Document:

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                                                                  EXHIBIT 10.4

                         NUMERICAL TECHNOLOGIES, INC.

                       2000 EMPLOYEE STOCK PURCHASE PLAN

     The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Numerical Technologies, Inc.

     1.  Purpose.  The purpose of the Plan is to provide employees of the
         -------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.

     2.  Definitions.
         -----------

         (a)  "Board" shall mean the Board of Directors of the Company or any
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.

         (b)  "Code" shall mean the Internal Revenue Code of 1986, as amended.
               ----

         (c)  "Common Stock" shall mean the common stock of the Company.
               ------------

         (d)  "Company" shall mean Numerical Technologies, Inc. and any
               -------
Designated Subsidiary of the Company.

         (e)  "Compensation" shall mean all base straight time gross earnings,
               ------------
bonuses, commissions, and overtime payments, but exclusive of incentive
compensation, incentive payments, and other compensation.

         (f)  "Designated Subsidiary" shall mean any Subsidiary that has been
               ---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.

         (g)  "Employee" shall mean any individual who is an Employee of the
               --------
Company for tax purposes whose customary employment with the Company are at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.

         (h)  "Enrollment Date" shall mean the first Trading Day of each
               ---------------
Offering Period.

         (i)  "Exercise Date" shall mean the last Trading Day of each Purchase
               -------------
Period.
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         (j)  "Fair Market Value" shall mean, as of any date, the value of
               -----------------
Common Stock determined as follows:

              (i)    If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;

              (ii)   If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;

              (iii)  In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or

              (iv)   For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").

         (k)  "Offering Periods" shall mean the periods of approximately
               ----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 15 and
November 15 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
May 14, 2002. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.

         (l)  "Plan" shall mean this 2000 Employee Stock Purchase Plan.
               ----

         (m)  "Purchase Period" shall mean the approximately six month period
               ---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.

         (n)  "Purchase Price" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.

         (o)  "Reserves" shall mean the number of shares of Common Stock covered
               --------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.

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         (p)  "Subsidiary" shall mean a corporation, domestic or foreign, of
               ----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.

         (q)  "Trading Day" shall mean a day on which national stock exchanges
               -----------
and the Nasdaq System are open for trading.

     3.  Eligibility.
         -----------

         (a)  Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.

         (b)  Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds twenty-five thousand dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.

     4.  Offering Periods.  The Plan shall be implemented by consecutive,
         ----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 15 and November 15 of each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
May 14, 2002. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.

     5.  Participation.
         -------------

         (a)  An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.

         (b)  Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.

                                      -3-
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     6.  Payroll Deductions.
         ------------------

         (a)  At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.

         (b)  All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.

         (c)  A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.

         (d)  Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.

         (e)  At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.

     7.  Grant of Option.  On the Enrollment Date of each Offering Period, each
         ---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 1,333
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof.  The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of

                                      -4-
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the Company's Common Stock an Employee may purchase during each Purchase Period
of such Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.

     8.  Exercise of Option.
         ------------------

         (a)  Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.

         (b)  If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.

     9.  Delivery.  As promptly as practicable after each Exercise Date, on
         --------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.

     10. Withdrawal.
         ----------

         (a)  A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant

                                      -5-
<PAGE>

promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.

         (b)  A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.

     11. Termination of Employment.
         -------------------------

         Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated.  The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.

     12. Interest.  No interest shall accrue on the payroll deductions of a
         --------
participant in the Plan.

     13. Stock.
         -----

         (a)  Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be two hundred thousand (200,000) shares plus an annual increase to be
added on the first day of the Company's fiscal year beginning in Year, equal to
the lesser of (i) 450,000 shares, (ii) 2% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board.

         (b)  The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.

         (c)  Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.

     14. Administration.  The Plan shall be administered by the Board or a
         --------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.

                                      -6-
<PAGE>

     15. Designation of Beneficiary.
         --------------------------

         (a)  A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.

         (b)  Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

     16.  Transferability.  Neither payroll deductions credited to a
          ---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.

     17.  Use of Funds.  All payroll deductions received or held by the Company
          ------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.

     18.  Reports.  Individual accounts shall be maintained for each participant
          -------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.

     19.  Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
          ---------------------------------------------------------------------
Merger or Asset Sale.
--------------------

          (a)  Changes in Capitalization.  Subject to any required action by the
               -------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of

                                      -7-
<PAGE>

any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.

          (b)  Dissolution or Liquidation.  In the event of the proposed
               --------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.

          (c)  Merger or Asset Sale.  In the event of a proposed sale of all or
               --------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.

     20.  Amendment or Termination.
          ------------------------

          (a)  The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.

          (b)  Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount

                                      -8-
<PAGE>

withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.

          (c)  In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:

               (i)    altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;

               (ii)   shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and

               (iii)  allocating shares.

          Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.

     21.  Notices.  All notices or other communications by a participant to the
          -------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

     22.  Conditions Upon Issuance of Shares.  Shares shall not be issued with
          ----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

          As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

     23.  Term of Plan.  The Plan shall become effective upon the earlier to
          ------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.

                                      -9-
<PAGE>

     24.  Automatic Transfer to Low Price Offering Period.  To the extent
          -----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.

                                     -10-
<PAGE>

                                   EXHIBIT A
                                   ---------

                          NUMERICAL TECHNOLOGIES, INC.

                       2000 EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT

_____ Original Application                           Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)

1.   ____________________ hereby elects to participate in the Numerical
     Technologies, Inc. Employee Stock Purchase Plan (the "Employee Stock
     Purchase Plan") and subscribes to purchase shares of the Company's Common
     Stock in accordance with this Subscription Agreement and the Employee Stock
     Purchase Plan.

2.   I hereby authorize payroll deductions from each paycheck in the amount of
     ____% of my Compensation on each payday (from 0 to 15%) during the Offering
     Period in accordance with the Employee Stock Purchase Plan.  (Please note
     that no fractional percentages are permitted.)

3.   I understand that said payroll deductions shall be accumulated for the
     purchase of shares of Common Stock at the applicable Purchase Price
     determined in accordance with the Employee Stock Purchase Plan.  I
     understand that if I do not withdraw from an Offering Period, any
     accumulated payroll deductions will be used to automatically exercise my
     option.

4.   I have received a copy of the complete Employee Stock Purchase Plan.  I
     understand that my participation in the Employee Stock Purchase Plan is in
     all respects subject to the terms of the Plan.  I understand that my
     ability to exercise the option under this Subscription Agreement is subject
     to shareholder approval of the Employee Stock Purchase Plan.

5.   Shares purchased for me under the Employee Stock Purchase Plan should be
     issued in the name(s) of (Employee or Employee and Spouse only).

6.   I understand that if I dispose of any shares received by me pursuant to the
     Plan within 2 years after the Enrollment Date (the first day of the
     Offering Period during which I purchased such shares) or one year after the
     Exercise Date, I will be treated for federal income tax purposes as having
     received ordinary income at the time of such disposition in an amount equal
     to the excess of the fair market value of the shares at the time such
     shares were purchased by me over the price which I paid for the shares.  I
                                                                              -
     hereby agree to notify the Company in writing within 30 days after the date
     ---------------------------------------------------------------------------
     of any disposition of my shares and I will make adequate provision for
     ----------------------------------------------------------------------
     Federal, state or other tax withholding obligations, if any, which arise
     ------------------------------------------------------------------------
     upon the
     --------
<PAGE>

     disposition of the Common Stock.  The Company may, but will not be
     -------------------------------
     obligated to, withhold from my compensation the amount necessary to meet
     any applicable withholding obligation including any withholding necessary
     to make available to the Company any tax deductions or benefits
     attributable to sale or early disposition of Common Stock by me.  If I
     dispose of such shares at any time after the expiration of the 2-year and
     1-year holding periods, I understand that I will be treated for federal
     income tax purposes as having received income only at the time of such
     disposition, and that such income will be taxed as ordinary income only to
     the extent of an amount equal to the lesser of (1) the excess of the fair
     market value of the shares at the time of such disposition over the
     purchase price which I paid for the shares, or (2) 15% of the fair market
     value of the shares on the first day of the Offering Period.  The remainder
     of the gain, if any, recognized on such disposition will be taxed as
     capital gain.

7.   I hereby agree to be bound by the terms of the Employee Stock Purchase
     Plan.  The effectiveness of this Subscription Agreement is dependent upon
     my eligibility to participate in the Employee Stock Purchase Plan.

8.   In the event of my death, I hereby designate the following as my
     beneficiary(ies) to receive all payments and shares due me under the
     Employee Stock Purchase Plan:

     NAME:  (Please print)_____________________________________________________
                              (First)           (Middle)            (Last)

     _________________________                _______________________________
     Relationship

                                              _______________________________
                                              (Address)

                                      -2-
<PAGE>

     Employee's Social
     Security Number:         ____________________________________

     Employee's Address:      ____________________________________

                              ____________________________________

                              ____________________________________

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:_________________________             _________________________________
                                            Signature of Employee

                                            __________________________________
                                            Spouse's Signature
                                            (If beneficiary other than spouse)

                                      -3-
<PAGE>

                                   EXHIBIT B
                                   ---------

                         NUMERICAL TECHNOLOGIES, INC.

                       2000 EMPLOYEE STOCK PURCHASE PLAN

                             NOTICE OF WITHDRAWAL

     The undersigned participant in the Offering Period of the Numerical
Technologies, Inc. Employee Stock Purchase Plan which began on ____________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period.  He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period.  The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated.  The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.

                                    Name and Address of Participant:

                                    ________________________________

                                    ________________________________

                                    ________________________________

                                    Signature:

                                    ________________________________

                                    Date:___________________________<PAGE>

                                                                   EXHIBIT 10.21

                               LICENSE AGREEMENT                    CONFIDENTIAL
                               -----------------

     This License Agreement (the "Agreement") is entered into as of this 1st day
of October, 1999 (the "Effective Date"), by and between Cadence Design Systems,
Inc., a Delaware corporation with offices at 555 River Oaks Parkway, San Jose,
CA 95134 ("Cadence") and Numerical Technologies Inc., a California corporation
with offices at 70 West Plumeria Drive, San Jose, CA 95134-2134 ("NTI").

RECITAL
-------

     WHEREAS, Cadence develops and markets electronic design automation ("EDA")
software tools for integrated circuit design and NTI develops and markets
software design tools for subwavelength integrated circuit technologies. Cadence
desires to incorporate into its products certain of NTI's software design tool
modules for subwavelength integrated circuit technologies subject to the terms
and conditions of this Agreement.

     In consideration of the foregoing and the mutual promises contained herein,
Cadence and NTI agree as follows:

     1.    DEFINITIONS.

           1.1   "Agent" of Cadence or NTI means, an individual or
                  -----
entity who is authorized to act for or in place of and to bind Cadence or NTI,
as the case may be, with respect to dealings or contractual obligations with
third parties.

           1.2   "Affiliate" of Cadence or NTI means, respectively, any entity
                  ---------
that controls, is controlled by, or is under common control with such party,
where "control" means ownership of fifty percent (50%) or more of the
outstanding voting securities of the entity in question or the power to
otherwise control the voting or affairs of such entity.

           1.3   "Cadence Combined Products" shall mean the Cadence software
                  -------------------------
products that are comprised of one or more Cadence Products and one or more NTI
Product Components.

           1.4   "Cadence Products" shall mean the Cadence software products
                  ----------------
listed in Exhibit A attached hereto and any other commercially released place-
and-route, physical design, and physical verification family of products offered
by Cadence or any of its Affiliates (other than products of Avant!, Mentor
Graphics, or Synopsys, should Candence or any of its Affiliates merge with,
acquire, or be acquired by any of these three companies) primarily for the same
intended uses as the products listed in Exhibit A.

           1.5   "Critical Error" shall mean (i) an Error that stops, prevents
                  --------------
or hinders in a material and substantial way design work or production work;
(ii) an Error that causes design data corruption; or (iii) any other substantial
Error for which there is no reasonably acceptable work around.

           1.6   "Derivative Work" shall mean a derivative work within the
                  ---------------
meaning of the U.S. copyright law.

Numerical Technologies - CADENCE

[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>

                                                                    CONFIDENTIAL

           1.7   "Documentation" shall mean the manuals and other documentation
                  -------------
that NTI generally makes available with the NTI Product Components to end users.

           1.8   "Error Corrections" shall mean any Error corrections, patches,
                  -----------------
and bug fixes prepared by or for NTI to any portion of the NTI Product
Components.

           1.9   "Error" means any failure of an NTI Product Component to
                  -----
conform to its specifications or the applicable Documentation or to provide
consistent and accurate results.

           1.10  "Initial Term" means the period beginning on the Effective Date
                  ------------
and ending on December 31, 2002.

           1.11  "Intellectual Property Rights" shall mean (by whatever name or
                  ----------------------------
term known or designated) copyrights, trade secrets, patents, and any other
intellectual and industrial property and proprietary rights (excluding
trademarks) including registrations, applications, renewals and extensions of
such rights.

           1.12  "NTI Product Components" shall mean the NTI product components
                  ----------------------
that are listed in Exhibit B attached hereto and all Updates thereto.

           1.13  "Renewal Term" means the period beginning on January 1, 2003
                  ------------
and ending on December 31, 2004.

           1.14  "Update" shall mean any new release or version of the NTI
                  ------
Product Components or Cadence Products, as the case may be, that is designated
by a different version number (e.g., 2.0 instead of 1.0, or 2.1 instead of 2.0)
and, with respect to the NTI Product Components, any new software product that
(i) uses the same methodology as the NTI Product Components and (ii) is designed
primarily for the same intended uses as the NTI Product Components. Moreover,
for the purpose of clarification and avoidance of doubt, to the extent that NTI
or Cadence integrates the source code for the NTI Product Components or Cadence
Products or portions thereof, with additional source to make new NTI or Cadence
products (other than the NTI Product Components or Cadence Products), such
additional source code shall not constitute Updates but any improvements to the
source code for the NTI Product Components or Cadence Products shall constitute
Updates. Also, any source code created by or for NTI in the course of creating
customized interfaces between the NTI Product Components and third party
products as permitted under this Agreement will not constitute Updates.

     2.    DELIVERY OF NTI LICENSED TECHNOLOGY.

           NTI shall deliver the NTI Product Components and the Documentation to
Cadence promptly after the Effective Date in a mutually acceptable format and
manner and at a mutually acceptable place and time.

                                      -2-
<PAGE>

                                                                    CONFIDENTIAL

     3.    LICENSE GRANTS.

           3.1   Software License to Cadence. NTI hereby grants to Cadence
                 ---------------------------
the following nonexclusive (subject to Section 4), worldwide licenses, under all
of NTI's Intellectual Property Rights in and to the NTI Product Components:

                 (a)   to use, reproduce, perform and display the NTI Product
Components (in object code form only) for Cadence's internal purposes including
integration work (with Cadence Products only), testing, support, and
demonstrations,

                 (b)   to use, reproduce, perform and display the NTI Product
Components with the Cadence Products (in object code form only) for the purpose
of providing Cadence design and methodology services to Cadence customers,
provided that Cadence may not provide optical proximity correction design
services using the NTI Product Components alone for Cadence customers not using
the Cadence Products for the product design at issue;

                 (c)   to reproduce and distribute, and to make, have made,
offer for sale, import and sell, the NTI Product Components, in object code form
only, solely as incorporated or bundled with the Cadence Products and not on a
standalone basis; and

                 (d)   to reproduce and distribute, and to make, have made,
offer for sale, import and sell, the NTI Product Components, in object code form
only, on a standalone basis only to those Cadence customers who, as of the
Effective Date, already have purchased a license for at least one (1) of the
Cadence Products ("Existing Customers"), solely for the purpose of allowing such
customers to use the NTI Product Components with Cadence Products.

     Such licenses shall be subject to the restrictions set forth in Section
3.3. Cadence may sublicense the rights granted in this Section 3.1 only as
follows: (i) Cadence may sublicense the rights to use, reproduce and distribute
the NTI Product Components incorporated or bundled with the Cadence Products to
its distributors, resellers, OEM customers, VAR customer, and VAD customers; and
(ii) Cadence may sublicense the rights to use and reproduce the NTI Product
Components to its end-user customers, solely for the purpose of allowing such
end-user customers to use the NTI Product Components with Cadence Products.

           3.2   Documentation License to Cadence. NTI grants to Cadence a
                 --------------------------------
nonexclusive (subject to Section 4), worldwide license, under all of NTI's
Intellectual Property Rights in and to the Documentation, to use, reproduce,
perform, display, distribute, and to make, have made, offer for sale, import and
sell the Documentation solely to the extent that the Documentation is to be used
in connection with the Cadence Combined Products or the NTI Product Components
on a stand-alone basis as permitted under Section 3.1(d) above. Cadence may
sublicense the right to reproduce and distribute the Documentation solely to the
extent that it is to be used in connection with the Cadence Combined Products
(or the NTI Product Components on a stand-alone basis as permitted under Section
3.1(d) above) to its distributors, resellers, OEM customers, VAR customers and
VAD customers.

                                      -3-
<PAGE>

                                                                    CONFIDENTIAL

           3.3   Restrictions. Cadence shall not itself, or through any
                 ------------
Affiliate, Agent or third party: (a) sell, lease, license or sublicense the NTI
Product Components or the Documentation (except as expressly permitted in
Section 3.1 and 3.2), (b) decompile, disassemble, reverse engineer or otherwise
attempt to derive source code from the NTI Product Components, in whole or in
part, except to the extent such restriction is prohibited by applicable law; (c)
modify or create Derivative Works from the NTI Product Components; or (d) use
the NTI Product Components to provide processing services to third parties
(except as expressly permitted under Section 3.1) or otherwise use the NTI
Product Components on a service bureau basis.

           3.4   Copyright Notices. Cadence agrees that it will not remove any
                 -----------------
copyright notices, proprietary markings, trademarks or tradenames from the NTI
Product Components or Documentation.

           3.5   Software License Terms. Cadence shall use its then-current
                 ----------------------
standard form software license terms for marketing and licensing the NTI Product
Components under this Agreement. Cadence shall include in its standard form
software license terms warranty disclaimer and limitation of liability
provisions for the benefit of NTI. NTI agrees that Cadence may refer to NTI as a
"third party" in the standard form license terms.

           3.6   Trademark License to Cadence. Cadence shall display NTI's
                 ----------------------------
trademarks and logos with any marketing, promotional or advertising literature
pertaining to the Cadence Combined Products. NTI grants to Cadence a
nonexclusive, worldwide license to use the NTI trade names, trademarks and logos
set forth in Exhibit C ("NTI's Trademarks") attached hereto during the term of
this Agreement solely in connection with the NTI Product Components as part of
the Cadence Combined Products, with the Documentation and in conjunction with
any other marketing, promotional or advertising literature pertaining to the
Cadence Combined Products. Cadence shall comply with any and all reasonable and
customary guidelines provided by NTI in writing concerning the use of NTI's
Trademarks. To enable NTI to monitor the use of NTI's Trademarks, Cadence shall
provide, as requested by NTI from time to time, samples of all items and
materials to which a NTI Trademark has been applied. Cadence shall obtain no
rights with respect to any of NTI's Trademarks, other than the rights set forth
herein. At NTI's written request, Cadence shall assign to NTI any such right,
title and interest exceeding the rights granted herein that it may obtain in
NTI's Trademarks and the associated goodwill. All goodwill arising out of any
uses of NTI's Trademarks will inure solely to the benefit of NTI.

           3.7   ModelCal Distribution License. The license to the NTI Product
                 -----------------------------
Component referred to in Exhibit B as the ModelCal Software is subject to the
further license terms:

                 (a)   Cadence agrees to list the ModelCal Software in its price
book as the "NTI Model Calibrator."

                 (b)   Cadence agrees to put in place appropriate language and
controls to limit distribution of the ModelCal Software to single copy licenses
in conjunction with other licenses of the NTI Product Components under this
Agreement.

                                      -4-
<PAGE>

                                                                    CONFIDENTIAL

                 (c)   Cadence agrees to refer ModelCal Software customers
directly to NTI for purchases of additional ModelCal Software licenses.

                 (d)   As between Cadence and NTI, NTI will provide any
maintenance, support, and consulting to end users of the ModelCal Software at
commercially reasonable prices. The ModelCal Software will be licensed to end
users either under Cadence's then-current standard form software license terms
in accordance with Section 3.5 or under a form of end user license agreement
supplied by NTI in which NTI is the licensor.

     4.    EXCLUSIVITY.

           4.1   Limits on NTI's Activities. During the Initial Term of this
                 --------------------------
Agreement and any Renewal Term hereunder, subject to Section 4.2:

                 (a)   NTI shall not, directly or through any of its Affiliates
or Agents, license, distribute, or otherwise provide any of the NTI Product
Components to Avant!, Mentor Graphics, or Synopsys without the express prior
written consent of Cadence, which Cadence may grant or withhold in its sole
discretion;

                 (b)   NTI shall not, directly or through any of its Affiliates
or Agents, develop, or assist any third party in developing, or otherwise
participate in the development of, interfaces between, or an integrated
solution consisting of (in whole or in part), any of the NTI Product
Components and any Avant!, Mentor Graphics, or Synopsys product;

                 (c)   NTI shall not, directly or through any of its Affiliates
or Agents, participate in, or assist any third party with, any marketing or
sales activities with Avant! Mentor Graphics, or Synopsis or the marketing or
distribution of interfaces between, or an integrated solution consisting of (in
whole or in part), any of the NTI Product Components and any Avant!, Mentor
Graphics, or Synopsys product; and

                 (d)   NTI shall include in all agreements with third parties in
which the third party is licensed to redistribute the NTI Product Components
(including OEM, reseller, and distribution agreements) a provision that the
third party's license to redistribute the NTI Product Components will
automatically terminate (subject to reasonable sell-off terms that allow the
licensee, for up to ninety (90) days after the date of termination, to fulfill
customer orders accepted before the date of termination) if (i) Avant!, Mentor
Graphics, or Synopsys enters into an agreement to merge with, acquire the
material assets of, or acquire thirty percent (30%) or more of the outstanding
capital stock of, or purchase all or substantially all of the assets of a
specific business unit of, the third party that is utilizing the NTI Product
Components, (ii) the third party enters into an agreement to acquire the
material assets of, or to merge with or acquire thirty percent (30%) or more of
the outstanding capital stock of, Avant!, Mentor Graphics, or Synopsys and the
resulting combined entity distributes an EDA product (other than the Cadence
Combined Products) that incorporates any of the NTI Product Components, or (iii)
such third party distributes or licenses the NTI Components or any product
incorporating the NTI Components to Avant!, Mentor Graphics or Synopsys.

                                      -5-
<PAGE>

                                                                    CONFIDENTIAL

     Permitted NTI Activities. Subject to Section 4.1, NTI shall have the right
     ------------------------
to license, distribute, OEM and sell the NTI Product Components to any third
party other than Avant!, Mentor Graphics, or Synopsys. Consistent with the
foregoing, NTI agrees that it will prohibit any third party who has the right to
distribute NTI Components from licensing or transmitting the NTI Components,
either on a stand-alone basis or as incorporated into any products, to Avant!,
Mentor Graphics, or Synopsys. Notwithstanding Section 4.1, if Cadence fails to
meet the Cadence Production Release Milestones set forth in Exhibit D, NTI shall
have the unrestricted right to enter into OEM or distribution license agreements
with Synposys for any or all of the NTI Product Components. NTI shall notify
Cadence in writing (a) if NTI believes that Cadence has failed to meet any of
the Cadence Production Release Milestones set forth in Exhibit D, and (b) within
two (2) business days after entering into such an agreement with Synopsys. If,
in response to any notice from NTI under clause (a) above, Cadence notifies NTI
in writing (within ten (10) days after receipt of NTI's notice) that Cadence
believes it has met the Cadence Production Release Milestones in question, the
parties will attempt to resolve the dispute in accordance with Section 13. NTI
will not enter into any OEM or distribution license agreement with Synopsys
until (i) it has given notice to Cadence as described in clause (a) above and
(ii) either Cadence has acknowledged in writing that it failed to meet one of
Cadence Production Release Milestones, or Cadence has failed to notify NTI
within ten (10) days as described above that Cadence believes it has met the
Cadence Production Release Milestones in question, or if Cadence does so notify
NTI, the dispute has been resolved in favor of NTI or the parties have been
unable to resolve the dispute in accordance with Section 13.

     Notwithstanding Section 4.1, NTI will have the right to assist a particular
end user in integrating the NTI Product Components with any Avant!, Mentor
Graphics, or Synopsys product solely for such end user customer's internal use,
provided that neither NTI nor such end user customer markets such integration
services or markets or distributes any interfaces developed in connection with
such integration work. It is understood and agreed that it will not be
considered a breach of Section 4.1 by NTI if Avant!, Mentor Graphics, or
Synopsys gains access to the NTI Product Components through doing integration
work at a customer's facilities.

           4.2   Limits on Cadence's Activities. During the Initial Term and any
                 ------------------------------
Renewal Term, Cadence shall not, directly or through any of its Affiliates or
Agents, license, distribute, or otherwise provide any of the NTI Product
Components to Avant!, Mentor Graphics, or Synopsys without the express prior
written consent of NTI, which NTI may grant or withhold in its sole discretion,
and Cadence shall not develop, or participate in the development of, interfaces
between, or an integrated solution consisting of (in whole or in part), any of
the NTI Product Components and any Avant!, Mentor Graphics, or Synopsys product.
Cadence shall not be restricted from
              ---
developing, licensing, acquiring, marketing or distributing any technologies
which have substantially the same functionality as the NTI Product Components.
Cadence shall use commercially reasonable efforts to introduce and field the
Cadence Combined Products as the primary Cadence solution for design tools for
subwavelength integrated circuit technologies during the Initial Term. The
restrictions and obligations on Cadence in this Section 4.3 will apply only as
long as NTI has not materially breached its obligations under Sections 4.1 and
4.2.

                                      -6-

<PAGE>

                                                                    CONFIDENTIAL

     5.    FEES.

           5.1   Payment Amounts During Term. Subject to Section 5.4, Cadence
                 ---------------------------
shall pay NTI a license fee for license of the NTI Product Components
("License Fee") in the amount of [***] and shall pay NTI a fee for training
and support regarding the NTI Product Components ("Service Fee") in the amount
of [***] during the Initial Term. The License Fee shall be paid in accordance
with the schedule set forth in Exhibit E attached hereto and Section 5.3
below. The specific Service Fees to be paid are set forth in Exhibit F and
shall be paid in accordance with the schedule set forth in Exhibit F and
Section 5.3 below. Other than the fees described in this Section 5.1 and
Exhibit B, no other royalties or payments shall be payable by Cadence to NTI
for the license of the NTI Product Components during the Initial Term or, to
the extent that Cadence's rights under this Agreement survive the expiration
or termination of this Agreement, after such expiration or termination.

           5.2   Payments Amounts During Renewal Period. If Cadence exercises
                 --------------------------------------
its option to renew the term of this Agreement under Section 13.2 hereunder,
Cadence shall pay NTI an additional License Fee in the amount of [***] and an
additional Service Fee in the amount of [***] during the Renewal Term. The
License Fee shall be paid in accordance with the schedule set forth in Exhibit
E and the Service Fee shall be paid in accordance with a schedule to be
mutually agreed upon by the parties. Other than the fees described in this
Section 5.2 and Exhibit B, no other royalties or payments shall be payable by
Cadence to NTI for the license of the NTI Product Components during the
renewal term or, to the extent that Cadence's rights under this Agreement
survive the expiration or termination of this Agreement, after such expiration
or termination.

           5.3   Payment Terms. Payments will be made as indicated on the Fee
                 -------------
Payment Schedule on Exhibits E and F.

           5.4   Reduced Fees. If during the Initial Term or any Renewal Term
                 ------------
NTI executes a distributor or OEM agreement with [***] as permitted under
Section 4.2, beginning on the effective date of such agreement, the amount of
the License Fees payable thereafter by Cadence under this Section 5 during the
Initial Term and any Renewal Term shall be reduced by [***]. For the purpose of
clarification, in no event shall Cadence be entitled to any refund of License
Fees or Service Fees hereunder .

           5.5   No Withholding. Cadence understands and agrees that, in the
                 --------------
event of NTI's material breach of its training and support obligations, Cadence
shall not be entitled to withhold payment of License Fees hereunder.

     6.    PROPRIETARY RIGHTS.

           6.1   Cadence Products. The parties agree that, as between the
                 ----------------
parties, Cadence retains all right, title and interest in and to the Cadence
Products and in all Intellectual Property Rights therein.

                                      -7-

[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>

                                                                    CONFIDENTIAL

           6.2   NTI Products. The parties agree that, as between the parties,
                 ------------
NTI retains all right, title and interest in and to the NTI Product Components
and in all Intellectual Property Rights therein.

     7.    TRAINING AND SALES SUPPORT.

           7.1   Training of Cadence Employees. NTI will provide the following
                 -----------------------------
training regarding the NTI Product Components to Cadence employees:

                 (a)   Model Calibration Training: one (1), two (2) day class
employing two (2) NTI trainers, each quarter during the Initial Term and any
Renewal Term; and

                 (b)   Product Training for NOPC, SiDRC and ImagIC: one (1), two
(2) day class employing two (2) NTI trainers, each quarter during the Initial
Term and any Renewal Term.

     All training classes shall be provided at locations to be mutually agreed
upon by the parties. Any additional training shall be provided to Cadence by NTI
at an additional charge to be mutually agreed upon by the parties. For purposes
of this Section 7, "days" do not include travel time to or from locations where
NTI provides training or support pursuant to this Section 7.

           7.2   Joint Sales Calls. Two (2) NTI employees shall participate with
                 -----------------
Cadence in sales calls for up to three (3) weeks per quarter, made to
prospective customers for the Cadence Combined Products during the Initial Term
and any Renewal Term.

           7.3   Model Calibration Service. NTI shall make available two (2)
                 -------------------------
specialists for a total of two (2) calendar days per quarter to support the
customer and/or Cadence to accomplish model calibration of processes and OPC
rule generation during the Initial Term and any Renewal Term.

           7.4   Joint Marketing Efforts. NTI and Cadence agree to take
                 -----------------------
reasonable commercial steps to coordinate their respective efforts to market the
NTI Product Components and to create joint marketing collateral regarding the
NTI Product Components and Cadence Combined Products.

           7.5   Training of Cadence End Users. Cadence shall have the sole
                 -----------------------------
responsibility for conducting end-user training for the Cadence Combined
Products.

           7.6   Cadence End User Support. Cadence shall be solely responsible
                 ------------------------
for providing product technical support to all end-users of the Cadence Combined
Products.

     8.    UPDATES AND SUPPORT OF CADENCE.

           8.1 Updates. During the term of this Agreement, NTI shall deliver to
               -------
Cadence any Updates to the NTI Product Components that NTI has prepared upon
commercial release thereof. NTI agrees that it will not rename the NTI Product
Components in order to avoid providing Cadence with Updates that Cadence is
entitled to under this Section 8.1.

                                      -8-
<PAGE>

                                                                    CONFIDENTIAL

           8.2   Back-Up Support and Error Corrections. During the term of this
                 -------------------------------------
Agreement, NTI shall provide to Cadence back-up support for the NTI Product
Components as follows:

                 (a)   Error Correction. NTI will use reasonable commercial
                       ----------------
efforts to provide an Update to correct any Errors in the NTI Product Components
reported by Cadence. Such efforts will include, as appropriate, (i) reviewing
the Error with Cadence, (ii) gathering additional information about the Error,
(iii) analyzing the Error to determine its cause, (iv) providing an Error
solution (which may be an Update or a workaround, if already known), and (v)
when required providing an Update that corrects the Error. When available,
Updates will be delivered promptly to Cadence at no additional cost. NTI will
provide Cadence with an estimate of how long it will take to correct the Errors
reported by Cadence (in accordance with Section 8.2(b)) and will keep Cadence
informed of the progress of the problem resolution.

                 (b)   Error Classification and Response. Cadence and NTI will
                       ---------------------------------
jointly classify Errors reported by Cadence as follows: "Fatal" means an Error
that prevents the product from performing any useful work; "Severe Impact" means
an Error that disables a major or essential function or functions (other than
Fatal Errors); "Degraded Operations" means an Error that disables one or more
non-essential functions; and "Minor" means all other Errors. NTI will use
reasonable commercial efforts to confirm receiving a report of an Error, provide
a workaround or temporary fix including Documentation changes, and provide an
Update correcting the Error as follows:

Severity            Confirm Report   Temporary Fix           Update

                                     Continued effort until
Fatal               1 business day   corrected               6 days

Severe Impact       1 business day   5 business days         20 days

Degraded Operations 2 business day   15 business days        60 days

Minor               5 business day   To be determined on a   To be determined
                                     case-by-case basis      on a case-by-case
                                                             basis

     NTI will provide to Cadence sufficient advance notice of any planned
Updates as soon as such plans are made by NTI so as to enable Cadence to adapt
its interfaces to the NTI Product Components in a timely manner.

     9.    RIGHT TO MATCH ACQUISITION OFFER.

           9.1  Acquisition Offers.  In the event that NTI receives a bona fide
                ------------------
offer to acquire NTI from Synopsys, Mentor Graphics or Avant! (whether by
merger, stock exchange, sale of substantially all of the assets or other
business combination) pursuant to which the shareholders of NTI would hold less
than 50% of the voting equity securities of the successor or acquiring
corporation following such acquisition (an "Acquisition Offer"), and the Board
of Directors of NTI, after review of such Acquisition Offer, determines that it
is in the best interests of NTI's shareholders to accept such offer, then NTI
shall provide written notice of such determination (the "Acquisition Offer
Notice") to Cadence and Cadence shall, subject to the terms and conditions of
Sections 9.2 and 9.3 below, have the right to match or exceed such Acquisition
Offer as described below.

                                      -9-

<PAGE>

                                                                    CONFIDENTIAL

           9.2  Counter Acquisition Offer.  The Acquisition Offer Notice shall
                -------------------------
set forth the principal financial and other terms of the Acquisition Offer.
Cadence shall have thirty (30) calendar days following receipt of the
Acquisition Offer Notice to respond with a counter Acquisition Offer. The Board
(excluding any Board representative of Cadence should any such representative
exist) shall review all Acquisition Offers received and shall, in its sole
discretion consistent with its fiduciary duties under law and with the advice of
its investment advisors, if any, determine which Acquisition Offer is in the
best interests of NTI and its shareholders (taking into account which
Acquisition Offer is financially superior, which has the greatest likelihood of
consummation and other factors. During this thirty (30) day period NTI shall not
(i) publicly endorse or comment upon any other Acquisition Offer and (ii) shall
not allow any other prospective purchaser to have access to NTI's records,
facilities, or personnel for the purpose of conducting a due diligence review.

           9.3   Assignability. The right to match under this Section 9 is not
                 -------------
assignable by Cadence without the prior written consent of NTI, except to
Affiliates of Cadence in connection with an assignment of this entire Agreement
as part of an internal restructuring or reorganization of Cadence not involving
any combination with any third party (other than third parties that either are
Affiliates of Cadence as of the Effective Date or are formed in connection with
such internal restructuring or reorganization).

           9.4   Fiduciary Duties. Notwithstanding anything to the contrary
                 ----------------
above, the Board shall review all Acquisition Offers in compliance with its
fiduciary duties under law and any other applicable laws.

           9.5   Remedies. NTI acknowledges that any breach of this Section 9 by
                 --------
NTI would cause irreparable harm to Cadence for which monetary damages would be
inadequate and, therefore, Cadence will be entitled to immediate injunctive
relief, without the requirement of posting bond, to prevent any continuing or
threatened breach of this Section 9 by NTI.

           9.6   Termination. The rights and obligations under this Section 9
                 -----------
shall terminate upon the earliest to occur of the events described in clauses
(i) or (ii) below (provided, in the case of clause (ii), that NTI shall have
complied with the provisions of this Section 9 prior to consummating the
transactions described in such clause (ii)). The events referred to above are:
(i) the closing of the initial public offering of NTI, and (ii) a sale of
substantially all of the assets of NTI or a merger or consolidation of NTI with
or into another corporation or entity pursuant to which the shareholders
immediately prior to such merger or consolidation hold less than fifty percent
(50%) of the voting equity securities of the surviving or acquiring entity
immediately following such merger or consolidation.

     10.   LIMITED WARRANTIES AND DISCLAIMER.

           10.1  Limited Warranty for NTI Product Components. NTI warrants that,
                 -------------------------------------------
at the time of delivery to Cadence, the unmodified NTI Product Components will
be complete and functioning and that, for a period of eighteen (18) months from
the Effective Date or ninety (90) days

                                     -10-
<PAGE>

                                                                    CONFIDENTIAL

from the date of the first commercial shipment of the NTI Product Components by
Cadence (whichever is shorter) (the "Warranty Period"), the NTI Product
Components under normal use will have no Critical Errors. NTI's entire liability
and Cadences exclusive remedy under this warranty will be, at NTI's option, to
use reasonable commercial efforts to attempt to correct any Critical Errors or
to replace the NTI Product Components with functionally equivalent software. If
NTI is unable to correct any Critical Error in the initial version of the NTI
Product Components delivered to Cadence under Section 2 of this Agreement within
sixty (60) days after such Critical Error is reported to NTI by Cadence, Cadence
will have the right to terminate this Agreement by written notice to NTI,
provided that Cadence reports such Critical Error within the Warranty Period.

           10.2  Exclusions. The warranties under Section 10.1 will not extend
                 ----------
to problems that result from: (i) Cadence's failure to implement all Updates to
the NTI Product Components issued to Cadence by NTI; (ii) any alterations of or
additions to the NTI Product Components performed by or at the direction of
parties other than NTI; (iii) misuse of the NTI Product Components; or (iv) use
of the NTI Product Components in conjunction with products not supplied or
approved by NTI.

           10.3  Necessary Rights. NTI represents and warrants to Cadence that
                 ----------------
NTI has all rights necessary to grant to Cadence the licenses granted to Cadence
in this Agreement.

           10.4  No Viruses. NTI represents and warrants to Cadence that the NTI
                 ----------
Product Components, as delivered by NTI to Cadence under this Agreement, will
not contain any computer software code, routines, or devices (other than as set
forth in the documentation accompanying such software or code) designed to
alter, disable, damage, erase, or impair the use of software or data without the
user's knowledge and consent, and that NTI will use commercially reasonable
efforts, including the use of commercially available virus detection software,
to ensure that the media on which the NTI Product Components are delivered to
Cadence do not contain any such code.

           10.5  Year 2000 Compliance. During the Warranty Period, NTI warrants
                 --------------------
that the NTI Product Components will accurately process and handle (including
calculating, comparing and sequencing) date and time data from, into, and
between the twentieth and twenty-first centuries, and the years 1999 and 2000,
including leap year calculations, to the extent that other information
technology used in combination with the NTI Product Components properly exchange
date and time data with it. NTI's entire liability and Cadence's exclusive
remedy under this warranty will be, at NTI's option, to use reasonable
commercial efforts to attempt to correct any failure of the NTI Product
Components to be Year 2000 compliant as described above, unless such failure
also constitutes a Critical Error, in which case Cadence will also have the
remedies available under Section 10.1.

           10.6  Exclusive Warranties. Except for the express warranties stated
                 --------------------
in Section 10 above, NEITHER PARTY MAKES ANY OTHER WARRANTY OF ANY KIND, WHETHER
EXPRESS, IMPLIED OR, STATUTORY AND BOTH PARTIES DISCLAIM ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NTI
disclaims any warranty that the NTI Product Components delivered to Cadence
under this Agreement will be capable of productive use if not used with the
Cadence Products.

                                     -11-
<PAGE>

                                                                    CONFIDENTIAL

     11.   INDEMNIFICATION AND LIMITATION OF LIABILITY.

     Indemnification. NTI agrees, at its own expense, to defend or at its
     ---------------
option settle, any third party claim, suit or proceeding (collectively,
"Action") brought against Cadence to the extent such Action results from actual
or alleged infringement (whether direct, contributory, by inducement, or
otherwise) by the NTI Product Components of any U.S. patent, any patent issued
in Japan or any European Union country, or any copyright, trade secret,
trademark, or other Intellectual Property Right worldwide; provided, that NTI
shall have sole control of any such Action or settlement negotiations, and NTI
agrees to indemnify and hold Cadence harmless from, subject to the limitations
hereinafter set forth, any settlement amounts or final judgment entered against
Cadence on such issue in any such Action (regardless of characterization of
types of damage). Cadence will (i) notify NTI promptly in writing of such an
Action, (ii) give NTI sole control and authority to proceed as contemplated
herein, and (iii) give NTI proper and full information and assistance to settle
and/or defend any such Action. Failure by Cadence to notify NTI promptly in
writing of such an Action will relieve NTI of its obligations under this Section
11.1 only to the extent that NTI's ability to defend the Action is prejudiced by
such lack of notice. NTI further agrees to indemnify and hold Cadence harmless
for Cadence's reasonable costs and expenses (including reasonable attorneys'
fees) incurred in analyzing and tendering to NTI any such Action, provided that
Cadence fulfills its obligations under clauses (i), (ii) and (iii) of this
Section 11.1. In addition, in the event that NTI fails to assume the defense of
any such Action, and provided that Cadence has fulfilled its obligations under
clauses (i), (ii) and (iii) above, then Cadence may give NTI written notice of
such failure and an opportunity to cure such failure within thirty (30) business
days. In the event that NTI does not assume the defense of such Action within
such cure period, then NTI shall further be obligated to indemnify and hold
Cadence harmless for Cadence's reasonable costs and expenses (including
reasonable attorneys' fees) incurred in the defense or settlement of such
action.

If it is adjudicatively determined, or if NTI reasonably believes that the NTI
Product Components or any part thereof infringe any patent, copyright, trade
secret, trademark or other Intellectual Property Right of a third party, then
NTI may, and if the sale, distribution, or use of the NTI Product Components by
Cadence is, as a result, enjoined, then NTI shall, at its option and expense:
(a) procure for Cadence the rights under such patent, copyright, trade secret,
trademark or other Intellectual Property Right needed for Cadence to exercise
all of its rights under this Agreement with respect to the NTI Product
Components, or such part thereof; or (b) replace the NTI Product Components, or
parts thereof, with non-infringing suitable NTI products or parts with the same
functionality (or better) as the infringing NTI Product Components or parts; or
(c) suitably modify the NTI Product Components, or part thereof, to become non-
infringing and have the same functionality or better; or (d) if none of the
foregoing is feasible and Cadence's continued use and distribution of the
infringing NTI Product Component (or part thereof) has been finally enjoined,
accept return of such NTI Product Component, or part thereof, terminate
distribution or sale thereof, and pay to Cadence an amount equal to a portion of
the License Fees previously paid (and reduce the License Fees still to be paid
by an amount) commensurate with the value of such NTI Product Component (or part
thereof) compared to the value of all the NTI Product Components. NTI will not
be liable for any costs or expenses incurred without its prior written
authorization, or for any installation costs of replaced NTI products. Any
settlement that restricts Cadence's ability to continue using or distributing
any NTI Product Components in accordance with this Agreement will not be binding
on Cadence unless approved in writing by an authorized officer of Cadence (which

                                     -12-
<PAGE>

                                                                    CONFIDENTIAL

approval will not be unreasonably withheld). If any settlement restricts
Cadence's ability to continue using or distributing any NTI Product Components
in accordance with this Agreement, the parties will negotiate in good faith a
commensurate reduction in the License Fees.

           11.1  Limitation of Liability. EXCEPT WITH RESPECT TO BREACH OF
                 -----------------------
SECTIONS 12 (CONFIDENTIALITY), 3 (LICENSE GRANTS), 4 (EXCLUSIVITY) AND 9 (RIGHT
TO MATCH ACQUISITION OFFER) AND EXCEPT WITH RESPECT TO LIABILITY UNDER SECTION
11.1 (INDEMNIFICATION), NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER
PARTY FOR LOST PROFITS OR BUSINESS OPPORTUNITIES, LOST DATA, OR ANY OTHER
INDIRECT, INCIDENTIAL, CONSEQUENTIAL, SPECIAL, OR RELIANCE DAMAGES, HOWEVER
CAUSED AND UNDER ANY THEORY OF LIABILITY, WHETHER BASED IN CONTRACT, TORT
(INCLUDING NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE. THESE LIMITATIONS SHALL
APPLY REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY. NTI'S TOTAL, CUMULATIVE LIABILITY UNDER SECTION 11.1 FOR ANY AND ALL
CLAIMS OF INFRINGEMENT OF PATENTS ISSUED IN JAPAN OR ANY EUROPEAN UNION COUNTRY
WILL BE LIMITED TO THE AGGREGATE AMOUNT PAID BY CADENCE TO NTI UNDER THIS
AGREEMENT.

     12.   CONFIDENTIALITY.

           12.1  Definition. The term "Confidential Information" shall mean any
                 ----------
information disclosed by one party to the other party in connection with this
Agreement which is disclosed in writing, electronically, orally or by inspection
and which a party has a reasonable basis to believe is treated as confidential
by the other party.

           12.2  Obligation. Each party shall treat as confidential all
                 ----------
Confidential Information received from the other party, shall not use such
Confidential Information except as expressly permitted under this Agreement, and
shall not disclose such Confidential Information to any third party without the
other party's prior written consent. Each party shall take reasonable measure to
prevent the disclosure and unauthorized use of Confidential Information of the
other party for a period from the time of disclosure until the later to occur of
(i) the date five (5) years after such disclosure, or (ii) the expiration or
termination of this Agreement.

           12.3  Exceptions. Notwithstanding the above, the restrictions of this
                 ----------
Section 12 shall not apply to information that:

                 (a)   was independently developed by the receiving party
without any use of the Confidential Information of the other party and by
employees or other agents of (or independent contractors hired by) the receiving
party who have not been exposed to the Confidential Information as demonstrated
by written documentation;

                 (b)   becomes known to the receiving party, without
restriction, from a third party without breach of this Agreement and who had a
right to disclose it;

                                     -13-
<PAGE>

                                                                    CONFIDENTIAL

                 (c)   was in the public domain at the time it was disclosed or
becomes in the public domain through no act or omission of the receiving party;
or

                 (d)   was rightfully known to the receiving party, without
restriction, at the time of disclosure.

           12.4  Government Order. If a receiving party is required under an
                 ----------------
order or requirement of a court, administrative agency, or other governmental
body to disclose any Confidential Information, then such receiving party shall
provide prompt notice thereof to the other party and shall use its reasonable
commercial efforts to obtain a protective order or otherwise prevent public
disclosure of such information.

           12.5  Residuals. This Section 12 is not intended to prevent the
                 ---------
receiving party from using Residual Knowledge, subject to any valid patents and
copyrights of the disclosing party. "Residual Knowledge" means ideas, concepts,
know-how, or techniques related to the disclosing party's technology or general
skill, knowledge, talent and expertise that are retained in the unaided memories
of the receiving party's employees who have had access to the Confidential
Information of the disclosing party, but in no event including Confidential
Information relating to the source code of the NTI Product Components to the
extent that Cadence employees gain access to such source code under Section 15
of this Agreement. An employee's memory is considered unaided if the employee
has not intentionally memorized the Confidential Information for the purpose of
retaining and subsequently using or disclosing it.

     13.   DISPUTE RESOLUTION.

     If NTI and Cadence are unable to resolve any dispute, controversy or claim
arising out of this Agreement between them, then, prior to exercising its right
to terminate under any provision of this Agreement or (in the case of a dispute
over whether Cadence has met the Production Release Milestones set forth in
Exhibit D) prior to NTI entering into an OEM or distribution agreement with
Synopsys as permitted under Section 4.2, either NTI or Cadence shall, by written
notice to the other, first have such dispute referred to a Senior Vice President
(or equivalent) of NTI and Cadence, for attempted resolution by good faith
negotiations within ten (10) business days after such notice is received. If not
resolved within such ten (10) business day period, the parties shall escalate
the dispute to their respective Chief Operating Officers (or equivalent) for
resolution within thirty (30) business days after expiration of the initial ten
(10) day period. Unless otherwise mutually agreed, the negotiations between the
designated officers shall be conducted by face-to-face meetings within ten (10)
business days and at mutually convenient times within the period stated above.

     14.   TERM AND TERMINATION.

           14.1  Term. The term of this Agreement shall commence on the
                 ----
Effective Date and, unless terminated earlier as provided under Section 14.3 or
renewed as provided under Section 14.2, shall expire at the end of the Initial
Term.

           14.2  Option to Renew. Cadence shall have the option of renewing this
                 ---------------
Agreement for the "Renewal Term" by giving NTI written notice of its intent to
exercise such option on or

                                     -14-
<PAGE>

                                                                    CONFIDENTIAL

before March 31, 2002. In the event Cadence opts to extend this Agreement for
the Renewal Term, the Agreement shall continue in full force and effect for a
term of two (2) years from January 1, 2003 through December 31, 2004.

           14.3  Termination for Breach. If either party (the "Breaching Party")
                 ----------------------
materially breaches any term or condition of this Agreement, the other party
(the "Non-Breaching Party") may give written notice of such breach to the
Breaching Party. The Breaching Party will then have ten (10) days to notify the
Non-Breaching Party if the Breaching Party believes it has not materially
breached this Agreement, in which case the parties will attempt to resolve the
dispute in accordance with Section 13. If the Breaching Party acknowledges in
writing that it has materially breached this Agreement or fails to provide such
notice to the Non-Breaching Party within this ten (10) day period, or if the
parties are unable to resolve the dispute in accordance with Section 13, then
the Breaching Party will have thirty (30) days to cure the breach. If the
Breaching Party is unable to cure the breach within this thirty (30) day period,
the Non-Breaching Party may terminate this Agreement by written notice to the
Breaching Party at any time within thirty (30) days following the end of such
thirty (30) day period.

           14.4  Effect of Termination. Except as otherwise specifically set
                 ---------------------
forth in this Agreement, the following sections shall survive the expiration or
termination, for any reason, of this Agreement: 1 (Definitions), 10 (Limited
Warranties and Disclaimer), 11 (Indemnification and Limitation of Liability), 12
(Confidentiality), 16 (Assignment), and 17 (Miscellaneous). All other Sections
and all licenses hereunder shall terminate upon the expiration or termination,
for any reason, of this Agreement except as provided in Sections 14.5, 14.6,
14.7 and 15.3 below.

           14.5  Rights Upon Cadence Breach. In the event of termination of the
                 --------------------------
Agreement by NTI for a material breach by Cadence, the following shall apply
regarding Cadence's right to continue to ship the NTI Product Components and
Upgrades thereto after such termination:

                 (a)   Non-Intellectual Property or Payment Related Breach. If
                       ---------------------------------------------------
the material breach by Cadence is not related to NTI's Intellectual Property
rights or NTI's right to receive fees under the Agreement, then after
termination Cadence shall only have the right to ship the then-current version
of the NTI Product Components available at the time of the breach as part of
Updates to the Cadence Combined Products to Cadence customers who, prior to
breach, already purchased the Cadence Combined Product.

                 (b)   Intellectual Property or Payment Related Breach. If the
                       -----------------------------------------------
Cadence breach is a material breach relating to NTI's Intellectual Property
rights or NTI's right to receive fees under the Agreement, then Cadence shall
have no right to continue shipping any NTI Product Components under any
circumstances.

           14.6  Rights Upon NTI Breach. In the event of a material breach by
                 ----------------------
NTI, Cadence shall have the right to either:

                 (a)   terminate this Agreement in accordance with Section 14.3
and have the same rights as provided under Section 3 for the remainder of the
Initial Term and the Renewal Term (if (i) the termination took place before the
time for Cadence to make its election regarding the

                                     -15-
<PAGE>

                                                                    CONFIDENTIAL

Renewal Term, or (ii) if termination took place after Cadence has elected to
renew the Agreement), or just for the remainder of the Initial Term if the time
for election had passed prior to termination and Cadence had not elected to
extend the Agreement into the Renewal Term; provided, however that except as
provided in Section 14.6(b), Cadence shall pay NTI a reduced License Fee in the
amount of [***] of the original License Fee (including the License Fee owed
for the Renewal Term, if Cadence elects to preserve its rights for the Renewal
Term) owed under this Agreement (any such additional payments will be due in
accordance with the schedule in Exhibit E); or

                 (b)   if the NTI breach was a material breach of Section 4,
terminate this Agreement in accordance with Section 14.3 and have the same
rights as provided under Section 3 with no further payments of the License Fee
whatsoever for the remainder of the Initial Term and the Renewal Term (if (i)
the termination took place before the time for Cadence to make its election
regarding the Renewal Term, or (ii) if termination took place after Cadence has
elected to renew the Agreement), or just for the remainder of the Initial Term
if the time for election had passed prior to termination and Cadence had not
elected to extend the Agreement into the Renewal Term.

In any case of termination under this Agreement, after such termination NTI will
have no obligation under this Agreement to provide Updates to Cadence.

           14.7  Rights upon Expiration. Upon the expiration of the Renewal Term
                 ----------------------
(or, if none, the Initial Term), Cadence shall only have the right to ship the
then-current version of the NTI Product Components available at the time of such
expiration to the Cadence Combined Products to Cadence customers who, prior to
such expiration, already purchased the Cadence Combined Product; provided that,
Cadence shall only be permitted to continue such shipments until the end of life
of the release of the Cadence Combined Products which were being shipped at the
time of the expiration.

           14.8  Return of Materials. Upon the expiration or termination of this
                 -------------------
Agreement for any reason, and except for copies of such items as may be
reasonably required by NTI to exercise any surviving rights or fulfill any
surviving obligations, NTI shall promptly (i) return to Cadence the originals
and all copies (in tangible form or stored in storage or memory devices) of all
Cadence Materials, all Confidential Information of Cadence and all other
material provided hereunder by Cadence in NTI's possession or control; and (ii)
provide Cadence with a written statement certifying that it has complied with
the foregoing obligations. Upon the termination of this Agreement for any
reason, and except for such items as may be reasonably required by Cadence to
exercise any surviving rights or fulfill any surviving obligations, Cadence
shall promptly (a) return to NTI the originals and all copies (in tangible form
or stored in storage or memory devices) of all Confidential Information of NTI
and all other material provided hereunder by NTI in Cadence's possession or
control; and (b) provide NTI with a written statement certifying that it has
complied with the foregoing obligations.

           14.9  Remedies Cumulative. If Cadence elects to terminate this
                 -------------------
Agreement due to a material breach by NTI, such termination will be Cadence's
sole and exclusive remedy for such breach. Except as specifically set forth in
this Agreement, termination shall be in addition to all other legal or equitable
remedies available to either party.

                                     -16-

[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>

                                                                    CONFIDENTIAL

     15.   ESCROW.

           15.1  Escrow Account. Within ninety (90) days of the Effective Date
                 --------------
of this Agreement, NTI agrees to place and maintain current in an escrow account
with an escrow agent in California selected by Cadence and reasonably acceptable
to NTI a complete copy of the source code for the NTI Product Components
hereunder and any Updates and related documentation thereto that Cadence is
licensed to use hereunder (collectively "Source Code"). Cadence shall have the
right at any time to contact the escrow agent for the purpose of confirming that
the Source Code is in the escrow account and verifying the instructions to the
escrow agent to release the Source Code under the circumstances specified in
Section 14.2 below. Cadence shall bear all fees, expenses and other charges of
the escrow agent to open and maintain such escrow account.

           15.2  Release. The escrow agreement between Cadence, NTI and the
                 -------
escrow agent will provide that, if NTI (or its successors or assigns)
liquidates, makes general assignment for the benefit of creditors, or ceases
doing business as a going concern, or if NTI ceases to support the NTI Product
Components or commits a material and ongoing breach of its support obligations
under Section 8.2 above that is not cured within thirty (30) days of written
notice from Cadence, then, upon notice thereof by Cadence to NTI and the escrow
agent, the escrow agent shall deliver the Source Code to Cadence. If NTI
disputes Cadence's right to the Source Code, the matter shall be referred to
arbitration or a court of jurisdiction.

           15.3  License. NTI hereby grants to Cadence a nonexclusive right to
                 -------
use, reproduce, and modify such Source Code solely to correct Errors in the NTI
Product Components, to maintain the compatibility of the NTI Product Components
with the Cadence Products and third party software used in conjunction with the
NTI Product Components, and to provide minor functionality enhancements to the
NTI Product Components consistent with the enhancements being made to the
Cadence Products. The object code derived from the Source Code so modified shall
be deemed to be NTI Product Components hereunder and subject to the same rights
and restrictions on use, reproduction, and disclosure that are contained in this
Agreement with respect to the NTI Product Components. Cadence shall not
distribute, sell or sublicense the Source Code. The Source Code shall be subject
to the confidentiality provisions set forth in this Agreement in Section 12. In
addition, Cadence shall restrict disclosure of the Source Code to those within
its organization who need to use it for the purposes set forth above, and shall
keep it in a secure, locked location when not in use. NTI shall retain all
right, title and interest in and to the Source Code. The license granted in this
Section shall survive termination of the Agreement in accordance with Section 14
if the escrow provisions were triggered prior to termination or expiration of
the Agreement, but Cadence may not trigger the escrow provisions post-
termination or expiration.

     16.   ASSIGNMENT.

     Neither party may, by operation of law or otherwise, assign any of its
rights or delegate any of its obligations under this Agreement without the prior
express written consent of the other party. Notwithstanding the foregoing,
either party may assign all (but not part) of its rights and delegate all (but
not part) of its obligations under this Agreement to a third party as part of
any acquisition of such assigning party by such third party, provided that
notice of and details concerning such proposed assignment and delegation is
given to the non-assigning party, and Cadence may assign this

                                     -17-
<PAGE>

                                                                    CONFIDENTIAL

Agreement to any of its Affiliates; provided that, in no event, may Cadence
assign its rights or delegate duties under this Agreement to any third party
which Cadence has engaged or is working with to develop, license, acquire,
market or distribute any technologies which have substantially the same
functionality as the NTI Product Components as is permitted under Section 4.2 of
this Agreement. Subject to the foregoing, this Agreement will bind and inure to
the benefit of the parties, their respective successors and permitted assigns.
Any permitted assignment under this Section 16 shall be subject to the assignee
agreeing in writing to be bound by all the terms and conditions of this
Agreement.

     17.   MISCELLANEOUS.

           17.1  Waivers. No waiver of any provision of this Agreement shall be
                 -------
effective unless in writing and signed by the party to be charged. No failure or
delay by either party in exercising any right, power, or remedy under this
Agreement, except as specifically provided herein, shall operate as a waiver of
any such right, power or remedy.

           17.2  No Limitation. Use of the word "including" is meant to be
                 -------------
illustrative only and not limiting.

           17.3  Descriptive Headings. The descriptive headings herein are
                 --------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.

           17.4  Governing Law. This Agreement shall be governed by and
                 -------------
construed in accordance with the laws of the State of California without
application of any choice of law principles. All disputes under this Agreement
shall be brought in the courts located in Santa Clara County, California.

           17.5  Independent Contractors. The parties are independent
                 -----------------------
contractors. Neither party shall be deemed to be an employee, agent, partner or
legal representative of the other for any purpose and neither shall have any
right, power or authority to create any obligation or responsibility on behalf
of the other.

           17.6  Notices. All notices and other communications hereunder shall
                 -------
be in writing and shall be deemed to have been duly given when delivered in
person, by telecopy with answer back, by express or overnight mail delivered by
a nationally recognized air courier (delivery charges prepaid), or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties at their addresses set forth on the first page of this Agreement or to
such other address as the party to whom notice is given may have previously
furnished to the others in writing in the manner set forth above. Any notice or
communication so delivered shall be deemed effective on delivery or when
delivery is refused. Any notice or communication to Cadence shall be addressed
to the attention of the General Counsel.

           17.7  Severability. If any provision of this Agreement is held by a
                 ------------
court of competent jurisdiction to be contrary to law, such provision shall be
changed and interpreted so as to

                                     -18-
<PAGE>

                                                                    CONFIDENTIAL

best accomplish the objectives of the original provision to the fullest extent
allowed by law and the remaining provisions of this Agreement shall remain in
full force and effect.

           17.8  Entire Agreement. This Agreement, including all Exhibits
                 ----------------
attached hereto, constitutes the final, complete and exclusive agreement between
the parties with respect to the subject matter hereof, and supersedes any prior
or contemporaneous agreement.

           17.9  Amendment. No change or amendment will be made to this
                 ---------
Agreement except by an instrument in writing signed on behalf of each of the
parties hereto.

           17.10 Exhibits. Each Exhibit attached to this Agreement is deemed a
                 --------
part of this Agreement and incorporated herein wherever reference to it is made.

           17.11 No Implied Licenses. No licenses are to be implied from any
                 -------------------
term of this Agreement other than the licenses expressly granted herein.

           17.12 Counterparts. This Agreement may be executed in counterparts,
                 ------------
each of which will be deemed an original.

     IN WITNESS WHEREOF, the parties have caused this License Agreement to be
signed by their duly authorized representatives.

NUMERICAL TECHNOLOGIES, INC.           CADENCE DESIGN SYSTEMS, INC.

By: /s/ Yagyensh C. Pati               By: /s/ William Porter
    --------------------                   ------------------

Name: Yagyensh C. Pati                 Name: William Porter
      ----------------                       --------------

Title: President & CEO                 Title: Chief Financial Officer
       ---------------                        -----------------------

                                     -19-
<PAGE>

                                                                    CONFIDENTIAL

                          EXHIBIT A: CADENCE PRODUCTS

Assura(TM) physical verification products: Consisting of DRC, LVS, RCX, and SI
(signal integrity) tools for both batch and interactive physical verification,
extraction and analysis.

Virtuoso(TM) physical design products: Consisting of products for custom
physical design, layout editing, and layout compaction.

Envisia cell-based design products: Consisting of products providing placement,
routing, interconnect parasitic extraction, timing and delay analysis
capabilities for digital, cell-based design.
<PAGE>

                                                                    CONFIDENTIAL
                       EXHIBIT B: NTI PRODUCT COMPONENTS

Silicon Design Rule Check (SiDRC), Version 1.0: Silicon vs. Layout verification
software engine, in the form of binary shared libraries, that uses lithography
simulation to locate and flag areas of an integrated circuit layout design that
produce projected wafer patters outside the specified tolerance. This engine is
accompanied with a C header-file that allows the user to call the engine's API.
This will also include ModelGen (as described below), a complete mathematical
description of the semi-empirical component model, and description of the model
data file format.

ImagIC, Version 1.1: Software engine, in the form of binary code and the scripts
needed to link Virtuoso Layout Editor with NTI's simulation engines, that
generates real-time wafer image from layout data using lithography simulation.
This will also include ModelGen.

NumeriTech Optical Proximity Correction Tool (NOPC), Version 1.0: Rules-based
and simulation-based Optical Proximity Correction software engine, in the form
of binary shared libraries, that applies corrections based on the OPC rules (or
model information for the Simulation-based engine) to compensate for the
subwavelength lithographic effects. This engine is accompanied with a C
header-file that allows the user to call the engine's API.

NumeriTech Optical Proximity Correction GUI (NOPC-GUI), Version 3.1: Graphical
User Interface software, in the form of a binary application, that allows for
viewing and modifying OPC rules, as well as adding constraints and usage
options. This software will save the input from the user and will create a
command file, in TCL format, that will drive the operations of NOPC engine.

RuleGen, Version 1.3: Software, in the form of a binary application, that
automatically creates OPC rules from the calibrated optical/lithography process
models.

ModelGen, Version __: Software, in the form of a binary application, that
automatically creates a Model file from optical/lithography process models. The
Model file is read by several applications (e.g., Imagic and SiDRC).

         ModelCalibrator, Version 2.1: Software, in the form of a binary
application, that inputs of results of test-chip measurements based on which it
then calibrates the optical/lithography process models used by NTI tools and
components.
<PAGE>

                                                                    CONFIDENTIAL

                             EXHIBIT C: TRADEMARKS

NTI Trademarks:   Registered Trademark: Virtual Stepper (R)

Corporate Trademarks: Numerical Technologies (TM), Inc.

NumeriTech (TM)

The Numerical Technologies logo.

Product Trademarks:

iN-Phase

TROPiC

N-Abled

SiVL

ImagIC

SiDRC

SiImage

Rule-Gen

Model-Gen

NOPC

IC Workbench
<PAGE>

                                                                    CONFIDENTIAL

               EXHIBIT D: CADENCE PRODUCTION RELEASE MILESTONES

Production Release Milestone #1
-------------------------------
[***]

Production Released deadline by: June 30, 2000
Production Release Number: [***]

Production Release Milestone #2
-------------------------------
[***]

Production Released deadline by: July 31, 2000

Production Release Number: [***]

[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>

                                                                    CONFIDENTIAL

                   EXHIBIT E: LICENSE FEES PAYMENT SCHEDULE

Fees During Initial Term
------------------------

1999
----
upon execution
of the Agreement          [***]

2000
----
January 3                 [***]
April 3                   [***]
July 3                    [***]
October 2                 [***]

2001
----
January 2                 [***]
April 2                   [***]
July 2                    [***]
October 1                 [***]

2002
----
January 2                 [***]
April 1                   [***]
July 1                    [***]
October 1                 [***]

Total Fees
During Initial Term:      [***]

Fees During Renewal Term

2003
----
January 2                 [***]
April 1                   [***]
July 1                    [***]
October 1                 [***]

2004
----
January 2                 [***]
April 1                   [***]
July 1                    [***]
October 1                 [***]

Total Fees
During Renewal Term:      [***]

[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>

                                                                  DRAFT 12/15/99

                            EXHIBIT F: SERVICE FEES

Service Fee Payment Schedule
----------------------------

1999
----
Upon
execution of
the Agreement           [***]

2000
----
January 3               [***]
April 3                 [***]
July 3                  [***]
October 2               [***]

2001
----
January 2               [***]
April 2                 [***]
July 2                  [***]
October 1               [***]

2002
----
January 2               [***]
April 1                 [***]
July 1                  [***]
October 1               [***]

Total Fees During Initial Term:

Fees During Renewal Term

2003                    [***]
----
2004                    [***]
----

Total Fees During Renewal Term: [***]

[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.

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