Document:

exv10w92

 

Exhibit 10.92

Merrill Lynch International

Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ

Attention: Manager, Fixed Income Settlements

Facsimile: 44 207 995 2004

Telephone: 44 207 995 3769

December 14, 2006

To: Cadence Design Systems, Inc.

Bldg. 5, MS 5B1

2655 Seely Avenue

San Jose, CA 95134

Attention: Legal Department

Telephone No.: (408) 943-1234

Facsimile No.: (408) 943-0513

Re: Convertible Note Hedge Transaction

Reference: 06824051

The purpose of this letter agreement is to confirm the terms and conditions of the Transaction
entered into between Merrill Lynch International (“Dealer”), represented by Merrill Lynch, Pierce,
Fenner & Smith Incorporated (“Agent”), as its agent, and Cadence Design Systems, Inc., a Delaware
corporation (“Counterparty”), on the Trade Date specified below (the “Transaction”). This letter
agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.
This Confirmation shall replace any previous letter and serve as the final documentation for the
Transaction.

     The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc.,
are incorporated into this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms used
herein have the meanings assigned to them in the Offering Memorandum dated December 14, 2006 (the
"Offering Memorandum”) relating to the USD 250,000,000 principal amount of Convertible Senior Notes
due December 15, 2011 (the “Convertible Notes” and each USD 1,000 principal amount of Convertible
Notes, a “Convertible Note”) issued by Counterparty pursuant to an Indenture to be dated on or
about December 19, 2006 between Counterparty and Deutsche Bank Trust Company Americas, as trustee
(the “Indenture”). In the event of any inconsistency between the terms defined in the Offering
Memorandum and this Confirmation, the Confirmation shall govern. For the avoidance of doubt,
references herein to sections of the Indenture are based on the draft of the Indenture most
recently reviewed by the parties at the time of execution of this Confirmation. If any relevant
sections of the Indenture are changed, added or renumbered following execution of this
Confirmation, the parties will amend this Confirmation in good faith to preserve the economic
intent of the parties. The Transaction is subject to early unwind if the closing of the Convertible
Notes is not consummated for any reason, as set forth below in Section 9(g).

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

1. This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as
to the terms of the Transaction to which this Confirmation relates. This Confirmation shall
supplement, form

 

 

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

2. The terms of the particular Transaction to which this Confirmation relates are as follows:

	 	 	 	 	 
	General Terms:	 	 
	 

	 	Trade Date:
	 	December 14, 2006
	 

	 	Option Style:
	 	Modified American, as described in the “Exercise
and Valuation” provisions set forth below.
	 

	 	Option Type:
	 	Call
	 

	 	Buyer:
	 	Counterparty
	 

	 	Seller:
	 	Dealer
	 

	 	Shares:
	 	The common stock of Counterparty, par value USD
0.01 per Share (Exchange symbol “CDNS”)
	 

	 	Number of Options:
	 	The number of Convertible Notes
issued by Counterparty on the closing date for
the initial issuance of the Convertible Notes.
	 

	 	Option Entitlement:

	 	As of any date, a number equal to the Conversion
Rate as of such date (as defined in the Indenture,
but without regard to any adjustments to the
Conversion Rate pursuant to Section 13.01(e) or
Section 13.03(g) of the Indenture) for each
Convertible Note.

	 

	 	
Number of Shares:
	 	

The product of the Number of Options, the
Option Entitlement and the Applicable Percentage.
	 

	 	Applicable Percentage:
	 	60%
	 

	 	Strike Price:
	 	USD 21.15
	 

	 	Premium:
	 	USD 31,260,000
	 

	 	Premium Payment Date:
	 	December 19, 2006 or such
later date as agreed upon by the parties 
	 

	 	Exchange:
	 	
NASDAQ Global Select Market.
	 

	 	Related Exchange(s):
	 	The principal exchange(s) for options contracts or
futures contracts, if any, with respect to the
Shares

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	Exercise and Valuation:	 	 
	 

	 	Exercise Period:
	 	The period from and excluding the Trade Date to and
including the Final Expiration Date.
	 

	 	Exercise Dates:
	 	Notwithstanding the Equity Definitions, each “Conversion
Date” as defined in the Indenture occurring during the
Exercise Period for Convertible Notes other than
Convertible Notes with respect to which Counterparty
makes the direction described in Section 13.10 of the
Indenture that are accepted by the financial institution
designated by Counterparty in accordance with Section
13.10 of the Indenture (a “Conversion Date”).
	 

	 	Exercisable Options:
	 	In respect of each Exercise Date a number of Options equal
to the number of Convertible Notes properly surrendered to
Counterparty for conversion in respect of the relevant
Conversion Date.
	 

	 	Expiration Time:
	 	At the close of trading of the regular trading session on
the Exchange
	 

	 	Expiration Date:
	 	Each Exercise Date.
	 

	 	Final Expiration Date:
	 	The earlier of (x) the last day on which any Convertible
Notes remain outstanding and (y) December 15, 2011.
	 

	 	Automatic Exercise:
	 	Notwithstanding the Equity Definitions, on each
Exercise Date, the number of Options related to such
Exercise Date shall be automatically exercised at the
Expiration Time on such Exercise Date if an effective
notice of exercise, if required, is given in accordance
with the provision immediately below.
	 

	 	Notice of Exercise:
	 	Notwithstanding anything to the contrary in the Equity
Definitions, in order to exercise any Options,
Counterparty must notify Dealer in writing prior to 5:00
PM, New York City time, on the Scheduled Trading Day
prior to the first Exchange Business Day of the
“Observation Period”, as defined in the Indenture,
relating to the Convertible Notes converted on the
relevant Exercise Date (the “Notice Deadline”) of (i) the
number of Options being exercised on such Exercise
Date, (ii) the scheduled settlement date under the
Indenture for the Convertible Notes converted on such
Exercise Date and (iii) the first day of the relevant
“Observation Period”; provided that, notwithstanding the
foregoing, such notice (and the related Automatic
Exercise of Options) shall be effective if given after the
Notice Deadline but prior to 5:00 PM New York City
time, on the fifth Exchange Business Day of such
“Observation Period”, in which event the Calculation
Agent shall have the right to adjust the Net Share

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	 	 	 	Settlement Obligation (as defined below) as appropriate
to reflect the additional costs (including, but not limited
to, hedging mismatches and market losses) and
reasonable expenses incurred by Dealer in connection
with its hedging activities (including the unwinding of
any hedge position) as a result of its not having received
such notice prior to the Notice Deadline; provided
further that Counterparty shall not be required to deliver
any such notice of exercise with respect to any Exercise
Date occurring on or after the 23rd scheduled “Trading
Day”, as defined in the Indenture, prior to December 15,
2011.
	 

	 	Dealer’s Telephone Number
and Telex and/or Facsimile
Number and Contact Details
for purpose of Giving Notice:
	 	To be provided by Dealer.
	Settlement Terms:	 	 
	 

	 	Method of Settlement:
	 	Net Share Settlement
	 

	 	Settlement Date:
	 	In respect of an Exercise Date, the settlement date for the
Shares to be delivered in respect of the Convertible
Notes converted on such date pursuant to Section
13.02(a) or Section 13.02(b) of the Indenture, as the case
may be; provided that the Settlement Date will not be
prior to the date that is one Settlement Cycle following
the final day of the relevant “Observation Period.”
	 

	 	Net Share Settlement:
	 	In respect of each Exercise Date, Dealer will deliver to
Counterparty, on the related Settlement Date, a number
of Shares (the “Net Share Settlement Obligation”)
equal to the product of the (x) the Applicable Percentage
and (y) the aggregate number of Shares
that
Counterparty is obligated to deliver to the holder(s) of
the Convertible Note(s) converted on such Exercise Date
pursuant to the terms of the Indenture as of the Trade
Date (“Convertible Obligation”); provided, however,
that such obligation shall be determined excluding any
Shares that Counterparty is obligated to deliver to
holder(s) of the Convertible Note(s) as a result of any
adjustments to the Conversion Rate pursuant to Section
13.01(e) or Section 13.03(g) of the Indenture.
	 

	 	Notice of Convertible Obligation:
	 	No later than the Exchange Business Day immediately
following the last day of any Observation Period,
Counterparty shall give Dealer notice of the final
number of Shares comprising the relevant Convertible
Obligation for the relevant Exercise Date (or, for the
Exercise Dates occurring on or after the
23rd
scheduled
“Trading Day" prior to December 15, 2011, the

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	 	 	 	aggregate Number of Shares comprising the relevant
Convertible Obligation for such Exercise Dates).
	 

	 	Other Applicable Provisions:
	 	The provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11
and 9.12 of the Equity Definitions will be applicable to
any Net Share Settlement, as if “Physical Settlement”
applied to the Transaction; and provided that the
Representation and Agreement contained in Section 9.11
of the Equity Definitions shall be modified by excluding
any representations therein relating to restrictions,
obligations, limitations or requirements under applicable
securities laws as a result of the fact that Buyer is the
issuer of the Shares.
	 

	 	Failure to Deliver:
	 	Applicable
	3. Additional Terms applicable to the Transaction:	 	 
	   Adjustments applicable to the
Transaction:	 	 
	 

	 	Method of Adjustment:
	 	Notwithstanding Section 11 .2 of the Equity Definitions,
upon the occurrence of any “Adjustment Event” set forth in
Sections 13.03(a), (b), (c), (d), (e) and (f) of the Indenture,
the Calculation Agent shall make a corresponding
adjustment, if necessary, to the terms relevant to the
exercise, settlement or payment of the Transaction, to the
extent an analogous adjustment is made under the
Indenture. Immediately upon the occurrence of any
Adjustment Event, Counterparty shall notify the Calculation
Agent of such Adjustment Event; and once the adjustments
to be made to the terms of the Indenture and the Convertible
Notes in respect of such Adjustment Event have been
determined, Counterparty shall immediately notify the
Calculation Agent in writing of the details of such
adjustments.
	Extraordinary Events applicable to the
Transaction:	 	 
	 

	 	Merger Events:
	 	Notwithstanding Section 12.1(b) of the Equity Definitions,
a “Merger Event” means the occurrence of any event or
condition defined as a “Merger Event” in Section 13.05 of
the Indenture.
	 

	 	 	 	Immediately upon the occurrence of any Merger Event,
Counterparty shall notify the Calculation Agent of such
Merger Event; and once the adjustments to be made to the
terms of the Indenture and the Convertible Notes in respect
of such Merger Event have been determined, Counterparty
shall immediately notify the Calculation Agent in writing of
the details of such adjustments.
	 

	 	Notice of Merger Consideration:
	 	Upon the occurrence of a Merger Event that causes the
Shares to be converted into the right to receive more than a
single type of consideration (determined based in part upon

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	 	 	 	any form of stockholder election), Counterparty shall
reasonably promptly (but in any event prior to the Merger
Date) notify the Calculation Agent of the weighted average
of the types and amounts of consideration received by the
holders of Shares entitled to receive cash, securities or other
property or assets with respect to or in exchange for such
Shares in any Merger Event who affirmatively make such
an election.
	 

	 	Consequence of Merger Events:
	 	Notwithstanding Section 12.2 of the Equity Definitions,
upon the occurrence of a Merger Event, the Calculation
Agent shall make a corresponding adjustment in respect of
any adjustment under the Indenture to any one or more of
the nature of the Shares, the Number of Options, the Option
Entitlement and any other variable relevant to the exercise,
settlement or payment for the Transaction; provided,
however, that such adjustment shall be made without regard
to any adjustment to the Conversion Rate for the issuance
of additional shares as set forth in Section 13.01(e) or
Section 13.03(g) of the Indenture.
	Nationalization, Insolvency 

or Delisting:	 	Cancellation and Payment (Calculation Agent
Determination); provided that (i) Section 12.6(a)(iii) of the
Equity Definitions shall be amended to delete, in the
definition of the term “Delisting” the parenthetical “(or will
cease)” and (ii) in addition to the provisions of Section
12.6(a)(iii) of the Equity Definitions, it shall also constitute
a Delisting if the Exchange is located in the United States
and the Shares are not immediately re-listed, re-traded or re-
quoted on any of the New York Stock Exchange, the
American Stock Exchange, The NASDAQ Global Select
Market or the NASDAQ Global Market (or their respective
successors); if the Shares are immediately re-listed, re-
traded or re-quoted on any such exchange or quotation
system, such exchange or quotation system shall thereafter
be deemed to be the Exchange and the Calculation Agent
shall make any adjustments it deems necessary to the terms
of the Transaction, as if Modified Calculation Agent
Adjustment were applicable to such event
	Additional Disruption Events:	 	 
	 

	 	(a) Change in Law:
	 	Applicable
	 

	 	(b) Insolvency Filing:
	 	Applicable; provided that Section 12.9(b)(i) of the Equity
Definitions shall be amended by adding, immediately
following the word “party” in the third line thereof, the
phrase “(or, upon the occurrence of an Insolvency Filing,
Dealer)”
	 

	 	Determining Party:
	 	For all applicable Additional Disruption Events, Dealer

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	 	Non-Reliance:
	 	Applicable
	 

	 	Agreements and
Acknowledgments Regarding Hedging
Activities:
	 	Applicable
	 

	 	Additional

Acknowledgments:
	 	Applicable
	Additional Termination Events:	 	If any event of default
under the terms of the
Convertible Notes, as set
forth in Section 5.01 of the
Indenture, shall occur with
respect to Counterparty, then
such event shall constitute an
Additional Termination Event
applicable to the Transaction
with respect to which
Counterparty shall be deemed
to be the sole Affected Party
and the Transaction shall be
the sole Affected
Transaction.
	 

	 	 	 	If any provision of the
Indenture or the Convertible
Notes is amended, modified,
supplemented or waived without
the written consent of Dealer,
Counterparty shall provide
Dealer and the Calculation
Agent with notice thereof on
or prior to the effective date
thereof and, if the
Calculation Agent determines
that such amendment,
modification, supplement or
waiver has a material effect
on the Transaction or Dealer’s
ability to hedge all or a
portion (“Affected Portion”)
of the Transaction, then such
event (an “Amendment Event”)
shall constitute an Additional
Termination Event with respect
to which Counterparty shall be
deemed to be the sole Affected
Party and the Transaction (or
the Affected Portion thereof)
shall be the sole Affected
Transaction. For the avoidance
of doubt, an election by
Counterparty to increase the
conversion rate pursuant to
Section 13.01(e) or Section
13.03(g) of the Indenture
shall not constitute an
Amendment Event.
	 

	 	 	 	If any Convertible
Notes are repurchased (whether
in connection with a put of
Convertible Notes by holders
thereof pursuant to the terms
of the Indenture as a result
of a fundamental change,
howsoever defined, or for any
other reason) by Counterparty
or any of its subsidiaries or
if Counterparty gives notice
to Dealer that it intends to
repurchase any Convertible
Notes, then Counterparty may
notify Dealer that it wishes
to designate an Early
Termination Date with respect
to the portion of the
Transaction relating to the
number of Convertible Notes
that cease to be outstanding
in connection with or as a
result of such repurchase and
the parties shall negotiate in
good faith and in a
commercially reasonable manner
the timing, pricing and other
terms of such designation. For
the avoidance of doubt, no
such designation shall be made
if, after such negotiation,
the parties cannot agree on
the terms of such
designation.

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	 	Credit Support Provider:
	 	MERRILL LYNCH & CO., INC.
	 

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

5. Account Details:

	 	(a)	 	Account for payments to Company:

Cadence Design Systems, Inc.

Account
                    
     

Wells Fargo Bank

550 California Street — 10th Floor

San Francisco CA 94104

ABA#                     
     

Account for delivery of Shares to Company:

Mellon Investor Services

235 Montgomery Street, 23rd Floor

San Francisco, CA 94104

Cadence Design Systems Book Memo Treasury Reserve Account

Comment: When you are ready to deliver Shares contact Cadence FIRST.

	 	(b)	 	Account for payments to Dealer:

Chase Manhattan Bank, New York

ABA#:                     
     

FAO: ML Equity
Derivatives
A/C:                     
     

Account for delivery of Shares from Dealer:

To be advised.

6. Offices:

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a
Multibranch Party.

The Office of Dealer for the Transaction is:

London

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7. Notices: For purposes of this Confirmation:

	 	(a)	 	Address for notices or communications to Counterparty:

Cadence Design Systems, Inc.

Bldg. 5, MS 5B1
 2655 Seely Avenue

San Jose, CA 95134
 Attention:
Legal Department
 Telephone No.:
408) 943-1234
 Facsimile No.:
(408) 943-0513

	 	(b)	 	Address for notices or communications to Dealer:

Merrill Lynch International

Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ

Attention: Manager, Fixed Income Settlements

Facsimile: 44 207 995 2004

Telephone: 44 207 995 3769

With a copy to:

Merrill Lynch, Pierce, Fenner & Smith Incorporated

222 Broadway, 16th Floor

New York, New York 10038

Attention: Litigation Department

8. Representations and Warranties of Counterparty

The representations and warranties of Counterparty set forth in Section 1 of the Purchase Agreement
dated as of the Trade Date among Counterparty, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc.
(the “Purchase Agreement”) are true and correct and are hereby deemed to be repeated to Dealer as
if set forth herein. Counterparty hereby further represents and warrants to Dealer that:

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

9

 

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

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

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

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

10

 

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

9. Other Provisions:

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

11

 

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

12

 

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

13

 

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

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

14

 

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

	 	 	 	 	 
	 

	 	Share Termination Alternative:
	 	If applicable, Dealer shall deliver to
Counterparty the Share Termination Delivery
Property on the date when the Payment Obligation
would otherwise be due pursuant to Section 12.7
or 12.9 of the Equity Definitions, this
Confirmation or Section 6(d)(ii) and 6(e) of the
Agreement, as applicable (the “Share Termination
Payment Date”), in satisfaction of the Payment
Obligation in the manner reasonably requested by
Counterparty free of payment.
	 

	 	Share Termination Delivery Property:
	 	A number of Share Termination Delivery
Units, as calculated by the Calculation Agent,
equal to the Payment Obligation divided by the
Share Termination Unit Price. The Calculation
Agent shall adjust the Share Termination Delivery
Property by replacing any fractional portion of a
security therein with an amount of cash equal to
the value of such fractional security based on
the values used to calculate the Share
Termination Unit Price.
	 

	 	Share Termination Unit Price:
	 	The value to Dealer of property contained in
one Share Termination Delivery Unit on the date
such Share Termination Delivery Units are to be
delivered as Share Termination Delivery Property,
as determined by the Calculation Agent in its
discretion by commercially reasonable means and
notified by the Calculation Agent to Dealer at
the

15

 

	 	 	 	 	 
	 

	 	 	 	time of notification of the Payment
Obligation.
	 

	 	Share Termination Delivery Unit:
	 	In the case of a Termination Event, Event of
Default or Delisting, one Share or, in the
case of an Insolvency, Nationalization or
Merger Event, one Share or a unit consisting
of the number or amount of each type of
property received by a holder of one Share
(without consideration of any requirement to
pay cash or other consideration in lieu of
fractional amounts of any securities) in such
Insolvency, Nationalization or Merger Event,
as the case may be. If such Insolvency,
Nationalization or Merger Event involves a
choice of consideration to be received by
holders, such holder shall be deemed to have
elected to receive the maximum possible amount
of cash.
	 

	 	Failure to Deliver:
	 	Applicable
	 

	 	Other applicable provisions:
	 	If Share Termination Alternative is
applicable, the provisions of Sections 9.8,
9.9, 9.10, 9.11 and 9.12 of the Equity
Definitions will be applicable, as if
“Physical Settlement” applied to such
cancellation or termination of the
Transaction, except that all references
therein to “Shares” shall be read as
references to “Share Termination Delivery
Units”; and provided that the Representation
and Agreement contained in Section 9.11 of
the Equity Definitions shall be modified by
excluding any representations therein
relating to restrictions, obligations,
limitations or requirements under applicable
securities laws as a result of the fact that
Buyer is the issuer of any Share Termination
Delivery Units (or any part thereof).

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

16

 

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

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

17

 

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

1, Agent will be responsible for the operational aspects of the Transactions effected
through it, such as record keeping, reporting, and confirming
Transactions to Counterparty and Dealer;

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

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

18

 

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

Very truly yours,

	 	 	 	 	 
	 	MERRILL LYNCH INTERNATIONAL 

 	 
	 	By:  	/s/
Fran Jacobsen	 
	 	Authorized Signatory 	 
	 	Name: Fran Jacobsen	 
	 

Accepted and confirmed

as of the Trade Date:

Cadence
Design Systems, Inc.

	 	 	 	 	 
	By:

	 	/s/ William Porter
 
	 	 
	Authorized
Signatory
	 	 
	Name: William Porter	 	 

Acknowledged and agreed as to matters to the Agent:

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

Solely in its capacity as Agent hereunder

	 	 	 	 	 
	 
	 	 	 	 
	By:

	 	/s/ B. Carrole
 
	 	 
	
Authorized Signatory
	 	 
	

Name: B. Carroleexv10w93

 

Exhibit 10.93

Merrill Lynch International

Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ

Attention: Manager, Fixed Income Settlements

Facsimile: 44 207 995 2004

Telephone: 44 207 995 3769

	 	 	 	 	 
	 	 December 14, 2006	 
	 	 	 

To: Cadence Design Systems,
Inc.

Bldg. 5, MS 5B1
 2655 Seely
Avenue
 San Jose, CA 95134

Attention: Legal Department

Telephone No.: (408) 943-1234

Facsimile No.: (408) 943-0513

Re: Convertible Note Hedge Transaction

Reference: 06824055

The purpose of this letter agreement is to confirm the terms and conditions of the Transaction
entered into between Merrill Lynch International (“Dealer”), represented by Merrill Lynch, Pierce,
Fenner & Smith Incorporated (“Agent”), as its agent, and Cadence Design Systems, Inc., a Delaware
corporation (“Counterparty”), on the Trade Date
specified below (the “Transaction”). This letter
agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.
This Confirmation shall replace any previous letter and serve as the final documentation for the
Transaction.

     The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc.,
are incorporated into this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms used
herein have the meanings assigned to them in the Offering Memorandum dated December 14, 2006 (the
“Offering Memorandum”) relating to the USD 250,000,000 principal amount of Convertible Senior Notes
due December 15, 2013 (the “Convertible Notes” and each USD 1,000 principal amount of Convertible
Notes, a “Convertible Note”) issued by Counterparty pursuant to an Indenture to be dated on or
about December 19, 2006 between Counterparty and Deutsche Bank Trust Company Americas, as trustee
(the “Indenture”). In the event of any inconsistency between the terms defined in the Offering
Memorandum and this Confirmation, the Confirmation shall govern. For the avoidance of doubt,
references herein to sections of the Indenture are based on the draft of the Indenture most
recently reviewed by the parties at the time of execution of this Confirmation. If any relevant
sections of the Indenture are changed, added or renumbered following execution of this
Confirmation, the parties will amend this Confirmation in good faith to preserve the economic
intent of the parties. The Transaction is subject to early unwind if the closing of the Convertible
Notes is not consummated for any reason, as set forth below in Section 9(g).

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

1. This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as
to the terms of the Transaction to which this Confirmation relates. This Confirmation shall
supplement, form

 

 

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

2. The terms of the particular Transaction to which this Confirmation relates are as follows:

	 	 	 	 	 
	General Terms:	 	 
	 	 	 	 	 

	 	 	Trade Date:
	 	December 14, 2006

	 	 	 	 	 

	 	 	Option Style:
	 	Modified American, as described in the
“Exercise and Valuation” provisions set
forth below.

	 	 	 	 	 

	 	 	Option Type:
	 	Call

	 	 	 	 	 

	 	 	Buyer:
	 	Counterparty

	 	 	 	 	 

	 	 	Seller:
	 	Dealer

	 	 	 	 	 

	 	 	Shares:
	 	The common stock of Counterparty, par value
USD 0.01 per Share (Exchange symbol “CDNS”)

	 	 	 	 	 

	 	 	Number of Options:
	 	The number of Convertible Notes
issued by Counterparty on the closing
date for the initial issuance of the
Convertible Notes.

	 	 	 	 	 

	 	 	Option Entitlement:
	 	As of any date, a number equal to the
Conversion Rate as of such date (as defined
in the Indenture, but without regard to any
adjustments to the Conversion Rate pursuant
to Section 13.01(e) or Section 13.03(g) of
the Indenture) for each Convertible Note.

	 	 	 	 	 

	 	 	Number of Shares:
	 	The product of the Number of Options,
the Option Entitlement and the Applicable
Percentage.

	 	 	 	 	 

	 	 	Applicable Percentage:
	 	60%

	 	 	 	 	 

	 	 	Strike Price:
	 	USD 21.15

	 	 	 	 	 

	 	 	Premium:
	 	USD 40,590,000

	 	 	 	 	 

	 	 	Premium Payment Date:
	 	December 19, 2006 or such later date as
agreed upon by the parties

	 	 	 	 	 

	 	 	Exchange:
	 	NASDAQ Global Select Market.

	 	 	 	 	 

	 	 	Related Exchange(s):
	 	The principal exchange(s) for options
contracts or futures contracts, if any, with
respect to the Shares

2

 

	 	 	 	 	 
	Exercise and Valuation:	 	 
	 	 	 	 	 

	 	 	Exercise Period:
	 	The period from and excluding the Trade Date to and
including the Final Expiration Date.

	 	 	 	 	 

	 	 	Exercise Dates:
	 	Notwithstanding the Equity Definitions, each “Conversion
Date” as defined in the Indenture occurring during the
Exercise Period for Convertible Notes other than
Convertible Notes with respect to which Counterparty
makes the direction described in Section 13.10 of the
Indenture that are accepted by the financial institution
designated by Counterparty in accordance with Section
13.10 of the Indenture (a “Conversion Date”).

	 	 	 	 	 

	 	 	Exercisable Options:
	 	In respect of each Exercise Date a number of Options equal
to the number of Convertible Notes properly surrendered to
Counterparty for conversion in respect of the relevant
Conversion Date.

	 	 	 	 	 

	 	 	Expiration Time:
	 	At the close of trading of the regular trading session on
the Exchange

	 	 	 	 	 

	 	 	Expiration Date:
	 	Each Exercise Date.

	 	 	 	 	 

	 	 	Final Expiration Date:
	 	The earlier of (x) the last day on which any Convertible
Notes remain outstanding and (y) December 15, 2013.

	 	 	 	 	 

	 	 	Automatic Exercise:
	 	Notwithstanding the Equity Definitions, on each
Exercise Date, the number of Options related to such
Exercise Date shall be automatically exercised at the
Expiration Time on such Exercise Date if an effective
notice of exercise, if required, is given in accordance
with the provision immediately below.

	 	 	 	 	 

	 	 	Notice of Exercise:
	 	Notwithstanding anything to the contrary in the Equity
Definitions, in order to exercise any Options,
Counterparty must notify Dealer in writing prior to 5:00
PM, New York City time, on the Scheduled Trading Day
prior to the first Exchange Business Day of the
“Observation Period”, as defined in the Indenture,
relating to the Convertible Notes converted on the
relevant Exercise Date (the “Notice Deadline”) of (i) the
number of Options being exercised on such Exercise
Date, (ii) the scheduled settlement date under the
Indenture for the Convertible Notes converted on such
Exercise Date and (iii) the first day of the relevant
“Observation Period”; provided that, notwithstanding the
foregoing, such notice (and the related Automatic
Exercise of Options) shall be effective if given after the
Notice Deadline but prior to 5:00 PM New York City
time, on the fifth Exchange Business Day of such
“Observation Period”, in which event the Calculation
Agent shall have the right to adjust the Net Share

3

 

	 	 	 	 	 
	 	 	 	 	Settlement Obligation (as defined below) as appropriate
to reflect the additional costs (including, but not limited
to, hedging mismatches and market losses) and
reasonable expenses incurred by Dealer in connection
with its hedging activities (including the unwinding of
any hedge position) as a result of its not having received
such notice prior to the Notice Deadline; provided
further that Counterparty shall not be required to deliver
any such notice of exercise with respect to any Exercise
Date occurring on or after the 23rd scheduled “Trading
Day”, as defined in the Indenture, prior to December 15,
2013.

	 	 	 	 	 

	 	 	Dealer’s Telephone Number
and Telex and/or Facsimile
Number and Contact Details
for purpose of Giving Notice:
	 	To be provided by Dealer.

	 	 	 	 	 

	Settlement Terms:	 	 
	 	 	 	 	 

	 	 	Method of Settlement:
	 	Net Share Settlement

	 	 	 	 	 

	 	 	Settlement Date:
	 	In respect of an Exercise Date, the settlement date for the
Shares to be delivered in respect of the Convertible
Notes converted on such date pursuant to Section
13.02(a) or Section 13.02(b) of the Indenture, as the case
may be; provided that the Settlement Date will not be
prior to the date that is one Settlement Cycle following
the final day of the relevant “Observation Period.”

	 	 	 	 	 

	 	 	Net Share Settlement:
	 	In respect of each Exercise Date, Dealer will deliver to
Counterparty, on the related Settlement Date, a number
of Shares (the “Net Share Settlement Obligation”)
equal to the product of the (x) the Applicable Percentage
and (y) the aggregate number of Shares that
Counterparty is obligated to deliver to the holder(s) of
the Convertible Note(s) converted on such Exercise Date
pursuant to the terms of the Indenture as of the Trade
Date (“Convertible Obligation”); provided, however,
that such obligation shall be determined excluding any
Shares that Counterparty is obligated to deliver to
holder(s) of the Convertible Note(s) as a result of any
adjustments to the Conversion Rate pursuant to Section
13.01(e) or Section 13.03(g) of the Indenture.

	 	 	 	 	 

	 	 	Notice of Convertible Obligation:
	 	No later than the Exchange Business Day immediately
following the last day of any Observation Period,
Counterparty shall give Dealer notice of the final
number of Shares comprising the relevant Convertible
Obligation for the relevant Exercise Date (or, for the
Exercise Dates occurring on or after the 23rd scheduled
“Trading Day” prior to December 15, 2013, the

4

 

	 	 	 	 	 
	 	 	 	 	aggregate Number of Shares comprising the relevant
Convertible Obligation for such Exercise Dates).

	 	 	 	 	 

	 	 	Other Applicable Provisions:
	 	The provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11
and 9.12 of the Equity Definitions will be applicable to
any Net Share Settlement, as if “Physical Settlement”
applied to the Transaction; and provided that the
Representation and Agreement contained in Section 9.11
of the Equity Definitions shall be modified by excluding
any representations therein relating to restrictions,
obligations, limitations or requirements under applicable
securities laws as a result of the fact that Buyer is the
issuer of the Shares.

	 	 	 	 	 

	 	 	Failure to Deliver:
	 	Applicable

	 	 	 	 	 

	3. Additional Terms applicable to the Transaction:	 	 
	 	 	 	 	 

	Adjustments applicable to the Transaction:	 	 
	 	 	 	 	 

	 	 	Method of Adjustment:
	 	Notwithstanding Section 11.2 of the Equity Definitions,
upon the occurrence of any “Adjustment Event” set forth in
Sections 13.03(a), (b), (c), (d), (e) and (f) of the Indenture,
the Calculation Agent shall make a corresponding
adjustment, if necessary, to the terms relevant to the
exercise, settlement or payment of the Transaction, to the
extent an analogous adjustment is made under the
Indenture. Immediately upon the occurrence of any
Adjustment Event, Counterparty shall notify the Calculation
Agent of such Adjustment Event; and once the adjustments
to be made to the terms of the Indenture and the Convertible
Notes in respect of such Adjustment Event have been
determined, Counterparty shall immediately notify the
Calculation Agent in writing of the details of such
adjustments.

	 	 	 	 	 

	Extraordinary Events applicable to the Transaction:	 	 
	 	 	 	 	 

	 	 	Merger Events:
	 	Notwithstanding Section 12.1(b) of the Equity Definitions,
a “Merger Event” means the occurrence of any event or
condition defined as a “Merger Event” in Section 13.05 of
the Indenture.

	 	 	 	 	 

	 	 	 	 	Immediately upon the occurrence of any Merger Event, Counterparty shall notify the Calculation Agent of such
Merger Event; and once the adjustments to be made to the
terms of the Indenture and the Convertible Notes in respect
of such Merger Event have been determined, Counterparty
shall immediately notify the Calculation Agent in writing of
the details of such adjustments.

	 	 	 	 	 

	 	 	Notice of Merger Consideration:
	 	Upon the occurrence of a Merger Event that causes the
Shares to be converted into the right to receive more than a
single type of consideration (determined based in part upon

5

 

	 	 	 	 	 
	 	 	 	 	any form of stockholder election), Counterparty shall
reasonably promptly (but in any event prior to the Merger
Date) notify the Calculation Agent of the weighted average
of the types and amounts of consideration received by the
holders of Shares entitled to receive cash, securities or other
property or assets with respect to or in exchange for such
Shares in any Merger Event who affirmatively make such
an election.

	 	 	 	 	 

	 	 	Consequence of Merger Events:
	 	Notwithstanding Section 12.2 of the Equity Definitions,
upon the occurrence of a Merger Event, the Calculation
Agent shall make a corresponding adjustment in respect of
any adjustment under the Indenture to any one or more of
the nature of the Shares, the Number of Options, the Option
Entitlement and any other variable relevant to the exercise,
settlement or payment for the Transaction; provided,
however, that such adjustment shall be made without regard
to any adjustment to the Conversion Rate for the issuance
of additional shares as set forth in Section 13.01(e) or
Section 13.03(g) of the Indenture.

	 	 	 	 	 

	Nationalization, Insolvency or Delisting:	 	Cancellation and Payment (Calculation Agent Determination); provided that (i) Section 12.6(a)(iii) of the
Equity Definitions shall be amended to delete, in the
definition of the term “Delisting” the parenthetical “(or will
cease)” and (ii) in addition to the provisions of Section
12.6(a)(iii) of the Equity Definitions, it shall also constitute
a Delisting if the Exchange is located in the United States
and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the
American Stock Exchange, The NASDAQ Global Select
Market or the NASDAQ Global Market (or their respective
successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation
system, such exchange or quotation system shall thereafter
be deemed to be the Exchange and the Calculation Agent
shall make any adjustments it deems necessary to the terms
of the Transaction, as if Modified Calculation Agent
Adjustment were applicable to such event.
	 	 	 	 	 

	Additional Disruption Events:	 	 
	 	 	 	 	 

	 	 	(a) Change in Law:
	 	Applicable

	 	 	 	 	 

	 	 	(b) Insolvency Filing:
	 	Applicable; provided that Section 12.9(b)(i) of the Equity
Definitions shall be amended by adding, immediately
following the word “party” in the third line thereof, the
phrase “(or, upon the occurrence of an Insolvency Filing,
Dealer)”

	 	 	 	 	 

	 	 	Determining Party:
	 	For all applicable Additional Disruption Events, Dealer

6

 

	 	 	 	 	 
	 	 	Non-Reliance:
	 	Applicable

	 	 	 	 	 

	 	 	Agreements and Acknowledgments
Regarding Hedging Activities:
	 	Applicable

	 	 	 	 	 

	 	 	Additional Acknowledgments:
	 	Applicable

	 	 	 	 	 

	Additional Termination Events:	 	If any event of default
under the terms of the
Convertible Notes, as set
forth in Section 5.01 of the
Indenture, shall occur with
respect to Counterparty,
then such event shall
constitute an Additional
Termination Event applicable
to the Transaction with
respect to which
Counterparty shall be deemed
to be the sole Affected
Party and the Transaction
shall be the sole Affected
Transaction.
	 	 	 	 	 

	 	If any provision of the Indenture or the Convertible Notes is
amended, modified, supplemented or waived without the written consent
of Dealer, Counterparty shall provide Dealer and the Calculation Agent with notice thereof on or prior to the effective date thereof and, if the Calculation Agent determines that such amendment, modification, supplement or waiver has a material effect on the Transaction or
Dealer’s ability to hedge all or a portion (“Affected
Portion”) of the Transaction, then such event (an “Amendment Event”) shall constitute an Additional
Termination Event with respect to which Counterparty shall be deemed to be the sole Affected Party and the Transaction (or the Affected Portion thereof) shall be the sole Affected Transaction. For the avoidance of doubt, an election by Counterparty to increase the conversion rate pursuant to Section 13.01(e) or Section 13.03(g) of the Indenture shall not constitute an Amendment Event.	 
	 	 	 	 	 

	 	If any Convertible Notes are repurchased (whether in connection with a put of Convertible Notes by holders thereof pursuant to the terms of the Indenture as a result of a fundamental change, howsoever defined, or for any other reason) by Counterparty or any of its subsidiaries or if Counterparty gives notice to Dealer that it intends to repurchase any Convertible Notes, then Counterparty may notify Dealer that it wishes to designate an Early Termination Date with respect to the portion
 of the Transaction relating to the number of Convertible Notes that cease to be outstanding in connection with or as a result of such repurchase and the parties shall negotiate in good faith and in a commercially reasonable manner the timing, pricing and other terms of such designation. For the avoidance of doubt, no such designation shall be made if, after such negotiation, the parties cannot agree on the terms of such designation. 	 
	 	 	 	 	 

7

 

	 	 	 	 	 
	   Credit Support Provider:	 	MERRILL  LYNCH &  CO.,  INC.

	 	 	 

	   Credit Support Document:	 	Guarantee provided by MERRILL LYNCH  &  CO., INC. of the due and punctual payment of any and all amounts payable by Dealer under the terms of this Confirmation.

	 	 	 	 	 
	 	 	 	 	 

	4. Calculation Agent:	 	Dealer. The Calculation Agent shall,
upon request by either party,
provide a written explanation of
any calculation or adjustment
made by it hereunder, including,
where applicable, a description
of the methodology and data applied.

5. Account Details:

	 	(a)	 	Account for payments to Company:

Cadence Design Systems, Inc.

Account                     
     

Wells Fargo Bank

550 California Street — 10th Floor

San Francisco CA 94104

ABA#                     
     

	 	 	 	Account for delivery of Shares to Company:
	 
	 	 	 	Mellon Investor Services

235 Montgomery Street, 23rd Floor

San Francisco, CA 94104

Cadence Design Systems Book Memo Treasury Reserve Account

Comment: When you are ready to deliver Shares contact Cadence FIRST.
	 
	 	(b)	 	Account for payments to Dealer:
	 
	 	 	 	Chase Manhattan Bank, New York

ABA#:                     
     

FAO: ML Equity
Derivatives

A/C:                     
     
	 
	 	 	 	Account for delivery of Shares from Dealer:

To be advised.

6. Offices:

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a
Multibranch Party.

The Office of Dealer for the Transaction is:

	 	 	 	London

8

 

7. Notices: For purposes of this Confirmation:

	 	(a)	 	Address for notices or communications to Counterparty:
	 
	 	 	 	Cadence Design Systems, Inc.

Bldg. 5, MS 5B1 
2655 Seely
Avenue 
 San Jose, CA 95134

Attention: Legal Department

Telephone No.: 408) 943-1234

Facsimile No.: (408)
943-0513

	 
	 	(b)	 	Address for notices or communications to Dealer:

Merrill Lynch International

Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ

Attention: Manager, Fixed Income Settlements

Facsimile: 44 207 995 2004

Telephone: 44 207 995 3769

	 
	 	 	 	With a copy to:

Merrill Lynch, Pierce, Fenner & Smith Incorporated

222 Broadway, 16th Floor

New York, New York 10038

Attention: Litigation Department

8. Representations and Warranties of Counterparty

The representations and warranties of Counterparty set forth in Section 1 of the Purchase
Agreement dated as of the Trade Date among Counterparty, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Deutsche Bank
Securities Inc. (the “Purchase Agreement”) are true and correct and are hereby deemed to be
repeated to Dealer as if set forth herein. Counterparty hereby further represents and warrants to
Dealer that:

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

9

 

	 	 	 	which Counterparty or any of its subsidiaries is a party or by which Counterparty or any
of its subsidiaries is bound or to which Counterparty or any of its subsidiaries is
subject, or constitute a default under, or result in the creation of any lien under, any
such agreement or instrument, or breach or constitute a default under any agreements and
contracts of Counterparty or its significant subsidiaries filed as exhibits to
Counterparty’s Annual Report on Form 10-K for the year ended December 31, 2005,
incorporated by reference in the Offering Memorandum, as updated by any subsequent
filings.
	 
	 	(c)	 	No consent, approval, authorization, or order of, or filing
with, any governmental agency or
body or any court is required in connection with the execution, delivery or performance by
Counterparty of this Confirmation, except such as have been obtained or made and such as may
be required under the Securities Act of 1933, as amended (the “Securities Act”) or state
securities laws.
	 
	 	(d)	 	Counterparty is not, and after giving effect to the transactions contemplated hereby will not
be, an “investment company” as such term is defined in the Investment Company Act of 1940, as
amended.
	 
	 	(e)	 	Counterparty is an “eligible contract participant”
(as such term is defined in Section 1a(12)
of the Commodity Exchange Act, as amended (the “CEA”)) because one or more of the following is
true:
	 
	 	 	 	Counterparty is a corporation, partnership, proprietorship, organization, trust or other
entity and:

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

	 	(f)	 	On the Trade Date, (A) none of Counterparty and its officers and directors is aware of any
material nonpublic information regarding Counterparty or the Shares and (B) all reports and
other documents filed by Counterparty with the Securities and Exchange Commission pursuant to
the Exchange Act when considered as a whole (with the more recent such reports and documents
deemed to amend inconsistent statements contained in any earlier such reports and documents),
do not contain any untrue statement of a material fact or any omission of a material fact
required to be stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading.
	 
	 	(g)	 	Without limiting the generality of Section 3(a)(iii) of the Agreement, the Transaction will
not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.
	 
	 	(h)	 	Counterparty is an “accredited investor” (as such term is defined in Section
2(a)(15)(ii) of the Securities Act).

10

 

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

9. Other Provisions:

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

11

 

	 	(b)	 	Repurchase Notices. Counterparty shall, on any day on which Counterparty
effects any repurchase of Shares, promptly give Dealer a written notice of such repurchase
(a “Repurchase Notice”) on such day if, following such repurchase, the Options Equity
Percentage as determined on such day is (i) greater than 6% and (ii) greater by 0.5% than
the Options Equity Percentage included in the immediately preceding Repurchase Notice (or,
in the case of the first such Repurchase Notice, greater than the Options Equity Percentage
as of the date hereof). The “Options Equity Percentage” as of any day is the fraction (A)
the numerator of which is the sum of (A) the Number of Shares hereunder and (B) the Number
of Shares for the Convertible Note Hedge Transaction between Counterparty and Dealer
relating to the USD 250,000,000 principal amount of Convertible Senior Notes due December
15, 2011 (the “Aggregate Transaction Amount”) and (B) the denominator of which is the
number of Shares outstanding on such day. Counterparty agrees to indemnify and hold
harmless Dealer and its affiliates and their respective officers, directors, employees,
affiliates, advisors, agents and controlling persons (each, an “Indemnified Person”) from
and against any and all losses (including losses relating to Dealer’s hedging activities as
a consequence of becoming, or of the risk of becoming, a Section 16 “insider”, including
without limitation, any forbearance from hedging activities or cessation of hedging
activities and any losses in connection therewith with respect to the Transaction), claims,
damages, judgments, liabilities and expenses (including reasonable attorney’s fees), joint
or several, which an Indemnified Person may become subject to, as a result of
Counterparty’s failure to provide Dealer with a Repurchase Notice on the day and in the
manner specified in this Section 9(b), and to reimburse, within 30 days, upon written
request, each of such Indemnified Persons for any reasonable legal or other expenses
incurred in connection with investigating, preparing for, providing testimony or other
evidence in connection with or defending any of the foregoing. If any suit, action,
proceeding (including any governmental or regulatory investigation), claim or demand shall
be brought or asserted against the Indemnified Person, such Indemnified Person shall
promptly notify Counterparty in writing, and Counterparty, upon request of the Indemnified
Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent
the Indemnified Person and any others Counterparty may designate in such proceeding and
shall pay the fees and expenses of such counsel related to such proceeding. Counterparty
shall not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for the
plaintiff, Counterparty agrees to indemnify any Indemnified Person from and against any
loss or liability by reason of such settlement or judgment. Counterparty shall not, without
the prior written consent of the Indemnified Person, effect any settlement of any pending
or threatened proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person, unless
such settlement includes an unconditional release of such Indemnified Person from all
liability on claims that are the subject matter of such proceeding. If the indemnification
provided for in this paragraph (b) is unavailable to an Indemnified Person or insufficient
in respect of any losses, claims, damages or liabilities referred to therein, then
Counterparty under such paragraph, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a
result of such losses, claims, damages or liabilities. The remedies provided for in this
paragraph (b) are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any Indemnified Person at law or in equity. The indemnity and
contribution agreements contained in this paragraph (b) shall remain operative and in full
force and effect regardless of the termination of the Transaction.

12

 

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

13

 

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

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

14

 

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

	 	 	 
	Share Termination Alternative:

	 	If applicable, Dealer shall deliver
to Counterparty the Share Termination
Delivery Property on the date when
the Payment Obligation would
otherwise be due pursuant to Section
12.7 or 12.9 of the Equity
Definitions, this Confirmation or
Section 6(d)(ii) and 6(e) of the
Agreement, as applicable (the “Share
Termination Payment Date”), in
satisfaction of the Payment
Obligation in the manner reasonably
requested by Counterparty free of
payment.
	 
	 	 
	Share Termination Delivery Property:

	 	A number of Share Termination
Delivery Units, as calculated by the
Calculation Agent, equal to the
Payment Obligation divided by the
Share Termination Unit Price. The
Calculation Agent shall adjust the
Share Termination Delivery Property
by replacing any fractional portion
of a security therein with an amount
of cash equal to the value of such
fractional security based on the
values used to calculate the Share
Termination Unit Price.
	 
	 	 
	Share Termination Unit Price:

	 	The value to Dealer of property
contained in one Share Termination
Delivery Unit on the date such Share
Termination Delivery Units are to be
delivered as Share Termination
Delivery Property, as determined by
the Calculation Agent in its
discretion by commercially reasonable
means and notified by the Calculation
Agent to Dealer at the

15

 

	 	 	 
	 

	 	time of notification of the Payment
Obligation.
	 
	 	 
	Share Termination Delivery Unit:

	 	In the case of a Termination Event, Event
of Default or Delisting, one Share or, in
the case of an Insolvency,
Nationalization or Merger Event, one
Share or a unit consisting of the number
or amount of each type of property
received by a holder of one Share
(without consideration of any requirement
to pay cash or other consideration in
lieu of fractional amounts of any
securities) in such Insolvency,
Nationalization or Merger Event, as the
case may be. If such Insolvency,
Nationalization or Merger Event involves
a choice of consideration to be received
by holders, such holder shall be deemed
to have elected to receive the maximum
possible amount of cash.
	 
	 	 
	Failure to Deliver:

	 	Applicable
	 
	 	 
	Other applicable provisions:

	 	If Share Termination Alternative is
applicable, the provisions of Sections
9.8, 9.9, 9.10, 9.11 and 9.12 of the
Equity Definitions will be applicable, as
if “Physical Settlement” applied to such
cancellation or termination of the
Transaction, except that all references
therein to “Shares” shall be read as
references to “Share Termination Delivery
Units”; and provided that the
Representation and Agreement contained in
Section 9.11 of the Equity Definitions
shall be modified by excluding any
representations therein relating to
restrictions, obligations, limitations or
requirements under applicable securities
laws as a result of the fact that Buyer
is the issuer of any Share Termination
Delivery Units (or any part thereof).

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

16

 

	 	 	 	other sections, Section 362(b)(6), 362(b)(17), 546(e),
546(g), 555 and 560 of the
Bankruptcy Code.
	 
	 	(l)	 	Governing Law. New York law (without reference to choice of law doctrine).
	 
	 	(m)	 	Waiver of Jury Trial. Each party waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any suit, action or
proceeding relating to the Transaction. Each party (i) certifies that no representative,
agent or attorney of the other party has represented, expressly or otherwise, that such other
party would not, in the event of such a suit, action or proceeding, seek to enforce the
foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter
into the Transaction, as applicable, by, among other things, the mutual waivers and
certifications provided herein.
	 
	 	(n)	 	Registration. Counterparty hereby agrees that if, in the good faith reasonable
judgment of Dealer, the Shares (the “Hedge Shares”) acquired by Dealer for the purpose of
hedging its obligations pursuant to the Transaction cannot be sold in the U.S. public market
by Dealer without registration under the Securities Act, Counterparty shall, at its election:
(i) in order to allow Dealer to sell the Hedge Shares in a registered offering, make available
to Dealer an effective registration statement under the Securities Act to cover the resale of
such Hedge Shares and (A) enter into an agreement, in form and substance satisfactory to
Dealer, substantially in the form of an underwriting agreement for a registered secondary
offering, (B) provide accountant’s “comfort” letters in customary form for registered
offerings of equity securities, (C) provide disclosure opinions of nationally recognized
outside counsel to Counterparty reasonably acceptable to Dealer, (D) provide other customary
opinions, certificates and closing documents customary in form for registered offerings of
equity securities and (E) afford Dealer a reasonable opportunity to conduct a “due diligence”
investigation with respect to Counterparty customary in scope for underwritten offerings of
equity securities; provided, however, that if Dealer, in its sole reasonable discretion, is
not satisfied with access to due diligence materials, the results of its due diligence
investigation, or the procedures and documentation for the registered offering referred to
above, then clause (ii) or clause (iii) of this Section 9(n) shall apply at the election of
Counterparty; (ii) in order to allow Dealer to sell the Hedge Shares in a private placement,
enter into a private placement agreement substantially similar to private placement
Underwriting Agreements customary for private placements of equity securities, in form and
substance satisfactory to Dealer, including customary representations, covenants, blue sky and
other governmental filings and/or registrations, indemnities to Dealer, due diligence rights
(for Dealer or any designated buyer of the Hedge Shares from Dealer), opinions and
certificates and such other documentation as is customary for private placements agreements,
all reasonably acceptable to Dealer (in which case, the Calculation Agent shall make any
adjustments to the terms of the Transaction that are necessary, in its reasonable judgment, to
compensate Dealer for any discount from the public market price of the Shares incurred on the
sale of Hedge Shares in a private placement); or (iii) purchase the Hedge Shares from Dealer
at the “VWAP Price” (as defined herein) on the relevant Exchange Business Days, and in the
amounts, requested by Dealer. “VWAP Price” means, on any Exchange Business Day, the per Share
volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg
page <CDNS>.UQ <equity> AQR (or any successor thereto) in respect of the period
from 9:30 a.m. to 4:00 p.m. (New York City time) on such Exchange Business Day (or if such
volume-weighted average price is unavailable, the market value of one Share on such Exchange
Business Day, as determined by the Calculation Agent using a volume-weighted method).

17

 

	 	(o)	 	Role of Agent. Each party agrees and acknowledges that:
	 
	 	 	 	1. Agent will be responsible for the operational aspects of the Transactions effected
through it, such as record keeping, reporting, and confirming
Transactions to Counterparty and Dealer;
	 
	 	 	 	2. Agent’s sole role under this Agreement and with respect to any Transaction is as an
agent of Counterparty and Dealer on a disclosed basis and Agent shall have no
responsibility or liability to Counterparty or Dealer hereunder except for gross
negligence or willful misconduct in the performance of its duties as agent. Agent is
authorized to act as agent for Dealer, but only to the extent expressly required to
satisfy the requirements of Rule 15a-6 under the Exchange Act in respect of the Options
described hereunder. A shall have no authority to act as agent for Counterparty generally
or with respect to transactions or other matters governed by this Agreement, except to the
extent expressly required to satisfy the requirements of Rule 15a-6 or in accordance with
express instructions from Counterparty.
	 
	 	(p)	 	Quarterly Valuations. Dealer hereby agrees, upon request by Counterparty, to provide
to the Counterparty, within 5 Exchange Business Days after the end of the fiscal quarter of
the Counterparty during which Counterparty made such request, a valuation estimate of the fair
value of the Transaction as of the Counterparty’s fiscal quarter end.
	 
	 	(q)	 	Equity Rights. Dealer acknowledges and agrees that this Confirmation is not intended
to convey to it rights with respect to the Transaction that are senior to the claims of
common stockholders in the event of Company’s bankruptcy.

18

 

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

	 	 	 	 	 	 	 	 	 
	 	 	Very truly yours	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	MERRILL LYNCH INTERNATIONAL	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Fran Jacobsen	 	 
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	Authorized Signatory	 	 
	 	 	 	 	Name: Fran Jacobsen	 	 

Accepted and confirmed

as of the Trade Date:

Cadence Design Systems, Inc.

	 	 	 	 	 
	By:

	 	/s/ William Porter
	 	 
	 

	 	 	 	 
	Authorized Signatory	 	 
	Name: William Porter	 	 

Acknowledged and agreed as to matters to the Agent:

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

Solely in its capacity as Agent hereunder

	 	 	 	 	 
	By:

	 	/s/ B. Carrole	 	 
	 

	 	 	 	 
	Authorized Signatory	 	 
	Name: B. Carrole

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