Document:

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                                                                    Exhibit 10.8

                     MASTER INTELLECTUAL PROPERTY OWNERSHIP
                              AND LICENSE AGREEMENT

                                  BY AND AMONG

                          CADENCE DESIGN SYSTEMS, INC.,

                             CADENCE HOLDINGS, INC.,

                                   TALITY, LP

                                       AND

                               TALITY CORPORATION

                                   DATED AS OF

                                 _________, 2000

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                                TABLE OF CONTENTS

<TABLE>
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<S>                                                                                       <C>
ARTICLE I  DEFINITIONS......................................................................2

        Section 1.1   Cadence Electronic Design Technology..................................2
        Section 1.2   Cadence PDK Technology................................................2
        Section 1.3   Copyrights............................................................2
        Section 1.4   Derivative Use........................................................2
        Section 1.5   Design Tool Technology................................................2
        Section 1.6   Electronic Design Technology..........................................2
        Section 1.7   Group.................................................................2
        Section 1.8   Intellectual Property Rights..........................................3
        Section 1.9   Internal Use..........................................................3
        Section 1.10  Jointly-Owned PDK Technology..........................................3
        Section 1.11  Marks.................................................................3
        Section 1.12  Mask Work Rights......................................................3
        Section 1.13  Methodology Technology................................................3
        Section 1.14  Other Intellectual Property Rights....................................3
        Section 1.15  Party.................................................................3
        Section 1.16  Patents...............................................................3
        Section 1.17  PDKs..................................................................3
        Section 1.18  Pre-Separation Technology.............................................4
        Section 1.19  Retained Intellectual Property Rights.................................4
        Section 1.20  Software..............................................................4
        Section 1.21  Tality Design Tool Technology.........................................4
        Section 1.22  Tality Electronic Design Technology...................................4
        Section 1.23  Tality Marks..........................................................4
        Section 1.24  Tality Methodology Technology.........................................4
        Section 1.25  Tality PDK Technology.................................................4
        Section 1.26  Tality Transferred Technology.........................................4
        Section 1.27  Technology............................................................4
        Section 1.28  Technology Request....................................................4
        Section 1.29  Trade Secrets.........................................................5
        Section 1.30  Transferred Intellectual Property Rights..............................5
        Section 1.31  Transferred Patents...................................................5
        Section 1.32  TWG...................................................................5

ARTICLE II  ASSIGNMENT OF TALITY TRANSFERRED TECHNOLOGY AND TALITY MARKS; RIGHTS IN
               JOINTLY-OWNED PDK TECHNOLOGY.................................................5

        Section 2.1   Assignment of Tality Transferred Technology...........................5
        Section 2.2   Assignment of Tality Marks............................................5
        Section 2.3   Assignment of Joint Ownership Interest in Jointly-Owned PDK
                      Technology............................................................5
</TABLE>

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<TABLE>
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        Section 2.4   Rights to Jointly-Owned PDK Technology................................6
        Section 2.5   Ownership of Other Intellectual Property Retained by Cadence..........7
        Section 2.6   Further Assurances....................................................7
        Section 2.7   Authorization to Record...............................................7
        Section 2.8   Mistaken Allocations..................................................8
        Section 2.9   Governmental Approvals and Third-Party Approvals......................8
        Section 2.10  Pre-Existing Licenses to Third Parties................................8
        Section 2.11  Assignment Disclaimer.................................................9

ARTICLE III  LICENSE GRANTS; COVENANT NOT TO SUE............................................9

        Section 3.1   Grant of Licenses by Cadence..........................................9
        Section 3.2   Grant of Licenses by the Partnership.................................10
        Section 3.3   No License to Improvements...........................................11
        Section 3.4   No Other Rights......................................................11
        Section 3.5   Mutual Covenant Not to Sue...........................................12
        Section 3.6   Right to Use Independent Contractors.................................12
        Section 3.7   Rights of Subsidiaries...............................................12
        Section 3.8   Third Party Technology...............................................12
        Section 3.9   Disclaimer...........................................................13

ARTICLE IV  CLASSIFICATION AND PROTECTION OF TECHNOLOGY; PROSECUTION AND ENFORCEMENT.......13

        Section 4.1   Classification of Technology; Technology Requests; Technology
                      Working Group........................................................13
        Section 4.2   Protection of Pre-Separation Technology..............................14
        Section 4.3   Confidentiality......................................................15
        Section 4.4   Prosecution and Maintenance..........................................15
        Section 4.5   Enforcement..........................................................15

ARTICLE V  TERM............................................................................15

        Section 5.1   Term.................................................................15
        Section 5.2   No Termination.......................................................15

ARTICLE VI  MISCELLANEOUS..................................................................16

        Section 6.1   Exclusion of Consequential Damages...................................16
        Section 6.2   Incorporation by Reference...........................................16
        Section 6.3   Conflicting Agreements...............................................16
        Section 6.4   Assignment...........................................................16
</TABLE>

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                     MASTER INTELLECTUAL PROPERTY OWNERSHIP
                              AND LICENSE AGREEMENT

        THIS MASTER INTELLECTUAL PROPERTY OWNERSHIP AND LICENSE AGREEMENT (this
"Agreement") is entered into and effective as of ______________, 2000 between
Cadence Design Systems, Inc., a Delaware corporation ("Cadence"), Cadence
Holdings, Inc., a Delaware corporation ("Holdings"), Tality, LP, a Delaware
limited partnership (the "Partnership") and Tality Corporation, a Delaware
corporation ("Tality"). Capitalized terms used herein and not otherwise defined
elsewhere herein shall have the meanings ascribed to them in Article I or in the
Separation Agreement (as defined below).

                                    RECITALS

        WHEREAS, Holdings currently owns approximately 98% of the issued and
outstanding shares of the capital stock of Tality;

        WHEREAS, Tality is the sole general partner of, and owns both a general
and limited partnership interest in, the Partnership;

        WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings
determined that it would be appropriate and desirable for Cadence to transfer
(or cause to be transferred) to the Partnership, on behalf of Holdings, and for
the Partnership to receive and assume, directly or indirectly, as a contribution
from Holdings, certain assets and liabilities of Cadence associated with the
Tality Business;

        WHEREAS, Cadence, Tality and Holdings are parties to that certain Master
Separation Agreement, dated as of July 14, 2000, as amended or restated (the
"Separation Agreement"), pursuant to which Cadence, Tality, Holdings and the
Partnership have agreed, subject to certain conditions, to the legal separation
of the Tality Business from Cadence's other businesses and to have the
Partnership and its Subsidiaries own and operate the entire Tality Business; and

        WHEREAS, all conditions to the Separation have been satisfied or waived;
and Cadence, Holdings, the Partnership and Tality now desire to execute and
deliver this Agreement to effectuate the transfer of intellectual property from
Holdings and from Cadence, on behalf of Holdings, to the Partnership and the
granting of the licenses to the Partnership contemplated by the Separation
Agreement.

                                    AGREEMENT

        NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:

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                                    ARTICLE I

                                   DEFINITIONS

        For purposes of this Agreement, the following capitalized terms shall
have the meanings assigned to them below.

        Section 1.1 "Cadence Electronic Design Technology" means any Electronic
Design Technology that was developed by Cadence or a Subsidiary thereof pursuant
to (i) a contract with a third-party customer that was not a customer of the
Tality Business or (ii) research and development work conducted independent of
any Tality Business project or contract.

        Section 1.2 "Cadence PDK Technology" means any PDKs developed solely by
a business or businesses of Cadence or any of its Subsidiaries other than the
Tality Business.

        Section 1.3 "Copyrights" mean (i) any copyright in any original works of
authorship fixed in any tangible medium of expression as set forth in 17 U.S.C.
Section 101 et. seq., whether registered or unregistered, including any
applications for registration thereof, (ii) any corresponding foreign copyrights
under the laws of any jurisdiction, in each case, whether registered or
unregistered, and any applications for registration thereof, and (iii) moral
rights under the laws of any jurisdiction.

        Section 1.4 "Derivative Use" means, with reference to specified
Technology, the right to use such Technology to make any refinement,
enhancement, adaptation, variation, improvement, elaboration or other
modification of such Technology for the purpose or with the effect of preparing
new Technology. "Derivative Use" includes the right to use, execute, display,
perform or reproduce the subject Technology, and the right to modify or prepare
derivative works based on such Technology, but excludes any right to distribute,
license, sublicense, sell or otherwise transfer or make available such
Technology to any third party.

        Section 1.5 "Design Tool Technology" means any Software developed by
Cadence or any of its Subsidiaries prior to the date hereof for the commercial
EDA market, including source level language code, object code and executable
programs.

        Section 1.6 "Electronic Design Technology" means any Technology owned by
Cadence or any of its Subsidiaries and developed prior to date hereof that
consists of the complete or partial set of descriptions and representations of a
system, integrated circuit or embedded software design. Electronic Design
Technology includes the following types of descriptions or representations:
specifications, circuit or system documentation, system architecture
descriptions, behavioral descriptions, mechanical packaging and enclosure
descriptions, RTL descriptions, circuit schematics, gate level netlists, test
vectors and programs, test benches, integrated circuit layouts, packaging
information and embedded software source code. Electronic Design Technology, in
contrast to Methodology Technology, is associated with customer applications,
end uses, and specific electronic products, functions or complete systems.
Notwithstanding the foregoing, Electronic Design Technology shall not include
any PDKs.

        Section 1.7 "Group" means the Cadence Group or the Tality Group as
appropriate.

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        Section 1.8 "Intellectual Property Rights" means all rights in, to, or
arising under or out of any (i) Patents; (ii) Copyrights; (iii) Mask Work
Rights; (iv) Trade Secrets; and (v) all other intellectual or industrial
property of any kind or nature, in each case arising under or protected by the
laws of any country anywhere in the world, excluding any rights under or in
respect of Marks.

        Section 1.9 "Internal Use" means, with reference to specified
Technology, the right to use, execute, display, perform or reproduce such
Technology, but excludes (i) any right to make Derivative Use of such Technology
and (ii) any right to distribute, license, sublicense, sell or otherwise
transfer or make available such Technology to any third party.

        Section 1.10 "Jointly-Owned PDK Technology" means any PDKs that were
co-developed by the Tality Business and other businesses of Cadence or any of
its Subsidiaries, including those set forth on Exhibit A.

        Section 1.11 "Marks" mean fictional business names, trade names, trade
dress rights, registered and unregistered trademarks and service marks and
logos, including any Internet domain names, and applications therefor, and like
intellectual property rights.

        Section 1.12 "Mask Work Rights" means (i) any rights in maskworks, as
defined in 17 U.S.C. Section 901, whether registered or unregistered, including
applications for registration thereof, and (ii) any foreign rights in
semiconductor topologies under the laws of any jurisdiction, whether registered
or unregistered, including applications for registration thereof.

        Section 1.13 "Methodology Technology" means any Technology owned by
Cadence or any of its Subsidiaries and developed prior to the date hereof that
is associated with the practices, methods and utility software used to combine
commercially available EDA tools into a system to perform the design of
electronic systems, circuit design or the design of embedded software.
Methodology Technology, as distinct from Electronic Design Technology, focuses
on the process to be employed in designing new electronic systems, circuits or
embedded software, rather than the end-product or application produced by or
with such Technology. Notwithstanding the foregoing, Methodology Technology
shall not include any PDKs.

        Section 1.14 "Other Transferred Intellectual Property Rights" means all
of the Intellectual Property Rights (other than Patents) of Cadence or any of
its Subsidiaries that protect, cover, or embody any Tality Transferred
Technology.

        Section 1.15 "Party" means Cadence or Holdings, on the one hand, and
Tality or the Partnership, on the other, and members of the Cadence Group or the
Tality Group, as applicable.

        Section 1.16 "Patents" means all classes or types of patents, utility
models and design patents (including originals, divisions, continuations,
continuations-in-part, re-examinations, extensions or reissues), and
applications for these classes or types of patent rights in all countries of the
world (and any patents issuing thereon).

        Section 1.17 "PDKs" means the data and files unique to a fabrication
process, or to a particular customer flow, created by the Tality Business or
another business of Cadence or any of its Subsidiaries prior to the date hereof,
for use with Cadence EDA tools, and used for such

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purposes, for illustration, as enabling analog and mixed signal circuit design,
layout and verification.

        Section 1.18 "Pre-Separation Technology" has the meaning set forth in
Section 4.1(a).

        Section 1.19 "Retained Intellectual Property Rights" has the meaning set
forth in Section 2.5.

        Section 1.20 "Software" means any and all (i) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (ii) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, and
(iv) all documentation, including user manuals and training documentation,
relating to any of the foregoing.

        Section 1.21 "Tality Design Tool Technology" means any Design Tool
Technology developed by the Tality Business pursuant to a third-party customer
contract, the terms of which would be violated if the ownership of that Design
Tool Technology were not to be transferred to Tality or the Partnership on the
date hereof.

        Section 1.22 "Tality Electronic Design Technology" means any Electronic
Design Technology other than Cadence Electronic Design Technology.

        Section 1.23 "Tality Marks" means the Marks of Cadence or any of its
Subsidiaries that are identified on Exhibit B and that are to be transferred to
the Partnership in accordance with Section 2.6 hereof.

        Section 1.24 "Tality Methodology Technology" means any Methodology
Technology developed by the Tality Business pursuant to a third-party customer
contract, the terms of which would be violated if the ownership of that
Methodology Technology were not to be transferred to Tality or the Partnership
on the date hereof.

        Section 1.25 "Tality PDK Technology" means all PDKs developed solely by
the Tality Business.

        Section 1.26 "Tality Transferred Technology" means all Tality Design
Tool Technology, Tality Electronic Design Technology, Tality Methodology
Technology, and Tality PDK Technology.

        Section 1.27 "Technology" means Software (in both object code and source
code form), know-how, engineering, production and other designs, inventions,
discoveries, concepts, ideas, methods, processes (including design and
manufacturing processes), drawings, specifications, formulae, data bases and
documentation thereof, technological models, algorithms, behavioral models,
logic diagrams, schematics, test vectors, technical information, documentation,
websites, data and other Information.

        Section 1.28 "Technology Request" has the meaning set forth in Section
4.1(c).

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        Section 1.29 "Trade Secrets" means any Technology and other commercial
or technical Information that derives economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or use
and is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy and any other Information that is proprietary or
confidential, in each case excluding any rights in respect of any of the
foregoing that comprise or are protected by Copyrights, Mask Work Rights or
Patents.

        Section 1.30 "Transferred Intellectual Property Rights" means the
Transferred Patents and the Other Transferred Intellectual Property Rights.

        Section 1.31 "Transferred Patents" means the Patents listed on Exhibit
C.

        Section 1.32 "TWG" has the meaning set forth in Section 4.1(b).

                                   ARTICLE II

                 ASSIGNMENT OF TALITY TRANSFERRED TECHNOLOGY AND
              TALITY MARKS; RIGHTS IN JOINTLY-OWNED PDK TECHNOLOGY

        Section 2.1 Assignment of Tality Transferred Technology. Cadence, on
behalf of Holdings, hereby assigns, transfers, conveys and delivers, and agrees
to cause each and every applicable member of the Cadence Group to assign,
transfer, convey and deliver to the Partnership and the Partnership hereby
accepts from Cadence, or the applicable member of the Cadence Group, all of the
right, title and interest in and to the Transferred Intellectual Property Rights
of Cadence and the members of the Cadence Group. Cadence, on behalf of Holdings,
further assigns, transfers, conveys and delivers, and agrees to cause each and
every member of the Cadence Group to assign, transfer, convey and deliver to the
Partnership all its (and their) right, title and interest in and to any and all
causes of action and rights of recovery for past infringement or
misappropriation of the Transferred Intellectual Property Rights.

        Section 2.2 Assignment of Tality Marks. Cadence, on behalf of Holdings,
hereby assigns, transfers, conveys and delivers to the Partnership, and agrees
to cause each and every member of the Cadence Group to assign, transfer, convey
and deliver to the Partnership, and the Partnership hereby accepts from Cadence,
or the applicable member of the Cadence Group, all of the right, title and
interest of Cadence, and the members of the Cadence Group, in and to the Tality
Marks, together with all appurtenant goodwill relating thereto.

        Section 2.3 Assignment of Joint Ownership Interest in Jointly-Owned PDK
Technology. Cadence, on behalf of Holdings, hereby assigns, transfers, conveys
and delivers to the Partnership, and agrees to cause each and every member of
the Cadence Group to assign, transfer, convey and deliver to the Partnership,
and the Partnership hereby accepts from Cadence, or the applicable member of the
Cadence Group, an undivided one-half interest (as tenant-in-common) in and to
all Intellectual Property Rights (other than Patents) of Cadence, and the
members of the Cadence Group that protect, cover, or embody any Jointly-Owned
PDK Technology.

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        Section 2.4 Rights to Jointly-Owned PDK Technology.

        (a) Each of Cadence (and the members of the Cadence Group) and Tality
(and the Members of the Tality Group) has the right to (i) use and exploit the
Jointly-Owned PDK Technology, (ii) license the Jointly-Owned PDK Technology to
third parties on a non-exclusive basis, and (iii) transfer its ownership
interest in any or all Jointly-Owned PDK Technology to any third party, in each
case (x) without restriction (other than, to the extent applicable, the
confidentiality obligations of such Party referred to in Section 4.3), (y)
without the consent of the other Party, and (z) without the obligation to
account to the other Party for profits derived therefrom.

        (b) Should either Cadence (or any member of the Cadence Group) or Tality
(or any member of the Tality Group) (the "Registering Party") desire at any time
to register Copyrights in any Jointly-Owned PDK Technology or seek patent
protection for any Jointly-Owned PDK Technology in any jurisdiction, such Party
shall notify the other Party (the "Non-Registering Party") in writing of its
intent and the reasons therefor. The Non-Registering Party promptly shall
communicate in writing any objections it may have. In the absence of any written
objections within thirty (30) days after the date of its notice, the Registering
Party shall be free to proceed with the desired registration in the name of both
the Partnership and Cadence. In the event of any such objections by the
Non-Registering Party, the parties shall discuss and negotiate reasonably and in
good faith to resolve the objections based on each Party's business objectives
with respect to the relevant item of Jointly-Owned PDK Technology. If the
objections of the Non-Registering Party are not resolved, the Registering Party
shall not be permitted to proceed with the proposed copyright registration or
patent application. If the Non-Registering Party does not timely object to the
copyright registration or patent application proposed by the Registering Party
or if any timely objection of the Non-Registering Party is resolved, the Parties
shall share equally any actual and reasonable out-of-pocket expenses (excluding
the value of the time of either Party's employees) incurred in connection with
any such registration or patent application (including the prosecution of such
patent application), except as the Parties otherwise may agree in connection
with resolving any objections of the Non-Registering Party. The Registering
Party promptly shall provide the Non-Registering Party with copies of each
application and issued registration or issued patent under this Section 2.4(b).

        (c) Should either Party become aware of any actual infringement or
misappropriation of Jointly-Owned PDK Technology, such Party shall communicate
promptly the details to the other Party and the parties will meet and confer
regarding any enforcement action with respect to such Jointly-Owned PDK
Technology. If the Parties decide jointly to bring an action for infringement or
misappropriation of such Jointly-Owned PDK Technology, the parties shall equally
share all actual and reasonable expenses associated therewith (except for the
value of the time of each Party's employees in connection with the action; each
Party shall alone bear its employee expenses) and any resulting damages or
compensation, including any amounts paid in settlement. If the Parties decide
not to jointly bring such an action, either Party or any of its subsidiaries
may, at its own expense (including, as the parties shall agree on a case by case
basis, compensation, if any, of the other Party for the value of time of the
other Party's employees as reasonably required in connection with the action),
enforce any Jointly-Owned PDK Technology against any third party infringer or
misappropriating person without the consent of the other Party, subject to the
following: (i) neither Party shall have any obligation to be joined as a party

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plaintiff in such action without its prior written consent, which may be granted
or withheld in its sole discretion, regardless of whether such joinder is
required in order to confer jurisdiction in the jurisdiction in which the action
is to be brought; (ii) if either Party brings any such action on its own,
including cases in which the other Party consents to be named as party
plaintiff, the Party bringing the action agrees to defend, indemnify and hold
harmless the other Party for all losses, costs, liabilities and expenses arising
out of or related to the bringing of such action; and (iii) the Party bringing
such action shall not take any action, or make any admissions, that may affect
the validity of any registration for Copyrights in any Jointly-Owned PDK
Technology or the confidentiality of any Trade Secrets embodied in any
Jointly-Owned PDK Technology without the prior written consent of the other
Party. If the enforcing Party or its subsidiaries recovers any damages or
compensation for any action the enforcing Party or the subsidiaries of the
enforcing Party takes hereunder, including any settlement, the enforcing Party
or the subsidiaries of the enforcing Party shall retain one hundred percent
(100%) of such damages. If the Parties cooperate in any such enforcement action,
then any recovery of damages or compensation shall be allocated pursuant to
mutual agreement.

        Section 2.5 Ownership of Other Intellectual Property Retained by
Cadence. All Intellectual Property Rights (other than Patents) of Cadence or any
members of the Cadence Group that protect, cover, or embody (i) Cadence
Electronic Design Technology; (ii) Cadence PDK Technology; (iii) Methodology
Technology other than Tality Methodology Technology; and (iv) Design Tool
Technology other than the Tality Design Tool Technology, and all Patents of
Cadence or any members of the Cadence Group other than the Transferred Patents
(all such Intellectual Property Rights and Patents are referred to collectively
herein as the "Retained Intellectual Property Rights") shall be retained by the
Cadence Group, and the Tality Group shall have no right or license therein
except as expressly set forth in Article III or in a separate written agreement
into which a member of the Cadence Group and a member of the Tality Group may
enter.

        Section 2.6 Further Assurances. Concurrently herewith, Cadence, on
behalf of Holdings, shall, and shall cause each and every member of the Cadence
Group to, execute and deliver to the Partnership assignments in appropriate form
by which Cadence and each such member of the Cadence Group will assign to the
Partnership all of the Transferred Intellectual Property Rights and the Tality
Marks. Promptly upon the request of the Partnership, Cadence, on behalf of
Holdings, further agrees to execute and deliver, and cause each and every member
of the Cadence Group to execute and deliver, such additional documents and take
such other action as may be necessary or desirable to continue, secure, defend,
register, confirm, evidence and otherwise give full effect to and to perfect the
rights of the Partnership under this Agreement, including all such documents
necessary to perfect, affirm, record and maintain title (to the extent provided
herein) in the Partnership, its successor, assigns or other legal
representatives to any and all Transferred Intellectual Property Rights and
Tality Marks, including all documents necessary to register in the name of the
Partnership the assignment of each registered Mark identified on Exhibit B and
each Patent identified on Exhibit C in the appropriate country or countries.

        Section 2.7 Authorization to Record. Cadence, within ten (10) days of
the effective date hereof, shall authorize and request that the Commissioner of
Patents or Commissioner of Trademarks of the United States and each official
holding a corresponding position of authority

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in any country in which Cadence or a Subsidiary of Cadence owns one or more
patent or trademark registrations or has pending one or more patent or trademark
applications to issue and to record the title of the Partnership as owner of all
right, title and interest in and to the registered Marks identified on Exhibit B
and the Patents identified on Exhibit C.

        Section 2.8 Mistaken Allocations. The Parties acknowledge that there may
exist Intellectual Property Rights that the Parties hereafter discover were,
contrary to the agreements between the parties, by mistake or omission,
transferred or not transferred, as the case may be, to the Partnership. The
Parties hereto shall cooperate in good faith to effect the transfer or
re-transfer of such Intellectual Property Rights to or by the appropriate Party,
in accordance with the procedures specified in Section 4.1, and shall not use
the determination that remedial actions need to be taken to alter the original
intent of the parties hereto with respect to the Intellectual Property Rights to
be transferred to the Partnership. Prior to any such transfer, the Party holding
title to such Intellectual Property Rights shall hold the same in trust for the
other Party.

        Section 2.9 Governmental Approvals and Third-Party Approvals. If and to
the extent that the valid, complete and perfected transfer assignment to the
Partnership of any Transferred Intellectual Property Rights would be a violation
of applicable laws or require any Third-Party Approval or Governmental Approval,
then, unless Cadence shall otherwise determine, the transfer and assignment to
the Partnership of such Intellectual Property Rights shall be automatically
deemed deferred and any such purported transfer and assignment shall be null and
void until such time as all legal impediments are removed and/or such
Third-Party Approval or Governmental Approvals have been obtained. If the
transfer and assignment of any Intellectual Property Rights intended to be
transferred or assigned hereunder is not consummated on the date hereof for any
other reason, then the member of the Cadence Group retaining title to such
Intellectual Property Rights shall thereafter hold the same for the use and
benefit, insofar as reasonably possible, of the Partnership (at the expense of
the Partnership). In addition, such member of the Cadence Group shall take such
other actions as may be reasonably requested by the Partnership in order to
place the Partnership, insofar as reasonably possible, in the same position as
if such Intellectual Property Rights had been transferred as contemplated hereby
and so that all the benefits and burdens relating to such Intellectual Property
Rights, including possession, use, risk of loss, potential for gain, and
dominion, control and command over such Intellectual Property Rights, are to
inure from and after the date hereof to the Partnership. If and when the
Third-Party Approvals and/or Governmental Approvals, the absence of which caused
the deferral of transfer of any Intellectual Property Rights pursuant to this
Section 2.9, are obtained, the transfer of such Intellectual Property Rights
shall be effected in accordance with the terms of this Agreement. The member of
the Cadence Group retaining Intellectual Property Rights shall not be obligated,
in connection with the foregoing, to expend any money unless the necessary funds
are advanced by the Partnership, other than reasonable out-of-pocket expenses,
attorneys' fees and recording or similar fees, all of which shall be promptly
reimbursed by the Partnership.

        Section 2.10 Pre-Existing Licenses to Third Parties. The assignments
contemplated by this Article II are subject to all pre-existing licenses and
rights granted by Cadence or any member of the Cadence Group to third parties.

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        Section 2.11 Assignment Disclaimer. TALITY AND THE PARTNERSHIP
ACKNOWLEDGE AND AGREE THAT THE FOREGOING ASSIGNMENTS ARE MADE ON AN "AS IS,"
QUITCLAIM BASIS AND THAT NEITHER CADENCE NOR ANY MEMBER OF THE CADENCE GROUP HAS
MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT.

                                   ARTICLE III

                       LICENSE GRANTS; COVENANT NOT TO SUE

        Section 3.1 Grant of Licenses by Cadence.

        (a) Subject to any applicable third-party restriction by which Cadence
or any member of the Cadence Group is bound, including any customer-specific
confidentiality obligations, as may apply to any particular Methodology
Technology, Cadence and each and every member of the Cadence Group hereby grant
to the Partnership and each other member of the Tality Group under the Retained
Intellectual Property Rights perpetual, irrevocable, worldwide, non-exclusive,
royalty-free and fully-paid Internal Use and Derivative Use rights with respect
to the Methodology Technology other than the Tality Methodology Technology. The
Partnership shall not grant sublicenses under the license to Methodology
Technology granted under this Section 3.1(a) except upon terms agreeable to and
with the express written consent of Cadence or the member of the Cadence Group,
as applicable; provided, however, that the Partnership may grant sublicenses as
provided in Section 3.6 and under the following circumstances:

            (1) In the event that the Partnership identifies a customer or
                business opportunity involving the development or sale (or other
                commercial exploitation) of Methodology Technology (each, a
                "Methodology Business Opportunity"), then the Partnership shall
                promptly present the Methodology Business Opportunity to
                Cadence, by written notice or mutually agreeable form of
                electronic communication between the respective executives (or
                their designees) assigned for this purpose who are identified on
                Exhibit D (each being a "Designated Business Opportunity
                Contact"), and the Partnership shall provide to Cadence through
                the Designated Business Opportunity Contact, with such notice or
                as soon as practicable thereafter, reasonably available
                information with respect to such Methodology Business
                Opportunity;

            (2) Cadence shall have ten (10) calendar days within which to advise
                the Tality Designated Business Opportunity Contact that it is
                interested in pursuing the Methodology Business Opportunity, and
                to reach agreement with the Partnership on any business terms
                (including commission, participation, license fee or royalty)
                and on technical support (as appropriate and necessary); and
                should Cadence decline the opportunity, or fail to respond
                within such period, or be unable to so reach agreement on such
                business terms, then the Partnership may pursue such Methodology
                Business Opportunity and it shall, for such purposes, be deemed
                to have been granted by Cadence and each appropriate Subsidiary
                thereof

                                       9
<PAGE>   13

                royalty-free rights to use, practice and exploit the Methodology
                Technology licensed under this Section 3.1(a), including through
                the grant of a sublicense under the license granted under this
                Section 3.1(a), as and to the extent reasonably necessary to
                pursue such Methodology Business Opportunity and provide the
                Technology and services required by the relevant customer in
                connection therewith.

        (b) Subject to any applicable third-party restriction by which Cadence
or any member of the Cadence Group is bound, including any customer-specific
confidentiality obligations, as may apply to any particular PDK Technology,
Cadence and each and every member of the Cadence Group hereby grant to the
Partnership and each other member of the Tality Group under the Retained
Intellectual Property Rights perpetual, irrevocable, worldwide, non-exclusive,
royalty-free and fully-paid (i) Internal Use and Derivative Use rights with
respect to the Cadence PDK Technology and (ii) rights to distribute, sublicense,
sell, offer to sell, import, or otherwise transfer or make available to any
third party any Cadence PDK Technology. In the event of a conflict between this
Agreement and the terms of any third party agreement pursuant to which a PDK
licensed hereunder was created, the terms of the third party agreement shall
control. If the Partnership requests, Cadence and the members of the Cadence
Group, as applicable, shall make a prompt and good-faith effort to assist the
Partnership, at the Partnership's expense, in securing from the applicable third
party any consent or license required to permit any such PDK to be licensed to
the Partnership as contemplated hereby.

        (c) Cadence and each and every member of the Cadence Group hereby grant
to the Partnership and each other member of the Tality Group under the Retained
Intellectual Property Rights, effective on the second anniversary of the date
hereof, perpetual, irrevocable, worldwide, non-exclusive, royalty-free and
fully-paid (i) Internal Use and Derivative Use rights with respect to the
Methodology Technology other than Tality Methodology Technology; and (ii) rights
to distribute, sublicense, sell, offer to sell, import, or otherwise transfer or
make available to any third party any such Methodology Technology.

        Section 3.2 Grant of Licenses by the Partnership.

        (a) The Partnership hereby grants to Cadence and each other member of
the Cadence Group under the Transferred Intellectual Property Rights perpetual,
irrevocable, worldwide, non-exclusive, royalty-free and fully-paid Internal Use
rights with respect to Tality Electronic Design Technology, solely to the extent
the same is reasonably requested or needed by Cadence prior to the second
anniversary of the date hereof. Internal Use rights may be exercised by Cadence
and other members of the Cadence Group pursuant to the license granted in this
Section 3.2(a) solely for the refinement, improvement or elaboration of existing
Cadence Design Tool Technology or Methodology Technology and for the
verification or validation of Design Tool Technology or Methodology Technology.
If Cadence or other members of the Cadence Group intend to exercise any rights
under this Section 3.2(a) with respect to Tality Electronic Design Technology in
its possession prior to the second anniversary of the date hereof, it will give
the Partnership prompt written notice thereof, specifying in such notice the
Tality Electronic Design Technology as to which it intends to exercise such
rights and the purpose for which such rights will be exercised. If Cadence or
other members of the Cadence Group intend to exercise any rights under this
Section 3.2(a) with respect to Tality Electronic Design Technology that is not
in its

                                       10
<PAGE>   14

possession prior to the second anniversary of the date hereof, it will make a
Technology Request (as defined in Section 4.1(c)) and specify in such Technology
Request the Tality Electronic Design Technology as to which it intends to
exercise such rights and the purpose for which such rights will be exercised.
Cadence, and other members of the Cadence Group, will have no rights under this
Section 3.2(a) with respect to any Tality Electronic Design Technology that is
not identified in written notice or Technology Request given by Cadence, or
other members of the Cadence Group, to the Partnership prior to the second
anniversary of the date hereof. Cadence, and other members of the Cadence Group,
shall not grant sublicenses under the license to Tality Electronic Design
Technology granted under this Section 3.2(a) except upon terms agreeable to the
Partnership and with the Partnership's express written consent. Subject to the
foregoing, Cadence, and other members of the Cadence Group, have no rights to
Tality Electronic Design Technology, except as may be granted upon terms
agreeable to the Partnership and with the express written consent of the
Partnership.

        (b) Subject to any applicable third-party restriction, including any
customer-specific confidentiality obligations, as may apply to any particular
Tality PDK Technology, the Partnership hereby grants to Cadence and to any
member of the Cadence Group (i) perpetual, irrevocable, worldwide,
non-exclusive, royalty-free and fully-paid Internal Use and Derivative Use
rights to the Tality PDK Technology and (ii) rights to distribute, sublicense,
sell, offer to sell, import, or otherwise transfer or make available to any
third party any Tality PDK Technology. In the event of a conflict between this
Agreement and the terms of any third party agreement pursuant to which a PDK
licensed hereunder was created, the terms of the third party agreement shall
control. If Cadence requests, the Partnership shall make a prompt and good-faith
effort to assist Cadence, at Cadence's expense, in securing from the applicable
third party any consent or license required to permit any such PDK to be
licensed to Cadence as contemplated hereby.

        Section 3.3 No License to Improvements. All improvements, enhancements,
modifications, developments or new Technology or Intellectual Property Rights
first conceived, created, invented, discovered, acquired or made by or for
Cadence or any member of the Cadence Group, on the one hand, or Tality or any
member of the Tality Group, on the other hand, after the date hereof shall be
owned by such Party or member of its Group, as applicable. Nothing herein grants
to either Party (or member of its Group) any license or other rights to any such
improvements, enhancements, modifications, developments or new Technology or
Intellectual Property Rights first conceived, created, invented, discovered,
acquired or made by or for the other Party (or member of its Group).

        Section 3.4 No Other Rights. No other rights are granted hereunder, by
implication, estoppel, statute or otherwise, except as expressly provided
herein. Specifically, (i) except as expressly provided herein, nothing in the
licenses granted hereunder or otherwise contained in this Agreement shall
expressly or by implication, estoppel or otherwise give either Party (or member
of its Group) any right to license any Intellectual Property Rights of the other
Party (or member of its Group) to others and (ii) no license or immunity is
granted by either Party (or member of its Group) directly or by implication,
estoppel or otherwise to any third parties acquiring items from the other Party
(or member of its Group) for the combination of such Party's products and
technologies with other items or for the use of such combination.

                                       11
<PAGE>   15

        Section 3.5 Mutual Covenant Not to Sue. Each of Cadence and each and
every member of the Cadence Group and Tality and each and every member of the
Tality Group covenants and agrees that it shall not Assert any Covered Patent
owned by it against the other Party, or the members of the other Party's Group
or their customers (direct or indirect), distributors (direct or indirect),
agents (direct or indirect) and contractors (direct or indirect) based on an
allegation that the manufacture, use, import, offer for sale or sale of the
products of the other Party (or member of its Group) technologies or services
that existed on the date hereof, including any enhanced or new versions or any
successor products, technologies or services that do not have substantial
additional functionality or features, by the other Party or member of its Group,
or any process or method employed in the manufacture, testing, distribution or
use thereof by the other Party or any member of its Group, constitutes an
infringement, contributory infringement of, or an inducement to infringe, any
such Covered Patents owned by it. This covenant not to sue shall survive any
termination of this Agreement and shall remain in full force and effect until
mutually agreed otherwise by the Parties. For the purposes hereof, (i) "Assert"
means to bring an action of any nature before any legal, judicial, arbitration,
administrative, executive or other type of body or tribunal that has or claims
to have authority to adjudicate such action in whole or in part (examples of
such body or tribunal including, without limitation, United States State and
Federal Courts, the United States International Trade Commission and any foreign
counterparts of any of the foregoing); and (ii) "Covered Patents" means any
Patent owned by a Party or member of its Group with an effective filing date
prior to the fifth anniversary of the date of this Agreement.

        Section 3.6 Right to Use Independent Contractors. Each Party (and
members of its Group) agrees that the other Party (and members of its Group) may
retain, subject to the confidentiality restrictions to which reference is made
in Section 4.3, independent contractors to assist with the design, development,
testing, improvement, maintenance and support of the other Party's products,
technologies and services, and the grant of Internal Use or Derivative Use
rights by such Party shall be deemed to permit such other Party to utilize such
contractors in connection with the exercise of such rights hereunder; provided,
however, that, absent the express written consent of the other Party, a Party
(and members of its Group) shall make no disclosures of any Confidential
Information to independent contractors that are direct competitors of the other
Party.

        Section 3.7 Rights of Subsidiaries. The right of a member of the Tality
Group other than the Partnership or a member of the Cadence Group other than
Cadence to exercise the rights licensed under Section 3.1 and Section 3.2,
respectively, is subject to such member agreeing in writing to be bound by the
terms and conditions hereof. A license to a particular member of the Tality
Group or the Cadence Group granted pursuant to Section 3.1 or Section 3.2 shall
terminate upon the date that such member ceases to be a Subsidiary of the
Partnership or Cadence, as the case may be.

        Section 3.8 Third Party Technology. The assignment of any applicable
license agreements with respect to Technology owned by a third party and
licensed to Cadence or any member of the Cadence Group are set forth in a
separate General Assignment and Assumption Agreement between the parties.

                                       12
<PAGE>   16

        Section 3.9 Disclaimer. EACH PARTY (AND MEMBER OF ITS GROUP) IS
LICENSING TO THE OTHER PARTY (AND MEMBER OF ITS GROUP) SUCH PARTY'S TECHNOLOGY
AND INTELLECTUAL PROPERTY RIGHTS ON AN "AS IS" BASIS AND EACH PARTY HEREBY
DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO SUCH TECHNOLOGY OR
INTELLECTUAL PROPERTY LICENSED BY IT HEREUNDER, INCLUDING WITHOUT LIMITATION,
THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. NOTHING CONTAINED IN THIS AGREEMENT SHALL BE CONSTRUED AS A
WARRANTY OR REPRESENTATION AS TO THE VALIDITY, ENFORCEABILITY OR SCOPE OF ANY
CLASS OR TYPE OF INTELLECTUAL PROPERTY RIGHTS.

                                   ARTICLE IV

                  CLASSIFICATION AND PROTECTION OF TECHNOLOGY;
                          PROSECUTION AND ENFORCEMENT

        Section 4.1 Classification of Technology; Technology Requests;
Technology Working Group.

        (a) The unilateral, good-faith determination of each Party shall govern
the identification, classification and ownership of all Design Tool Technology,
Electronic Design Technology and Methodology Technology for the purposes of this
Agreement (collectively, "Pre-Separation Technology").

        (b) Promptly after the date hereof, the Parties shall form a Technology
Working Group (the "TWG"), which shall consist of four members, two of whom will
be designated by each Party, to assist in resolving questions of classification,
ownership or rights of use, of Pre-Separation Technology. Each Party may change
its designees on the TWG at any time and from time to time upon written notice
to the other Party.

        (c) Either Cadence or the Partnership may request in writing (each a
"Technology Request") access to Pre-Separation Technology that the requesting
Party believes to be in the possession of the other Party (including the members
of its Group). Either Party also may make a Technology Request in order to
resolve an issue of classification, ownership or license rights as to Technology
in its possession or in the possession of the other Party (including the members
of its Group). Each Technology Request may include, in addition to a request for
access (where applicable), a request that the other Party respond to the
requesting Party and state, if requested, its position regarding the
classification, ownership or license rights associated with the Pre-Separation
Technology that is the subject of the Technology Request. The receiving Party
shall promptly and in good faith respond to each Technology Request made by the
requesting Party, and in any case shall respond within fourteen (14) calendar
days after receipt of each Technology Request. Notwithstanding the foregoing,
nothing in this Section 4.1 alters the ownership or license rights of or with
respect to Pre-Separation Technology, as provided in Article II and Article III
hereof.

                                       13
<PAGE>   17

        (d) A Party making a Technology Request that is not satisfied or
disagrees with, or seeks clarification of, the response to such Technology
Request given by the other Party, or if such Party has not received timely
response from the other Party, shall refer such matter to the TWG, which, acting
by consensus, shall use all commercially reasonable efforts to resolve such
matter in manner consistent with the intent and spirit of this Agreement. The
TWG shall seek to respond to each Technology Request within five (5) business
days after receipt, and each Party shall cooperate in good faith and promptly
and fully respond to any information requests of the TWG. If a request is made
by a Party for expedited treatment of any such matter, the other Party will make
a good faith effort to accommodate an accelerated decision process.

        (e) The resolution recommended by a majority of members of the TWG shall
be binding upon both Parties (and the members of their respective Groups),
subject to the right of either Party to request a review of such resolution
through the internal escalation procedure specified in this Section 4.1(e). A
Party requesting such review may escalate the disputed matter, first, to the
respective Technology Managers appointed for such purpose by the Partnership and
Cadence, who shall meet promptly, review such resolution and determine whether
any adjustment to such resolution is appropriate and, then, if the matter is not
resolved to the satisfaction of each Party and further escalation desired by
either Party, to the respective Product Line Vice-Presidents, or equivalent
position, as identified by each of the Partnership and Cadence, and then, if
further escalation is necessary, to the Chief Executive Officer of each of the
Partnership and Cadence. The foregoing escalation process also shall apply if
the TWG is unable to arrive at a recommended resolution by vote of a majority of
its members within such five (5) business day period. Any such disputes
remaining after this escalation process shall be resolved by binding arbitration
in accordance with the applicable provisions of Section 4.4 of the Separation
Agreement.

        (f) Except as otherwise indicated, the provisions of this Section 4.1
shall expire three (3) years from the date hereof; provided however that each
Party shall continue to comply with the applicable terms of the licenses of
Pre-Separation Technology granted in Article III.

        Section 4.2 Protection of Pre-Separation Technology.

        (a) Each Party (and member of its Group) shall treat all Pre-Separation
Technology owned by the other Party (and members of its Group) as confidential
and take all reasonable measures to protect the secrecy, and avoid the
disclosure or use, of such Pre-Separation Technology, except as expressly
permitted under this Agreement or otherwise as authorized by the written consent
of Party owning the Pre-Separation Technology. Such measures shall include, but
not be limited to using at least the degree of care that the non-owning Party
customarily uses to protect its own confidential information of a similar
nature. Each Party agrees to notify the other Party in writing promptly upon
becoming aware of any prohibited disclosure or misuse or misappropriation of
Pre-Separation Technology owned by the other Party. The obligations of the
Parties under this Section 4.2 are supplemental to, and do not serve to
diminish, the obligations of the Parties under the Master Confidentiality
Agreement between the Parties dated the date hereof.

        (b) The Parties agree that it is in their mutual interest to coordinate
means by which Pre-Separation Technology protected under this Agreement is
affixed with an appropriate

                                       14
<PAGE>   18

restrictive legend, or equivalent (for purposes of Software or other electronic
embodiment of Technology), and agree to use the TWG for the purpose of
developing and implementing agreed procedures.

        (c) Within sixty (60) days after the date hereof, the TWG shall consider
and determine whether it is timely and appropriate for both Parties to review
the Pre-Separation Technology in their possession for the purposes of preparing
a formal schedule of such Pre-Separation Technology and evaluating whether and
to what extent patent protection of such Pre-Separation Technology should be
sought.

        Section 4.3 Confidentiality. Subject to Section 4.2(a), the terms of the
Master Confidentiality Agreement, including without limitation Section 2.9
thereof, shall apply to any Highly Confidential or Confidential Information (as
defined therein) which is included in the Pre-Separation Technology that is
assigned or licensed pursuant to this Agreement.

        Section 4.4 Prosecution and Maintenance. Neither Party, in respect of
any Patents owned by it, is under any obligation to the other Party file or
continue the prosecution of any patent application, secure any patent or
maintain any patent in force or otherwise obtain, maintain or protect any
Patent.

        Section 4.5 Enforcement. Neither Party, in respect of any Intellectual
Property Rights owned by it, is under any obligation to the other Party to bring
or prosecute actions or suits against third parties for infringement or
misappropriation of such Intellectual Property Rights or to defend any action or
suit brought by a third party which challenges or concerns the validity of any
of such Intellectual Property rights or which claims that any Pre-Separation
Technology assigned or licensed to the other Party hereunder infringes any
Patent, Copyright, Mask Work Right or other intellectual property right of any
third party or constitutes a misappropriated Trade Secret of any third party.
The Partnership shall not have any right to institute any action or suit against
third parties for infringement or misappropriation of any of the Patents,
Copyrights, Mask Work Rights or Trade Secrets protecting, covering or embodying
the Pre-Separation Technology licensed to the Partnership under Section 3.1 and
Cadence shall not have any right to institute any action or suit against third
parties for infringement or misappropriation of any of the Patents, Copyrights,
Mask Work Rights or Trade Secrets protecting, covering or embodying the
Pre-Separation Technology licensed to Cadence under Section 3.2.

                                    ARTICLE V

                                      TERM

        Section 5.1 Term. This Agreement shall commence on the date hereof and
continue in perpetuity; provided that the terms hereof applicable to any Patents
licensed pursuant to Section 3.1 or 3.2 shall not apply to any issued Patent
that has expired or lapsed.

        Section 5.2 No Termination. This Agreement and each license granted
hereunder shall not be terminable by either Party and the rights granted under
this Agreement shall continue in full force and effect, notwithstanding any
material breach of any term hereof by either Party or member of its respective
Group. In the event of a breach of any term of this Agreement by either

                                       15
<PAGE>   19

Party or member of its Group, the other Party may bring any action against the
breaching Party, subject to the applicable requirements of Section 5.4 of the
Separation Agreement, and may, subject to Section 6.1, seek any and all relief
and remedies other than termination of this Agreement or the licenses granted to
the breaching Party hereunder.

                                   ARTICLE VI

                                  MISCELLANEOUS

        Section 6.1 Exclusion of Consequential Damages. IN NO EVENT SHALL ANY
PARTY OR MEMBER OF ITS GROUP HEREUNDER BE LIABLE TO ANOTHER PARTY OR MEMBER OF
ITS GROUP, FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE
DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY
(INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.

        Section 6.2 Incorporation by Reference. Section 4.4 and all of the
provisions of Article V of the Separation Agreement (except for Sections 5.1,
5.7 and 5.13 thereof) are incorporated into and made a part of this Agreement,
as if fully set forth herein.

        Section 6.3 Conflicting Agreements. In the event of any irreconcilable
conflict between this Agreement and the Separation Agreement, any other
Ancillary Agreement or other agreement executed in connection herewith or
therewith, the provisions of such other agreement shall prevail to the extent
that they specifically address the subject matter of the conflict.

        Section 6.4 Assignment. Neither Party (or member of its Group) may,
directly or indirectly, in whole or in part, whether by operation of law or
otherwise, assign or transfer this Agreement or the rights and obligations of
such Party hereunder, without the other Party's prior written consent, and any
attempted assignment, transfer or delegation without such prior written consent
shall be voidable at the sole option of such other Party; provided however that
(i) no assignment shall limit or affect assigning Party's obligations hereunder;
and (ii) the other Party shall not unreasonably withhold its consent to any
assignment of this Agreement as a whole to a Person that succeeds to all or
substantially all of the business or assets of such Party (it being agreed and
understood that it would not be unreasonable for the other Party to withhold its
consent in connection with a proposed sale to or acquisition by a Person that is
a direct competitor of the other Party). Without limiting the foregoing, this
Agreement will be binding upon and inure to the benefit of the Parties and their
permitted successors and assigns.

                                       16
<PAGE>   20

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

CADENCE DESIGN SYSTEMS, INC.                 TALITY, LP

By:                                          By: TALITY CORPORATION,
   ---------------------------------              AS GENERAL PARTNER
Name:
     -------------------------------
Title:                                           By:
      ------------------------------                ----------------------------
                                                 Name:
                                                      --------------------------
                                                 Title:
                                                       -------------------------

CADENCE HOLDINGS, INC.                       TALITY CORPORATION

By:                                          By:
   ---------------------------------            --------------------------------
Name:                                        Name:
     -------------------------------              ------------------------------
Title:                                       Title:
      ------------------------------               -----------------------------

                                       17<PAGE>   1
                                                                    EXHIBIT 10.9

                           EMPLOYEE MATTERS AGREEMENT

                                  BY AND AMONG

                          CADENCE DESIGN SYSTEMS, INC.,

                             CADENCE HOLDINGS, INC.,

                                   TALITY, LP

                                       AND

                               TALITY CORPORATION

                                   DATED AS OF

                              _______________, 2000

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
ARTICLE I  DEFINITIONS......................................................................2
        1.1    401(k) Plan..................................................................2
        1.2    AD&D Plan....................................................................2
        1.3    Affiliate....................................................................2
        1.4    Assets.......................................................................2
        1.5    Bonus Plan...................................................................2
        1.6    Business Travel Accident Insurance...........................................2
        1.7    Cadence Employee.............................................................2
        1.8    Cadence Terminated Employee..................................................2
        1.9    Class A Common Stock.........................................................2
        1.10   COBRA........................................................................2
        1.11   Code.........................................................................3
        1.12   Deferred Compensation Plan...................................................3
        1.13   Disability Plan..............................................................3
        1.14   DOL..........................................................................3
        1.15   Educational Assistance Program...............................................3
        1.16   Employee Assistance Program..................................................3
        1.17   ERISA........................................................................3
        1.18   Executive Bonus Plan.........................................................3
        1.19   FMLA.........................................................................3
        1.20   Food Programs................................................................3
        1.21   Foreign Plan.................................................................3
        1.22   Fringe Benefit Plans.........................................................3
        1.23   Group Life Plan..............................................................4
        1.24   HCFA.........................................................................4
        1.25   Health and Welfare Plans.....................................................4
        1.26   Health Plans.................................................................4
        1.27   HMO..........................................................................4
        1.28   Independence.................................................................4
        1.29   Independence Date............................................................4
        1.30   IRS..........................................................................4
        1.31   Leave of Absence Plans.......................................................4
        1.32   Liabilities..................................................................4
        1.33   Long-Term Care Plan..........................................................4
        1.34   Long-Term Disability Plan....................................................5
        1.35   Material Features............................................................5
        1.36   Medical Benefits Abroad Plan.................................................5
        1.37   Nasdaq.......................................................................5
        1.38   Option.......................................................................5
        1.39   Participating Company........................................................5
        1.40   Plan.........................................................................5
        1.41   Post-Independence Date Period................................................5
</TABLE>

<PAGE>   3

<TABLE>
<S>                                                                                       <C>
        1.42   QDRO.........................................................................5
        1.43   QMCSO........................................................................6
        1.44   Restricted Stock.............................................................6
        1.45   Revenue......................................................................6
        1.46   Section 125 Plan.............................................................6
        1.47   Severance Plan...............................................................6
        1.48   Short-Term Disability Plan...................................................6
        1.49   Stock Plan...................................................................6
        1.50   Stock Purchase Plan..........................................................6
        1.51   Tality Claims................................................................6
        1.52   Tality Employee..............................................................6
        1.53   Tality Terminated Employee...................................................7
        1.54   Tality Transferred Employee..................................................7
        1.55   Unemployment Insurance Program...............................................7
        1.56   Workers' Compensation Plan...................................................7

ARTICLE II  GENERAL PRINCIPLES..............................................................8
        2.1    Assumption of Liabilities....................................................8
        2.2    Establishment of Tality Plans................................................8
        2.3    Tality and the Partnership Under No Obligation to Maintain Plans.............9
        2.4    Participation of Tality and the Partnership in Cadence Plans.................9
        2.5    Terms of Participation by Tality Transferred Employees in Tality Plans......10
        2.6    Dispute Resolution..........................................................11
        2.7    Foreign Plans...............................................................11

ARTICLE III  DEFINED CONTRIBUTION PLAN.....................................................11
        3.1    401(k) Plan Trust...........................................................11
        3.2    401(k) Plan: Assumption of Liabilities and Transfer of Assets...............11
        3.3    No Distribution to Tality Transferred Employees.............................11
        3.4    Certain Acquired Companies..................................................12

ARTICLE IV  NON-QUALIFIED PLAN.............................................................12

ARTICLE V  HEALTH AND WELFARE PLANS........................................................12
        5.1    Health Plans as of the Independence Date....................................12
        5.2    Health Plans from the Date Hereof through the Independence Date.............13
        5.3    Group Life & AD&D Plan......................................................13
        5.4    Sabbatical Plan.............................................................13
        5.5    Disability Plans............................................................14
        5.6    Business Travel Accident Insurance..........................................14
        5.7    Medical Benefits Abroad.....................................................14
        5.8    Long Term Care Plan.........................................................14
        5.9    Section 125 Plan............................................................14
        5.10   COBRA.......................................................................14
        5.11   Leave of Absence Plans and FMLA.............................................15
        5.12   Workers' Compensation Plan..................................................16
        5.13   Administrative Services.....................................................16
</TABLE>

                                       ii
<PAGE>   4

<TABLE>
<S>                                                                                       <C>
ARTICLE VI  EQUITY AND OTHER COMPENSATION..................................................16
        6.1    Bonus Plan..................................................................16
        6.2    Executive Bonus Plan........................................................17
        6.3    Cadence Options.............................................................17
        6.4    Stock Purchase Plan.........................................................17
        6.5    Administrative Services.....................................................17

ARTICLE VII  FRINGE AND OTHER BENEFITS.....................................................17
        7.1    Educational Assistance Program..............................................17
        7.2    Cafeteria and Related Subsidies.............................................18
        7.3    Employee Company Store......................................................18
        7.4    TimeOut Program.............................................................18
        7.5    Other Benefits..............................................................18
        7.6    Administrative Services.....................................................19

ARTICLE VIII  ADMINISTRATIVE PROVISIONS....................................................19
        8.2    Payment of Liabilities, Plan Expenses and Related Matters...................19
        8.3    Sharing of Participant Information..........................................19
        8.4    Reporting and Disclosure Communications to Participants.....................19
        8.5    Audits Regarding Vendor Contracts...........................................19
        8.6    Beneficiary Designation.....................................................20
        8.7    Requests for IRS and DOL Opinions...........................................20
        8.8    Fiduciary Matters...........................................................20
        8.9    Consent of Third Parties....................................................20
        8.10   Cadence Intranet............................................................20
        8.11   Tax Cooperation.............................................................21

ARTICLE IX  EMPLOYMENT-RELATED MATTERS.....................................................21
        9.1    Terms of Tality Employment..................................................21
        9.2    HR Data Support Systems.....................................................21
        9.3    Non-Solicitation of Employees...............................................21
        9.4    Employment of Employees with U.S. Work Visas................................21
        9.5    Confidentiality and Proprietary Information.................................22
        9.6    Personnel Records...........................................................22
        9.7    Unemployment Insurance Program..............................................22
        9.8    Non-Termination of Employment...............................................22
        9.9    Employment Litigation.......................................................22

ARTICLE X  MISCELLANEOUS...................................................................23
        10.1   Incorporation by Reference..................................................23
        10.2   Binding Effect; Assignment..................................................23
        10.3   Certain Definitions.........................................................23
        10.4   Conflicting Agreements......................................................23
</TABLE>

                                      iii
<PAGE>   5

                           EMPLOYEE MATTERS AGREEMENT

        THIS EMPLOYEE MATTERS AGREEMENT (this "Agreement") is entered into and
effective on _________, 2000, by and among Cadence Design Systems, Inc., a
Delaware corporation ("Cadence"), Cadence Holdings, Inc., a Delaware corporation
("Holdings"), Tality, LP, a Delaware limited partnership (the "Partnership"),
and Tality Corporation, a Delaware corporation ("Tality"). Capitalized terms
used herein and not otherwise defined elsewhere herein shall have the meanings
ascribed to them in Article I or in the Separation Agreement (as defined below).

                                    RECITALS

        WHEREAS, Holdings currently owns approximately 98% of the issued and
outstanding shares of the capital stock of Tality;

        WHEREAS, Tality is the sole general partner of, and owns both a general
and limited partnership interest in, the Partnership;

        WHEREAS, each of the Boards of Directors of Cadence, Tality and Holdings
determined that it would be appropriate and desirable for Cadence to transfer
(or cause to be transferred) to the Partnership, on behalf of Holdings, and for
the Partnership to receive and assume, directly or indirectly, as a contribution
from Holdings, certain assets and liabilities of Cadence and its Subsidiaries
associated with the Tality Business;

        WHEREAS, Cadence, Tality and Holdings are parties to that certain Master
Separation Agreement, dated as of July 14, 2000, as amended or restated (the
"Separation Agreement"), pursuant to which Cadence, Tality, Holdings and the
Partnership have agreed, subject to certain conditions, to the legal separation
of the Tality Business from Cadence's other businesses and to have the
Partnership and its Subsidiaries own and operate the entire Tality Business; and

        WHEREAS, all conditions to the Separation have been satisfied or waived,
and Cadence, Holdings, the Partnership and Tality desire to allocate among them
Assets, Liabilities and responsibilities with respect to certain employee
compensation, benefit plans, programs and arrangements and certain employment
matters.

                                    AGREEMENT

        NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:

<PAGE>   6

                                    ARTICLE I

                                   DEFINITIONS

        For purposes of this Agreement, the following capitalized terms shall
have the meanings assigned to them below:

        Section 1.1 "401(k) Plan" when immediately preceded by "Cadence," means
the Cadence Corporation 401(k) Plan, a defined contribution plan. When
immediately preceded by "Tality," "401(k) Plan" means the defined contribution
plan to be established by the Partnership pursuant to Section 2.2 and Article
III.

        Section 1.2 "AD&D Plan" when immediately preceded by "Cadence," means
the Cadence Accidental Death and Dismemberment Plan. When immediately preceded
by "Tality," "AD&D Plan" means the accidental death and dismemberment plan to be
established by the Partnership pursuant to Sections 2.2 and 5.3.

        Section 1.3 "Affiliate" means an entity that is under common control
with another entity under Section 414(b), (c), (m), or (o) of the Code.

        Section 1.4 "Assets" shall have the meaning set forth in the Assignment
Agreement.

        Section 1.5 "Bonus Plan" when immediately preceded by "Cadence," means
the Cadence Bonus Plans; provided, however, with respect to Tality Employees in
the Cadence Bonus Plans, that "Bonus Plan" means the bonus plan as established
and implemented with respect to the Tality Employees. When immediately preceded
by "Tality," "Bonus Plan" means the bonus plan to be established by the
Partnership pursuant to Sections 2.2 and 6.1.

        Section 1.6 "Business Travel Accident Insurance" when immediately
preceded by "Cadence," means the policy or policies covering Cadence business
travel accident insurance in the U.S. and to the extent applicable, outside the
U.S. When immediately preceded by "Tality," "Business Travel Accident Insurance"
means the policy or policies covering the business travel accident insurance to
be established by the Partnership pursuant to Sections 2.2 and 5.6.

        Section 1.7 "Cadence Employee" means an individual who, on the
Independence Date, is: (a) either actively employed by, or on leave of absence
from, the Cadence Group; (b) a Cadence Terminated Employee; or (c) an employee
or group of employees designated as Cadence Employees by Cadence and the
Partnership, by mutual agreement.

        Section 1.8 "Cadence Terminated Employee" means any individual who is a
former employee of the Cadence Group and who, on the Independence Date, is not a
Tality Transferred Employee.

        Section 1.9 "Class A Common Stock" means the Class A Common Stock, par
value $0.001 per share, of Tality.

        Section 1.10 "COBRA" means the continuation coverage requirements for
"group health plans" under Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as

                                       2
<PAGE>   7

amended from time to time, and as codified in Code Section 4980B and ERISA
Sections 601 through 608, inclusive.

        Section 1.11 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.

        Section 1.12 "Deferred Compensation Plan" when immediately preceded by
"Cadence," means the Cadence Deferred Compensation Plan.

        Section 1.13 "Disability Plan" when immediately preceded by "Cadence,"
means the Cadence Disability Plan which consists of the Cadence Short-Term
Disability Plan and the Cadence Long-Term Disability Plan. When immediately
preceded by "Tality," "Disability Plan" means the Tality Short-Term Disability
Plan and the Tality Long-Term Disability Plan, to be established by the
Partnership pursuant to Sections 2.2 and 5.5.

        Section 1.14 "DOL" means the United States Department of Labor.

        Section 1.15 "Educational Assistance Program" when immediately preceded
by "Cadence," means the Cadence Educational Assistance Program. When immediately
preceded by "Tality," "Educational Assistance Program" means the educational
assistance program to be established by the Partnership pursuant to Section 7.1.

        Section 1.16 "Employee Assistance Program" when immediately preceded by
"Cadence," means the Cadence Employee Assistance Program. When immediately
preceded by "Tality," "Employee Assistance Program" means the employee
assistance program to be established by Tality pursuant to Section 2.2.

        Section 1.17 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time.

        Section 1.18 "Executive Bonus Plan" when immediately preceded by
"Cadence," means the Cadence Executive Bonus Program. When immediately preceded
by "Tality," "Executive Bonus Plan" means the executive bonus plan to be
established by Tality pursuant to Section 2.2.

        Section 1.19 "FMLA" means the Family and Medical Leave Act of 1993, as
amended from time to time.

        Section 1.20 "Food Programs" is defined in Section 7.4.

        Section 1.21 "Foreign Plan" when immediately preceded by "Cadence,"
means a Plan maintained by the Cadence Group for the benefit of its employees
outside the U.S. When immediately preceded by "Tality," "Foreign Plan" means a
Plan to be established by the Partnership for the benefit of its employees
outside the U.S.

        Section 1.22 "Fringe Benefit Plans" when immediately preceded by
"Cadence," means the Cadence employee assistance program, educational assistance
program and other fringe benefit plans, programs and arrangements, sponsored and
maintained by Cadence (as set forth in Article VII and Schedule 7.5). When
immediately preceded by "Tality," "Fringe Benefit Plans"

                                       3
<PAGE>   8

means the fringe benefit plans, programs and arrangements to be established by
the Partnership pursuant to Section 2.2 and Article VII.

        Section 1.23 "Group Life Plan" when immediately preceded by "Cadence,"
means the Cadence Group Life Plan. When immediately preceded by "Tality," "Group
Life Plan" means the group life plan to be established by the Partnership
pursuant to Sections 2.2 and 5.3.

        Section 1.24 "HCFA" means the United States Health Care Financing
Administration.

        Section 1.25 "Health and Welfare Plans" when immediately preceded by
"Cadence," means the Cadence Health Plans, the Cadence Section 125 Plan, and the
health and welfare plans listed on Schedule 5.2(a) established and maintained by
Cadence for the benefit of eligible employees of the Cadence Group, and such
other welfare plans or programs as may apply to such employees as of the
Independence Date. When immediately preceded by "Tality," "Health and Welfare
Plans" means the Tality Health Plans, the Tality Section 125 Plan, and the
health and welfare plans to be established by the Partnership pursuant to
Section 2.2, Article V, and Schedule 5.1(a).

        Section 1.26 "Health Plans" when immediately preceded by "Cadence,"
means the medical, HMO, vision and dental plans and any similar or successor
Plans. When immediately preceded by "Tality," "Health Plans" means the medical,
HMO, vision and dental plans to be established by the Partnership pursuant to
Section 2.2 and Article V.

        Section 1.27 "HMO" means a health maintenance organization that provides
benefits under the Cadence Health Plans or the Tality Health Plans.

        Section 1.28 "Independence" means the Partnership is no longer an
Affiliate of Cadence.

        Section 1.29 "Independence Date" means the date, if ever, Independence
occurs.

        Section 1.30 "IRS" means the United States Internal Revenue Service.

        Section 1.31 "Leave of Absence Plans" when immediately preceded by
"Cadence," means the personal, medical/disability, military and FMLA leave
offered from time to time under the personnel policies and practices of Cadence.
When immediately preceded by "Tality," "Leave of Absence Plans" means the leave
of absence programs to be established by the Partnership pursuant to Sections
2.2 and 5.11.

        Section 1.32 "Liabilities" shall have the meaning set forth in the
Assignment Agreement.

        Section 1.33 "Long-Term Care Plan" when immediately preceded by
"Cadence," means the Cadence Long-Term Care Plan. When immediately preceded by
"Tality," "Long-Term Care Plan" means the long-term care plan, if any, that may
be established by the Partnership pursuant to Sections 2.2 and 5.8.

                                       4
<PAGE>   9

        Section 1.34 "Long-Term Disability Plan" when immediately preceded by
"Cadence," means the Cadence Long-Term Disability Plan. When immediately
preceded by "Tality," Long-Term Disability Plan" means the long-term disability
plan to be established by the Partnership pursuant to Sections 2.2 and 5.5(b).

        Section 1.35 "Material Features" means such features of a Plan that when
taken in the aggregate could reasonably be expected to be of material importance
to the sponsoring employer or the participants (or their dependents or
beneficiaries) of that Plan, which could include, depending on the type and
purpose of the particular Plan, the class or classes of employees eligible to
participate in such Plan, the nature, type, form, source and level of benefits
provided under such Plan, the amount or level of contributions, if any, required
to be made by participants (or their dependents or beneficiaries) to such Plan,
and the costs and expenses incurred by the sponsoring employer or Participating
Companies for implementing and/or maintaining such Plan.

        Section 1.36 "Medical Benefits Abroad Plan" when immediately preceded by
"Cadence," means the policy or policies covering business travel medical
benefits outside the employee's country of residence. When immediately preceded
by "Tality," "Medical Benefits Abroad Plan" means the business travel medical
benefits plan that may be established by the Partnership pursuant to Sections
2.2 and 5.7.

        Section 1.37 "Nasdaq" means the Nasdaq National Market.

        Section 1.38 "Option" when immediately preceded by "Cadence," means an
option to purchase Cadence common stock pursuant to a Stock Plan. When
immediately preceded by "Tality," "Option" means an option to purchase the Class
A Common Stock pursuant to a Stock Plan.

        Section 1.39 "Participating Company" means: (a) Cadence; (b) any Person
(other than an individual) that Cadence has approved for participation in, has
accepted participation in, and which is participating in, a Plan sponsored by
Cadence; and (c) any Person (other than an individual) which, by the terms of
such Plan, participates in such Plan or any employees of which, by the terms of
such Plan, participate in or are covered by such Plan.

        Section 1.40 "Plan" means any plan, policy, program, payroll practice,
arrangement, contract, trust, insurance policy or any agreement or funding
vehicle providing compensation or benefits to employees, former employees,
directors or consultants of Cadence, Tality or the Partnership.

        Section 1.41 "Post-Independence Period" means, for each designated Plan,
the period beginning as of the Independence Date and ending on the date that no
member of the Tality Group is using Cadence benefit delivery and administrative
services with respect to that Plan.

        Section 1.42 "QDRO" means a domestic relations order which qualifies
under Code Section 414(p) and ERISA Section 206(d) and which creates or
recognizes an alternate payee's right to, or assigns to an alternate payee, all
or a portion of the benefits payable to a participant under the Cadence 401(k)
Plan.

                                       5
<PAGE>   10

        Section 1.43 "QMCSO" means a medical child support order which qualifies
under ERISA Section 609(a) and which creates or recognizes the existence of an
alternate recipient's right to, or assigns to an alternate recipient the right
to, receive benefits for which a participant or beneficiary is eligible under
any of the Health Plans.

        Section 1.44 "Restricted Stock" when immediately preceded by "Cadence,"
means shares of Cadence common stock that are subject to transfer restrictions
or to employment and/or performance vesting conditions, pursuant to a Cadence
Stock Plan. When immediately preceded by "Tality," "Restricted Stock" means
shares of Class A Common Stock that are subject to transfer restrictions or to
employment and/or performance vesting conditions, pursuant to a Tality Stock
Plan.

        Section 1.45 "Revenue" means net revenue as determined in accordance
with U.S. generally accepted accounting principles.

        Section 1.46 "Section 125 Plan" when immediately preceded by "Cadence,"
means a plan or program providing flexible or other benefits and which relies on
Code Section 125 for its tax favored treatment. When immediately preceded by
"Tality," "Section 125 Plan" means a plan or program providing flexible or other
benefits that may be established by the Partnership pursuant to Sections 2.2 and
5.1.

        Section 1.47 "Severance Plan" means the Cadence Severance Plan in effect
from time to time.

        Section 1.48 "Short-Term Disability Plan" when immediately preceded by
"Cadence," means the Cadence Short-Term Disability Plan. When immediately
preceded by "Tality," Short-Term Disability Plan" means the short-term
disability plan to be established by the Partnership pursuant to Sections 2.2
and 5.5(a).

        Section 1.49 "Stock Plan" when immediately preceded by "Cadence," means
any plan, program, or arrangement, other than the Stock Purchase Plan, pursuant
to which employees and other service providers hold Options, Cadence Restricted
Stock, or other Cadence equity incentives. When immediately preceded by
"Tality," "Stock Plan" means substantially similar plans, programs, or
arrangements to be established by Tality or the Partnership pursuant to Section
2.2 and Article VI.

        Section 1.50 "Stock Purchase Plan" when immediately preceded by
"Cadence," means the Cadence Employee Stock Purchase Plan. When immediately
preceded by "Tality," "Stock Purchase Plan" means the employee stock purchase
plan to be established by Tality pursuant to Sections 2.2 and 6.4.

        Section 1.51 "Tality Claims" is defined in Section 5.12(a).

        Section 1.52 "Tality Employee" means any individual who is: (a) either
actively employed by, or on leave of absence from, a member of the Tality Group
on the date hereof; (b) either actively employed by, or on leave of absence
from, a member of the Cadence Group as either part of a work group or
organization, or common support function that, at any time after the date hereof
and before the Independence Date, moves to the employ of a member of the

                                       6
<PAGE>   11

Tality Group from the employ of a member of the Cadence Group; (c) a Tality
Terminated Employee; (d) employed by the Tality Group; (e) any other employee or
group of employees designated as Tality Employees (as of the specified date) by
the parties by mutual agreement; or (f) a QDRO alternate payee or COBRA
beneficiary (as such term is defined under COBRA), in each case, of an employee
or former employee, described in clauses (a) through (e), inclusive, with
respect to that employee's or former employee's benefit under the applicable
Plan(s) (unless specified otherwise in this Agreement, such an alternate payee,
alternate recipient, beneficiary, covered dependent, or qualified beneficiary
shall not otherwise be considered a Tality Employee with respect to any benefits
he or she accrues or accrued under any applicable Plan(s), unless he or she is a
Tality Employee by virtue of clauses (a) through (e), inclusive).

        Section 1.53 "Tality Terminated Employee" means any individual who is:
(a) a former employee of any member of the Cadence Group who was terminated from
the Tality Business on or before the date hereof; or (b) a former employee of
any member of the Tality Group. Notwithstanding the foregoing, "Tality
Terminated Employee" shall not, unless otherwise expressly provided to the
contrary in this Agreement, include: an individual who is a Cadence Employee at
the Independence Date; or an individual who is otherwise a Tality Terminated
Employee, but who is subsequently employed by any member of the Cadence Group
prior to the Independence Date.

        Section 1.54 "Tality Transferred Employee" means any individual who, as
of the Independence Date, is: (a) either actively employed by, or on a leave of
absence from, any member of the Tality Group; (b) a Tality Terminated Employee;
(c) an employee or group of employees designated by Cadence and the Partnership,
by mutual agreement, as Tality Transferred Employees; or (d) a QDRO alternate
payee or COBRA beneficiary (as such term is defined under COBRA), in each case,
of an employee or former employee, described in clauses (a) through (c),
inclusive, with respect to that employee's or former employee's benefit under
the applicable Plan(s) (unless specified otherwise in this Agreement, such an
alternate payee, alternate recipient, beneficiary, covered dependent, or
qualified beneficiary shall not otherwise be considered a Tality Transferred
Employee with respect to any benefits he or she accrues or accrued under any
applicable Plan(s), unless he or she is a Tality Transferred Employee by virtue
of clauses (a) through (c), inclusive). An employee may be a Tality Transferred
Employee pursuant to this Section regardless of whether such employee is, as of
the Independence Date, alive, actively employed, on a temporary leave of absence
from active employment, on layoff, terminated from employment, retired or on any
other type of employment or post-employment status relative to a Cadence Plan,
and regardless of whether, as of the Independence Date, such employee is then
receiving any coverage under or benefits from a Cadence Plan.

        Section 1.55 "Unemployment Insurance Program" when immediately preceded
by "Cadence," means the group unemployment insurance policies purchased by
Cadence from time to time. When immediately preceded by "Tality," "Unemployment
Insurance Program" means any group unemployment insurance program to be
established by the Partnership pursuant to Section 9.7.

        Section 1.56 "Workers' Compensation Plan" when immediately preceded by
"Cadence" means the Cadence Workers' Compensation Plan, comprised of the various
arrangements established by a member of the Cadence Group to comply with the
workers' compensation

                                       7
<PAGE>   12

requirements of the states in which the Cadence Group conducts business. When
immediately preceded by "Tality," "Workers' Compensation Plan" means the
workers' compensation program to be established by the Partnership pursuant to
Section 5.12.

                                   ARTICLE II

                               GENERAL PRINCIPLES

        Section 2.1 Assumption of Liabilities. Except as specified otherwise in
this Agreement or as mutually agreed upon by Cadence, the Partnership and Tality
from time to time, effective as of the date hereof, the Partnership hereby
assumes and agrees to pay, perform, fulfill and discharge, in accordance with
their respective terms, all of the following: (a) all Liabilities of, or
relating to, Tality Employees or Tality Transferred Employees, in each case
relating to, arising out of, or resulting from future, present or former
employment with the Tality Business (including Liabilities relating to, arising
out of, or resulting from Cadence Plans and Tality Plans); (b) all Liabilities
relating to, arising out of, or resulting from any other actual or alleged
employment relationship with the Tality Group; and (c) all other Liabilities
relating to, arising out of, or resulting from obligations, liabilities and
responsibilities expressly assumed or retained by any member of the Tality Group
or any Tality Plan pursuant to this Agreement. Except as specified otherwise in
this Agreement or as otherwise mutually agreed upon by Cadence, the Partnership
and Tality from time to time, Cadence shall transfer to the Partnership amounts
equal to trust assets, insurance reserves, and other related assets as
consistent with the applicable Plan transition that relates to, arises out of,
or results from the Partnership's pro rata interest in each Cadence Plan.

        Section 2.2 Establishment of Tality Plans.

               (a) Health and Welfare Plans. Except as specified otherwise in
this Agreement, effective as of the Independence Date (or such other date(s) as
Cadence, the Partnership and Tality may mutually agree), the Partnership shall
adopt the Tality Health and Welfare Plans. Except as otherwise specified in this
Agreement, to the extent administratively and financially practicable, each of
the foregoing Tality Plans as in effect as of the Independence Date (or such
other date(s) as Cadence, the Partnership and Tality may mutually agree), except
with respect to the employer matching feature, shall be comparable in the
aggregate in all Material Features to the corresponding Cadence Plan as in
effect as of such agreed upon date.

               (b) 401(k) and Fringe Benefit Plans. Except as specified
otherwise in this Agreement, effective as of the Independence Date (or such
other date(s) as Cadence, the Partnership and Tality may mutually agree), the
Partnership shall adopt the Tality 401(k) Plan and the Tality Fringe Benefit
Plans. Except as otherwise specified in this Agreement, to the extent
administratively and financially practicable, each of the foregoing Tality Plans
as in effect as of the Independence Date (or such other date(s) as Cadence, the
Partnership and Tality may mutually agree), except with respect to the employer
matching feature, shall be comparable in the aggregate in all Material Features
to the corresponding Cadence Plan as in effect as of such agreed upon date.

                                       8
<PAGE>   13

               (c) Equity and Other Compensation. Except as specified otherwise
in this Agreement, effective as of the Independence Date (or such other date(s)
as Cadence, the Partnership and Tality may mutually agree), the Partnership
shall adopt the Tality Executive Bonus Plan and the Tality Bonus Plan. Effective
on or before the IPO (or such other date as Cadence, the Partnership and Tality
may mutually agree), Tality shall adopt the Tality Stock Purchase Plan. Each of
the foregoing Tality Plans as in effect as of the IPO (or such other date(s) as
Cadence, the Partnership and Tality may mutually agree), shall be comparable in
the aggregate in all Material Features to the corresponding Cadence Plan as in
effect on the IPO; provided, however, that the Tality Stock Purchase Plan shall
not be qualified under Code Section 423.

               (d) Other Plans. Except as otherwise specified in this Agreement,
effective as of the date hereof (or such other date(s) as Cadence, the
Partnership and Tality may mutually agree), Tality shall adopt certain Tality
Plans that are specifically tied to its payroll practices, including a
Short-Term Disability Plan. The Partnership shall also adopt a Section 125 Plan,
effective as of not later than the Independence Date.

        Section 2.3 Tality and the Partnership Under No Obligation to Maintain
Plans. Except as specified otherwise in this Agreement, nothing in this
Agreement shall preclude Tality or the Partnership, at any time after the
Independence Date, from amending, merging, modifying, terminating, eliminating,
reducing, or otherwise altering in any respect any Tality Plan, any benefit
under any Tality Plan or any trust, insurance policy or funding vehicle related
to any Tality Plans, or any employment or other service arrangement with Tality
Employees or vendors (to the extent permitted by Applicable Law).

        Section 2.4 Participation of Tality and the Partnership in Cadence
Plans.

               (a) Participation in Cadence Plans. Except as specified otherwise
in this Agreement or as Cadence, the Partnership and Tality may mutually agree,
Tality and the Partnership shall, until the Independence Date, each continue to
be a Participating Company in the Cadence Plans to the extent that they have not
established a corresponding Plan. Effective as of any date on or after the date
hereof and before the Independence Date (or such other date(s) as Cadence, the
Partnership and Tality may mutually agree), any member of the Tality Group not
described in the preceding sentence may, at its request and with the consent of
Cadence and Tality, become a Participating Company in any or all of the Cadence
Plans, to the extent that Tality or such Tality Group member has not yet
established a corresponding Plan. Notwithstanding the foregoing, effective
January 1, 2001 members of the Tality Group shall not participate in the
employer matching feature of the Cadence 401(k) Plan.

               (b) Cadence's General Obligations as Plan Sponsor. To the extent
that Tality or the Partnership is a Participating Company in any Cadence Plan,
Cadence shall continue to administer, or cause to be administered, in accordance
with its terms and Applicable Law, such Cadence Plan, and shall have the sole
and absolute discretion and authority to interpret the Cadence Plan, as set
forth therein. Cadence shall not amend the Material Features of any Cadence Plan
in which any member of the Tality Group is a Participating Company, except to
the extent: (i) such amendment would affect Cadence employees generally; (ii)
such amendment would not materially affect any coverage or benefits of Tality
Employees or Tality Transferred

                                       9
<PAGE>   14

Employees under such Plan in a manner different than the effect upon Cadence
employees generally; (iii) Tality shall consent to such amendment and such
consent shall not be unreasonably withheld or delayed; or (iv) such amendment is
necessary or appropriate to comply with Applicable Law or the provisions of this
Agreement.

               (c) General Obligations of Tality and the Partnership as
Participating Companies. Each of Tality and the Partnership shall (and shall
cause each other member of the Tality Group to) perform, with respect to its
participation in the Cadence Plans, the duties of a Participating Company as set
forth in each such Plan or any procedures adopted pursuant thereto, including:
(i) assistance in the administration of claims, to the extent requested by the
claims administrator of the applicable Cadence Plan; (ii) full cooperation with
Cadence Plan auditors, benefit personnel and benefit vendors; (iii) preservation
of the confidentiality of all financial arrangements Cadence has or may have
with any vendors, claims administrators, trustees, service providers or any
other entity or individual with whom Cadence has entered into an agreement
relating to the Cadence Plans; and (iv) preservation of the confidentiality of
participant information (including health information in relation to FMLA
leaves) to the extent not specified otherwise in this Agreement.

               (d) Termination of Participating Company Status. Except as
otherwise may be mutually agreed by Cadence, the Partnership and Tality,
effective as of the Independence Date or, if earlier, such date as Tality or the
Partnership establishes a corresponding Plan (as specified in Section 2.2 or
otherwise in this Agreement), Tality and the Partnership shall each
automatically cease to be a Participating Company in the corresponding Cadence
Plan.

        Section 2.5 Terms of Participation by Tality Transferred Employees in
Tality Plans.

               (a) Non-Duplication of Benefits. Except as specified otherwise in
this Agreement, as of the Independence Date, or other later date that applies to
the particular Tality Plan established thereafter, the Tality Plans shall be,
with respect to Tality Transferred Employees, in all respects the successors in
interest to, and shall not provide benefits that duplicate benefits provided by,
the corresponding Cadence Plans. Cadence and the Partnership shall agree on
methods and procedures, including amending the respective Plan documents, to
prevent Tality Employees from receiving duplicate benefits from the Cadence
Plans and the Tality Plans.

               (b) Service Credit. Except as specified otherwise in this
Agreement, with respect to Tality Transferred Employees, each Tality Plan shall
provide that all service, all compensation and all other benefit-affecting
determinations that, as of the Independence Date, were recognized under the
corresponding Cadence Plan shall, as of the Independence Date, receive full
recognition and credit and be taken into account under such Tality Plan to the
same extent as if such items occurred under such Tality Plan, except to the
extent that duplication of benefits would result. The service crediting
provisions shall be subject to any respectively applicable "service bridging,"
"break in service," "employment date," or "eligibility date" rules under the
Tality Plans and the Cadence Plans.

               (c) Assumption of Liabilities. Except as specified otherwise in
this Agreement (including the exception applicable to self-insured Health
Plans), the provisions of this

                                       10
<PAGE>   15

Agreement for the transfer of Assets relating to Cadence Plans to the
Partnership and/or the appropriate Tality Plans are based upon the understanding
of the parties that the Partnership and/or the appropriate Tality Plan shall
assume all Liabilities of the corresponding Cadence Plan to or relating to
Tality Transferred Employees, as provided for herein. If any such Liabilities
are not effectively assumed by the Partnership and/or the appropriate Tality
Plan, then the amount of transferred Assets shall be recomputed accordingly,
taking into account the retention of such Liabilities by such Cadence Plan, and
Assets shall be transferred from the Partnership and/or the appropriate Tality
Plan to Cadence and/or the appropriate Cadence Plan so as to place the
Partnership and/or the appropriate Tality Plan in the position it would have
been in had the initial Asset transfer been made in accordance with such
recomputed amount of assets.

        Section 2.6 Dispute Resolution. To the extent disputes arise between
Cadence and any member of the Tality Group regarding management of the Plans,
such disputes shall be dealt with in accordance with Section 4.4 of the
Separation Agreement.

        Section 2.7 Foreign Plans. Each of Cadence and the Partnership intends
that matters, issues, or Liabilities relating to, arising out of, or resulting
from Foreign Plans and non-U.S.-related employment matters be handled in a
manner that is consistent with comparable U.S. matters, issues, or Liabilities
as reflected in this Agreement (to the extent permitted by Applicable Law or as
otherwise specified in the applicable Section or Schedule).

                                   ARTICLE III

                            DEFINED CONTRIBUTION PLAN

        Section 3.1 401(k) Plan Trust. Effective as of the Independence Date (or
such other date as Cadence, the Partnership and Tality may mutually agree), the
Partnership shall establish, or cause to be established, a separate plan, which
is intended to be tax-qualified under Code Section 401(a), and a separate trust
to be exempt from taxation under Code Section 501(a)(1), and to form the Tality
401(k) Plan.

        Section 3.2 401(k) Plan: Assumption of Liabilities and Transfer of
Assets. Effective as of the Independence Date (or such other date as Cadence,
the Partnership and Tality may mutually agree): (i) the Tality 401(k) Plan shall
assume and be solely responsible for all Liabilities relating to, arising out
of, or resulting from Tality Transferred Employees under the Cadence 401(k)
Plan; and (ii) Cadence shall cause the accounts of the Tality Transferred
Employees under the Cadence 401(k) Plan that are held by its related trust to be
transferred to the Tality 401(k) Plan and its related trust, and Tality shall
cause such transferred accounts to be accepted by such Plan and its related
trust. The transferred accounts shall include unpaid participant loans, and such
transfer shall be consistent with Code Section 414(l).

        Section 3.3 No Distribution to Tality Transferred Employees. The Cadence
401(k) Plan and the Tality 401(k) Plan shall provide that no distribution of
account balances shall be made to any Tality Transferred Employee on account of
the Tality Group ceasing to be an Affiliate of the Cadence Group as of the
Independence Date.

                                       11
<PAGE>   16

        Section 3.4 Certain Acquired Companies. At this time the assets of the
benefit plans of one company acquired by Cadence await final disposition. While
the assets of such plans are frozen, bridge loans have been issued to some
employees with the agreement that they take out a loan and repay Cadence. Any
such employee who is a Tality Employee shall remain obligated to repay Cadence
pursuant to the terms of such loan.

                                   ARTICLE IV

                               NON-QUALIFIED PLAN

        After the date hereof, Tality Employees shall no longer be eligible to
contribute to or receive contributions under the Cadence 1994 Deferred
Compensation Plan and the 1996 Deferred Compensation Venture Investment Plan;
provided, however, that amounts credited to the accounts of Tality Employees
shall continue to be credited with gains and losses in accordance with the terms
of such plans until such accounts are distributed. Neither the Separation nor
Independence of Tality or the Partnership shall of itself constitute a
termination of employment or otherwise constitute an event of distribution under
either plan. Cadence shall amend the plans as necessary to achieve the effects
and results contemplated by this Article IV.

                                    ARTICLE V

                            HEALTH AND WELFARE PLANS

        Section 5.1 Health Plans as of the Independence Date.

               (a) Tality Health Plans. As of the Independence Date (or such
other date(s) as Cadence, the Partnership and Tality may mutually agree), the
Partnership shall have established the Tality Health Plans listed on Schedule
5.1(a) and, correspondingly, the Partnership shall cease to be a Participating
Company in the Cadence Health Plans. Tality shall be solely responsible for the
administration of the Tality Health Plans, including the payment of all
employer-related costs in establishing and maintaining the Tality Health Plans,
and for the collection and remittance of employee premiums with any and all
costs, expenses and liabilities for the performance of such services subject to
Section 8.1.

               (b) Continuance of Elections, Co-Payments and Maximum Benefits.

                      (i) As of the Independence Date and for the remainder of
               the plan year in which the Independence Date occurs (or such
               other period as Cadence, the Partnership and Tality may mutually
               agree), the Partnership shall use its best efforts to cause the
               Tality Health Plans to recognize and maintain all coverage and
               contribution elections made by Tality Employees and Tality
               Transferred Employees under the Cadence Health Plans and apply
               such elections under the Tality Health Plans for the remainder of
               the period or periods for which such elections are by their terms
               applicable. The transfer or other movement of employment between
               Cadence to the Partnership at any time upon or before the
               Independence Date shall neither constitute nor be treated as a
               "status change" or

                                       12
<PAGE>   17

               termination of employment under the Cadence Health Plans or the
               Tality Health Plans.

                      (ii) On and after the Independence Date, the Partnership
               shall cause the Tality Health Plans to recognize and give credit
               for (A) all amounts applied to deductibles, out-of-pocket
               maximums, co-payments and other applicable benefit coverage
               limits with respect to which such expenses have been incurred by
               Tality Transferred Employees under the Cadence Health Plans for
               the remainder of the calendar year in which the Independence Date
               occurs, and (B) all benefits paid to Tality Transferred Employees
               under the Cadence Health Plans for purposes of determining when
               such persons have reached their lifetime maximum benefits under
               the Tality Health Plans.

               (c) HCFA. As of the date hereof (or such other date as Cadence,
the Partnership and Tality may mutually agree), the Partnership shall assume all
Liabilities relating to, arising out of, or resulting from claims, if any, under
the HCFA data match reports that relate to Tality Transferred Employees.

        Section 5.2 Health Plans from the Date Hereof through the Independence
Date. Except as otherwise agreed by Cadence and the Partnership, for the period
beginning with the date hereof and ending on the Independence Date (or such
other period as Cadence, the Partnership and Tality may mutually agree), the
Partnership shall be a Participating Company in the Cadence Health Plans listed
on Schedule 5.2. Cadence shall administer claims incurred under the Cadence
Health Plans by Tality Employees before the Independence Date but only to the
extent that the Partnership has not, before the Independence Date, established
and assumed administrative responsibility for a corresponding Health Plan. Any
determination made or settlements entered into by Cadence with respect to such
claims shall be final and binding. Cadence shall retain administrative
("run-out") Liability and all related obligations and responsibilities for all
claims incurred by Tality Transferred Employees before the Independence Date (or
such other date(s) as Cadence, the Partnership and Tality may mutually agree),
including any claims that were administered by Cadence as of, on, or after the
Independence Date (or such other date(s) as Cadence, the Partnership and Tality
may mutually agree). Except as set forth in the preceding sentence, any and all
costs and expenses associated with the Partnership's participation in the
Cadence Health Plans shall be subject to Section 8.1.

        Section 5.3 Group Life & AD&D Plan. The Partnership shall, until the
Independence Date, continue to be a Participating Company in the Cadence Group
Life Plan with any and all costs and expenses associated with its participation
in the Cadence Group Life Plan from and after the date hereof subject to Section
8.1. The Partnership shall cease to be a Participating Company in the Cadence
Group Life Plan coincident with the Partnership's establishment of the Tality
Group Life Plan (or, if none, the Partnership's written notice to Cadence of its
withdrawal as a Participating Company in the Cadence Group Life Plan).

        Section 5.4 Sabbatical Plan. The Partnership shall agree to recognize
any sabbaticals grandfathered by Cadence at the time of the Orcad-Cadence merger
for former Orcad employees that become Tality Transferred Employees.

                                       13
<PAGE>   18

        Section 5.5 Disability Plans.

               (a) Short-Term Disability Plan. As of the date hereof, the
Partnership shall revert to the California state disability insurance plan and
shall supplement state benefits with a self-insured "top-up" plan. Cadence shall
administer Tality's Short-Term Disability Plans through the earlier to occur of
the Independence Date or the establishment of a separate plan by the Partnership
with any and all costs and expenses associated with such administration from and
after the date hereof subject to Section 8.1.

               (b) Long-Term Disability Plan. The Partnership shall, until the
Independence Date, continue to be a Participating Company in the Cadence Long
Term Disability Plan with any and all costs and expenses associated with its
participation in the Cadence Long Term Disability Plan from and after the date
hereof subject to Section 8.1.

        Section 5.6 Business Travel Accident Insurance. The Partnership shall,
until the Independence Date, continue to be a Participating Company in the
Cadence Business Travel Accident Plan with any and all costs and expenses
associated with its participation in the Cadence Business Travel Accident Plan
from and after the date hereof subject to Section 8.1.

        Section 5.7 Medical Benefits Abroad. The Partnership shall, until the
Independence Date, continue to be a Participating Company in the Cadence Medical
Benefits Abroad Plan with any and all costs and expenses associated with its
participation in the Cadence Medical Benefits Abroad Plan from and after the
date hereof subject to Section 8.1.

        Section 5.8 Long-Term Care Plan. The Partnership shall, until the
Independence Date, continue to be a Participating Company in the Cadence Long
Term Care Plan with any and all costs and expenses associated with its
participation in the Cadence Long Term Care Plan from and after the date hereof
subject to Section 8.1. The Tality Transferred Employees participating in the
Cadence Long-Term Care Plan shall have the rights to take their existing
benefits with them under such Cadence Long-Term Care Plan (a "portable benefit")
at the time their rights to participation would otherwise terminate.

        Section 5.9 Section 125 Plan. The Partnership shall remain a
Participating Company in the Cadence Section 125 Plan. The existing elections
for Tality Employees participating in the Cadence Section 125 Plan and for
newly-eligible Tality Employees who elect to participate in the Cadence 125 Plan
shall remain in effect through December 31, 2000. Tality employees may continue
to participate in the Cadence Section 125 Plan through December 31, 2001 or the
Independence Date if prior to January 1, 2002. Cadence shall administer the
Cadence Section 125 Plan for Tality Employees until December 31, 2001 or, if
earlier, the Independence Date with any and all costs and expenses attributable
to Tality Employees subject to Section 8.1.

        Section 5.10 COBRA. Cadence shall be responsible through the
Independence Date (or such other date as Cadence, the Partnership and Tality may
mutually agree), for compliance with the health care continuation coverage
requirements of COBRA with respect to Tality Transferred Employees and qualified
beneficiaries (as such term is defined under COBRA). The Partnership shall be
responsible for providing Cadence with all necessary employee change notices and
related information for covered dependents, spouses, qualified beneficiaries (as
such term is

                                       14
<PAGE>   19

defined under COBRA), and alternate recipients pursuant to QMCSO, in accordance
with applicable Cadence COBRA policies and procedures. As soon as
administratively practicable after the Independence Date (or such other date as
Cadence, the Partnership and Tality may mutually agree), Cadence shall provide
the Partnership (through hard copy, electronic format, or such other mechanism
as is appropriate under the circumstances), with a list of all qualified
beneficiaries (as such term is defined under COBRA) that relate to the Tality
Group and the relevant information pertaining to their coverage elections and
remaining COBRA time periods. Effective as of the Independence Date (or such
other date as Cadence, the Partnership and Tality may mutually agree), the
Partnership shall be solely responsible for compliance with the health care
continuation coverage requirements of COBRA and the Tality Health and Welfare
Plans for Tality Transferred Employees and their qualified beneficiaries (as
such term is defined under COBRA), including those that became COBRA
beneficiaries after the date hereof. Cadence shall be responsible for the
individuals who became COBRA beneficiaries before the date hereof.

        Section 5.11 Leave of Absence Plans and FMLA.

               (a) Allocation of Responsibilities After Date Hereof. Effective
as of the date hereof (or such other date as Cadence, the Partnership and Tality
may mutually agree): (i) Tality shall adopt Leave of Absence Plans which shall
be comparable in the aggregate in all Material Features to the Cadence Leave of
Absence Plans as in effect on the date hereof (or such other date as Cadence,
the Partnership and Tality may mutually agree); (ii) the Partnership shall honor
all terms and conditions of leaves of absence which have been granted to any
Tality Employee under a Cadence Leave of Absence Plan or FMLA before the date
hereof by Cadence, including such leaves that are to commence after the date
hereof (or such other date as Cadence, the Partnership and Tality may mutually
agree); and (iii) the Partnership shall recognize all periods of service of
Tality Employees and Tality Transferred Employees with the Cadence Group, as
applicable, to the extent such service is recognized by the Cadence Group for
the purpose of eligibility for leave entitlement under the Cadence Leave of
Absence Plans and FMLA; provided, however, that no duplication of benefits
shall, to the extent permitted by law, be required by the foregoing.

               (b) Administration. Through the Independence Date (or such other
such period as Cadence, the Partnership and Tality may mutually agree), Cadence
shall administer, or cause to be administered, the Tality Leave of Absence Plans
in such manner as Cadence, the Partnership and Tality may mutually agree with
any and all costs and expenses associated with such administration subject to
Section 8.1.

               (c) Disclosure. Before the Independence Date (or such other date
as Cadence, the Partnership and Tality may mutually agree), Cadence shall
provide to the Partnership copies of all records pertaining to the Cadence Leave
of Absence Plans and FMLA with respect to all Tality Employees and Tality
Transferred Employees to the extent such records have not been previously
provided.

                                       15
<PAGE>   20

        Section 5.12 Workers' Compensation Plan.

               (a) Assumption of Cadence and Tality Workers' Compensation Plan
Liabilities by the Partnership. Effective as of the date hereof, the Partnership
shall assume and be solely responsible for all Liabilities relating to, arising
out of, or resulting from their claims by Tality Employees and Tality
Transferred Employees employment with the Tality Business ("Tality Claims")
whether incurred before or after the date hereof.

               (b) Participation in the Cadence Workers' Compensation Plan. The
Partnership shall, until the Independence Date (or such earlier date as Cadence,
the Partnership and Tality may mutually agree), continue to be a Participating
Company in the Cadence Workers' Compensation Plan. Cadence shall continue to
administer, or cause to be administered, the Cadence Workers' Compensation Plan
in accordance with its terms and Applicable Law. The Partnership shall fully
cooperate with Cadence and its insurance company in the administration and
reporting of Tality Claims under the Cadence Workers' Compensation Plan. Any
determination made, or settlement entered into, by or on behalf of Cadence or
its insurance company with respect to Tality Claims under the Cadence Workers'
Compensation Plan shall be final and binding. Any and all costs and expenses
related to the Tality Claims or the Partnership's participation in the Cadence
Workers' Compensation Plan, including loss costs, claims administration fees,
legal expenses, premium audits and retrospective premium adjustments, shall be
subject to Section 8.1. Cadence shall transfer to and reimburse the Partnership
for any assets related to the Tality Claims or the Partnership's participation
in the Cadence Workers' Compensation Plan, including loss reserves, premium
audits, and retrospective premium adjustments.

               (c) Establishment of the Tality Workers' Compensation Plan. As of
the Distribution Date, the Partnership shall be responsible for complying with
the workers' compensation requirements of the states in which the Tality Group
conducts business and for obtaining and maintaining insurance programs for its
risk of loss. Such insurance arrangements shall be separate and apart from the
Cadence Workers' Compensation Plan. Notwithstanding the foregoing, Cadence shall
provide the Partnership with any information that is in the possession of
Cadence and is reasonably available and necessary to either obtain insurance
coverages for the Partnership or to assist the Partnership in preventing
unintended self-insurance, in whatever form.

        Section 5.13 Administrative Services. To the extent not provided
otherwise in this Article V or addressed under the Master Corporate Services
Agreement, Cadence shall provide certain administrative services to the
Partnership in conjunction with both the Cadence and Tality Health and Welfare
Plans in such manner and for such period as Cadence, the Partnership and Tality
may mutually agree with any and all costs and expenses incurred in the
performance of such services subject to Section 8.1.

                                   ARTICLE VI

                          EQUITY AND OTHER COMPENSATION

        Section 6.1 Bonus Plan.

                                       16
<PAGE>   21

               (a) Tality Transferred Employees shall continue to participate in
all current Cadence bonus plans through calendar year 2000. The Partnership
shall evaluate whether it wants to continue to participate in such plans for
calendar year 2001 and reserves the right to modify, delete or add to any plan
as of January 1, 2001.

               (b) The Partnership shall continue to manage the Business Manager
Compensation Plan.

        Section 6.2 Executive Bonus Plan. Eligible executives of members of the
Tality Group shall participate in current Cadence executive bonus plans, except
as specifically outlined in the employment agreement for the Chief Executive
Officer of the Partnership and Tality.

        Section 6.3 Cadence Options.

               (a) This transaction shall not trigger automatic cancellation of
Cadence options or require Cadence employees to exercise vested options upon
transfer of employment to a member of the Tality Group.

               (b) Non-U.S. Optionees shall be treated similarly to the U.S.
Optionees to the extent permissible by Applicable Law.

        Section 6.4 Stock Purchase Plan.

               Through the IPO Closing Date employees of the Tality Business
(including for this purpose any employee of Cadence who is designated as an
employee of the Tality Business for purposes of the Separation) shall continue
to be eligible for participation in the Cadence Stock Purchase Plan. On or about
the IPO Closing Date, the Partnership and shall establish the Tality Stock
Purchase Plan for Tality Employees that shall not be qualified under Code
Section 423.

        Section 6.5 Administrative Services. To the extent not provided
otherwise in this Article VI or addressed under the Master Corporate Services
Agreement, Cadence shall provide certain administrative services to Tality and
the Partnership in conjunction with both the Cadence and Tality Bonus Plans,
Executive Bonus Plan and Stock Plans in such manner and for such period as
Cadence, the Partnership and Tality may mutually agree with any and all costs
and expenses incurred in the performance of such services subject to Section
8.1.

                                   ARTICLE VII

                            FRINGE AND OTHER BENEFITS

        Section 7.1 Educational Assistance Program. Effective as of the date
hereof (or such other date as Cadence, the Partnership and Tality may mutually
agree), the Partnership shall provide a Tality Educational Assistance Program to
Tality Employees which is comparable in the aggregate in all Material Features
to the Cadence Educational Assistance Program. The Partnership shall cease to be
a Participating Company in the Cadence Educational Assistance Program coincident
with the Partnership's establishment of the Tality Educational Assistance
Program. At such time, any and all outstanding approved reimbursements under the
Cadence

                                       17
<PAGE>   22

Educational Assistance Program for Tality Employees shall be made by the
Partnership. Furthermore, any and all costs and expenses associated with the
Partnership's participation in the Cadence Educational Assistance Program and
Cadence's preparation of an Educational Assistance Program on behalf of Tality
shall be subject to Section 8.1.

        Section 7.2 Cafeteria and Related Subsidies. Cadence shall continue to
make its cafeterias, vending machines, and other food or beverage provision
facilities (collectively, the "Food Programs"), available to Tality Employees on
substantially similar terms and conditions as are offered to employees of
Cadence, until the termination of the occupancy agreements among Cadence and the
Partnership regarding Tality and the Partnership's occupancy of the Cadence
facilities (or such other date as Cadence, the Partnership and Tality may
mutually agree). Cadence, the Partnership and Tality shall use their
commercially reasonable best efforts to mutually agree on the appropriate
methods and/or processes to ensure continued tax-favored status of Cadence's
Food Programs under the Code. To the extent not otherwise addressed in the
occupancy agreements, any and all costs and expenses associated with allowing
Tality and the Partnership access to Cadence's Food Programs shall be subject to
Section 8.1.

        Section 7.3 Employee Company Store. Cadence shall provide access to its
Company Store until the termination of the occupancy agreements between Cadence
and the Partnership at the Cadence San Jose campus (or such other date as
Cadence, the Partnership and Tality may mutually agree). Cadence shall provide
qualified employee discounts available to Tality Employees on substantially
similar terms and conditions as such discounts are made available to employees
of the Cadence Group through the Independence Date (or such other date as
Cadence, the Partnership and Tality may mutually agree). To the extent not
otherwise addressed in the occupancy agreements, Cadence and the Partnership
shall each reimburse the other for any and all direct and indirect costs and
expenses relating to the provision of qualified discounts and access to the
Company Store.

        Section 7.4 TimeOut Program. Cadence shall continue to provide access to
its gym and other athletic facilities (collectively, the "TimeOut Program")
available to Tality Employees on substantially similar terms and conditions as
are offered to employees of the Cadence Group until the termination of the
occupancy agreements between Cadence and the Partnership regarding Tality and
the Partnership's occupancy of the Cadence San Jose campus (or such other date
as Cadence, the Partnership and Tality may mutually agree), except that upon the
Separation Date, Tality and the Partnership will discontinue the Field Site
Program. To the extent not otherwise addressed in the occupancy agreements, any
and all costs and expenses associated with allowing Tality and the Partnership
access to Cadence's TimeOut Program shall be subject to Section 8.1.

        Section 7.5 Other Benefits. To the extent that Cadence maintains,
sponsors or provides other fringe benefits specified in Schedule 7.5 to its
eligible employees, then Cadence shall, to the extent permitted by law, continue
to make such benefits available to Tality Employees on substantially similar
terms and conditions as are offered to the employees of the Cadence Group
through the Independence Date (or such other date upon which Cadence, the
Partnership and Tality mutually agree). Any and all costs and expenses
associated with, arising out of, or resulting from the provision of such other
fringe benefits to the Partnership's employees shall be subject to Section 8.1.
Cadence, the Partnership and Tality agree to make

                                       18
<PAGE>   23

commercially reasonable best efforts to mutually agree on whether, when, and on
what terms any member of the Tality Group shall maintain, sponsor, or offer
fringe benefits.

        Section 7.6 Administrative Services. To the extent not provided
otherwise in this Article VII or addressed under the Master Corporate Services
Agreement, Cadence shall provide certain administrative services to the
Partnership in conjunction with both the Cadence and Tality Fringe Benefit Plans
in such manner and for such period as Cadence, the Partnership and Tality may
mutually agree with any and all costs and expenses incurred in the performance
of such services subject to Section 8.1.

                                  ARTICLE VIII

                            ADMINISTRATIVE PROVISIONS

        Section 8.1 Payment of Liabilities, Plan Expenses and Related Matters.
In addition to the costs identified in the Master Corporate Services Agreement,
Tality and the Partnership shall be responsible for, and reimburse Cadence (or
Cadence's insurance company, as applicable) for, any additional Tality-related
direct or indirect costs, expenses or liabilities incurred by Cadence or any
other member of the Cadence Group pursuant to Articles V, VI or VII.

        Section 8.2 Sharing of Participant Information. In addition to the
responsibilities and obligations of Cadence and Tality specified in the
Separation Agreement and subject to Section 9.2 of this Agreement, Cadence, the
Partnership and Tality shall share, or cause to be shared, all participant
information that is necessary or appropriate for the efficient and accurate
administration of each of the Cadence Plans and the Tality Plans during the
respective periods applicable to such Plans as Cadence, the Partnership and
Tality may mutually agree. Cadence, the Partnership and Tality and their
respective authorized agents shall, subject to Applicable Laws of
confidentiality and data protection, be given reasonable and timely access to,
and may make copies of, all information relating to the subjects of this
Agreement in the custody of Cadence, the Partnership or Tality or their agents,
to the extent necessary or appropriate for such administration.

        Section 8.3 Reporting and Disclosure Communications to Participants.
While Tality or the Partnership is a Participating Company in the Cadence Plans,
each of them shall take, or cause to be taken, all actions necessary or
appropriate to facilitate the distribution of all Cadence Plan-related
communications and materials to employees, participants and beneficiaries,
including summary plan descriptions and related summaries of material
modification(s), summary annual reports, investment information, prospectuses,
notices and enrollment material for the Cadence Plans and Tality Plans. Tality
or the Partnership, as applicable, shall reimburse Cadence for the costs and
expenses relating to the copies of all such documents provided to them. Tality
and the Partnership shall each assist Cadence in complying with all reporting
and disclosure requirements of ERISA, including the preparation of Form Series
5500 annual reports for the Cadence Plans, where applicable.

        Section 8.4 Audits Regarding Vendor Contracts. From the period beginning
as of the date hereof and ending on such date as Cadence, the Partnership and
Tality may mutually agree, Cadence and the Partnership and their duly authorized
representatives shall have the right to

                                       19
<PAGE>   24

conduct joint audits with respect to any vendor contracts that relate to both
the Cadence Health and Welfare Plans and the Tality Health and Welfare Plans.
The scope of such audits shall encompass the review of all correspondence,
account records, claim forms, canceled drafts (unless retained by the bank),
provider bills, medical records submitted with claims, billing corrections,
vendor's internal corrections of previous errors and any other documents or
instruments relating to the services performed by the vendor under the
applicable vendor contracts. Cadence and the Partnership shall agree on the
performance standards, audit methodology, auditing policy and quality measures,
reporting requirements, and the manner in which costs and expenses incurred in
connection with such audits shall be shared.

        Section 8.5 Beneficiary Designation. To the extent technically feasible,
all beneficiary designations made by Tality Employees and Tality Transferred
Employees for the Cadence Plans shall be transferred to and be in full force and
effect under the corresponding Tality Plans, in accordance with the terms of
each such applicable Tality Plan, until such beneficiary designations are
replaced or revoked by the Tality Employees and Tality Transferred Employee who
made the beneficiary designation.

        Section 8.6 Requests for IRS and DOL Opinions. If the need for an IRS or
DOL determination letter arises out of this transaction or in the intervening
period prior to the spinoff, Cadence and the Partnership shall cooperate in
obtaining and share expenses relating to any such letter. In the event that
Tality or the Partnership establishes any new employee-related plan that
requires an IRS or DOL opinion letter, they shall be responsible for doing so
and all costs related thereto.

        Section 8.7 Fiduciary Matters. Each of Cadence and the Partnership
acknowledges that actions contemplated to be taken pursuant to this Agreement
may be subject to fiduciary duties or standards of conduct under ERISA or other
Applicable Law, and that no party shall be deemed to be in violation of this
Agreement if such party fails to comply with any provisions hereof based upon
such party's good faith determination that to do so would violate such a
fiduciary duty or standard.

        Section 8.8 Consent of Third Parties. If any provision of this Agreement
is dependent on the consent of any third party (such as a vendor) and such
consent is withheld, Cadence and the Partnership shall use their commercially
reasonable best efforts to implement the applicable provisions of this
Agreement. If any provision of this Agreement cannot be implemented due to the
failure of such third party to consent, Cadence and the Partnership shall
negotiate in good faith to implement the provision in a mutually satisfactory
manner.

        Section 8.9 Cadence Intranet. Through the Independence Date (or such
other date as Cadence, the Partnership and Tality may mutually agree), Cadence
shall make its intranet site available to Tality Employees on substantially the
same terms as such intranet site is made available to Cadence Employees. The
Partnership shall reimburse Cadence for any and all costs and expenses related
to making its intranet site available to Tality Employees, subject to the Master
Corporate Services Agreement. Cadence, the Partnership and Tality shall use
their commercially reasonable best efforts to mutually agree on the appropriate
methods by which the Partnership shall establish its own intranet site.

                                       20
<PAGE>   25

        Section 8.10 Tax Cooperation. In connection with the interpretation and
administration of this Agreement, the parties shall take into account the
agreements and policies established pursuant to the Separation Agreement.

                                   ARTICLE IX

                           EMPLOYMENT-RELATED MATTERS

        Section 9.1 Terms of Tality Employment. All basic terms and conditions
of employment for Tality Employees and Tality Transferred Employees including
their pay and benefits in the aggregate, shall, to the extent legally and
practicably possible, remain substantially the same through the Independence
Date as the terms and conditions that were in place when the Tality Employee or
Tality Transferred Employee was employed by Cadence, as applicable.
Notwithstanding the foregoing, Tality Employees and Tality Transferred Employees
shall be required to execute new agreements regarding their employment status,
proprietary information and inventions in a form approved by the Partnership by
the date hereof, and also to execute such standard documents as are generally
executed by employees leaving their employment with Cadence. In addition,
nothing in the Separation Agreement, this Agreement or any other Ancillary
Agreement should be construed to change the at-will status of the employment of
any of the employees of Cadence or the Partnership.

        Section 9.2 HR Data Support Systems. Cadence shall provide human
resources data support for Tality Employees and Tality Transferred Employees
through Independence Date (or such other period as Cadence, the Partnership and
Tality may mutually agree). The Partnership agrees to fully reimburse Cadence
for any and all direct and indirect costs and expenses associated with its use
of the Cadence human resources data support systems, subject to the Master
Corporate Services Agreement. If Cadence and the Partnership agree to extend the
time period beyond Independence Date, then the costs and expenses shall be
computed in accordance with Independence Date. Cadence and the Partnership each
reserves the right to discontinue the Partnership's access to any Cadence human
resources data support systems with ninety (90) days notice (or such other
period as Cadence, the Partnership and Tality may mutually agree).

        Section 9.3 Non-Solicitation of Employees. For a period of one (1) year
following the Separation Date, each of Tality and the Partnership agrees (and
shall cause each other member of the Tality Group) not to solicit or recruit or
hire employees of any member of the Cadence Group, without the prior consent of
Cadence's Senior Vice President of Human Resources (or his or her designee).
Notwithstanding the foregoing, this prohibition on solicitation, recruitment or
hiring shall not apply to actions taken by any member of the Tality Group either
(a) solely as a result of an employee's affirmative response to a general
recruitment effort carried out through a public solicitation, or (b) as a result
of an employee's initiative.

        Section 9.4 Employment of Employees with U.S. Work Visas. Tality
Employees with U.S. work visas authorizing them to work for the Partnership
shall continue to hold work authorization for the Tality Group after the date
hereof, provided the work performed is substantially the same and they remain in
the same geographic location. The Partnership shall request amendments to the
nonimmigrant visa status and applications for permanent residency of

                                       21
<PAGE>   26

Tality Employees and Tality Transferred Employees with U.S. work visas
authorizing them to work for Cadence, excluding the Tality Group, to request
authorization to work for the Partnership. To the extent that certain employees
are required to stay with Cadence during the visa application process, such
employees will perform services for the Partnership while employed by Cadence.
Cadence, the Partnership and Tality shall enter into a mutually agreeable
employee leasing arrangement for such employees.

        Section 9.5 Confidentiality and Proprietary Information. No provision of
the Separation Agreement or any Ancillary Agreement shall be deemed to release
any individual for any violation of the Cadence non-competition guideline or any
agreement or policy pertaining to confidential or proprietary information of any
member of the Cadence Group, or otherwise relieve any individual of his or her
obligations under such non-competition guideline, agreement, or policy.

        Section 9.6 Personnel Records. Subject to Applicable Laws on
confidentiality and data protection, Cadence shall deliver to the Partnership
prior to the Independence Date (or such other date as Cadence, the Partnership
and Tality may mutually agree), personnel records of Tality Employees and Tality
Transferred Employees to the extent such records relate to Tality Employees' and
Tality Transferred Employees' active employment by, leave of absence from, or
termination of employment with the Partnership. The Partnership shall fully
reimburse Cadence for any and all direct and indirect costs and expenses
associated with such delivery, subject to the Master Corporate Services
Agreement.

        Section 9.7 Unemployment Insurance Program. Cadence shall provide
unemployment insurance claims administration through the Independence Date
pursuant to the Master Corporate Services Agreement.

        Section 9.8 Non-Termination of Employment. Transfer of employees from
Cadence to the Partnership shall not trigger any termination-related clause
under any existing Cadence plan, including plans relating to benefits, stock, or
otherwise, or under any existing employment, retention, or change-of-control
agreement.

        Section 9.9 Employment Litigation.

               (a) Claims to be Transferred to the Partnership and/or Jointly
Defended by Cadence and the Partnership. On or before the date hereof, Cadence
and the Partnership shall enter into a written agreement that specifies the
responsibility for defense and accompanying Liability for identified claims of
Tality and the Partnership relating to, arising out of, or resulting from their
employment with the Tality Business or the Tality Group (other than those
matters addressed by Section 3.1 of the Assignment Agreement).

               (b) Unscheduled Claims. Subject to Section 9.9(a), on or after
the date hereof, the Partnership shall have the sole responsibility for all
employment-related claims regarding Tality Employees and Tality Transferred
Employees, relating to, arising out of, or resulting from their employment with
the Tality Business or a member of the Tality Group.

                                       22
<PAGE>   27

                                    ARTICLE X

                                  MISCELLANEOUS

        Section 10.1 Incorporation by Reference. Section 4.4 and all of the
provisions of Article V (except for Sections 5.7 and 5.13 thereof) of the
Separation Agreement are incorporated into and made a part of this Agreement, as
if fully set forth herein.

        Section 10.2 Binding Effect; Assignment. This Agreement, the Separation
Agreement and each other Ancillary Agreement shall inure to the benefit of and
be binding upon the parties hereto and thereto and their respective legal
representatives and successors, and nothing in this Agreement, the Separation
Agreement or any Ancillary Agreement, express or implied, is intended to confer
upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Agreement. No party may assign this Agreement or any rights or
obligations hereunder, without the prior written consent of Cadence, in the case
of Tality or the Partnership, or Tality, in the case of Cadence or Holdings
(except in connection with a merger, consolidation or sale of all or
substantially all of the party's assets), and any such attempted assignment
shall be void and in violation hereof.

        Section 10.3 Certain Definitions.

               (a) Cadence and Holdings. In all instances in which Cadence or
Holdings is referenced in this Agreement, it shall also be deemed to include a
reference to each member of the Cadence Group, unless specifically provided
otherwise; Cadence shall be solely responsible to Tality for ensuring that each
member of the Cadence Group complies with the applicable terms of this
Agreement.

               (b) Tality and the Partnership. In all instances in which Tality
or the Partnership is referenced in this Agreement, it shall also be deemed to
include a reference to each member of the Tality Group, unless specifically
provided otherwise; Tality shall be solely responsible to Cadence for ensuring
that each member of the Tality Group complies with the applicable terms of this
Agreement.

        Section 10.4 Conflicting Agreements. In the event of any irreconcilable
conflict between this Agreement, the Separation Agreement, any other Ancillary
Agreement or other agreement executed in connection herewith or therewith, the
provisions of such other agreement shall prevail to the extent that they
specifically address the subject matter of the conflict.

                                       23
<PAGE>   28

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

CADENCE DESIGN SYSTEMS, INC.                 TALITY, LP

By:                                          By: TALITY CORPORATION,
   ---------------------------------             AS GENERAL PARTNER
Name:
     -------------------------------
Title:                                           By:
      ------------------------------                ----------------------------
                                                 Name:
                                                      --------------------------
                                                 Title:
                                                       -------------------------

CADENCE HOLDINGS, INC.                       TALITY CORPORATION

By:                                          By:
   ---------------------------------            --------------------------------
Name:                                        Name:
     -------------------------------              ------------------------------
Title:                                       Title:
      ------------------------------               -----------------------------

                                       24

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