparty had executed an
agreement in such form (but without any Schedule except for the election of the
laws of the State of New York as the governing law) on the Trade Date. In the
event of any inconsistency between provisions of that Agreement and this
Confirmation, this Confirmation will prevail for the purpose of the Transaction
to which this Confirmation relates. The parties hereby agree that no Transaction
other than the Transaction to which this Confirmation relates shall be governed
by the Agreement.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:

          General Terms:    
 
  Trade Date:   December 14, 2006
 
  Option Style:   Modified American, as described in the “Exercise and
Valuation” provisions set forth below.
 
  Option Type:   Call
 
  Buyer:   Counterparty
 
  Seller:   Dealer
 
  Shares:   The common stock of Counterparty, par value USD 0.01 per Share
(Exchange symbol “CDNS”)
 
  Number of Options:   The number of Convertible Notes issued by Counterparty on
the closing date for the initial issuance of the Convertible Notes.
 
  Option Entitlement:   As of any date, a number equal to the Conversion Rate as
of such date (as defined in the Indenture, but without regard to any adjustments
to the Conversion Rate pursuant to Section 13.01(e) or Section 13.03(g) of the
Indenture) for each Convertible Note.
 
  Number of Shares:   The product of the Number of Options, the Option
Entitlement and the Applicable Percentage.
 
  Applicable Percentage:   60%
 
  Strike Price:   USD 21.15
 
  Premium:   USD 31,260,000
 
  Premium Payment Date:   December 19, 2006 or such later date as agreed upon by
the parties
 
  Exchange:   NASDAQ Global Select Market.
 
  Related Exchange(s):   The principal exchange(s) for options contracts or
futures contracts, if any, with respect to the Shares

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          Exercise and Valuation:    
 
  Exercise Period:   The period from and excluding the Trade Date to and
including the Final Expiration Date.
 
  Exercise Dates:   Notwithstanding the Equity Definitions, each “Conversion
Date” as defined in the Indenture occurring during the Exercise Period for
Convertible Notes other than Convertible Notes with respect to which
Counterparty makes the direction described in Section 13.10 of the Indenture
that are accepted by the financial institution designated by Counterparty in
accordance with Section 13.10 of the Indenture (a “Conversion Date”).
 
  Exercisable Options:   In respect of each Exercise Date a number of Options
equal to the number of Convertible Notes properly surrendered to Counterparty
for conversion in respect of the relevant Conversion Date.
 
  Expiration Time:   At the close of trading of the regular trading session on
the Exchange
 
  Expiration Date:   Each Exercise Date.
 
  Final Expiration Date:   The earlier of (x) the last day on which any
Convertible Notes remain outstanding and (y) December 15, 2011.
 
  Automatic Exercise:   Notwithstanding the Equity Definitions, on each Exercise
Date, the number of Options related to such Exercise Date shall be automatically
exercised at the Expiration Time on such Exercise Date if an effective notice of
exercise, if required, is given in accordance with the provision immediately
below.
 
  Notice of Exercise:   Notwithstanding anything to the contrary in the Equity
Definitions, in order to exercise any Options, Counterparty must notify Dealer
in writing prior to 5:00 PM, New York City time, on the Scheduled Trading Day
prior to the first Exchange Business Day of the “Observation Period”, as defined
in the Indenture, relating to the Convertible Notes converted on the relevant
Exercise Date (the “Notice Deadline”) of (i) the number of Options being
exercised on such Exercise Date, (ii) the scheduled settlement date under the
Indenture for the Convertible Notes converted on such Exercise Date and
(iii) the first day of the relevant “Observation Period”; provided that,
notwithstanding the foregoing, such notice (and the related Automatic Exercise
of Options) shall be effective if given after the Notice Deadline but prior to
5:00 PM New York City time, on the fifth Exchange Business Day of such
“Observation Period”, in which event the Calculation Agent shall have the right
to adjust the Net Share

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      Settlement Obligation (as defined below) as appropriate to reflect the
additional costs (including, but not limited to, hedging mismatches and market
losses) and reasonable expenses incurred by Dealer in connection with its
hedging activities (including the unwinding of any hedge position) as a result
of its not having received such notice prior to the Notice Deadline; provided
further that Counterparty shall not be required to deliver any such notice of
exercise with respect to any Exercise Date occurring on or after the 23rd
scheduled “Trading Day”, as defined in the Indenture, prior to December 15,
2011.
 
  Dealer’s Telephone Number and Telex and/or Facsimile Number and Contact
Details for purpose of Giving Notice:   To be provided by Dealer. Settlement
Terms:    
 
  Method of Settlement:   Net Share Settlement
 
  Settlement Date:   In respect of an Exercise Date, the settlement date for the
Shares to be delivered in respect of the Convertible Notes converted on such
date pursuant to Section 13.02(a) or Section 13.02(b) of the Indenture, as the
case may be; provided that the Settlement Date will not be prior to the date
that is one Settlement Cycle following the final day of the relevant
“Observation Period.”
 
  Net Share Settlement:   In respect of each Exercise Date, Dealer will deliver
to Counterparty, on the related Settlement Date, a number of Shares (the “Net
Share Settlement Obligation”) equal to the product of the (x) the Applicable
Percentage and (y) the aggregate number of Shares that Counterparty is obligated
to deliver to the holder(s) of the Convertible Note(s) converted on such
Exercise Date pursuant to the terms of the Indenture as of the Trade Date
(“Convertible Obligation”); provided, however, that such obligation shall be
determined excluding any Shares that Counterparty is obligated to deliver to
holder(s) of the Convertible Note(s) as a result of any adjustments to the
Conversion Rate pursuant to Section 13.01(e) or Section 13.03(g) of the
Indenture.
 
  Notice of Convertible Obligation:   No later than the Exchange Business Day
immediately following the last day of any Observation Period, Counterparty shall
give Dealer notice of the final number of Shares comprising the relevant
Convertible Obligation for the relevant Exercise Date (or, for the Exercise
Dates occurring on or after the 23rd scheduled “Trading Day" prior to December
15, 2011, the

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      aggregate Number of Shares comprising the relevant Convertible Obligation
for such Exercise Dates).
 
  Other Applicable Provisions:   The provisions of Sections 9.1(c), 9.8, 9.9,
9.10, 9.11 and 9.12 of the Equity Definitions will be applicable to any Net
Share Settlement, as if “Physical Settlement” applied to the Transaction; and
provided that the Representation and Agreement contained in Section 9.11 of the
Equity Definitions shall be modified by excluding any representations therein
relating to restrictions, obligations, limitations or requirements under
applicable securities laws as a result of the fact that Buyer is the issuer of
the Shares.
 
  Failure to Deliver:   Applicable 3. Additional Terms applicable to the
Transaction:        Adjustments applicable to the Transaction:    
 
  Method of Adjustment:   Notwithstanding Section 11 .2 of the Equity
Definitions, upon the occurrence of any “Adjustment Event” set forth in
Sections 13.03(a), (b), (c), (d), (e) and (f) of the Indenture, the Calculation
Agent shall make a corresponding adjustment, if necessary, to the terms relevant
to the exercise, settlement or payment of the Transaction, to the extent an
analogous adjustment is made under the Indenture. Immediately upon the
occurrence of any Adjustment Event, Counterparty shall notify the Calculation
Agent of such Adjustment Event; and once the adjustments to be made to the terms
of the Indenture and the Convertible Notes in respect of such Adjustment Event
have been determined, Counterparty shall immediately notify the Calculation
Agent in writing of the details of such adjustments. Extraordinary Events
applicable to the Transaction:    
 
  Merger Events:   Notwithstanding Section 12.1(b) of the Equity Definitions, a
“Merger Event” means the occurrence of any event or condition defined as a
“Merger Event” in Section 13.05 of the Indenture.
 
      Immediately upon the occurrence of any Merger Event, Counterparty shall
notify the Calculation Agent of such Merger Event; and once the adjustments to
be made to the terms of the Indenture and the Convertible Notes in respect of
such Merger Event have been determined, Counterparty shall immediately notify
the Calculation Agent in writing of the details of such adjustments.
 
  Notice of Merger Consideration:   Upon the occurrence of a Merger Event that
causes the Shares to be converted into the right to receive more than a single
type of consideration (determined based in part upon

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      any form of stockholder election), Counterparty shall reasonably promptly
(but in any event prior to the Merger Date) notify the Calculation Agent of the
weighted average of the types and amounts of consideration received by the
holders of Shares entitled to receive cash, securities or other property or
assets with respect to or in exchange for such Shares in any Merger Event who
affirmatively make such an election.
 
  Consequence of Merger Events:   Notwithstanding Section 12.2 of the Equity
Definitions, upon the occurrence of a Merger Event, the Calculation Agent shall
make a corresponding adjustment in respect of any adjustment under the Indenture
to any one or more of the nature of the Shares, the Number of Options, the
Option Entitlement and any other variable relevant to the exercise, settlement
or payment for the Transaction; provided, however, that such adjustment shall be
made without regard to any adjustment to the Conversion Rate for the issuance of
additional shares as set forth in Section 13.01(e) or Section 13.03(g) of the
Indenture. Nationalization, Insolvency
or Delisting:   Cancellation and Payment (Calculation Agent Determination);
provided that (i) Section 12.6(a)(iii) of the Equity Definitions shall be
amended to delete, in the definition of the term “Delisting” the parenthetical
“(or will cease)” and (ii) in addition to the provisions of Section 12.6(a)(iii)
of the Equity Definitions, it shall also constitute a Delisting if the Exchange
is located in the United States and the Shares are not immediately re-listed,
re-traded or re- quoted on any of the New York Stock Exchange, the American
Stock Exchange, The NASDAQ Global Select Market or the NASDAQ Global Market (or
their respective successors); if the Shares are immediately re-listed, re-
traded or re-quoted on any such exchange or quotation system, such exchange or
quotation system shall thereafter be deemed to be the Exchange and the
Calculation Agent shall make any adjustments it deems necessary to the terms of
the Transaction, as if Modified Calculation Agent Adjustment were applicable to
such event Additional Disruption Events:    
 
  (a) Change in Law:   Applicable
 
  (b) Insolvency Filing:   Applicable; provided that Section 12.9(b)(i) of the
Equity Definitions shall be amended by adding, immediately following the word
“party” in the third line thereof, the phrase “(or, upon the occurrence of an
Insolvency Filing, Dealer)”
 
  Determining Party:   For all applicable Additional Disruption Events, Dealer

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  Non-Reliance:   Applicable
 
  Agreements and Acknowledgments Regarding Hedging Activities:   Applicable
 
  Additional
Acknowledgments:   Applicable Additional Termination Events:   If any event of
default under the terms of the Convertible Notes, as set forth in Section 5.01
of the Indenture, shall occur with respect to Counterparty, then such event
shall constitute an Additional Termination Event applicable to the Transaction
with respect to which Counterparty shall be deemed to be the sole Affected Party
and the Transaction shall be the sole Affected Transaction.
 
      If any provision of the Indenture or the Convertible Notes is amended,
modified, supplemented or waived without the written consent of Dealer,
Counterparty shall provide Dealer and the Calculation Agent with notice thereof
on or prior to the effective date thereof and, if the Calculation Agent
determines that such amendment, modification, supplement or waiver has a
material effect on the Transaction or Dealer’s ability to hedge all or a portion
(“Affected Portion”) of the Transaction, then such event (an “Amendment Event”)
shall constitute an Additional Termination Event with respect to which
Counterparty shall be deemed to be the sole Affected Party and the Transaction
(or the Affected Portion thereof) shall be the sole Affected Transaction. For
the avoidance of doubt, an election by Counterparty to increase the conversion
rate pursuant to Section 13.01(e) or Section 13.03(g) of the Indenture shall not
constitute an Amendment Event.
 
      If any Convertible Notes are repurchased (whether in connection with a put
of Convertible Notes by holders thereof pursuant to the terms of the Indenture
as a result of a fundamental change, howsoever defined, or for any other reason)
by Counterparty or any of its subsidiaries or if Counterparty gives notice to
Dealer that it intends to repurchase any Convertible Notes, then Counterparty
may notify Dealer that it wishes to designate an Early Termination Date with
respect to the portion of the Transaction relating to the number of Convertible
Notes that cease to be outstanding in connection with or as a result of such
repurchase and the parties shall negotiate in good faith and in a commercially
reasonable manner the timing, pricing and other terms of such designation. For
the avoidance of doubt, no such designation shall be made if, after such
negotiation, the parties cannot agree on the terms of such designation.

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  Credit Support Provider:   MERRILL LYNCH & CO., INC.
 
  Credit Support Document:   Guarantee provided by MERRILL LYNCH & CO., INC. of
the due and punctual payment of any and all amounts payable by Dealer under the
terms of this Confirmation. 4. Calculation Agent:   Dealer. The Calculation
Agent shall, upon request by either party, provide a written explanation of any
calculation or adjustment made by it hereunder, including, where applicable, a
description of the methodology and data applied.

5. Account Details:

  (a)   Account for payments to Company:

Cadence Design Systems, Inc.
Account                           
Wells Fargo Bank
550 California Street — 10th Floor
San Francisco CA 94104
ABA#                           
Account for delivery of Shares to Company:
Mellon Investor Services
235 Montgomery Street, 23rd Floor
San Francisco, CA 94104
Cadence Design Systems Book Memo Treasury Reserve Account
Comment: When you are ready to deliver Shares contact Cadence FIRST.

  (b)   Account for payments to Dealer:

Chase Manhattan Bank, New York
ABA#:                           
FAO: ML Equity Derivatives
A/C:                           
Account for delivery of Shares from Dealer:
To be advised.
6. Offices:
The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is
not a Multibranch Party.
The Office of Dealer for the Transaction is:
London

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7. Notices: For purposes of this Confirmation:

  (a)   Address for notices or communications to Counterparty:

Cadence Design Systems, Inc.
Bldg. 5, MS 5B1
2655 Seely Avenue
San Jose, CA 95134
Attention: Legal Department
Telephone No.: 408) 943-1234
Facsimile No.: (408) 943-0513

  (b)   Address for notices or communications to Dealer:

Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
Attention: Manager, Fixed Income Settlements
Facsimile: 44 207 995 2004
Telephone: 44 207 995 3769
With a copy to:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
222 Broadway, 16th Floor
New York, New York 10038
Attention: Litigation Department
8. Representations and Warranties of Counterparty
The representations and warranties of Counterparty set forth in Section 1 of the
Purchase Agreement dated as of the Trade Date among Counterparty, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, J.P.
Morgan Securities Inc. and Deutsche Bank Securities Inc. (the “Purchase
Agreement”) are true and correct and are hereby deemed to be repeated to Dealer
as if set forth herein. Counterparty hereby further represents and warrants to
Dealer that:

  (a)   Counterparty has all necessary corporate power and authority to execute,
deliver and perform its obligations in respect of the Transaction; such
execution, delivery and performance have been duly authorized by all necessary
corporate action on Counterparty’s part; and this Confirmation has been duly and
validly executed and delivered by Counterparty and constitutes its valid and
binding obligation, enforceable against Counterparty in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity) and except that rights to indemnification and contribution hereunder
may be limited by federal or state securities laws or public policy relating
thereto.     (b)   Neither the execution and delivery of this Confirmation nor
the incurrence or performance of obligations of Counterparty hereunder will
conflict with or result in a breach of the certificate of incorporation or
by-laws (or any equivalent documents) of Counterparty, or any applicable law or
regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency or any agreement or instrument to

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      which Counterparty or any of its subsidiaries is a party or by which
Counterparty or any of its subsidiaries is bound or to which Counterparty or any
of its subsidiaries is subject, or constitute a default under, or result in the
creation of any lien under, any such agreement or instrument, or breach or
constitute a default under any agreements and contracts of Counterparty or its
significant subsidiaries filed as exhibits to Counterparty’s Annual Report on
Form 10-K for the year ended December 31, 2005, incorporated by reference in the
Offering Memorandum, as updated by any subsequent filings.

  (c)   No consent, approval, authorization, or order of, or filing with, any
governmental agency or body or any court is required in connection with the
execution, delivery or performance by Counterparty of this Confirmation, except
such as have been obtained or made and such as may be required under the
Securities Act of 1933, as amended (the “Securities Act”) or state securities
laws.     (d)   Counterparty is not, and after giving effect to the transactions
contemplated hereby will not be, an “investment company” as such term is defined
in the Investment Company Act of 1940, as amended.     (e)   Counterparty is an
“eligible contract participant” (as such term is defined in Section 1a(12) of
the Commodity Exchange Act, as amended (the “CEA”)) because one or more of the
following is true:         Counterparty is a corporation, partnership,
proprietorship, organization, trust or other entity and:

  (A)   Counterparty has total assets in excess of USD 10,000,000;     (B)   the
obligations of Counterparty hereunder are guaranteed, or otherwise supported by
a letter of credit or keepwell, support or other agreement, by an entity of the
type described in Section 1a(12)(A)(i) through (iv), 1a(12)(A)(v)(I),
1a(12)(A)(vii) or 1a(12)(C) of the CEA; or     (C)   Counterparty has a net
worth in excess of USD 1,000,000 and has entered into this Agreement in
connection with the conduct of Counterparty’s business or to manage the risk
associated with an asset or liability owned or incurred or reasonably likely to
be owned or incurred by Counterparty in the conduct of Counterparty’s business.

  (f)   On the Trade Date, (A) none of Counterparty and its officers and
directors is aware of any material nonpublic information regarding Counterparty
or the Shares and (B) all reports and other documents filed by Counterparty with
the Securities and Exchange Commission pursuant to the Exchange Act when
considered as a whole (with the more recent such reports and documents deemed to
amend inconsistent statements contained in any earlier such reports and
documents), do not contain any untrue statement of a material fact or any
omission of a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances in which they were
made, not misleading.     (g)   Without limiting the generality of
Section 3(a)(iii) of the Agreement, the Transaction will not violate Rule 13e-l
or Rule 13e-4 under the Exchange Act.     (h)   Counterparty is an “accredited
investor” (as such term is defined in Section 2(a)(15)(ii) of the Securities
Act).

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  (i)   Counterparty’s financial condition is such that it has no need for
liquidity with respect to its investment in the Transaction and no need to
dispose of any portion thereof to satisfy any existing or contemplated
undertaking or indebtedness.     (j)   On the Trade Date (A) the assets of
Counterparty at their fair valuation exceed the liabilities of Counterparty,
including contingent liabilities, (B) the capital of Counterparty is adequate to
conduct the business of Counterparty and (C) Counterparty has the ability to pay
its debts and obligations as such debts mature and does not intend to, or does
not believe that it will, incur debt beyond its ability to pay as such debts
mature.     (k)   Counterparty’s investments in and liabilities in respect of
the Transaction, which it understands are not readily marketable, are not
disproportionate to its net worth, and it is able to bear any loss in connection
with the Transaction, including the loss of its entire investment in the
Transaction.     (1)   Counterparty hereby agrees and acknowledges that the
Transaction has not been registered with the Securities and Exchange Commission
or any state securities commission and that the Options are being written by
Dealer to Counterparty in reliance upon exemptions from any such registration
requirements. Counterparty acknowledges that all Options acquired from Dealer
will be acquired for investment purposes only and not for the purpose of resale
or other transfer except in compliance with the requirements of the Securities
Act. Counterparty will not sell or otherwise transfer any Option or any interest
therein except in compliance with the requirements of the Securities Act and any
subsequent offer or sale of the Options will be solely for Counterparty’s
account and not as part of a distribution that would be in violation of the
Securities Act.     (m)   Counterparty understands no obligations of Dealer to
it hereunder will be entitled to the benefit of deposit insurance and that such
obligations will not be guaranteed by any affiliate of Dealer or any
governmental agency.     (n)   Counterparty is capable of assessing the merits
of and understanding (on its own behalf or through independent professional
advice), and understands and accepts, the terms, conditions and risks of the
Transaction.     (o)   Without limiting the generality of Section 13.1 of the
Equity Definitions, Counterparty acknowledges that Dealer is not making any
representations or warranties with respect to the treatment of the Transaction
under FASB Statements 128, 133, as amended, 149 or 150, EITF Issue No, 00-19,
Issue No. 01-6 or Issue No. 03-6 (or any successor issue statements) or under
FASB’s Liabilities & Equity Project.     (p)   Counterparty is not on the date
hereof engaged in a distribution, as such term is used in Regulation M under the
Exchange Act such distribution, a Regulation M Distribution, of any securities
of Counterparty, other than distributions meeting the requirements of the
exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation M.
Counterparty shall not, until the second Exchange Business Day immediately
following the Trade Date, engage in any Regulation M Distribution.

9. Other Provisions:

  (a)   Opinions. Counterparty shall deliver to Dealer an opinion of counsel,
dated as of the Closing Date (as defined in the Purchase Agreement), with
respect to the matters set forth in Sections 8(a) through (d) of this
Confirmation.

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  (b)   Repurchase Notices. Counterparty shall, on any day on which Counterparty
effects any repurchase of Shares, promptly give Dealer a written notice of such
repurchase (a “Repurchase Notice”) on such day if, following such repurchase,
the Options Equity Percentage as determined on such day is (i) greater than 6%
and (ii) greater by 0.5% than the Options Equity Percentage included in the
immediately preceding Repurchase Notice (or, in the case of the first such
Repurchase Notice, greater than the Options Equity Percentage as of the date
hereof). The “Options Equity Percentage” as of any day is the fraction (A) the
numerator of which is the sum of (A) the Number of Shares hereunder and (B) the
Number of Shares for the Convertible Note Hedge Transaction between Counterparty
and Dealer relating to the USD 250,000,000 principal amount of Convertible
Senior Notes due December 15, 2013 (the “Aggregate Transaction Amount”) and
(B) the denominator of which is the number of Shares outstanding on such day.
Counterparty agrees to indemnify and hold harmless Dealer and its affiliates and
their respective officers, directors, employees, affiliates, advisors, agents
and controlling persons (each, an “Indemnified Person”) from and against any and
all losses (including losses relating to Dealer’s hedging activities as a
consequence of becoming, or of the risk of becoming, a Section 16 “insider”,
including without limitation, any forbearance from hedging activities or
cessation of hedging activities and any losses in connection therewith with
respect to the Transaction), claims, damages, judgments, liabilities and
expenses (including reasonable attorney’s fees), joint or several, which an
Indemnified Person may become subject to, as a result of Counterparty’s failure
to provide Dealer with a Repurchase Notice on the day and in the manner
specified in this Section 9(b), and to reimburse, within 30 days, upon written
request, each of such Indemnified Persons for any reasonable legal or other
expenses incurred in connection with investigating, preparing for, providing
testimony or other evidence in connection with or defending any of the
foregoing. If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
the Indemnified Person, such Indemnified Person shall promptly notify
Counterparty in writing, and Counterparty, upon request of the Indemnified
Person, shall retain counsel reasonably satisfactory to the Indemnified Person
to represent the Indemnified Person and any others Counterparty may designate in
such proceeding and shall pay the fees and expenses of such counsel related to
such proceeding. Counterparty shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, Counterparty agrees
to indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Counterparty shall not, without the prior
written consent of the Indemnified Person, effect any settlement of any pending
or threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release of
such Indemnified Person from all liability on claims that are the subject matter
of such proceeding. If the indemnification provided for in this paragraph (b) is
unavailable to an Indemnified Person or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then Counterparty under such
paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities. The remedies provided for in
this paragraph (b) are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any Indemnified Person at law or in equity.
The indemnity and contribution agreements contained in this paragraph (b) shall
remain operative and in full force and effect regardless of the termination of
the Transaction.

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  (c)   No Manipulation. Counterparty is not entering into the Transaction to
create actual or apparent trading activity in the Shares (or any security
convertible into or exchangeable for the Shares) or to raise or depress or
otherwise manipulate the price of the Shares (or any security convertible into
or exchangeable for the Shares) or otherwise to violate the Exchange Act.    
(d)   Board Authorization. Each of the Transaction and the issuance of the
Convertible Notes was approved by its board of directors and publicly announced,
solely for the purposes stated in such board resolution and public disclosure
and, prior to any exercise of Options hereunder, Counterparty’s board of
directors will have duly authorized any repurchase of Shares pursuant to the
Transaction. Counterparty further represents that there is no internal policy,
whether written or oral, of Counterparty that would prohibit Counterparty from
entering into any aspect of the Transaction, including, but not limited to, the
purchase of Shares to be made pursuant hereto.     (e)   Transfer or Assignment.
Neither party may transfer any of its rights or obligations under the
Transaction without the prior written consent of the non-transferring party;
provided that if, as determined at Dealer’s sole discretion, (x) its “beneficial
ownership” (within the meaning of Section 13 of the Exchange Act and rules
promulgated thereunder) with respect to the Shares exceeds 8.5% of
Counterparty’s outstanding Shares or (y) the Aggregate Transaction Amount
exceeds 8.5% of Counterparty’s outstanding Shares, Dealer may transfer or assign
a number of Options sufficient to reduce such “beneficial ownership” to 8% or
the Aggregate Transaction Amount to 8%, as applicable, to any third party with a
rating (or whose guarantor has a rating) for its long term, unsecured and
unsubordinated indebtedness of A- or better by Standard & Poor’s Ratings
Services or its successor (“S&P”), or a3 or better by Moody’s Investors Service
(“Moody’s”) or, if either S&P or Moody’s ceases to rate such debt, at least an
equivalent rating or better by a substitute agency rating mutually agreed by
Counterparty and Dealer. If, in the sole discretion of Dealer, Dealer is unable
after its commercially reasonable efforts to effect such transfer or assignment
on pricing terms reasonably acceptable to Dealer and within a time period
reasonably acceptable to Dealer, Dealer may designate any Exchange Business Day
as an Early Termination Date with respect to a portion (the “Terminated
Portion”) of the Transaction, such that its “beneficial ownership” following
such partial termination will be equal to or less than 8.5% or the Aggregate
Transaction Amount will be equal to or less than 8.5%, as the case may be. In
the event that Dealer so designates an Early Termination Date with respect to a
portion of the Transaction, a payment shall be made pursuant to Section 6 of the
Agreement as if (i) an Early Termination Date had been designated in respect of
a Transaction having terms identical to the Transaction and a Number of Options
equal to the Terminated Portion, (ii) Counterparty shall be the sole Affected
Party with respect to such partial termination and (iii) such Transaction shall
be the only Terminated Transaction. Notwithstanding any other provision in this
Confirmation to the contrary requiring or allowing Dealer to purchase, sell,
receive or deliver any shares or other securities to or from Counterparty,
Dealer may designate any of its affiliates to purchase, sell, receive or deliver
such shares or other securities and otherwise to perform Dealer’s obligations in
respect of the Transaction and any such designee may assume such obligations.
Dealer shall be discharged of its obligations to Counterparty to the extent of
any such performance.     (f)   Staggered Settlement. Dealer may, by notice to
Counterparty prior to any Settlement Date (a “Nominal Settlement Date”), elect
to deliver the Shares on two or more dates (each, a “Staggered Settlement Date”)
or at two or more times on the Nominal Settlement Date as follows:

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  (a)   in such notice, Dealer will specify to Counterparty the related
Staggered Settlement Dates (each of which will be on or prior to such Nominal
Settlement Date) and how it will allocate the Shares it is required to deliver
under “Net Share Settlement” (above) among the Staggered Settlement Dates; and  
  (b)   the aggregate number of Shares that Dealer will deliver to Counterparty
hereunder on all such Staggered Settlement Dates and delivery times will equal
the number of Shares that Dealer would otherwise be required to deliver on such
Nominal Settlement Date.

  (g)   Early Unwind. In the event the sale of Convertible Notes is not
consummated with the underwriters for any reason by the close of business in New
York on December 19, 2006 or such later date as agreed upon by the parties
(December 19, 2006 or such later date as agreed upon being the “Early Unwind
Date”), the Transaction shall automatically terminate (the “Early Unwind”), on
the Early Unwind Date and (i) the Transaction and all of the respective rights
and obligations of Dealer and Counterparty under the Transaction shall be
cancelled and terminated and (ii) each party shall be released and discharged by
the other party from and agrees not to make any claim against the other party
with respect to any obligations or liabilities of the other party arising out of
and to be performed in connection with the Transaction either prior to or after
the Early Unwind Date; provided that, other than to the extent the Early Unwind
Date occurred as a result of a breach of the Purchase Agreement by Dealer or an
affiliate thereof, Counterparty shall reimburse Dealer for any costs or expenses
(including market losses) relating to the unwinding of its hedging activities in
connection with the Transaction (including any loss or cost incurred as a result
of its terminating, liquidating, obtaining or reestablishing any hedge or
related trading position). The amount of any such reimbursement shall be
determined by Dealer in its sole good faith and commercially reasonable
discretion. Dealer shall notify Counterparty of such amount and Counterparty
shall pay such amount in immediately available funds on the Early Unwind Date.
Dealer and Counterparty represent and acknowledge to the other that, subject to
the proviso included in this Section, upon an Early Unwind, all obligations with
respect to the Transaction shall be deemed fully and finally discharged.     (h)
  Disclosure. Effective from the date of commencement of discussions concerning
the Transaction, Counterparty and each of its employees, representatives, or
other agents may disclose to any and all persons, without limitation of any
kind, the tax treatment and tax structure of the Transaction and all materials
of any kind (including opinions or other tax analyses) that are provided to
Counterparty relating to such tax treatment and tax structure.     (i)   Setoff.
The provisions of Section 2(c) of the Agreement shall not apply to the
Transaction. Each party waives any and all rights it may have to set-off
delivery or payment obligations it owes to the other party under the Transaction
against any delivery or payment obligations owed to it by the other party,
whether arising under the Agreement, under any other agreement between parties
hereto, by operation of law or otherwise.     (j)   Alternative Calculations and
Payment on Early Termination and on Certain Extraordinary Events. If, in respect
of the Transaction, an amount is payable by Dealer to Counterparty upon an early
termination or cancellation of the Transaction (i) pursuant to Section 12.2,
12.6, 12.7 or 12.9 of the Equity Definitions or “Consequences of Merger Events”
above (except in the event of an Extraordinary Event in which the consideration
to be paid to holders of Shares consists solely of cash) or (ii) pursuant to
Section 6(d)(ii) of the

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      Agreement (except in the event of an Event of Default in which
Counterparty is the Defaulting Party or a Termination Event in which
Counterparty is the Affected Party, other than an Event of Default of the type
described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or a
Termination Event of the type described in Section 5(b)(i), (ii), (iii), (iv),
(v) or (vi) of the Agreement, in each case resulting from an event or events
outside Counterparty’s control) (a “Payment Obligation”), Counterparty may, in
its sole discretion, request that Dealer satisfy such Payment Obligation by the
Share Termination Alternative (as defined below) and shall give irrevocable
telephonic notice to Dealer, confirmed in writing within one Currency Business
Day, no later than 12:00 p.m. New York local time on the Merger Date, the
Announcement Date or the Early Termination Date, as applicable; provided that if
Counterparty does not validly request that Dealer satisfy such Payment
Obligation by the Share Termination Alternative, Dealer shall nevertheless have
the right, in its sole discretion, to satisfy its Payment Obligation by the
Share Termination Alternative, notwithstanding Counterparty’s lack of election.
In calculating any amounts under Section 6(e) of the Agreement, notwithstanding
anything to the contrary in the Agreement, (1) separate amounts shall be
calculated as set forth in Section 6(e) with respect to (i) the Transaction and
(ii) all other Transactions, and (2) such separate amounts shall be payable
pursuant to Section 6(d)(ii) of the Agreement, subject to, in the case of
clause (1)(i), the Share Termination Alternative right hereunder.

         
 
  Share Termination Alternative:   If applicable, Dealer shall deliver to
Counterparty the Share Termination Delivery Property on the date when the
Payment Obligation would otherwise be due pursuant to Section 12.7 or 12.9 of
the Equity Definitions, this Confirmation or Section 6(d)(ii) and 6(e) of the
Agreement, as applicable (the “Share Termination Payment Date”), in satisfaction
of the Payment Obligation in the manner reasonably requested by Counterparty
free of payment.
 
  Share Termination Delivery Property:   A number of Share Termination Delivery
Units, as calculated by the Calculation Agent, equal to the Payment Obligation
divided by the Share Termination Unit Price. The Calculation Agent shall adjust
the Share Termination Delivery Property by replacing any fractional portion of a
security therein with an amount of cash equal to the value of such fractional
security based on the values used to calculate the Share Termination Unit Price.
 
  Share Termination Unit Price:   The value to Dealer of property contained in
one Share Termination Delivery Unit on the date such Share Termination Delivery
Units are to be delivered as Share Termination Delivery Property, as determined
by the Calculation Agent in its discretion by commercially reasonable means and
notified by the Calculation Agent to Dealer at the

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      time of notification of the Payment Obligation.
 
  Share Termination Delivery Unit:   In the case of a Termination Event, Event
of Default or Delisting, one Share or, in the case of an Insolvency,
Nationalization or Merger Event, one Share or a unit consisting of the number or
amount of each type of property received by a holder of one Share (without
consideration of any requirement to pay cash or other consideration in lieu of
fractional amounts of any securities) in such Insolvency, Nationalization or
Merger Event, as the case may be. If such Insolvency, Nationalization or Merger
Event involves a choice of consideration to be received by holders, such holder
shall be deemed to have elected to receive the maximum possible amount of cash.
 
  Failure to Deliver:   Applicable
 
  Other applicable provisions:   If Share Termination Alternative is applicable,
the provisions of Sections 9.8, 9.9, 9.10, 9.11 and 9.12 of the Equity
Definitions will be applicable, as if “Physical Settlement” applied to such
cancellation or termination of the Transaction, except that all references
therein to “Shares” shall be read as references to “Share Termination Delivery
Units”; and provided that the Representation and Agreement contained in
Section 9.11 of the Equity Definitions shall be modified by excluding any
representations therein relating to restrictions, obligations, limitations or
requirements under applicable securities laws as a result of the fact that Buyer
is the issuer of any Share Termination Delivery Units (or any part thereof).

  (k)   Securities Contract: Swap Agreement. Each of Dealer and Counterparty
agrees and acknowledges that Dealer is a “stock broker,” “swap participant” and
“financial participant” within the meaning of Sections 101(22), 101(53C) and
101(22A) of Title 11 of the United States Code (the “Bankruptcy Code”). The
parties hereto further agree and acknowledge (A) that this Confirmation is (i) a
“securities contract,” as such term is defined in Section 741(7) of the
Bankruptcy Code, with respect to which each payment and delivery hereunder is a
“settlement payment,” as such term is defined in Section 741(8) of the
Bankruptcy Code, and (ii) a “swap agreement,” as such term is defined in
Section 101(53B) of the Bankruptcy Code, with respect to which each payment and
delivery hereunder is a “transfer,” as such term is defined in Section 101(54)
of the Bankruptcy Code, and (B) that Dealer is entitled to the protections
afforded by, among

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      other sections, Section 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560
of the Bankruptcy Code.

  (l)   Governing Law. New York law (without reference to choice of law
doctrine).     (m)   Waiver of Jury Trial. Each party waives, to the fullest
extent permitted by applicable law, any right it may have to a trial by jury in
respect of any suit, action or proceeding relating to the Transaction. Each
party (i) certifies that no representative, agent or attorney of the other party
has represented, expressly or otherwise, that such other party would not, in the
event of such a suit, action or proceeding, seek to enforce the foregoing waiver
and (ii) acknowledges that it and the other party have been induced to enter
into the Transaction, as applicable, by, among other things, the mutual waivers
and certifications provided herein.     (n)   Registration. Counterparty hereby
agrees that if, in the good faith reasonable judgment of Dealer, the Shares (the
“Hedge Shares”) acquired by Dealer for the purpose of hedging its obligations
pursuant to the Transaction cannot be sold in the U.S. public market by Dealer
without registration under the Securities Act, Counterparty shall, at its
election: (i) in order to allow Dealer to sell the Hedge Shares in a registered
offering, make available to Dealer an effective registration statement under the
Securities Act to cover the resale of such Hedge Shares and (A) enter into an
agreement, in form and substance satisfactory to Dealer, substantially in the
form of an underwriting agreement for a registered secondary offering,
(B) provide accountant’s “comfort” letters in customary form for registered
offerings of equity securities, (C) provide disclosure opinions of nationally
recognized outside counsel to Counterparty reasonably acceptable to Dealer,
(D) provide other customary opinions, certificates and closing documents
customary in form for registered offerings of equity securities and (E) afford
Dealer a reasonable opportunity to conduct a “due diligence” investigation with
respect to Counterparty customary in scope for underwritten offerings of equity
securities; provided, however, that if Dealer, in its sole reasonable
discretion, is not satisfied with access to due diligence materials, the results
of its due diligence investigation, or the procedures and documentation for the
registered offering referred to above, then clause (ii) or clause (iii) of this
Section 9(n) shall apply at the election of Counterparty; (ii) in order to allow
Dealer to sell the Hedge Shares in a private placement, enter into a private
placement agreement substantially similar to private placement Underwriting
Agreements customary for private placements of equity securities, in form and
substance satisfactory to Dealer, including customary representations,
covenants, blue sky and other governmental filings and/or registrations,
indemnities to Dealer, due diligence rights (for Dealer or any designated buyer
of the Hedge Shares from Dealer), opinions and certificates and such other
documentation as is customary for private placements agreements, all reasonably
acceptable to Dealer (in which case, the Calculation Agent shall make any
adjustments to the terms of the Transaction that are necessary, in its
reasonable judgment, to compensate Dealer for any discount from the public
market price of the Shares incurred on the sale of Hedge Shares in a private
placement); or (iii) purchase the Hedge Shares from Dealer at the “VWAP Price”
(as defined herein) on the relevant Exchange Business Days, and in the amounts,
requested by Dealer. “VWAP Price” means, on any Exchange Business Day, the per
Share volume-weighted average price as displayed under the heading “Bloomberg
VWAP” on Bloomberg page <CDNS>.UQ <equity> AQR (or any successor thereto) in
respect of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on such
Exchange Business Day (or if such volume-weighted average price is unavailable,
the market value of one Share on such Exchange Business Day, as determined by
the Calculation Agent using a volume-weighted method).

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  (o)   Role of Agent. Each party agrees and acknowledges that:

1, Agent will be responsible for the operational aspects of the Transactions
effected through it, such as record keeping, reporting, and confirming
Transactions to Counterparty and Dealer;
2. Agent’s sole role under this Agreement and with respect to any Transaction is
as an agent of Counterparty and Dealer on a disclosed basis and Agent shall have
no responsibility or liability to Counterparty or Dealer hereunder except for
gross negligence or willful misconduct in the performance of its duties as
agent. Agent is authorized to act as agent for Dealer, but only to the extent
expressly required to satisfy the requirements of Rule 15a-6 under the Exchange
Act in respect of the Options described hereunder. A shall have no authority to
act as agent for Counterparty generally or with respect to transactions or other
matters governed by this Agreement, except to the extent expressly required to
satisfy the requirements of Rule 15a-6 or in accordance with express
instructions from Counterparty.

  (p)   Quarterly Valuations. Dealer hereby agrees, upon request by
Counterparty, to provide to the Counterparty, within 5 Exchange Business Days
after the end of the fiscal quarter of the Counterparty during which
Counterparty made such request, a valuation estimate of the fair value of the
Transaction as of the Counterparty’s fiscal quarter end.     (q)   Equity
Rights. Dealer acknowledges and agrees that this Confirmation is not intended to
convey to it rights with respect to the Transaction that are senior to the
claims of common stockholders in the event of Company’s bankruptcy.

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     Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it by facsimile to the
address provided in the Notices section of this Confirmation.
Very truly yours,

            MERRILL LYNCH INTERNATIONAL
      By:   /s/ Fran Jacobsen     Authorized Signatory      Name: Fran Jacobsen
   

Accepted and confirmed
as of the Trade Date:
Cadence Design Systems, Inc.

         
By:
  /s/ William Porter
 
   
Authorized Signatory
    Name: William Porter    

Acknowledged and agreed as to matters to the Agent:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
Solely in its capacity as Agent hereunder

         
 
       
By:
  /s/ B. Carrole
 
    Authorized Signatory     Name: B. Carrole