<PAGE>   1
                                                                    Exhibit 10.2


                           MASTER SEPARATION AGREEMENT

                                  BY AND AMONG

                          CADENCE DESIGN SYSTEMS, INC.,

                               TALITY CORPORATION

                                       AND

                             CADENCE HOLDINGS, INC.

                                   DATED AS OF

                                  JULY 14, 2000



<PAGE>   2

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               PAGE
<S>      <C>               <C>                                                                                  <C>
ARTICLE I  DEFINITIONS..........................................................................................2
         Section 1.1       Affiliate............................................................................2
         Section 1.2       Applicable Law.......................................................................2
         Section 1.4       Business Day.........................................................................2
         Section 1.5       Cadence's Auditors...................................................................2
         Section 1.6       Cadence Group........................................................................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      Governmental Approvals...............................................................2
         Section 1.12      Governmental Authority...............................................................2
         Section 1.13      Information..........................................................................2
         Section 1.14      IPO Closing Date.....................................................................3
         Section 1.16      Person...............................................................................3
         Section 1.17      Subsidiary...........................................................................3
         Section 1.20      Tality's Auditors....................................................................3
         Section 1.21      Tality Group.........................................................................3
         Section 1.22      Third-Party Approvals................................................................3

ARTICLE II  SEPARATION..........................................................................................3
         Section 2.1       Separation Date......................................................................3
         Section 2.2       Documents to Be Delivered by Cadence and Tality......................................3
         Section 2.3       Governmental Approvals...............................................................4
         Section 2.4       Third-Party Approvals................................................................4
         Section 2.5       No Representations or Warranties.....................................................5

ARTICLE III  THE IPO AND REGISTRATION RIGHTS....................................................................5
         Section 3.1       Transactions Prior to the IPO........................................................5
         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...............................................16
         Section 4.3       Auditors and Audits; Annual and Quarterly Statements and Accounting.................18
         Section 4.4       Dispute Resolution..................................................................19
         Section 4.5       Non-Solicitation of Employees.......................................................21
         Section 4.6       Employee Agreements.................................................................21

</TABLE>
                                      i

<PAGE>   3

<TABLE>
                                                                                                               PAGE
<S>      <C>               <C>                                                                                  <C>
ARTICLE V  MISCELLANEOUS.......................................................................................23
         Section 5.1       Limitation of Liability.............................................................23
         Section 5.2       Entire Agreement....................................................................23
         Section 5.3       Governing Law.......................................................................23
         Section 5.4       Termination.........................................................................23
         Section 5.5       Notices.............................................................................24
         Section 5.6       Counterparts........................................................................24
         Section 5.7       Binding Effect; Assignment..........................................................24
         Section 5.8       Severability........................................................................25
         Section 5.9       Failure or Delay Not Waiver; Remedies Cumulative....................................25
         Section 5.10      Amendment...........................................................................25
         Section 5.11      Authority...........................................................................25
         Section 5.12      Interpretation......................................................................25
         Section 5.13      Conflicting Agreements..............................................................26
         Section 5.14      Payment of Expenses.................................................................26
</TABLE>

                                       ii

<PAGE>   4


                           MASTER SEPARATION AGREEMENT

     THIS MASTER SEPARATION AGREEMENT (this "Agreement") is entered into and
effective as of July 14 , 2000, by and among Cadence Design Systems, Inc., a
Delaware corporation ("Cadence"), Tality Corporation, a Delaware corporation
("Tality"), and Cadence Holdings, Inc., a Delaware corporation and wholly owned
subsidiary of Cadence ("Holdings"). Capitalized terms used herein and not
defined elsewhere herein shall have the meanings ascribed to them in Article I.

                                    RECITALS

     WHEREAS, Cadence currently owns all of the issued and outstanding shares of
Tality capital stock;

     WHEREAS, Cadence has formed Tality to engage in the business of acting as
the sole general partner of, and owning both a general and limited partnership
interest in, a partnership of which Holdings will be the other initial limited
partner (the "Partnership"), which will be engaged in the business of providing
design engineering services, and intellectual property in connection therewith,
to electronic equipment manufacturers, all as described in the Registration
Statement (the "Tality Business");

     WHEREAS, the Boards of Directors of Cadence, Tality and Holdings have each
determined that it would be appropriate and desirable for Holdings and Tality to
form the Partnership and for Cadence to transfer 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 (the "Separation");

     WHEREAS, Cadence, Holdings 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"); 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:

                                       1

<PAGE>   5


                                    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 "Class A Common Stock has the meaning set forth in the
recitals.

     "Section 1.7 "Class B Common Stock means the Class B Common Stock, par
value $0.001 per share, of Tality.

     "Section 1.8 "Class C Common Stock means the Class C Common Stock, par
value $0.001 per share, of Tality.

     Section 1.9 "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 1.10 "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 1.11 "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 1.12 "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,

                                       2

<PAGE>   6

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 1.13 "IPO Closing Date" means the date on which the first closing
of the IPO occurs.

     Section 1.14 "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 1.15 "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 1.16 "Tality's Auditors" means Tality's independent certified
public accountants from time to time.

     Section 1.17 "Tality Group" means Tality and each of its Subsidiaries on
and after the Separation Date.

     "Section 1.18 "Third-Party Approvals means any notices, consents or
authorizations of third parties (other than Governmental Approvals) required to
consummate the Separation.


                                   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 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 Cadence and Tality. On the
Separation Date, each of Cadence and Tality shall duly execute and deliver, or
shall cause its appropriate Subsidiaries to duly execute and deliver, to the
other all of the following agreements, documents and other instruments
(collectively, together with all agreements and documents contemplated by such
agreements, the "Ancillary Agreements"):


                                       3
<PAGE>   7

          (a)  The General Assignment and Assumption Agreement in substantially
the form attached hereto as Exhibit A (the "Assignment Agreement");

          (b)  Certificates representing the stock and/or investments in the
Subsidiaries and other holdings of Cadence set forth on Schedule 2.1(b) with
stock powers in the form proper for transfer;

          (c)  The Master Intellectual Property Agreement in substantially the
form attached hereto as Exhibit B;

          (d)  The Employee Matters Agreement in substantially the form attached
hereto as Exhibit C;

          (f)  The Master Corporate Services Agreement in substantially the form
attached hereto as Exhibit D;

          (g)  The Real Estate Matters Agreement in substantially the form
attached hereto as Exhibit E;

          (h)  The Master Confidentiality Agreement in substantially the form
attached hereto as Exhibit F (the "Master Confidentiality Agreement");

          (i)  The Indemnification and Insurance Matters Agreement in
substantially the form attached hereto as Exhibit G (the "Indemnification and
Insurance Matters Agreement");

          (j)  The EDA Tools Agreement in substantially the form attached hereto
as Exhibit H;

          (k)  The Joint Technology Development and Support Agreement in
substantially the form attached hereto as Exhibit I;

          (l)  The Joint Target Account Agreement in substantially the form
attached hereto as Exhibit J;

          (m)  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 Tality from and after the
Separation Date; and

          (n)  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.


                                       4
<PAGE>   8

     Section 2.5 No Representations or Warranties. Neither Cadence 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 Tality or any of its Subsidiaries;

          (b)  the kind, character, nature or extent of any liabilities to be
assumed by Tality or any of its Subsidiaries;

          (c)  the freedom from encumbrance of any asset, property or other
thing of value to be transferred to Tality 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 Tality 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, Tality or any of its Subsidiaries shall be
transferred or assumed, as applicable, "AS IS, WHERE IS," and Tality and its
Subsidiaries shall bear the economic and legal risk that any conveyance shall
prove to be insufficient to vest in Tality and its Subsidiaries good and
marketable title, free and clear of any lien, claim, equity or other
encumbrance.


                                   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 Cadence and Tality 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. Cadence and Tality
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


                                       5
<PAGE>   9

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.

          (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.


                                       6
<PAGE>   10

          (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 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 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 or any subsequent Holder of LP Units originally issued to Cadence 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


                                       7
<PAGE>   11

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; and 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 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 its
officers and directors (who are not also officers or directors of Cadence) 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



                                       8
<PAGE>   12

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 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.


                                       9
<PAGE>   13


               (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 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).


                                       10
<PAGE>   14

          (d)  Form S-3 Registration. In case Tality shall, at any time after
the Lock-Up Expiration Date, receive a written request from Cadence or any
subsequent Holder of LP Units originally issued to Cadence 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):

                    (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"



                                       11
<PAGE>   15

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 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.


                                       12
<PAGE>   16


               (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.

          (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



                                       13
<PAGE>   17

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 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



                                       14
<PAGE>   18

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.

               (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) hall 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.


                                       15
<PAGE>   19

          (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 Tality, and without
further consideration, Cadence shall execute and deliver, and shall cause all
other members of the Cadence Group to execute and deliver, to Tality and its
Subsidiaries such other instruments of transfer, conveyance, assignment,
substitution and confirmation and take such action as Tality may reasonably deem
necessary in order to effectively transfer, convey and assign to Tality and its
Subsidiaries and confirm Tality's and its Subsidiaries' title to all of the
assets and rights contemplated to be transferred to Tality and its Subsidiaries
pursuant to this Agreement and the Ancillary Agreements to put Tality and its
Subsidiaries in actual possession and operating control thereof and to permit
Tality 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 Cadence and without further consideration, Tality
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
Tality fully and unconditionally assume and discharge the liabilities
contemplated to be assumed by Tality 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 Cadence nor Tality 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 Cadence and Tality agrees to provide, or cause
to be provided, to the other, at any time before or after the Separation Date,
as soon as


                                       16
<PAGE>   20

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 Cadence or Tality, as the case may be;
provided, however, that if a party determines that providing its Information to
the other party 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 party to satisfy its reporting, accounting, audit and other
obligations; and (ii) provide, or cause to be provided, to the other party and
its 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 one party
hereto against the other party (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 party,
upon written request, the former, current and future



                                       17
<PAGE>   21

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. Tality shall ensure that Tality's Auditors
are the same as Cadence's Auditors.

          (b)  Fiscal Year. Tality shall ensure that its fiscal year 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. Tality 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 Cadence's 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. Tality 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. Tality 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, Tality shall provide all required financial
Information with respect to Tality and its Subsidiaries to Tality's Auditors in
a sufficient and reasonable time and in sufficient detail to permit Tality's
Auditors to take all steps and perform all reviews necessary to provide
sufficient assistance to Cadence's Auditors with respect to financial
Information to be included or contained in Cadence's annual, quarterly and other
financial statements. Similarly, Cadence 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, Cadence shall provide all required financial
Information with respect to Cadence and its Subsidiaries to Cadence's Auditors
in a sufficient and reasonable time and in sufficient detail to permit Cadence's
Auditors to take all steps and



                                       18
<PAGE>   22

perform all reviews necessary to provide sufficient assistance to Tality's
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. Tality shall authorize Tality's Auditors to make available to Cadence's
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
Tality's Auditors' opinion date, so that Cadence's Auditors are able to perform
the procedures they consider necessary to take responsibility for the work of
Tality's Auditors as it relates to Cadence's 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, Cadence shall authorize Cadence's Auditors
to make available to Tality's Auditors both the personnel who performed or shall
perform the annual audits and quarterly reviews of Cadence and work papers
related to the annual audits and quarterly reviews of Cadence, in all cases
within a reasonable time prior to Cadence's Auditors' opinion date, so that
Tality's Auditors are able to perform the procedures they consider necessary to
take responsibility for the work of Cadence's Auditors as it relates to Tality's
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. Tality shall, as requested by
Cadence, provide Cadence's internal auditors and their designees access to
Tality's and its 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, Cadence shall provide Tality's internal
auditors and their designees access to Cadence's and its 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. Tality 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. Tality shall consult with Cadence and, if requested by
Cadence, Tality shall consult with Cadence's 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



                                       19
<PAGE>   23

available remedies. The date of receipt of written notice of a dispute given by
one party to the other 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 either
party 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. Neither party may
unreasonably withhold consent to the selection of a mediator or the location of
the mediation. The parties shall share the costs of the mediation equally,
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 either 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 5.4 with
respect to all matters not subject to any particular Dispute.


                                       20
<PAGE>   24

     Section 4.5 Non-Solicitation of Employees. For a period of one (1) year
following the Separation Date, Tality agrees (and shall cause its 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 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


                                       21
<PAGE>   25

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
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.


                                       22
<PAGE>   26

     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 Tality the transfer of which is so delayed shall still be considered an asset
of Tality for purposes of determining whether any associated liability is a
liability of Tality; 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.


                                    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 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 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, and the United Nations Convention
on Contracts for the International Sale of Goods. 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 may be
terminated at any time prior to the IPO Closing Date by and in the sole
discretion of Cadence



                                       23
<PAGE>   27

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 Cadence :

          Cadence Design Systems, Inc
          2655 Seely Avenue
          Building 5
          San Jose, California 95134
          Attention:  R.L. Smith McKeithen, General Counsel
          Fax:  (408) 944-6855

     if to Tality:

          Tality Corporation
          2655 Seely Avenue
          Building 9
          San Jose, California 95134
          Attention:  Robert Wiederhold, Chief Executive 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. This Agreement and each
Ancillary Agreement may be enforced separately by each member of the Cadence
Group and each member of the Tality Group. Neither party may assign this
Agreement or any 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 shall be void and in violation hereof.


                                       24
<PAGE>   28

     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 either 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 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


                                       25
<PAGE>   29

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 underwriting discounts and commissions) shall
be allocated between Tality and Cadence as determined by Cadence in its sole and
absolute discretion.

                                       26
<PAGE>   30

     WHEREFORE, the parties have executed and delivered this Master Separation
Agreement effective as of the date first set forth above.

<TABLE>
<S>                                    <C>
CADENCE DESIGN SYSTEMS, INC.           TALITY CORPORATION



By:  /s/ William Porter                By:  /s/ Robert P. Wiederhold
     ------------------------               ------------------------
Name:  William Porter                  Name:  Robert P. Wiederhold
Title: Senior Vice President,          Title: President and Chief Executive Officer
       Chief Financial Officer



CADENCE HOLDINGS, INC.



By:  /s/ William Porter
     ------------------------
Name:  William Porter
Title: Treasurer
</TABLE>

                                       27