Document:

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                                                                   EXHIBIT 10.81

                          CADENCE DESIGN SYSTEMS, INC.
                              EMPLOYMENT AGREEMENT
                            WITH R.L. SMITH MCKEITHEN

      THIS AGREEMENT (this "Agreement") is made effective as of May 18, 2004
(the "Effective Date"), between CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), and R.L. SMITH MCKEITHEN ("Executive").

      WHEREAS, Executive is currently employed by the Company as Senior Vice
President and General Counsel; and

      WHEREAS, the Company and Executive wish to enter into a formal employment
agreement on the terms and conditions as set forth herein.

      NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:

1.    TERM AND DUTIES.

      1.1   EFFECTIVE DATE. The Company hereby employs Executive and Executive
hereby accepts employment pursuant to the terms and provisions of this Agreement
commencing on the Effective Date. Executive has been employed and shall continue
to be employed on an at will basis, meaning that either Executive or the Company
may terminate Executive's employment at any time, with or without Cause (as
defined in Section 4.2 hereof), in the manner specified herein.

      1.2   SERVICES.

            (a)   Executive shall continue to have the title of Senior Vice
President and General Counsel. Executive's duties will be assigned to Executive
by the Company's Chief Executive Officer ("CEO"), or such other persons as may
be specified by the CEO.

            (b)   Executive shall be required to comply with all applicable
company policies and procedures, as such shall be adopted, modified or otherwise
established by the Company from time to time.

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      1.3   SERVICES TO BE EXCLUSIVE. During his employment with the Company,
Executive agrees to devote his full productive time and best efforts to the
performance of Executive's duties hereunder. Executive further agrees, as a
condition to the performance by the Company of each and all of its obligations
hereunder, that so long as Executive is employed by the Company or receiving
compensation or any other consideration from the Company, he will not directly
or indirectly render services of any nature to, otherwise become employed by,
serve on the board of directors of, or otherwise participate or engage in any
other business without the CEO's prior written consent. Nothing herein contained
shall be deemed to preclude Executive from having outside personal investments
and involvement with appropriate community activities, or from devoting a
reasonable amount of time to such matters, provided that they shall in no manner
interfere with or derogate from Executive's work for the Company.

      1.4   OFFICE. The Company shall maintain an office for Executive at the
Company's corporate headquarters, which currently are located in San Jose,
California.

2.    COMPENSATION.

      The Company shall pay to Executive, and Executive shall accept as full
consideration for the Services, compensation consisting of the following:

      2.1   BASE SALARY. The Company shall initially pay Executive a base salary
of Four Hundred Thousand Dollars ($400,000) per year ("Base Salary"), payable in
installments in accordance with the Company's customary payroll practices, less
such deductions and withholdings required by law or authorized by Executive. The
Board of Directors of the Company (the "Board") or the Compensation Committee of
the Board (the "Compensation Committee") shall review the amount of the Base
Salary from time to time, but no less frequently than annually.

      2.2   BONUS. Executive shall participate in the Company's Senior Executive
Bonus Plan or its successor (the "Bonus Plan") at an annual target bonus of
Three Hundred Thousand Dollars ($300,000) (the "Target Bonus") pursuant to the
terms of

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such Bonus Plan (the criteria for earning a bonus thereunder are set annually by
the Compensation Committee). The Board or the Compensation Committee shall
review the amount of the Target Bonus from time to time, but no less frequently
than annually.

      2.3   EQUITY GRANTS. Executive has previously been granted stock options
by the Company which remain in full force and effect in accordance with the
terms of the stock option agreements documenting such grants. Executive shall be
eligible to receive additional grants of either restricted stock or stock
options or both as the Compensation Committee may determine from time to time.
All stock options shall be granted at one hundred percent (100%) of the fair
market value of the Company's common stock on the date of grant. Any awards
shall vest in accordance with the Company's vesting policy for additional grants
to executive officers of the Company in effect on the date of the grant by the
Compensation Committee, and shall contain such other terms and conditions as
shall be set forth in the agreement documenting the grant.

      2.4   INDEMNIFICATION. In the event Executive is made, or threatened to be
made, a party to any legal action or proceeding, whether civil or criminal, by
reason of the fact that Executive is or was a director or officer of the Company
or serves or served any other corporation or other person which is at least
fifty percent (50%) or more owned by the Company or controlled by the Company in
any capacity at the Company's request, Executive shall be indemnified by the
Company, and the Company shall pay Executive's related expenses when and as
incurred, all to the fullest extent not prohibited by law, as more fully
described in that Indemnification Agreement between the Company and Executive
dated as of August 4, 1999, and attached hereto as Exhibit A.

3.    EXPENSES AND BENEFITS.

      3.1   REASONABLE AND NECESSARY BUSINESS EXPENSES. In addition to the
compensation provided for in Section 2 hereof, the Company shall reimburse

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Executive for all reasonable, customary and necessary expenses incurred in the
performance of Executive's duties hereunder. Executive shall first account for
such expenses by submitting a signed statement itemizing such expenses prepared
in accordance with the policy set by the Company for reimbursement of such
expenses. The amount, nature and extent of reimbursement for such expenses shall
always be subject to the control, supervision and direction of the CEO, Chief
Financial Officer and the Board, or such other persons as may be specified from
time to time by the CEO.

      3.2   BENEFITS. During Executive's full-time employment with the Company,
pursuant to this Agreement:

            (a)   Executive shall be eligible to participate in the Company's
standard U.S. health insurance, life insurance and disability insurance plans,
as such plans may be modified from time to time; and

            (b)   Executive shall be eligible to participate in the Company's
qualified and non-qualified retirement and other deferred compensation programs
pursuant to their terms, as such programs may be modified from time to time.

      3.3   SARBANES-OXLEY ACT LOAN PROHIBITION. To the extent that any company
benefit, program, practice, arrangement, or any term of this Agreement would or
might otherwise result in the Company's extension of a credit arrangement to
Executive not permissible under the Sarbanes-Oxley Act of 2002 (a "Loan"), the
Company will use reasonable efforts to provide Executive with a substitute for
such Loan, which is lawful and of at least equal value. If this cannot be done,
or if doing so would be significantly more expensive to the Company than making
a Loan, then the Company need not make or maintain a Loan or provide a
substitute for it.

4.    TERMINATION OF EMPLOYMENT.

      4.1   GENERAL. Executive's employment by the Company under this Agreement
shall terminate immediately upon delivery to Executive of written notice of
termination by the Company, upon the Company's receipt of written notice of

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termination by Executive within thirty (30) days before the specified effective
date of such termination, or upon Executive's death or Permanent Disability (as
defined in Section 4.4 hereof). In the event of such termination, except where
Executive is terminated for Cause (as defined in Section 4.2 hereof) or as the
result of a Permanent Disability or death, or where Executive voluntarily
terminates his employment other than a Constructive Termination (as defined in
Section 4.3 hereof), and upon execution by Executive at or about the effective
date of such termination of the Executive Transition and Release Agreement, in
the form attached hereto as Exhibit B (the "Transition Agreement"), the Company
shall provide Executive with the benefits as set forth in the Transition
Agreement.

      4.2   DEFINITION OF CAUSE. For purposes of this Agreement, "Cause" shall
be deemed to mean (1) Executive's gross misconduct or fraud in the performance
of his duties under this Agreement; (2) Executive's conviction or guilty plea or
plea of nolo contendere with respect to any felony or act of moral turpitude;
(3) Executive's engaging in any material act of theft or material
misappropriation of company property in connection with his employment; (4)
Executive's material breach of this Agreement, after written notice delivered to
Executive of such breach and failure to cure such breach, if curable, within
thirty (30) days following delivery of such notice; (5) Executive's material
breach of the Proprietary Information Agreement (as defined in Section 8
hereof); (6) Executive's material failure/refusal to perform his assigned
duties, and, where such failure/refusal is curable, if such failure/refusal is
not cured within thirty (30) days following delivery of written notice thereof
from the Company; or (7) Executive's material breach of the Company's Code of
Business Conduct as such code may be revised from time to time.

      4.3   CONSTRUCTIVE TERMINATION. Notwithstanding anything in this Section 4
to the contrary, Executive may, upon written notice to the Company, voluntarily
end his employment upon or within ninety (90) days following the occurrence

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of an event constituting a Constructive Termination and be eligible to receive
the benefits set forth in the Transition Agreement in exchange for executing and
delivering that agreement in accordance with Section 9.3 hereof. For purposes of
this Agreement, "Constructive Termination" shall mean:

            (a)   a material adverse change, without Executive's written
consent, in Executive's authority, duties or title causing Executive's position
to be of materially less stature or responsibility, after written notice
delivered to the Company of such change and the Company's failure to cure such
change, if curable, within thirty (30) days following delivery of such notice;
provided, however, that such a material adverse change shall in all events be
deemed to occur if Executive no longer serves as the General Counsel of a
publicly traded company, unless Executive consents in writing to such change;

            (b)   any change, without Executive's written consent, to
Executive's reporting structure causing Executive to no longer report to the CEO
of the Company, after written notice delivered to the Company of such change and
the Company's failure to cure such change, if curable, within thirty (30) days
following delivery of such notice;

            (c)   a reduction, without Executive's written consent, in
Executive's Base Salary in effect on the Effective Date (or such higher level as
may be in effect in the future) by more than ten percent (10%) or a reduction by
more than ten percent (10%) in Executive's stated Target Bonus in effect on the
Effective Date (or such greater Target Bonus amount as may be in effect in the
future) under the Bonus Plan;

            (d)   a relocation of Executive's principal place of employment by
more than thirty (30) miles, unless Executive consents in writing to such
relocation;

            (e)   any material breach by the Company of any provision of this
Agreement, after written notice delivered to the Company of such breach and the
Company's failure to cure such breach, if curable, within thirty (30) days
following delivery of such notice;

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            (f)   any failure by the Company to obtain the written assumption of
this Agreement by any successor to the Company;

            (g)   in the event Executive, prior to a Change in Control (as
defined in Section 4.5 hereof), is identified as an executive officer of the
Company for purposes of the rules promulgated under Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and following a Change in
Control in which the Company or any successor remains a publicly traded entity,
Executive is not identified as an executive officer for purposes of Section 16
of the Exchange Act at any time within one (1) year after the Change in Control.

      4.4   PERMANENT DISABILITY. For purposes of this Agreement, "Permanent
Disability" shall mean any medically determinable physical or mental impairment
that can reasonably be expected to result in death or that has lasted or can
reasonably be expected to last for a continuous period of not less than twelve
(12) months and that renders Executive unable to perform effectively the
Services pursuant to this Agreement.

      4.5   CHANGE IN CONTROL.

            (a)   Should there occur a Change in Control (as defined below) and
if within ninety (90) days prior to, or thirteen (13) months following the
Change in Control either (i) Executive is terminated without Cause or (ii)
Executive resigns his employment as a result of an event constituting a
Constructive Termination, then, in exchange for signing the Transition
Agreement, Executive shall be entitled to all of the benefits set forth therein,
except that Section 4(b) of the Transition Agreement will be replaced by the
following provision: "all outstanding stock options granted and restricted stock
issued by the Company to the Executive prior to the Change in Control (as
defined in Section 4.5 of Executive's Employment Agreement) shall have their
vesting fully accelerated so as to be 100% vested as of the Effective Date of
this Agreement. This

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acceleration will have no effect on any other provisions of the plans governing
the stock options and restricted stock."

            (b)   For purposes of this Section 4.5, a Change in Control shall be
deemed to occur upon the consummation of any one of the following events:

                  (i)   any "person" (as such term is used in sections 13(d) and
                        14(d) of the Exchange Act) becomes the "beneficial
                        owner" (as defined in Rule 13d-3 of the Exchange Act),
                        directly or indirectly, of securities of the Company
                        representing more than fifty percent (50%) of the total
                        voting power represented by the Company's then
                        outstanding voting securities;

                  (ii)  except pursuant to the exception applicable to clause
                        (iii) below, a change in the composition of the Board
                        occurring within a two-year period, as a result of which
                        fewer than a majority of the directors are Incumbent
                        Directors ("Incumbent Directors" means directors who
                        either (i) are directors of the Company as of the
                        Effective Date, or (ii) are elected, or nominated for
                        election, to the Board with the affirmative votes of at
                        least a majority of the Incumbent Directors at the time
                        of such election or nomination, but will not include an
                        individual whose election or nomination is in connection
                        with an actual or threatened proxy contest relating to
                        the election of directors to the Board);

                  (iii) the consummation of a merger or consolidation of the
                        Company with any other corporation, other than a merger
                        or consolidation in which the holders of the Company's
                        outstanding voting securities immediately prior to such
                        merger or consolidation receive, in exchange for their
                        voting

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                        securities of the Company in consummation of such merger
                        or consolidation, securities possessing at least fifty
                        percent (50%) of the total voting power represented by
                        the outstanding voting securities of the surviving
                        entity (or parent thereof) immediately after such merger
                        or consolidation; or

                  (iv)  the consummation of the sale or disposition by the
                        Company of all or substantially all the Company's
                        assets.

      4.6   TERMINATION FOR CAUSE, ON ACCOUNT OF DEATH, PERMANENT DISABILITY, OR
VOLUNTARY TERMINATION. In the event Executive's employment is terminated for
Cause, or on account of death or Permanent Disability, or Executive voluntarily
terminates his employment with the Company, then Executive will be paid only (a)
any earned but unpaid base salary and any outstanding expense reimbursements
submitted and approved pursuant to Section 3.1 hereof, and (b) other unpaid
vested amounts or benefits under Company compensation, incentive and benefit
plans, in each case as of the effective date of such termination.

5.    EXCISE TAX.

      In the event that any benefits payable to Executive pursuant to the
Transition Agreement ("Termination Benefits") (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any comparable successor provisions, and (ii)
but for this Section 5 would be subject to the excise tax imposed by Section
4999 of the Code, or any comparable successor provisions (the "Excise Tax"),
then Executive's Termination Benefits hereunder shall be either (a) provided to
Executive in full, or (b) provided to Executive as to such lesser extent which
would result in no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, when taking into account applicable federal,
state, local and foreign income and employment taxes, the Excise Tax, and any
other applicable taxes, results in the receipt by Executive, on an after-tax

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basis, of the greatest amount of benefits, notwithstanding that all or some
portion of such benefits may be taxable under the Excise Tax. Unless the Company
and Executive otherwise agree in writing, any determination required under this
Section 5 shall be made in writing in good faith by a nationally recognized
accounting firm selected by the Company (the "Accountants"). In the event of a
reduction of benefits hereunder, Executive shall be given the choice of which
benefits to reduce. If Executive does not provide written identification to the
Company of which benefits he chooses to reduce within ten (10) days after
written notice of the Accountants' determination, and Executive has not disputed
the Accountants' determination, then the Company shall select the benefits to be
reduced. For purposes of making the calculations required by this Section 5, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code, and other applicable legal authority.
The Company and Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section 5. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.

      If, notwithstanding any reduction described in this Section 5, the IRS
determines that Executive is liable for the Excise Tax as a result of the
receipt of any Termination Benefits, then Executive shall be obligated to pay
back to the Company, within thirty (30) days after a final IRS determination or
in the event that Executive challenges the final IRS determination, a final
judicial determination, a portion of the Termination Benefits equal to the
"Repayment Amount." The Repayment Amount shall be the smallest such amount, if
any, as shall be required to be paid to the Company so that Executive's net
after-tax proceeds with respect to the Termination Benefits (after taking into
account the payment of the Excise Tax and all other applicable taxes imposed on

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such benefits) shall be maximized. The Repayment Amount shall be zero if a
Repayment Amount of more than zero would not result in Executive's net after-tax
proceeds with respect to the Termination Benefits being maximized. If the Excise
Tax is not eliminated pursuant to this paragraph, Executive shall pay the Excise
Tax.

      Notwithstanding any other provision of this Section 5, if (1) there is a
reduction in the payment of the Termination Benefits as described in this
Section 5, (2) the IRS later determines that Executive is liable for the Excise
Tax, the payment of which would result in the maximization of Executive's net
after-tax proceeds (calculated as if Executive's benefits had not previously
been reduced), and (3) Executive pays the Excise Tax, then the Company shall pay
to Executive those Termination Benefits which were reduced pursuant to this
subsection as soon as administratively possible after Executive pays the Excise
Tax so that Executive's net after-tax proceeds with respect to the payment of
the Termination Benefits are maximized.

6.    DISPUTE RESOLUTION.

      (a)   Each of the parties expressly agrees that, to the extent permitted
by applicable law and to the extent that the enforceability of this Agreement is
not thereby impaired, any and all disputes, controversies or claims between
Executive and the Company arising under this Agreement (as opposed to the
Transition Agreement), except those arising under Section 6(d) hereof or under
the Proprietary Information Agreement (as defined in Section 8 hereof), shall be
determined exclusively by final and binding arbitration before a single
arbitrator in accordance with the JAMS Arbitration Rules and Procedures, or
successor rules then in effect, and that judgment upon the award of the
arbitrator may be rendered in any court of competent jurisdiction. This
includes, without limitation, any and all disputes, controversies, and/or claims
arising out of or concerning Executive's employment by the Company or the
termination of his employment or this Agreement, and includes, without
limitation, claims by Executive against directors, officers or employees of the
Company, whether arising under theories

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of liability or damages based on contract, tort or statute, to the full extent
permitted by law. As a material part of this agreement to arbitrate claims, the
parties expressly waive all rights to a jury trial in court on all statutory or
other claims. This Section 6 does not purport to limit either party's ability to
recover any remedies provided for by statute, including attorneys' fees.

      (b)   The arbitration shall be held in the San Jose, California
metropolitan area, and shall be administered by JAMS or, in the event JAMS does
not then conduct arbitration proceedings, a similarly reputable arbitration
administrator. Under such proceeding, the parties shall select a mutually
acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except
as provided herein, the Federal Arbitration Act shall govern the interpretation
and enforcement of such arbitration proceeding. The arbitrator shall apply the
substantive law (and the law of remedies, if applicable) of the State of
California, or federal law, if California law is preempted, and the arbitrator
is without jurisdiction to apply any different substantive law. The parties
agree that they will be allowed to engage in adequate discovery, the scope of
which will be determined by the arbitrator, consistent with the nature of the
claims in dispute. The arbitrator shall have the authority to entertain a motion
to dismiss and/or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil Procedure. The
arbitrator shall render an award that shall include a written statement of
opinion setting forth the arbitrator's findings of fact and conclusions of law.
Judgment upon the award may be entered in any court having jurisdiction thereof.
The parties intend this arbitration provision to be valid, enforceable,
irrevocable and construed as broadly as possible.

      (c)   The Company shall be responsible for payment of the arbitrator's
fees as well as all administrative fees associated with the arbitration. The
parties shall be responsible for their own attorneys' fees and costs (including
expert fees and costs), except that if any party prevails on a statutory claim
that entitles the prevailing party to

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reasonable attorneys' fees (with or without expert fees) as part of the costs,
the arbitrator may award reasonable attorneys' fees (with or without expert
fees) to the prevailing party in accord with such statute.

      (d)   The parties agree, however, that damages would be an inadequate
remedy for the Company in the event of a breach or threatened breach of Section
1.3 of this Agreement or any provision of the Proprietary Information Agreement
(as defined in Section 8 hereof). In the event of any such breach or threatened
breach, Cadence may, either with or without pursuing any potential damage
remedies, obtain from a court of competent jurisdiction, and enforce, an
injunction prohibiting Executive from violating Section 1.3 of this Agreement or
any provision of the Proprietary Information Agreement (as defined in Section 8
hereof) and requiring Executive to comply with the terms of those agreements.

7.    COOPERATION WITH THE COMPANY AFTER TERMINATION OF THE EMPLOYMENT PERIOD.

      Following his termination of full-time employment for any reason (other
than death), Executive shall cooperate with the Company in all matters relating
to the winding up of his pending work on behalf of the Company and the orderly
transfer of any such pending work to other employees of the Company as may be
designated by the Company. Such cooperation shall be provided by Executive at
mutually-convenient times. Executive also agrees to participate as a witness in
any litigation or regulatory proceeding to which the Company is a party at the
request of the Company upon delivery to Executive of reasonable advance notice.
With respect to the cooperation/participation described in the preceding
sentences, the Company will reimburse Executive for all reasonable expenses
incurred by Executive in the course of such cooperation/participation.
Furthermore, Executive agrees to return to the Company all property of the
Company, including all hard and soft copies of records, documents, materials and
files relating to confidential, proprietary or sensitive company

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information in his possession or control, as well as all other company-owned
property in his possession or control, at the time of the termination of his
full-time employment, except to the extent that retention of any of such
property is necessary or desirable or convenient in order to permit Executive to
satisfy his obligations under this Section 7 or under the Transition Agreement,
after which time Executive shall promptly return all such retained company
property.

8.    PROPRIETARY INFORMATION AGREEMENT.

      Executive shall, on the Effective Date, execute and deliver to the Company
an Employee Proprietary Information and Inventions Agreement, in the form
attached hereto as Exhibit C (the "Proprietary Information Agreement").

9.    GENERAL.

      9.1   WAIVER. Neither party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other party of any of the provisions of this Agreement. Further, the waiver
by either party of a particular breach of this Agreement by the other shall
neither be construed as, nor constitute, a continuing waiver of such breach or
of other breaches of the same or any other provision of this Agreement.

      9.2   SEVERABILITY. If for any reason a court of competent jurisdiction
or arbitrator finds any provision of this Agreement to be unenforceable, the
provision shall be deemed amended as necessary to conform to applicable laws or
regulations, or if it cannot be so amended without materially altering the
intention of the parties, the remainder of the Agreement shall continue in full
force and effect as if the offending provision were not contained herein.

      9.3   NOTICES. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be considered
effective either (a) upon personal service or (b) upon delivery by facsimile and
depositing such notice in the U.S. Mail, postage prepaid, return receipt
requested and, if addressed to

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the Company, in care of the CEO at the Company's principal corporate address,
and, if addressed to Executive, at his most recent address shown on the
Company's corporate records or at any other address which Executive may specify
in any appropriate notice to the Company, or (c) upon only depositing such
notice in the U.S. Mail as described in clause (b) of this paragraph.

      9.4   COUNTERPARTS. This Agreement may be executed by facsimile and in any
number of counterparts, each of which shall be deemed an original and all of
which taken together constitutes one and the same instrument and in making proof
hereof it shall not be necessary to produce or account for more than one such
counterpart.

      9.5   ENTIRE AGREEMENT. The parties hereto acknowledge that each has read
this Agreement, understands it, and agrees to be bound by its terms. The parties
further agree that this Agreement, the exhibits to this Agreement, any existing
stock option agreements between the parties, and the documents, plans and
policies referred to in this Agreement (which are hereby incorporated herein by
reference) constitute the complete and exclusive statement of the agreement
between the parties and supersedes all proposals (oral or written),
understandings, agreements (including, but not limited to, the Executive
Retention Agreement signed by Executive on or about September 20,1999),
representations, conditions, covenants, and all other communications between the
parties relating to the subject matter hereof; provided, however, that the
Employee Invention and Confidential Information Agreement signed by Executive on
or about April 19, 1996 and Executive's agreement, made prior to the Effective
Date of this Agreement, to abide by the Company's policies, including but not
limited to the Company's Employee Handbook, Sexual Harassment Policy and Code of
Business Conduct, remain in full force and effect and govern Executive's conduct
from the date of execution of such agreements until the Effective Date of this
Agreement.

      9.6   GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, without regard to its conflict of laws principles.

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      9.7   ASSIGNMENT AND SUCCESSORS. The Company shall have the right to
assign its rights and obligations under this Agreement to an entity that,
directly or indirectly, acquires all or substantially all of the assets of the
Company. The rights and obligations of the Company under this Agreement shall
inure to the benefit and shall be binding upon the successors and assigns of the
Company. Executive shall not have any right to assign his obligations under this
Agreement and shall only be entitled to assign his rights under this Agreement
upon his death, solely to the extent permitted by this Agreement, or as
otherwise agreed to by the Company.

      9.8   AMENDMENTS. This Agreement, and the terms and conditions of the
matters addressed in this Agreement, may only be amended in writing executed
both by the Executive and the CEO of the Company.

      9.9   TERMINATION AND SURVIVAL OF CERTAIN PROVISIONS. This Agreement shall
terminate upon the termination of Executive's full-time employment for any
reason; provided, however, that the following provisions of this Agreement shall
survive its termination: Executive's obligations under Section 7 hereof; the
Company's obligations to provide compensation earned through the termination of
the employment relationship under Sections 2 and 3 hereof; the Company's
obligations and Executive's obligations under Section 5 hereof; the Company's
obligations and Executive's obligations enumerated in the Transition Agreement,
if applicable; the Company's obligation to indemnify Executive pursuant to
Section 2.4 hereof and the referenced Indemnification Agreement; the dispute
resolution provisions of Section 6 hereof; and, to the extent applicable, this
Section 9.

      9.10  DEPARTMENT OF HOMELAND SECURITY VERIFICATION REQUIREMENT. If
Executive has not already done so, he will timely file all documents required by
the Department of Homeland Security to verify his identity and his lawful
employment in the United States. Notwithstanding any other provision of this
Agreement, If Executive fails to meet any such requirements promptly after
receiving a

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written request from the Company to do so, his employment will terminate
immediately upon notice from the Company and he will not be entitled to any
compensation from the Company of any type.

      9.11  HEADINGS. The headings of the several sections and paragraphs of
this Agreement are inserted solely for the convenience of reference and are not
a part of and are not intended to govern, limit or aid in the construction of
any term or provision hereof.

      9.12  TAXES AND OTHER WITHHOLDINGS. Notwithstanding any other provision of
this Agreement, the Company may withhold from amounts payable hereunder all
federal, state, local and foreign taxes and other amounts that are required to
be withheld by applicable laws or regulations, and the withholding of any amount
shall be treated as payment thereof for purposes of determining whether
Executive has been paid amounts to which he is entitled.

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      IN WITNESS WHEREOF, the parties have executed this Agreement on this 18th
day of May, 2004.

 CADENCE DESIGN SYSTEMS, INC.                EXECUTIVE

 By:  /s/ H. Raymond Bingham                   /s/ R.L. Smith McKeithen
      ---------------------------------        ----------------------------
      H. Raymond Bingham                       R.L. Smith McKeithen

Title: Chairman of the Board of Directors

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                                    EXHIBIT A

                               INDEMNITY AGREEMENT

<PAGE>

                               INDEMNITY AGREEMENT

This Indemnity Agreement, dated as of August 4, 1999, is made by and between
Cadence Design Systems, Inc., a Delaware corporation (the "Company"), and R.L.
Smith McKeithen, an Officer of the Company (the "Indemnitee").

                                    RECITALS

      A.    The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors and officers;

      B.    The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;

      C.    Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so substantial (whether or not the case is meritorious), that
the defense and/or settlement of such litigation is often beyond the personal
resources of officers and directors;

      D.    The Company believes that it is unfair for its directors and
officers and the directors and officers of its subsidiaries to assume the risk
of large judgments and other expenses that may be incurred in cases in which the
director or officer received no personal profit and in cases where the director
or officer was not culpable;

      E.    The Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as the Company or a
subsidiary of the Company are often related to the knowledge, motives and intent
of such director or officer, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director
or officer can reasonably recall such matters; and may extend beyond the normal
time for retirement for such director or officer with the result that he, after
retirement or in the event of his death, his spouse, heirs, executors or
administrators, may be faced with limited ability and undue hardship in
maintaining an adequate defense, which may discourage such a director or officer
from serving in that position;

      F.    Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its officers and
directors

<PAGE>

and the officers and directors of its subsidiaries, and to assume for itself
maximum liability for expenses and damages in connection with claims against
such officers and directors in connection with their service to the Company and
its subsidiaries, and has further concluded that the failure to provide such
contractual indemnification could result in great harm to the Company and its
subsidiaries and the Company's shareholders;

      G.    Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify by
agreement its officers, directors, employees and agents, and persons who serve,
at the request of the Company, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive;

      H.    The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company and its subsidiaries as of the date hereof is inadequate and/or
unreasonably expensive. The Company believes, therefore, that the interests of
the Company's shareholders would best be served by a combination of such
insurance as the Company may obtain, or request a subsidiary to obtain, pursuant
to the Company's obligations hereunder, and the indemnification by the Company
of the directors and officers of the Company and its subsidiaries.

      I.    The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company and/or the
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or the
subsidiaries of the Company; and

      J.    The Indemnitee is willing to serve, or to continue to serve, the
Company and/or the subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.

                                    AGREEMENT

      NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

      1.    Definitions.

            (a)   Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interest of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.

                                        2
<PAGE>

            (b)   Expenses. For purposes of this Agreement, "expenses" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Section 145 or otherwise; provided, however, that expenses shall not include any
judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement
of a proceeding.

            (c)   Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.

            (d)   Subsidiary. For the purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.

      2.    Agreement to Serve. The Indemnitee agrees to serve and/or continue
to serve as an agent of the Company, at its will (or under separate agreement,
if such agreement exists), in the capacity Indemnitee currently serves as an
agent of the Company, so long as he is duly appointed or elected and qualified
in accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing, provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.

      3.    Maintenance of Liability Insurance.

            (a)   The Company hereby covenants and agrees that, so long as the
Indemnitee shall continue to serve as an agent of the Company and thereafter so
long as the Indemnitee shall be subject to any possible proceeding by reason of
the fact that the Indemnitee was an agent of the Company, the Company, subject
to Section 3(b), shall use reasonable efforts to obtain and maintain in full
force and effect director's and officer's liability ("D&O Insurance") in
reasonable amounts from established and reputable insurers.

            (b)   Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.

                                        3
<PAGE>

      4.    Mandatory Indemnification. The Company shall indemnify the
Indemnitee:

            (a)   Third Party Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) actually and reasonably incurred
by him in connection with the investigation, defense, settlement or appeal of
such proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and

            (b)   Derivative Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he is or was an agent of the Company, or by reason of anything done or not
done by him in any such capacity, against any amounts paid in settlement of any
such proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement, or appeal of such
proceeding if he acted in good faith and in manner he reasonably believed to be
in or not opposed to the best interests of the Company; except that no
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and

            (c)   Actions Where Indemnitee is Deceased. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, against any
and all expenses and liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid
in settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and, prior to, during the pendency or after
completion of such proceeding Indemnitee is deceased, except that in a
proceeding by or in the right of the Company no indemnification shall be due
under the provisions of this subsection in respect of any claim, issue or matter
as to which such person shall have been finally adjudged to be liable to the
Company, by a court of competent jurisdiction due to willful misconduct of a
culpable nature in the performance of his duty to the Company, unless and only
to the extent that the Court of Chancery or the court in which such proceeding
was brought shall determine upon application that, despite the adjudication of
liability but in

                                        4
<PAGE>

view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such amounts which the Court of Chancery or such other
court shall deem proper; and

            (d)   Exception for Amounts Covered by Insurance. Notwithstanding
the foregoing, the Company shall not be obligated to indemnify the Indemnitee
for expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) which have been paid directly to Indemnitee by D&O Insurance.

      5.    Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for such total amount except as the portion thereof to which the
Indemnitee is not entitled.

      6.    Mandatory Advancement of Expenses. Subject to Section 10 below, the
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity. Indemnitee hereby undertakes to
repay such amounts advanced only if, and to the extent that, it shall ultimately
be determined that the Indemnitee is not entitled to be indemnified by the
Company as authorized hereby. The advances to be made hereunder shall be paid by
the Company to the Indemnitee within twenty (20) days following delivery of a
written request therefore by the Indemnitee to the Company.

      7.    Notice and Other Indemnification Procedures.

            (a)   Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

            (b)   If, at the time of receipt of a notice of the commencement of
a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.

            (c)   In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to

                                        5
<PAGE>

the Indemnitee of written notice of its election so to do. After delivery of
such notice, approval of such counsel by the Indemnitee and the retention of
such counsel by the Company, the Company will not be liable to the Indemnitee
under this Agreement for any fees of counsel subsequently incurred by the
Indemnitee with respect to the same proceeding, provided that (i) the Indemnitee
shall have the right to employ his counsel in any such proceeding at the
Indemnitee's expense; and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (B) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the company and the Indemnitee in the conduct of any such defense or (C) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.

      8.    Determination of Right to Indemnification.

            (a)   To the extent the Indemnitee has been successful on the merits
or otherwise in defense of any proceeding referred to in Section 4(a), 4(b), or
4(c) of this Agreement or in the defense of any claim, issue or matter described
therein, the Company shall indemnify the Indemnitee against expenses actually
and reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.

            (b)   In the event that Section 8(a) is inapplicable, the Company
shall also indemnify the Indemnitee unless, and only to the extent that, the
Company shall prove by clear and convincing evidence to a forum listed in
Section 8(c) below that the Indemnitee has not met the applicable standard of
conduct required to entitle the Indemnitee to such indemnification.

            (c)   The Indemnitee shall be entitled to select the forum in which
the validity of the Company's claim under Section 8(b) hereof that the
Indemnitee is not entitled to indemnification will be heard from among the
following:

                  (1)   A quorum of the Board consisting of directors who are
not parties to the proceeding for which indemnification is being sought;

                  (2)   The stockholders of the Company;

                  (3)   Legal counsel selected by the Indemnitee, and reasonably
approved by the Board, which counsel shall make such determination in a written
opinion.

                  (4)   A panel of three arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last of whom
is selected by the first two arbitrators so selected.

            (d)   As soon as practicable, and in no event later than 30 days
after written notice of the Indemnitee's choice of forum pursuant to Section
8(c) above, the Company shall, at its own expense, submit to the selected forum
in such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to

                                        6
<PAGE>

indemnification; and the Company shall act in the utmost good faith to assure
the Indemnitee a complete opportunity to defend against such claim.

            (e)   If the forum listed in Section 8(c) hereof selected by
Indemnitee determines that Indemnitee is entitled to indemnification with
respect to a specific proceeding, such determination shall be final and binding
on the Company. If the forum listed in Section 8(c) hereof selected by
Indemnitee determines that Indemnitee is not entitled to indemnification with
respect to a specific proceeding, the Indemnitee shall have the right to apply
to the Court of Chancery of Delaware, the court in which that proceeding is or
was pending or any other court of competent jurisdiction, for the purpose of
enforcing the Indemnitee's right to indemnification pursuant to the Agreement.

            (f)   Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.

      9.    Limitation of Actions and Release of Claims. No proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any subsidiary against the Indemnitee, his spouse, heirs, estate, executors
or administrators after the expiration of one year from the act or omission of
the Indemnitee upon which such proceeding is based; however, in a case where the
Indemnitee fraudulently conceals the facts underlying such cause of action, no
proceeding shall be brought and no cause of action shall be asserted after the
expiration of one year from the earlier of (i) the date the Company or any
subsidiary of the Company discovers such facts, or (ii) the date the Company or
any subsidiary of the Company could have discovered such facts by the exercise
of reasonable diligence. Any claim or cause of action of the Company or any
subsidiary of the Company, including claims predicated upon the negligent act or
omission of the Indemnitee, shall be extinguished and deemed released unless
asserted by filing of a legal action within such period. This Section 9 shall
not apply to any cause of action which has accrued on the date hereof and of
which the Indemnitee is aware on the date hereof, but as to which the Company
has no actual knowledge apart from the Indemnitee's knowledge.

      10.   Expectations. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

            (a)   Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 145, but such indemnification or advancement of expenses
may be provided by the Company in Specific cases if the Board of Directors finds
it to be appropriate; or

                                        7
<PAGE>

            (b)   Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or

            (c)   Unauthorized Settlements. To Indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement; or

            (d)   Claims by the Company for Willful Misconduct. To indemnify or
advance expenses to the Indemnitee under this Agreement for any expenses
incurred by the Indemnitee with respect to any proceeding or claim brought by
the Company against Indemnitee for willful misconduct, unless a court of
competent jurisdiction determines that each of such claims was not made in good
faith or was frivolous; or

            (e)   16(b) Actions. To indemnify the Indemnitee on account of any
suit in which judgment is rendered against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities and
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law; or

            (f)   Willful Misconduct. To indemnify the Indemnitee on account of
Indemnitee's conduct which is finally adjudged to have been knowingly fraudulent
or deliberately dishonest, or to constitute willful misconduct; or

            (g)   Unlawful Indemnification. To indemnify the Indemnitee if a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.

      11.   Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
shareholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.

      12.   Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.

      13.   Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and

                                        8
<PAGE>

enforceability of the remaining provisions of the Agreement (including, without
limitation, all portions of any paragraphs of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, and (ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable and to give effect to Section 12 hereof.

      14.   Modification And Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.

      15.   Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.

      16.   Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.

      17.   Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
with Delaware.

      18.   Consent to Jurisdiction. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement.

      The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.

                                        9
<PAGE>

                                    Address: Cadence Design Systems, Inc.
                                             2655 Seely Rd.
                                             San Jose, CA 95134

                                             By   /s/ H. Raymon Bingham
                                                  ---------------------------
                                                  H. Raymon Bingham
                                                  President & CEO
                                             Its  ___________________________

                                             INDEMNITEE:

                                             /s/ R.L. Smith Mckeithen
                                             --------------------------------
                                             R.L. Smith Mckeithen

                                    Address: 2655 Seely Road
                                             San Jose, CA 95134

                                       10
<PAGE>

                                    EXHIBIT B

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

<PAGE>

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

      This Executive Transition and Release Agreement (this "Agreement") is
entered into between R.L. Smith McKeithen ("Executive") and Cadence Design
Systems, Inc. ("Cadence" or the "Company").

      1.    TRANSITION COMMENCEMENT DATE. As of << Transition Commencement
Date>> (the "Transition Commencement Date"), Executive will no longer hold the
position of Senior Vice President and General Counsel and will be relieved of
all of Executive's authority and responsibilities in that position. Executive
will be paid all accrued salary for his services as Senior Vice President and
General Counsel to the Transition Commencement Date by not later than the
following regular payroll date. Following the Transition Commencement Date,
Executive will no longer participate in Cadence's medical, dental, and vision
insurance plans (unless Executive elects to continue coverage pursuant to
COBRA), and will not be eligible for a bonus for any services rendered after
that date.

      2.    TRANSITION PERIOD. The period from the Transition Commencement Date
to the date when Executive's employment with Cadence terminates (the
"Termination Date") is called the "Transition Period" in this Agreement.
Executive's Termination Date will be the earliest to occur of:

            a.    the date on which Executive resigns from all employment with
                  Cadence;

            b.    the date on which Cadence terminates Executive's employment
                  due to a breach by Executive of Executive's duties or
                  obligations under this Agreement; and

            c.    One year from the Transition Commencement Date.

      3.    DUTIES AND OBLIGATIONS DURING THE TRANSITION PERIOD AND AFTERWARDS.

            a.    During the Transition Period, Executive will assume the
position of<<New Position Title>>. In this position, Executive will render those
services requested by Cadence's <<Management Representative>> on an as-needed
basis. Executive's time rendering those services is not expected to exceed
twenty (20) hours per week but is expected to consume twenty (20) hours per
month.

            b.    As a Cadence executive, as well as other positions Executive
may have held with Cadence, Executive has obtained extensive and valuable
knowledge and information concerning Cadence's business (including confidential
information relating to Cadence and its operations, intellectual property
assets, contracts, customers, personnel, plans, marketing plans, research and
development plans and prospects). Executive acknowledges and agrees that it
would be virtually impossible for Executive to work as an employee, consultant
or advisor in the electronic design automation ("EDA") industry (as defined
below) without inevitably disclosing confidential and proprietary information
belonging to Cadence. Accordingly, during the Transition

<PAGE>

Period, Executive will not, directly or indirectly, provide services, whether as
an employee, consultant, independent contractor, agent, sole proprietor,
partner, joint venture, corporate officer or director, on behalf of any
corporation, limited liability company, partnership, or other entity or person
that (i) is engaged in the EDA industry, (ii) directly competes against Cadence
or any of its existing or future affiliates in the EDA industry anywhere in the
world, or (iii) produces, markets, distributes or sells any products, directly
or indirectly through intermediaries, that are competitive with EDA industry
products produced, marketed, sold or distributed by Cadence. As used in this
paragraph, the term "EDA industry" means the research, design or development of
electronic design automation software, electronic design verification, emulation
hardware and related products, such products containing hardware, software and
both hardware and/or software products, designs or solutions for, and all
intellectual property embodied in the foregoing, or in commercial electronic
design and/or maintenance services, such services including all intellectual
property embodied in the foregoing. If Executive receives an offer of employment
or consulting from any person or entity during the Transition Period, then
Executive must first obtain written approval from Cadence's Chief Executive
Officer ("CEO") before accepting said offer.

            c.    During the Transition Period, Executive will be prohibited, to
the full extent allowed by applicable law, and except with the written advance
approval of Cadence's CEO (or his successor(s)), from voluntarily or
involuntarily, for any reason whatsoever, directly or indirectly, individually
or on behalf of persons or entities not now parties to this Agreement: (i)
encouraging, inducing, attempting to induce, soliciting or attempting to solicit
for employment, contractor or consulting opportunities anyone who is employed at
that time, or was employed during the previous one year, by Cadence or any
Cadence affiliate; (ii) interfering or attempting to interfere with the
relationship or prospective relationship of Cadence or any Cadence affiliate
with any former, present or future client, customer, joint venture partner, or
financial backer of Cadence or any Cadence affiliate; or (iii) soliciting,
diverting or accepting business, in any line or area of business engaged in by
Cadence or any Cadence affiliate, from any former or present client, customer or
joint venture partner of Cadence or any Cadence affiliate (other than on behalf
of Cadence), except that Executive may solicit or accept business, in a line of
business engaged in by Cadence or a Cadence affiliate, from a former or present
client, if and only if Executive had previously provided consulting services in
such line of business, to such client, prior to ever being employed by Cadence,
but in no event may Executive violate paragraph 3(b) hereof. The restrictions
contained in subparagraph (i) of this paragraph 3(c) shall also be in effect for
a period of one year following the Termination Date. This paragraph 3(c) does
not alter any of the obligations the Executive may have under the Employee
Proprietary Information Agreement, dated as of May 18, 2004.

            d.    Executive will fully cooperate with Cadence in all matters
relating to his employment, including the winding up of work performed in
Executive's prior position and the orderly transition of such work to other
Cadence employees.

            e.    Executive will not make any statement, written or oral, that
disparages Cadence or any of its affiliates, or any of Cadence's or its
affiliates' products,

                                        2
<PAGE>

services, policies, business practices, employees, executives, officers, or
directors. Similarly, Cadence agrees to instruct its executive officers and
members of the Company's Board of Directors not to make any statement, written
or oral, that disparages Executive. The restrictions described in this paragraph
shall not apply to any truthful statements made in response to a subpoena or
other compulsory legal process.

            f.    Notwithstanding paragraph 10 hereof, the parties agree that
damages would be an inadequate remedy for Cadence in the event of a breach or
threatened breach by Executive of paragraph 3(b) or 3(c), or for Cadence or
Executive in the event of a breach or threatened breach of paragraph 3(e). In
the event of any such breach or threatened breach, the non-breaching party may,
either with or without pursuing any potential damage remedies, obtain from a
court of competent jurisdiction, and enforce, an injunction prohibiting the
other party from violating this Agreement and requiring the other party to
comply with the terms of this Agreement.

      4.    TRANSITION COMPENSATION AND BENEFITS. In consideration and
compensation for Executive's services during the Transition Period, Cadence will
provide the following to Executive:

            a.    a monthly salary of $2,000 less applicable tax withholdings
                  and deductions, payable in accordance with Cadence's regular
                  payroll schedule;

            b.    continued vesting of stock options and restricted stock
                  granted to Executive prior to the Termination Date, provided
                  that Executive has executed all necessary stock option and
                  restricted stock agreements on or before<<Stock Option
                  Agreement Execution Date>>, and with the understanding that
                  upon Executive's Termination Date, all vested options may be
                  exercised in accordance with the applicable stock option
                  agreement, any unvested options will expire, and any unvested
                  restricted stock will be forfeited; and

            c.    if Executive elects to continue coverage under Cadence's
                  medical, dental, and vision insurance plans pursuant to COBRA
                  following the Transition Commencement Date, Cadence will pay
                  Executive's COBRA premiums during the Transition Period.

Except as so provided, Executive will receive no other compensation or benefits
from Cadence in consideration of Executive's services during the Transition
Period.

      5.    FIRST TERMINATION PAYMENT AND BENEFITS. Provided that Executive does
not resign from employment with Cadence and Cadence does not terminate
Executive's employment with Cadence due to a breach by Executive of Executive's
duties under this Agreement, and in consideration for Executive's acceptance of
this Agreement and Executive's further execution and delivery of a Release of
Claims in the form of

                                        3
<PAGE>

Attachment 1 hereto, Cadence will provide to Executive within ten business days
after the Effective Date (as defined in paragraph 9 hereof) of this Agreement
and after Executive has returned to the Company all hard and soft copies of
records, documents, materials and files relating to confidential, proprietary or
sensitive company information in his possession or control, as well as all other
Company-owned property, the following termination payment to which Executive
would not otherwise be entitled:

            a.    a lump-sum payment of one year's base salary at the highest
                  rate in effect during Executive's employment as Senior Vice
                  President and General Counsel, less applicable tax deductions
                  and withholdings.

      6.    SECOND TERMINATION PAYMENT AND BENEFITS. Provided that Executive
does not resign from employment with Cadence and Cadence does not terminate
Executive's employment with Cadence due to a breach by Executive of Executive's
duties under this Agreement, upon the Termination Date, and in consideration for
Executive's acceptance of this Agreement and Executive's further execution of a
Release of Claims in the form of Attachment 2 to this Agreement, Cadence will
provide to Executive within ten business days after the expiration of the
revocation period of the Release of Claims (as defined in that document) the
following termination payment to which Executive would not otherwise be
entitled:

            a.    a lump-sum payment of one year's target bonus at the highest
                  rate in effect during Executive's employment as Senior Vice
                  President and General Counsel, less applicable tax deductions
                  and withholdings.

      7.    GENERAL RELEASE OF CLAIMS.

            a.    Executive hereby irrevocably, fully and finally releases
Cadence, its parent, subsidiaries, affiliates, directors, officers, agents and
employees ("Releasees") from all causes of action, claims, suits, demands or
other obligations or liabilities, whether known or unknown, suspected or
unsuspected, that Executive ever had or now has as of the time that Executive
signs this Agreement which relate to his hiring, his employment with the
Company, the termination of his employment with the Company and claims asserted
in shareholder derivative actions or shareholder class actions against the
Company and its officers and Board of Directors, to the extent those derivative
or class actions relate to the period during which Executive was employed by the
Company. The claims released include, but are not limited to, any claims arising
from or related to Executive's employment with Cadence, such as claims arising
under (as amended) Title VII of the Civil Rights Act of 1964, the Civil Rights
Act of 1991, the Age Discrimination in Employment Act of 1974, the Americans
with Disabilities Act, the Equal Pay Act, the Fair Labor Standards Act, the
California Fair Employment and Housing Act, the California Labor Code, the
Employee Retirement Income and Security Act of 1974 (except for any vested right
Executive has to benefits under an ERISA plan), the state and federal Worker
Adjustment and Retraining Notification Act, and the California Business and
Professions Code; any other local, state, federal, or foreign law governing
employment; and the common law of contract and tort. In no event, however,

                                        4
<PAGE>

shall any claims, causes of action, suits, demands or other obligations or
liabilities be released pursuant to the foregoing if and to the extent they
relate to:

                  i.    any amounts or benefits to which Executive is or becomes
entitled to pursuant to the provisions of this Agreement or pursuant to the
provisions designated in Section 9.9 of the Employment Agreement to survive the
termination of Executive's full-time employment;

                  ii.   claims for workers' compensation benefits under any of
the Company's workers' compensation insurance policies or funds;

                  iii.  claims related to Executive's COBRA rights; and

                  iv.   any rights that Executive has or may have to be
indemnified by Cadence pursuant to any contract, statute, or common law
principle.

            b.    Executive represents and warrants that he has not filed any
claim, charge or complaint against any of the Releasees.

            c.    Executive acknowledges that the payments provided in this
Agreement constitute adequate consideration for the release set forth in this
paragraph 7.

            d.    Executive intends that this release of claims cover all
claims, whether or not known to Executive. Executive further recognizes the risk
that, subsequent to the execution of this Agreement, Executive may incur loss,
damage or injury which Executive attributes to the claims encompassed by this
release. Executive expressly assumes this risk by signing this Agreement and
voluntarily and specifically waives any rights conferred by California Civil
Code section 1542 which provides as follows:

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor which if known by him must have
      materially affected his settlement with the debtor.

            e.    Executive represents and warrants that there has been no
assignment or other transfer of any interest in any claim by Executive that is
covered by this release.

      8.    REVIEW OF AGREEMENT; REVOCATION OF ACCEPTANCE. Executive has been
given at least 21 days in which to review and consider this Agreement, although
Executive is free to accept this Agreement anytime within that 21-day period.
Executive is advised to consult with an attorney about the Agreement. If
Executive accepts this Agreement, Executive will have an additional 7 days from
the date that Executive signs this Agreement to revoke that acceptance, which
Executive may effect by means of a written notice sent to the CEO. If this 7-day
period expires without a timely revocation, this Agreement will become final and
effective on the eighth day following the date of Executive's signature, which
eighth day will be the "Effective Date" of this Agreement.

                                        5
<PAGE>

      9.    ARBITRATION. Subject to paragraph 3(f) hereof, all claims, disputes,
questions, or controversies arising out of or relating to this Agreement,
including without limitation the construction or application of any of the
terms, provisions, or conditions of this Agreement, will be resolved exclusively
in final and binding arbitration in accordance with the Arbitration Rules and
Procedures, or successor rules then in effect, of Judicial Arbitration &
Mediation Services, Inc. ("JAMS"). The arbitration will be held in the San Jose,
California, metropolitan area, and will be conducted and administered by JAMS
or, in the event JAMS does not then conduct arbitration proceedings, a similarly
reputable arbitration administrator. Executive and Cadence will select a
mutually acceptable, neutral arbitrator from among the JAMS panel of
arbitrators. Except as provided by this Agreement, the Federal Arbitration Act
will govern the administration of the arbitration proceedings. The arbitrator
will apply the substantive law (and the law of remedies, if applicable) of the
State of California, or federal law, as applicable, and the arbitrator is
without jurisdiction to apply any different substantive law. Executive and
Cadence will each be allowed to engage in adequate discovery, the scope of which
will be determined by the arbitrator consistent with the nature of the claim[s]
in dispute. The arbitrator will have the authority to entertain a motion to
dismiss and/or a motion for summary judgment by any party and will apply the
standards governing such motions under the Federal Rules of Civil Procedure. The
arbitrator will render a written award and supporting opinion that will set
forth the arbitrator's findings of fact and conclusions of law. Judgment upon
the award may be entered in any court of competent jurisdiction. Cadence will
pay the arbitrator's fees, as well as all administrative fees, associated with
the arbitration. Each party will be responsible for paying its own attorneys'
fees and costs (including expert witness fees and costs, if any). However, in
the event a party prevails at arbitration on a statutory claim that entitles the
prevailing party to reasonable attorneys' fees as part of the costs, then the
arbitrator may award those fees to the prevailing party in accordance with that
statute.

      10.   NO ADMISSION OF LIABILITY. Nothing in this Agreement will constitute
or be construed in any way as an admission of any liability or wrongdoing
whatsoever by Cadence or Executive.

      11.   INTEGRATED AGREEMENT. This Agreement is intended by the parties to
be a complete and final expression of their rights and duties respecting the
subject matter of this Agreement. Except as expressly provided herein, nothing
in this Agreement is intended to negate Executive's agreement to abide by
Cadence's policies while serving as a Cadence employee, including but not
limited to Cadence's Employee Handbook, Sexual Harassment Policy and Code of
Business Conduct, or Executive's continuing obligations under Executive's
Employee Proprietary Information and Inventions Agreement, or any other
agreement governing the disclosure and/or use of proprietary information, which
Executive signed while working with Cadence or its predecessors; nor to waive
any of Executive's obligations under state and federal trade secret laws.

      12.   FULL SATISFACTION OF COMPENSATION OBLIGATIONS; ADEQUATE
CONSIDERATION. Executive agrees that the payments and benefits provided herein
are in full satisfaction of all obligations of Cadence to Executive arising out
of or in connection with Executive's employment through the Termination Date,
including,

                                        6
<PAGE>

without limitation, all compensation, salary, bonuses, reimbursement of
expenses, and benefits.

      13.   TAXES AND OTHER WITHHOLDINGS. Notwithstanding any other provision of
this Agreement, the Company may withhold from amounts payable hereunder all
federal, state, local and foreign taxes and other amounts that are required to
be withheld by applicable laws or regulations, and the withholding of any amount
shall be treated as payment thereof for purposes of determining whether
Executive has been paid amounts to which he is entitled.

      14.   WAIVER. Neither party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other party of any of the provisions of this Agreement. Further, the waiver
by either party of a particular breach of this Agreement by the other shall
neither be construed as, nor constitute, a continuing waiver of such breach or
of other breaches of the same or any other provision of this Agreement.

      15.   MODIFICATION. This Agreement may not be modified unless such
modification is embodied in writing, signed by the party against whom the
modification is to be enforced.

      16.   ASSIGNMENT AND SUCCESSORS. Cadence shall have the right to assign
its rights and obligations under this Agreement to an entity that, directly or
indirectly, acquires all or substantially all of the assets of Cadence. The
rights and obligations of Cadence under this Agreement shall inure to the
benefit and shall be binding upon the successors and assigns of Cadence.
Executive shall not have any right to assign his obligations under this
Agreement and shall only be entitled to assign his rights under this Agreement
upon his death, solely to the extent permitted by this Agreement, or as
otherwise agreed to by Cadence.

      17.   SEVERABILITY. In the event that any part of this Agreement is found
to be void or unenforceable, all other provisions of the Agreement will remain
in full force and effect.

      18.   GOVERNING LAW. This Agreement will be governed and enforced in
accordance with the laws of the State of California, without regard to its
conflict of laws principles.

                                        7
<PAGE>

                             EXECUTION OF AGREEMENT

      The parties execute this Agreement to evidence their acceptance of it.

Dated: ___________________________.        Dated: _____________________________.

R.L. SMITH MCKEITHEN                       CADENCE DESIGN SYSTEMS, INC.

___________________________________        By: ________________________________
                                                        <<HRVP_Name>>
                                                        <<HRVP_Title_1>>

                                        8
<PAGE>

                                  ATTACHMENT 1

                                RELEASE OF CLAIMS

      1.    For valuable consideration, I irrevocably, fully and finally release
Cadence Design Systems, Inc. ("Cadence"), its parent, subsidiaries, affiliates,
directors, officers, agents and employees from all causes of action, claims,
suits, demands or other obligations or liabilities, whether known or unknown,
suspected or unsuspected, that I ever had or now have as of the time that I sign
this Release which relate to my hiring, my employment with Cadence, the
termination of my employment with Cadence and claims asserted in shareholder
derivative actions or shareholder class actions against Cadence and its officers
and Board of Directors, to the extent those derivative or class actions relate
to the period during which I was employed by Cadence. The claims released
include, but are not limited to, any claims arising from or related to my
employment with Cadence, such as claims arising under (as amended) Title VII of
the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1974, the Americans with Disabilities Act,
the Equal Pay Act, the Fair Labor Standards Act, the California Fair Employment
and Housing Act, the California Labor Code, the Employee Retirement Income and
Security Act of 1974 (except for any vested right I have to benefits under an
ERISA plan), the state and federal Worker Adjustment and Retraining Notification
Act, and the California Business and Professions Code; any other local, state,
federal, or foreign law governing employment; and the common law of contract and
tort. This Release is not intended to, and does not, encompass any right to
compensation or benefits that I have under my Executive Transition and Release
Agreement with Cadence. In no event, however, shall any claims, causes of
action, suits, demands or other obligations or liabilities be released pursuant
to the foregoing if and to the extent they relate to:

            i.    any amounts or benefits to which Executive is or becomes
entitled to pursuant to the provisions of this Agreement or pursuant to the
provisions designated in Section 9.9 of the Employment Agreement to survive the
termination of Executive's full-time employment;

            ii.   claims for workers' compensation benefits under any of the
Company's workers' compensation insurance policies or funds;

            iii.  claims related to Executive's COBRA rights; and

            iv.   any rights that I have or may have to be indemnified by
Cadence pursuant to any contract, statute, or common law principle.

      2.    I intend that this Release cover all claims, whether or not known to
me. I further recognize the risk that, subsequent to the execution of this
Agreement, I may incur loss, damage or injury which I attribute to the claims
encompassed by this Release. I expressly assume this risk by signing this
Release and voluntarily and specifically waive any rights conferred by
California Civil Code section 1542 which provides as follows:

<PAGE>

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor which if known by him must have
      materially affected his settlement with the debtor.

      3.    I represent and warrant that there has been no assignment or other
transfer of any interest in any claim by me that is covered by this Release.

      4.    I acknowledge that Cadence has given me 21 days in which to consider
this Release and advised me to consult an attorney about it. I further
acknowledge that once I execute this Release, I will have an additional 7 days
in which to revoke my acceptance of this Release by means of a written notice of
revocation given to ______________. This Release will not be final and effective
until the expiration of this revocation period.

Dated: ____________________________.         __________________________________
                                                         Print Name

                                             __________________________________
                                                         Sign Name

                                       10
<PAGE>

                                  ATTACHMENT 2

                                RELEASE OF CLAIMS

      1.    For valuable consideration, I irrevocably, fully and finally release
Cadence Design Systems, Inc. ("Cadence"), its parent, subsidiaries, affiliates,
directors, officers, agents and employees from all causes of action, claims,
suits, demands or other obligations or liabilities, whether known or unknown,
suspected or unsuspected, that I ever had or now have as of the time that I sign
this Release which relate to my hiring, my employment with Cadence, the
termination of my employment with Cadence and claims asserted in shareholder
derivative actions or shareholder class actions against Cadence and its officers
and Board of Directors, to the extent those derivative or class actions relate
to the period during which I was employed by Cadence. The claims released
include, but are not limited to, any claims arising from or related to my
employment with Cadence, such as claims arising under (as amended) Title VII of
the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1974, the Americans with Disabilities Act,
the Equal Pay Act, the Fair Labor Standards Act, the California Fair Employment
and Housing Act, the California Labor Code, the Employee Retirement Income and
Security Act of 1974 (except for any vested right I have to benefits under an
ERISA plan), the state and federal Worker Adjustment and Retraining Notification
Act, and the California Business and Professions Code; any other local, state,
federal, or foreign law governing employment; and the common law of contract and
tort. This Release is not intended to, and does not, encompass any right to
compensation or benefits that I have under my Executive Transition and Release
Agreement with Cadence. In no event, however, shall any claims, causes of
action, suits, demands or other obligations or liabilities be released pursuant
to the foregoing if and to the extent they relate to:

            i.    any amounts or benefits to which Executive is or becomes
entitled to pursuant to the provisions of this Agreement or pursuant to the
provisions designated in Section 9.9 of the Employment Agreement to survive the
termination of Executive's full-time employment;

            ii.   claims for workers' compensation benefits under any of the
Company's workers' compensation insurance policies or funds;

            iii.  claims related to Executive's COBRA rights; and

            iv.   any rights that I have or may have to be indemnified by
Cadence pursuant to any contract, statute, or common law principle.

      2.    I intend that this Release cover all claims, whether or not known to
me. I further recognize the risk that, subsequent to the execution of this
Agreement, I may incur loss, damage or injury which I attribute to the claims
encompassed by this Release. I expressly assume this risk by signing this
Release and voluntarily and specifically waive any rights conferred by
California Civil Code section 1542 which provides as follows:

<PAGE>

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor which if known by him must have
      materially affected his settlement with the debtor.

      3.    I represent and warrant that there has been no assignment or other
transfer of any interest in any claim by me that is covered by this Release.

      4.    I acknowledge that Cadence has given me 21 days in which to consider
this Release and advised me to consult an attorney about it. I further
acknowledge that once I execute this Release, I will have an additional 7 days
in which to revoke my acceptance of this Release by means of a written notice of
revocation given to ______________. This Release will not be final and effective
until the expiration of this revocation period.

Dated: ____________________________.         __________________________________
                                                        Print Name

                                             __________________________________
                                                        Sign Name

                                       12
<PAGE>

                                    EXHIBIT C

            EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT<PAGE>

                                                                    EXHIBIT 10.1

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THIS NOTE OR SUCH
SECURITIES, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND SUCH APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER SUCH ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

                    SUBORDINATED CONVERTIBLE PROMISSORY NOTE

$1,000,000.00                   Austin, Texas                       July 7, 2004

         For value received, Westech Capital Corp., a Delaware corporation (the
"Company"), hereby promises to pay to Salter Family Partners, Ltd. or registered
assigns (the "Holder"), the principal sum of ONE MILLION DOLLARS AND NO CENTS
($1,000,000.00), on the dates specified herein, with interest as specified
herein.

         This Note is subject to the following additional provisions, terms and
conditions:

ARTICLE 1. DEFINITIONS.

         Section 1.1. Certain Definitions.

         "Applicable Rate" means 10% per annum.

         "Bankruptcy Law" means Title 11, United State Code or any similar
federal or state law for the relief of debtors.

         "Business Day" means any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in Austin, Texas.

         "Common Stock" means the Company's common stock, $0.001 par value.

         "Conversion Price" means Ten Dollars ($10.00).

         "Default Rate" means 14% per annum.

         "DGCL" means the Delaware General Corporation Law, as amended from time
to time.

         "Distribution Event" means any insolvency, bankruptcy, receivership,
liquidation, reorganization or similar proceeding (whether voluntary or
involuntary) relating to the Company or its property, or any proceeding for
voluntary or involuntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy.

<PAGE>

         "Holder" has the meaning given to such term in the first paragraph of
this Note.

         "Interest Payment Date" means the first day of each calendar quarter.

         "Maturity Date" means December 1, 2005. In the event the Board of
Directors of the Company does not designate Preferred Stock, then the maturity
date shall be July 1, 2005.

         "Maximum Rate" means the maximum nonusurious interest rate permitted
under applicable law.

         "Note" means this Subordinated Convertible Promissory Note made by the
Company payable to the Holder, together with all amendments and supplements
hereto, all substitutions and replacements herefor, and all renewals,
extensions, increases, restatements, modifications, rearrangements and waivers
hereof from time to time.

         "Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.

         "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

         "Subsidiary" means Tejas Securities Group, Inc., a wholly-owned
subsidiary of the Company.

ARTICLE 2. BASIC TERMS.

         Section 2.1. Principal.

                  (a)      Scheduled Repayment. The principal of this Note shall
be due and payable on the Maturity Date.

                  (b)      Prepayment. The principal and/or interest on this
         Note may not be prepaid in whole or in part without the prior consent
         of Holder.

         Section 2.2. Interest.

                  (a)      The Company agrees to pay interest in respect of the
unpaid principal amount of this Note at a rate per annum equal to the lesser of
the Applicable Rate or the Maximum Rate. Notwithstanding the preceding sentence,
the Company agrees to pay interest in respect of overdue principal, and, to the
extent permitted by law, overdue interest, at a rate per annum equal to the
lesser of the Default Rate or the Maximum Rate.

                  (b)      Interest on the unpaid principal amount of this Note
shall be due and payable (i) on each Interest Payment Date and the Maturity
Date, (ii) upon the payment or conversion of any of the principal of this Note,
(iii) at the maturity of this Note (whether by acceleration or otherwise), and
(iv) after maturity (whether by acceleration or otherwise), on demand.

                                       2

<PAGE>

                  (c)      All computations of interest, both before and after
maturity, shall be made on the basis of a year of 365 days (or 366 days, as
applicable) for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest is payable.

         Section 2.3. Payments in General. Whenever any payment to be made under
this Note shall be stated to be due on a day that is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the
applicable rate during such extension. Each payment received by the Holder shall
be applied first to collection expenses, if any, then to the payment of accrued
but unpaid interest hereunder, and then to the reduction of the unpaid principal
balance hereof.

         Section 2.4. Surrender of Note on Transfer or Conversion. This Note
shall, as a condition to transfer, be surrendered to the Company in exchange for
a new Note in a principal amount equal to the principal amount remaining unpaid
on the surrendered Note, and with the same terms and conditions as this Note. In
case the entire principal amount of this Note is prepaid or converted pursuant
to Article 4, this Note shall be surrendered to the Company for cancellation and
shall not be reissued.

         Section 2.5. No Collateral. This Note is unsecured.

         Section 2.6. Subordination. The Holder's rights to payments hereunder
are subordinate to the rights and security interests of First United Bank
pursuant to Promissory Note dated February 17, 2004, as amended, modified,
revised or restructured from time to time. The Company shall obtain the prior
written consent of Holder prior to (i) incurring any indebtedness for borrowed
money following the date of this Note or (ii) subordinating this Note to any
rights and security interests granted to a bank or other third party
institutional lender following the date of this Note. Upon giving such written
consent, the Holder agrees to execute all documentation reasonably requested by
a bank or other third party institutional lender to subordinate the Holder's
rights to payment under this Note.

ARTICLE 3. DEFAULT AND REMEDIES.

         Section 3.1. Events of Default. An "Event of Default" occurs if:

                  (a)      the Company defaults in the payment of principal or
interest on the Note when the same becomes due and payable and such default
continues for 3 days after the Company has received written notice thereof;

                  (b)      default by the Company in the punctual performance of
any other obligation, covenant, term or provision contained in this Note, and
such default shall continue unremedied for a period of 10 days or more following
written notice of default by Holder to the Company;

                  (c)      the closing price of the Company's publicly traded
Common Stock, as reported on a national or regional securities exchange,
quotation system, or over-the-counter bulletin board, is less than $2.00 per
share for ten (10) consecutive trading days;

                                       3

<PAGE>

                  (d)      Mark Salter is no longer employed by the Company or
the Subsidiary;

                  (e)      the net liquidating equity of the Subsidiary held at
its clearing organization as of the close of business on the last Business Day
of a calendar month is less than Two Million Dollars ($2,000,000); or

                  (f)      the Company (i) commences a voluntary case concerning
itself under any Bankruptcy Law now or hereafter in effect, or any successor
thereof; (ii) is the object of an involuntary case under any Bankruptcy Law; or
(iii) commences any Distribution Event or is the object of an involuntary
Distribution Event.

         Section 3.2. Remedies.

                  (a)      If an Event of Default (other than an Event of
Default under Section 3.1(f)) shall occur, the Holder may declare by notice in
writing given to the Company, the entire unpaid principal amount of the Note,
together with accrued but unpaid interest thereon, to be immediately due and
payable, in which case the Note shall become immediately due and payable, both
as to principal and interest, without presentment, demand, default, notice of
intent to accelerate and notice of such acceleration, protest or notice of any
kind, all of which are hereby expressly waived, anything herein or elsewhere to
the contrary notwithstanding; provided, that if the only Event of Default arises
under Section 3.1(d) because Mark Salter has died or become disabled, then the
Note shall become due and payable, both as to principal and interest, sixty (60)
days after receipt of such notice by the Company.

                  (b)      If an Event of Default under Section 3.1(f) shall
occur and be continuing, the entire unpaid principal amount of the Note,
together with accrued but unpaid interest thereon, shall automatically become
immediately due and payable, both as to principal and interest, without
presentment, demand, default, notice of intent to accelerate and notice of such
acceleration, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or elsewhere to the contrary notwithstanding.

                  (c)      If any Event of Default shall have occurred, the
Holder may proceed to protect and enforce their rights either by suit in equity
or by action at law, or both.

ARTICLE 4. CONVERSION.

         Section 4.1. Right of Conversion.

                  (a)      The Holder shall have the right at any time, to
convert, subject to the terms and provisions of this Article 4, the unpaid
principal of this Note into a number of fully paid and nonassessable shares of
Common Stock equal to (i) the amount of unpaid principal that the Holder elects
to convert pursuant to Section 4.2, divided by (ii) the Conversion Price.

                  (b)      In the event (i) the Company amends its certificate
of incorporation in accordance with the DGCL and its existing certificate of
incorporation and bylaws (including but not limited to obtaining approval of the
Company's stockholders for such amendment) to authorize the Company to issue
shares of preferred stock with such terms as described in (c) below and (ii) the
Board of Directors of the Company establishes, in accordance with the DGCL

                                       4

<PAGE>

and its amended certificate of incorporation and bylaws, a separate series of
the Company's preferred stock with such terms as described in (c) below and for
the purpose of enabling the Holder to convert this Note into shares of such
preferred stock, then the Holder shall have the right at any time to convert,
subject to the terms of this Article 4, the unpaid principal of this Note into a
number of fully paid and nonassessable shares of the Company's preferred stock
(the terms of which are described in Section 4.1(c) below, the "PREFERRED
STOCK") equal to (i) the amount of unpaid principal that the Holder elects to
convert pursuant to Section 4.2, divided by (ii) the Conversion Price.

                  (c)      The terms of the Preferred Stock shall generally
include (i) a 10% cumulative dividend payment requirement, payable on a
quarterly basis, (ii) a right of the Company to mandatorily convert the
Preferred Stock into Common Stock at the Conversion Price in the event that the
Common Stock of the Company trades above $20.00 per share for ten (10)
consecutive trading days with a trading volume of at least 25,000 shares for
each such trading day, (iii) a liquidation preference over the Common Stock
equal to the Conversion Price (as appropriately adjusted for any stock splits,
stock dividends or similar events), (iv) a right of the Holder to convert the
Preferred Stock into Common Stock on a one-for-one basis, subject to
antidilution provisions similar to the antidilution provisions set forth in
Section 4.8, (v) the Preferred Stock shall vote on an as converted basis with
the Common Stock on all matters requiring a stockholder vote except where a
separate class vote is required pursuant to the terms of the DGCL, and (vi) such
other terms as agreed to by the Holder and the Company. Notwithstanding Section
4.1(b), if the Company and the Holder are unable to reasonably agree on the
terms of the Preferred Stock, the Note shall not be convertible into Preferred
Stock.

         Section 4.2. Mechanics of Exercise. The right of conversion shall be
exercised by the surrender of this Note to the Company during usual business
hours at its principal place of business accompanied by written notice (a) that
the Holder elects to convert all or a portion of the unpaid principal of this
Note and such portion being so converted, and (b) specifying the name (with
address) in which the certificate for shares is to be issued and, if the
certificate is to be issued to a Person other than the Holder, (i) a written
instrument of transfer in form reasonably satisfactory to the Company, duly
executed by the Holder, together with transfer tax stamps or funds therefor if
required pursuant to Section 4.7 and (ii) an opinion of counsel satisfactory to
the Company to the effect that registration of such transfer under the
Securities Act is not required. Upon surrender for conversion, this Note shall
be cancelled and, if less than all of the unpaid principal amount of this Note
is to be converted, the Company shall issue a new Note to the Holder in a
principal amount equal to the unpaid principal amount of this Note not so
converted.

         Section 4.3. Issuance of Shares; Time of Conversion. As promptly as
practicable after the surrender, as herein provided, of this Note for
conversion, the Company shall deliver or cause to be delivered at the Company's
office (or such other location that the Holder reasonably requests in writing) a
certificate for the shares of Common Stock or Preferred Stock (as the case may
be) issuable in connection with such conversion. To the extent permitted by law,
the rights of the Holder as the Holder shall cease as of the date of actual
receipt of such stock certificate by the Person entitled to receive the stock
certificate, and the Person entitled to receive the stock certificate
deliverable upon such conversion shall be treated for all purposes as having
become the record holder of the stock represented by such certificate at such
time. Notwithstanding

                                       5

<PAGE>

delivery of this Note to the Company for conversion, the Holder shall be deemed
to continue to hold this Note and shall be entitled to all of the rights
hereunder (including interest) until the delivery of such stock certificate to
the Person entitled to receive such stock certificate, other than rights arising
from any Event of Default that results solely from the expiration of a time
period (including the Maturity Date) for so long as the Company is taking all
reasonable efforts to provide such stock certificate promptly.

         Section 4.4. No Stockholder Rights. Prior to the issuance of Common
Stock or Preferred Stock (as the case may be) upon conversion, the Holder shall
not be entitled to any rights of a stockholder with respect to the Common Stock
or Preferred Stock, including (without limitation) the right to vote such stock,
receive dividends or other distributions thereon, exercise preemptive rights or
be notified of stockholder meetings, and the Holder shall not, by virtue of
holding this Note, be entitled to any notice or other communication concerning
the business or affairs of the Company.

         Section 4.5. Shares to be Reserved. Prior to the time this Note is
repaid in full or is converted pursuant to the terms hereof, the Company
covenants that it will reserve and keep available out of its authorized but
unissued Common Stock or Preferred Stock (as the case may be), free from
preemptive rights, solely for the purpose of issuance upon conversion of this
Note as herein provided, such number of shares of Common Stock or Preferred
Stock (as the case may be) as shall then be issuable upon the conversion of all
principal on this Note. The Company covenants that all Common Stock or Preferred
Stock (as the case may be) which shall be so issuable shall, when issued, be
duly and validly issued and fully paid and nonassessable and shall be free of
any liens, encumbrances, or restrictions on transfer (other than those created
by applicable state and/or federal securities law).

         From and after the date of this Note, the Company shall take all
necessary or desirable actions within its control, including without limitation
calling board and stockholder meetings, sending appropriate notices and proxy
materials for such meetings and actively soliciting proxies, in order to amend
its certificate of incorporation in accordance with the DGCL and its certificate
of incorporation and bylaws (including but not limited to obtaining the approval
of the Company's stockholders for such amendment) to authorize the Company to
issue shares of preferred stock as soon as is reasonably practicable. The board
of directors of the Company shall use its best efforts to (i) adopt a resolution
setting forth such proposed amendment, declaring its advisability and calling a
meeting of the stockholders entitled to vote in respect thereof for the
consideration of such amendment, (ii) recommend to the stockholders the approval
of such amendment and not change such recommendation subject to the directors'
fiduciary duties, and (iii) following the approval of such amendment by the
Company's stockholders, establish in accordance with the DGCL and the Company's
amended certificate of incorporation and bylaws a separate series of the
Company's preferred stock having the terms of the Preferred Stock.

         Section 4.6. No Registration or Listing of Shares.

                  (a)      The shares of Common Stock or Preferred Stock (as the
case may be) issuable on conversion will not be registered with any governmental
authority or, in the case of Preferred Stock, listed on any exchange or trading
system, and except as set forth in this Section 4.6, the Company shall have no
obligation to register or, in the case of Preferred Stock, list such

                                       6

<PAGE>

stock. The stock issued upon conversion of the Note shall bear a restrictive
legend describing limitations of the transferability of such stock under the
Securities Act and any other restrictions imposed by law or contract.

                  (b)      The Holder shall be granted piggy back registration
rights in the shares of Common Stock issuable upon conversion of this Note or
the Preferred Stock, pursuant to the Registration Rights Agreement dated as of
this date hereof between the Company and Holder.

         Section 4.7. Taxes and Charges. The issuance of certificates for stock
upon the conversion of this Note shall be made without charge to the Holder for
such certificates or for any tax in respect of the issuance of such certificates
or the securities represented thereby, and such certificates shall be issued in
the respective names of, or in such names as may be directed by, the Holder;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of the Holder of the Note, and
the Company shall not be required to issue or deliver such certificates unless
or until the Person or Persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.

         Section 4.8. Adjustments. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation or any other change in the corporate structure of the Company, or
a sale by the Company of all or substantially all of its assets, or any
distribution to stockholders other than a normal cash dividend, the Board of
Directors of the Company shall make appropriate adjustment in the number and
kind of shares into which this Note is convertible. Without the advance written
approval of the Holder, the Company shall not authorize or issue, or obligate
itself to issue, any capital stock of the Company for a price per share less
than the then applicable Conversion Price, other than Common Stock issued to
employees, directors, or consultants of the Company pursuant to a stock option
plan, stock incentive plan, stock appreciation right, or other plan or
arrangement in the ordinary course of the Company's business.

ARTICLE 5. MISCELLANEOUS.

         Section 5.1. Amendment. This Note may be amended, modified, superseded
or cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof and thereof may be waived, only by a written instrument
executed by the Holder and the Company.

         Section 5.2. Successors and Assigns.

                  (a)      The rights and obligations of the Company and the
Holder under this Note shall be binding upon, and inure to the benefit of, and
be enforceable by, the Company and the Holder, and their respective permitted
successors and assigns.

                  (b)      The Holder may not sell, assign (by operation of law
or otherwise), transfer, pledge, grant a security interest in, or otherwise
dispose of this Note or any portion hereof or any rights or obligations
hereunder unless (i) the Company has granted its prior written consent, and (ii)
the Company shall have received a written opinion of counsel acceptable to the
Company, addressed to the Company, to the effect that any such proposed transfer
or other

                                       7

<PAGE>

disposition complies with all applicable Federal and state securities laws;
provided, that the written consent of the Company shall not be required for any
sale, assignment, transfer or other disposition to Mark Salter or his spouse,
parents, siblings or lineal descendants (by blood, marriage or adoption), or any
trust, partnership, corporation, limited liability company or other similar
entity solely for the benefit of Mark Salter or his spouse, parents, siblings or
lineal descendants (by blood, marriage or adoption).

                  (c)      The registered owner of this Note may be treated as
the owner of it for all purposes.

         Section 5.3. Defenses. The obligations of the Company under this Note
shall not be subject to reduction, limitation, impairment, termination, defense,
set-off, counterclaim or recoupment for any reason.

         Section 5.4. Replacement of Note. Upon receipt by the Company of
evidence, satisfactory to it, of the loss, theft, destruction, or mutilation of
this Note and (in the cases of loss, theft or destruction) of any indemnity
reasonably satisfactory to it, and upon surrender and cancellation of this Note,
if mutilated, the Company will deliver a new Note of like tenor in lieu of this
Note. Any Note delivered in accordance with the provisions of this Section 5.4
shall be dated as of the date of this Note.

         Section 5.5. Attorneys' and Collection Fees. Should the indebtedness
evidenced by this Note or any part hereof be collected at law or in equity or in
bankruptcy, receivership or other court proceedings, the Company agrees to pay,
in addition to principal and interest due and payable hereon, all costs of
collection, including reasonable attorney's fees and expenses, incurred by the
Holder in collecting or enforcing this Note.

         Section 5.6. Governing Law. This Note and the validity and
enforceability hereof shall be governed by and construed and interpreted in
accordance with the laws of the State of Texas without giving effect to conflict
of laws rules or choice of laws rules thereof.

         Section 5.7. Waivers. Except as may be otherwise provided herein, the
makers, signers, sureties, guarantors and endorsers of this Note severally waive
demand, presentment, notice of dishonor, notice of intent to demand or
accelerate payment hereof, notice of acceleration, diligence in collecting,
grace, notice, and protest, and agree to one or more extensions for any period
or periods of time and partial payments, before or after maturity, without
prejudice to the Holder.

         Section 5.8. No Waiver by Holder. No failure or delay on the part of
the Holder in exercising any right, power or privilege hereunder and no course
of dealing between the Company and the Holder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.

         Section 5.9. No Impairment. The Company will not, by amendment of its
certificate of incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder

                                       8

<PAGE>

by the Company, but will at times in good faith assist in the carrying out of
all the provisions of this Note.

         Section 5.10. Limitation on Interest. Notwithstanding any other
provision of this Note, interest on the indebtedness evidenced by this Note is
expressly limited so that in no contingency or event whatsoever, whether by
acceleration of the maturity of this Note or otherwise, shall the interest
contracted for, charged or received by the Holder exceed the maximum amount
permissible under applicable law. If from any circumstances whatsoever
fulfillment of any provisions of this Note or of any other document evidencing,
securing or pertaining to the indebtedness evidenced hereby, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then, ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity, and if from any such
circumstances the Holder shall ever receive anything of value as interest or
deemed interest by applicable law under this Note or any other document
evidencing, securing or pertaining to the indebtedness evidenced hereby or
otherwise an amount that would exceed the highest lawful rate, such amount that
would be excessive interest shall be applied to the reduction of the principal
amount owing under this Note or on account of any other indebtedness of the
Company to the Holder, and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal of this Note and such other
indebtedness, such excess shall be refunded to the Company. In determining
whether or not the interest paid or payable with respect to any indebtedness of
the Company to the Holder, under any specific contingency, exceeds the highest
lawful rate, the Company and the Holder shall, to the maximum extent permitted
by applicable law, (a) characterize any non-principal payment as an expense, fee
or premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, (c) amortize, prorate, allocate and spread the total amount of
interest throughout the term of such indebtedness so that the actual rate of
interest on account of such indebtedness does not exceed the maximum amount
permitted by applicable law, and/or (d) allocate interest between portions of
such indebtedness, to the end that no such portion shall bear interest at a rate
greater than that permitted by applicable law. The terms and provisions of this
paragraph shall control and supersede every other conflicting provision of this
Note and all other agreements between the Company and the Holder.

         Section 5.11. Severability. If one or more provisions of this Note are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Note and the balance of this Note shall be interpreted as if
such provision(s) were so excluded and shall be enforceable in accordance with
its terms.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       9

<PAGE>

         EXECUTED as of the date first written above.

                                         WESTECH CAPITAL CORP.

                                         By:  /s/ JOHN F. GARBER
                                             -----------------------------------
                                         Name:  John F. Garber
                                               ---------------------------------
                                         Title:  CFO
                                                --------------------------------

                                         SALTER FAMILY PARTNERS, LTD.

                                         By:  /s/ MARK M. SALTER
                                             -----------------------------------
                                         Name:  Mark M. Salter
                                               ---------------------------------
                                         Title:
                                                --------------------------------

                                       S-1

<PAGE>

                    PIGGY-BACK REGISTRATION RIGHTS AGREEMENT

         This Piggy-Back Registration Rights Agreement (this "AGREEMENT") is
made and entered into as of July 7, 2004 by and among Westech Capital Corp., a
Delaware corporation (the "COMPANY"), and Salter Family Partners, Ltd. ("SALTER
LTD.").

                                    RECITALS

         The Company has issued to Salter Ltd. a Subordinated Convertible
Promissory Note, dated as of the date hereof, which may be converted by the
holder thereof into shares of a series of preferred stock of the Company to be
authorized and designated after the date hereof (the "PREFERRED STOCK"), or
shares of Common Stock, par value $0.001 per share ("COMMON STOCK"), of the
Company.

         The parties to this Agreement deem it in their best interests to set
forth certain rights of the Holders (as defined below).

         NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises set forth in this Agreement, the parties to this Agreement agree
as follows:

         SECTION 1. REGISTRATION RIGHTS.

                  1.1      DEFINITIONS. Terms defined in the Note and not
otherwise defined in this Agreement are used in this Agreement with the same
meaning as defined in the Note. As used in this Agreement, the following terms
shall have the meanings set forth below:

                           "HOLDER" means the Salter Ltd., or any assignee of
record of any Registrable Securities to whom the rights under this Agreement
have been duly assigned in accordance with this Agreement.

                           "INITIATING HOLDERS" means any Holder or Holders who
in the aggregate hold not less than fifty percent (50%) of the outstanding
Registrable Securities.

                           "REGISTRABLE SECURITIES" means (a) all the shares of
Common Stock issued or issuable pursuant to the Note or upon conversion of any
Preferred Stock and (b) any shares of Common Stock issued as (or issuable upon
the conversion or exercise of any warrant, right, or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (a)
above; excluding, in all cases, any securities sold by a person in a transaction
in which rights under this Section 1 are not assigned in accordance with this
Agreement and any securities sold in a registered public offering under the
Securities Act or sold pursuant to Rule 144 promulgated under the Securities
Act. The Company shall not be obligated to register shares of Preferred Stock.

                           The terms "REGISTER," "REGISTRATION," and
"REGISTERED" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and the declaration
or ordering of effectiveness of such registration statement.

                                       1

<PAGE>

                           "REGISTRATION EXPENSES" means all expenses incurred
in effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include underwriting discounts,
selling commissions, and stock transfer taxes applicable to the sale of
Registrable Securities and fees and disbursements of counsel to the Holder.

                           "SEC" means the Securities and Exchange Commission.

                           "SECURITIES ACT" means the Securities Act of 1933.

                  1.2      PIGGYBACK REGISTRATIONS. If, at any time, the Company
proposes to register any of its securities under the Securities Act (other than
pursuant to a registration solely in connection with an employee benefit or
stock ownership plan) and the registration form to be used may be used for the
registration of Registrable Securities (a "PIGGYBACK REGISTRATION"), the Company
shall give prompt written notice to all Holders of Registrable Securities of its
intention to effect such a registration (each, a "PIGGYBACK NOTICE"). Subject to
Sections 1.2(a) and 1.2(b) below, the Company shall include in such registration
all shares of Registrable Securities that Holders request the Company to include
in such registration by written notice given to the Company within thirty (30)
days after the date of sending of the Piggyback Notice.

                           (a)      Priority on Primary Registrations. If a
Piggyback Registration relates to an underwritten public offering of equity
securities by the Company and the managing underwriters advise the Company in
writing that in their opinion marketing factors require a limitation of the
number of securities to be included in such registration, the Company shall
include in such registration (i) first, the securities proposed to be sold by
the Company, (ii) second, the Registrable Securities requested to be included in
such registration, pro rata among the Holders on the basis of the number of
shares of Registrable Securities requested to be included by each such Holder,
and (iii) third, other securities requested to be included in such registration.

                           (b)      Priority on Secondary Registrations. If a
Piggyback Registration relates to an underwritten public offering of equity
securities by holders of the Company's securities and the managing underwriters
advise the Company in writing that in their opinion marketing factors require a
limitation of the number of securities to be included in such registration, the
Company shall include in such registration (i) first, the securities requested
to be included in such registration by the holders requesting such registration,
(ii) second, the Registrable Securities requested to be included in such
registration, pro rata among the Holders on the basis of the number of shares of
Registrable Securities requested to be included in such registration by each
such Holder, and (iii) third, other securities requested to be included in such
registration.

                                       2

<PAGE>

                  1.3      REGISTRATION PROCEDURES. Whenever required to effect
the registration of any Registrable Securities

                           (b)      Furnish to the Holders such number of copies
of a prospectus, including a preliminary prospectus, and each amendment and
supplement to any such prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by them that
are included in such registration.

                           (c)      Notify each Holder of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
to such registration statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated in
such prospectus or necessary to make the statements in such prospectus not
misleading in the light of the circumstances then existing.

                           (d)      Cause all such Registrable Securities
registered pursuant to such registration statement to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.

                           (e)      Provide a transfer agent and registrar for
all Registrable Securities registered pursuant to such registration statement
and a CUSIP number for all such Registrable Securities, in each case not later
than the effective date of such registration.

                           (f)      Permit any holder of Registrable Securities
that might be deemed, in the sole and exclusive judgment of such holder, to be
an underwriter or a controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to require the
insertion in such registration or comparable statement of material, furnished to
the Company in writing, that in the reasonable judgment of such holder and his,
her, or its counsel should be included.

                  1.4      EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification, or compliance
pursuant to Section 1.2 of this Agreement shall be borne by the Company. All
underwriting discounts, selling commissions, and stock transfer taxes relating
to securities so registered shall be borne by the holders of such securities pro
rata on the basis of the number of shares of securities so registered on their
behalf, as shall any other expenses in connection with the registration required
to be borne by the holders of such securities (including fees and disbursements
of counsel to the Holder).

                  1.5      INDEMNIFICATION. If any Registrable Securities are
included in a registration statement under Section 1.2:

                           (a)      By the Company. To the extent permitted by
law, the Company shall indemnify and hold harmless each Holder, the partners,
officers, and directors of each Holder, any underwriter (as defined in the
Securities Act) for a Holder, and each person, if any, who controls a Holder or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934 (the "EXCHANGE ACT"), against any losses, claims, damages, or
liabilities

                                       3

<PAGE>

(joint or several) to which they may become subject under the Securities Act,
the Exchange Act, or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect of such losses, claims, damages,
or liabilities) arise out of or are based upon any of the following statements,
omissions, or violations (collectively, "VIOLATIONS" and, individually, a
"VIOLATION"):

                                    (i)      any untrue statement or alleged
         untrue statement of a material fact contained in such registration
         statement, including any preliminary prospectus or final prospectus
         contained in such registration statement or any amendments or
         supplements to such registration statement;

                                    (ii)     the omission or alleged omission to
         state in any such registration statement a material fact required to be
         stated in such registration statement or necessary to make the
         statements in such registration statement not misleading; or

                                    (iii)    any violation or alleged violation
         by the Company of the Securities Act, the Exchange Act, any federal or
         state securities law, or any rule or regulation promulgated under the
         Securities Act, the Exchange Act, or any federal or state securities
         law in connection with the offering covered by such registration
         statement;

and the Company shall reimburse each such Holder, partner, officer, director,
underwriter, or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided that the indemnity
agreement contained in this Section 1.5(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent (and only
to the extent) that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by such Holder, partner, officer,
director, underwriter, or controlling person of such Holder.

                           (b)      By Selling Holders. To the extent permitted
by law, each selling Holder shall indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter, and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors, or officers or any person who controls such Holder within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages,
or liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter, or other such Holder, partner,
director, officer, or controlling person of such other Holder may become subject
under the Securities Act, the Exchange Act, or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
to such losses, claims, damages, or liabilities) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder shall reimburse any

                                       4

<PAGE>

legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter, or other Holder, partner, officer,
director, or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided that the indemnity agreement contained in this Section 1.5(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld, nor shall the total amounts
payable in indemnity by a Holder under this Section 1.5(b) in respect of any
Violation exceed the net proceeds received by such Holder in the registered
offering out of which such Violation arises.

                           (c)      Notice. Promptly after receipt by an
indemnified party under this Section 1.5 of notice of the commencement of any
action (including any governmental action), such indemnified party shall, if a
claim in respect of such action is to be made against any indemnifying party
under this Section 1.5, deliver to the indemnifying party a written notice of
the commencement of such action and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense of
such action with counsel mutually satisfactory to the parties; provided that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to the indemnifying party's ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.5, but the omission so to deliver written notice to the indemnifying party
shall not relieve the indemnifying party of any liability that it may have to
any indemnified party otherwise than under this Section 1.5.

                           (d)      Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company, the Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim, or
damage at or prior to the time such action is required by the Securities Act.

                           (e)      Contribution. In order to provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which either (i) any Holder exercising rights under this Agreement, or
any controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 1.5 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 1.5 provides for indemnification in such case or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided

                                       5

<PAGE>

under this Section 1.5, then, and in each such case, the Company and such Holder
shall contribute to the aggregate losses, claims, damages, or liabilities to
which they may be subject (after contribution from others) in such proportion so
that such Holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Securities offered by and sold
under the registration statement bears to the public offering price of all
securities offered by and sold under such registration statement, and the
Company and other selling Holders are responsible for the remaining portion;
provided that, in any such case, (A) no such Holder shall be required to
contribute any amount in excess of the public offering price of all such
Registrable Securities offered and sold by such Holder pursuant to such
registration statement, and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.

                           (f)      Survival. The obligations of the Company and
the Holders under this Section 1.5 shall survive the completion of any offering
of Registrable Securities in a registration statement and shall survive the
termination of this Agreement.

         SECTION 2. ASSIGNMENT AND AMENDMENT.

                  2.1      ASSIGNMENT OF REGISTRATION RIGHTS. Notwithstanding
anything in this Agreement to the contrary, the registration rights of a Holder
under Section 1 of this Agreement may be assigned only to (a) a party who
acquires no less than 10,000 shares of Registrable Securities; (b) any partner
or retired partner of any Holder; or (c) any family member of, or trust for the
benefit of, any individual Holder; provided that no party may be assigned any of
the foregoing rights unless the Company is given written notice by the assigning
party at the time of such assignment stating the name and address of the
assignee and identifying the securities of the Company as to which the rights in
question are being assigned, and that any such assignee shall receive such
assigned rights subject to all the terms and conditions of this Agreement,
including, without limitation, the provisions of this Section 2.

                  2.2      AMENDMENT OF RIGHTS. Any provision of this Agreement
may be amended and the observance of such provision may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Holders (and/or any of
their permitted successors or assigns) holding a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 2.2
shall be binding upon each Holder, each permitted successor or assignee of such
Holder and the Company.

         SECTION 3. GENERAL PROVISIONS.

                  3.1      SUCCESSORS AND ASSIGNS. Except as otherwise provided
in this Agreement, the provisions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and permitted assigns of the
parties to this Agreement.

                  3.2      THIRD PARTIES. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties to this
Agreement and their respective

                                       6

<PAGE>

successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement except as expressly provided in this Agreement.

                  3.3      GOVERNING LAW. This Agreement shall be governed by
and construed exclusively in accordance with the internal laws of the State of
Delaware as applied to agreements among Delaware residents entered into and to
be performed entirely within Delaware, excluding that body of law relating to
conflict of laws.

                  3.4      COUNTERPARTS. This Agreement may be executed in two
or more counterparts (including, without limitation, facsimile counterparts),
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.

                  3.5      HEADINGS. The headings and captions used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. All references in this Agreement to
sections, paragraphs, exhibits, and schedules shall, unless otherwise provided,
refer to sections and paragraphs of this Agreement and exhibits and schedules
attached to this Agreement, all of which exhibits and schedules are incorporated
in this Agreement by this reference.

                  3.6      COSTS AND ATTORNEYS' FEES. If any action, suit, or
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated under this Agreement, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit, or other proceeding, including any and all appeals or petitions
from any such action, suit, or other proceeding.

                  3.7      SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, then such
provision(s) shall be excluded from this Agreement and the balance of this
Agreement shall be interpreted as if such provision(s) were so excluded and
shall be enforceable in accordance with its terms.

                  3.8      ENTIRE AGREEMENT. This Agreement, together with all
exhibits and schedules to this Agreement, constitutes the entire agreement and
understanding of the parties with respect to the subject matter of this
Agreement and supersedes any and all prior negotiations, correspondence,
agreements, understandings, duties, or obligations between the parties with
respect to the subject matter of this Agreement.

                  3.9      DELAYS OR OMISSIONS. No delay or omission to exercise
any right, power, or remedy accruing to any Holder, upon any breach or default
of the Company under this Agreement shall impair any such right, power, or
remedy of such Holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence in any such breach or default, or of or in
any similar breach or default occurring after such breach or default; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring before or after such breach or default. Any waiver,
permit, consent, or approval of any kind or character on the part of any Holder
of any breach or default under this Agreement or any waiver on the part of any
Holder of any provisions or conditions of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in such
writing. All

                                       7

<PAGE>

remedies, either under this Agreement or by law or otherwise afforded to any
Holder, shall be cumulative and not alternative.

                            [Signature Pages Follow]

                                       8

<PAGE>

            IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the date first written above.

                                         WESTECH CAPITAL CORP.

                                         By:  /s/ JOHN F. GARBER
                                            ----------------------------------
                                         Name:  John F. Garber
                                         Title: CFO

                                         SALTER FAMILY PARTNERS, LTD.

                                         By: Mark Salter, its general partner

                                         By:  /s/ MARK SALTER
                                            ----------------------------------
                                         Name:  Mark Salter
                                         Title:

                                SIGNATURE PAGE TO
                    PIGGY-BACK REGISTRATION RIGHTS AGREEMENT

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