Document:

<PAGE>   1
                                                                   EXHIBIT 10.18

[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION].

                AMENDED AND RESTATED MASTER SEPARATION 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
        Section 1.1   Affiliate.............................................................2
        Section 1.2   Applicable Law........................................................2
        Section 1.3   Business Day..........................................................2
        Section 1.4   Cadence's Auditors....................................................2
        Section 1.5   Cadence Group.........................................................2
        Section 1.6   Canadian APA..........................................................2
        Section 1.7   Class A Common Stock..................................................2
        Section 1.8   Class B Common Stock..................................................2
        Section 1.9   Class C Common Stock..................................................2
        Section 1.10  Contracts.............................................................2
        Section 1.11  Foreign Transfer Agreement............................................2
        Section 1.12  General Partner.......................................................2
        Section 1.13  Governmental Approvals................................................3
        Section 1.14  Governmental Authority................................................3
        Section 1.15  Information...........................................................3
        Section 1.16  IPO Closing Date......................................................3
        Section 1.17  Person ...............................................................3
        Section 1.18  Subsidiary............................................................3
        Section 1.19  Tality's Auditors.....................................................3
        Section 1.20  Tality Group..........................................................3
        Section 1.21  Third-Party Approvals.................................................3

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

ARTICLE III  THE IPO AND REGISTRATION RIGHTS................................................6
        Section 3.1   Transactions Prior to the IPO.........................................6
        Section 3.2   Cooperation...........................................................6
        Section 3.3   Conditions Precedent to Consummation of the IPO.......................6
        Section 3.4   Registration Rights...................................................7

ARTICLE IV  COVENANTS AND OTHER MATTERS....................................................16
        Section 4.1   Further Instruments..................................................16
        Section 4.2   Agreement for Exchange of Information................................17
        Section 4.3   Auditors and Audits; Annual and Quarterly Statements and Accounting..18
        Section 4.4   Dispute Resolution...................................................20
        Section 4.5   Non-Solicitation of Employees........................................21
</TABLE>

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<TABLE>
<S>                                                                                       <C>
        Section 4.6   Employee Agreements..................................................21
        Section 4.7   Government and Third Party Approvals.................................23
        Section 4.8   Relationship with Scottish Enterprise and Scottish Executive.........24

ARTICLE V  MISCELLANEOUS...................................................................24
        Section 5.1   Limitation of Liability..............................................24
        Section 5.2   Entire Agreement.....................................................24
        Section 5.3   Governing Law........................................................24
        Section 5.4   Termination..........................................................24
        Section 5.5   Notices..............................................................24
        Section 5.6   Counterparts.........................................................25
        Section 5.7   Binding Effect; Assignment...........................................25
        Section 5.8   Severability.........................................................25
        Section 5.9   Failure or Delay Not Waiver; Remedies Cumulative.....................26
        Section 5.10  Amendment............................................................26
        Section 5.11  Authority............................................................26
        Section 5.12  Interpretation.......................................................26
        Section 5.13  Conflicting Agreements...............................................26
        Section 5.14  Payment of Expenses..................................................27
        Section 5.15  Prior Agreement Superseded...........................................27
</TABLE>

                                       ii
<PAGE>   4

                AMENDED AND RESTATED MASTER SEPARATION AGREEMENT

        THIS AMENDED AND RESTATED MASTER SEPARATION AGREEMENT (this "Agreement")
is entered into and effective as of ________, 2000, by and among Cadence Design
Systems, Inc., a Delaware corporation ("Cadence"), and Cadence Holdings, Inc., a
Delaware corporation and wholly owned subsidiary of Cadence ("Holdings" and,
together with Cadence, the "Cadence Parties"), on the one hand, and Tality
Corporation, a Delaware corporation ("Tality"), and Tality, LP, a Delaware
limited partnership (the "Partnership", and, together with Tality, the "Tality
Parties"), on the other hand. Capitalized terms used herein and not defined
elsewhere herein shall have the meanings ascribed to them in Article I.

                                    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
(the "Separation") associated with the operation of the business of providing
design engineering services, and intellectual property in connection therewith,
to electronic equipment manufacturers and other customers, all as described in
the Registration Statement (the "Tality Business");

        WHEREAS, Cadence, Holdings, the Partnership and Tality currently
contemplate that, immediately following the contribution of such assets to and
assumption of such liabilities by the Partnership, Tality shall commence an
initial public offering ("IPO") of its Class A Common Stock, par value $0.001
per share (the "Class A Common Stock"), pursuant to a registration statement on
Form S-1 promulgated by the Securities and Exchange Commission (the
"Registration Statement");

        WHEREAS, Cadence, Holdings and Tality entered into that certain Master
Separation Agreement, dated as of July 14, 2000, which prior to the date hereof
has governed the matters described above (the "Prior Agreement");

        WHEREAS, each of the parties now desires to amend and restate the Prior
Agreement in its entirety pursuant to Section 5.10 thereof; and

        WHEREAS, the parties intend for this Agreement to set forth the
principal arrangements between them regarding the Separation.

                                    AGREEMENT

<PAGE>   5

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

                                    ARTICLE I

                                   DEFINITIONS

        Section 1.1 "Affiliate" of any Person means any other Person that
controls, is controlled by, or is under common control with, such first Person.
As used herein, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities or other interests, by
contract or otherwise.

        Section 1.2 "Applicable Law" means all laws and regulations of
Governmental Authorities applicable to the transaction, property or Persons at
issue.

        Section 1.3 "Business Day" means any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of California.

        Section 1.4 "Cadence's Auditors" means Cadence's independent certified
public accountants from time to time.

        Section 1.5 "Cadence Group" means Cadence and each of its Subsidiaries
(other than any member of the Tality Group) on and after the Separation Date.

        Section 1.6. "Canadian APA" means the Asset Purchase Agreement by and
among Cadence, Cadence Design Systems (Canada) Limited and Tality Canada
Corporation dated as of ________, 2000.

        "Section 1.7 "Class A Common Stock" has the meaning set forth in the
recitals.

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

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

        Section 1.10 "Contracts" means any contract, agreement, lease, license,
sales order, purchase order, instrument or other commitment that is binding on
any Person or any part of its property under Applicable Law.

        Section 1.11 "Foreign Transfer Agreement" means the Canadian APA and any
of the other agreements identified on Schedule 1.11 relating to the Separation
outside of the United States.

        Section 1.12 "General Partner" shall have the meaning specified in the
Partnership Agreement.

<PAGE>   6

        Section 1.13 "Governmental Approvals" means any notices, reports or
other filings to be made with, or any consents, registrations, approvals,
permits or authorizations to be obtained from, any Governmental Authority.

        Section 1.14 "Governmental Authority" means any federal, state, local,
foreign or international court or government of competent jurisdiction, or any
political subdivision thereof, or any department, commission, board, bureau,
agency, official or other regulatory, administrative body of any such government
of competent jurisdiction or political subdivision thereof.

        Section 1.15 "Information" means information, whether or not patentable
or copyrightable, in written, oral, electronic or other tangible or intangible
form, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product) and other technical, financial,
employee or business information or data.

        Section 1.16 "IPO Closing Date" means the date on which the first
closing of the IPO occurs.

        Section 1.17 "Person" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a Governmental Authority.

        Section 1.18 "Subsidiary" of any Person means any other Person of which
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect at least a majority of the board of directors or
other body performing similar functions with respect to such other Person is
directly or indirectly owned or controlled (including by contract) by such first
Person. By way of example and not limitation, the Partnership shall be deemed to
be a Subsidiary of Tality.

        Section 1.19 "Tality's Auditors" means the Tality Parties' independent
certified public accountants from time to time.

        Section 1.20 "Tality Group" means Tality and each of its Subsidiaries on
and after the Separation Date.

        "Section 1.21 "Third-Party Approvals" means any notices, consents or
authorizations of third parties (other than Governmental Approvals) required to
consummate the Separation.

<PAGE>   7

                                   ARTICLE II

                                   SEPARATION

        Section 2.1 Separation Date. Unless otherwise expressly provided in this
Agreement, any Ancillary Agreement (as defined in Section 2.2), the Agreement of
Limited Partnership of the Partnership, any Foreign Transfer Agreement or any
other agreement among the parties, the effective time and date of each transfer
of assets and property, assumption of liability, license, undertaking or other
agreement in connection with the Separation shall be 12:00 a.m., Pacific Time,
October 1, 2000, or such other date as may be fixed by the Board of Directors of
Cadence or a duly authorized officer of Cadence (the "Separation Date").

        Section 2.2 Documents to Be Delivered by the Cadence Parties and the
Tality Parties. On the Separation Date, each of the parties shall duly execute
and deliver, or shall cause its appropriate Subsidiaries to duly execute and
deliver, to the other parties all of the following agreements, documents and
other instruments (collectively, together with all agreements and documents
contemplated by such agreements, the "Ancillary Agreements"):

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

               (b) The Master Intellectual Property Ownership and License
        Agreement in substantially the form attached hereto as Exhibit B (the
        "Master Intellectual Property Agreement");

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

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

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

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

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

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

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

<PAGE>   8

               (j) The Joint Sales Agreement in substantially the form attached
        hereto as Exhibit J (the "Joint Sales Agreement");

               (k) The resignation of each individual who is an officer or
        director of Cadence or any member of the Cadence Group, immediately
        prior to the Separation Date, and who shall be an employee of any of the
        Tality Parties from and after the Separation Date; and

               (l) Such other agreements, documents or instruments as the
        parties may agree are necessary or desirable in order to achieve the
        purposes hereof.

        Section 2.3 Governmental Approvals. To the extent that the Separation
requires any Governmental Approvals, the parties shall use all commercially
reasonable efforts to obtain such Governmental Approvals on or prior to the
Separation Date.

        Section 2.4 Third-Party Approvals. The parties shall use all
commercially reasonable efforts to obtain all Third-Party Approvals on or prior
to the Separation Date.

        Section 2.5 No Representations or Warranties. Neither of the Cadence
Parties nor any other member of the Cadence Group makes, either in this
Agreement or any Ancillary Agreement, any representation as to, warranty of or
covenant with respect to:

               (a) the value of any asset, property or other thing of value to
        be transferred to the Partnership or any of its Subsidiaries;

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

               (c) the freedom from encumbrance of any asset, property or other
        thing of value to be transferred to the Partnership or any of its
        Subsidiaries;

               (d) the absence of defenses or freedom from set-offs or
        counterclaims with respect to any claim to be transferred to the
        Partnership or any of its Subsidiaries; or

               (e) the legal sufficiency of any assignment, document or
        instrument delivered hereunder to convey title to any asset, property or
        other thing of value upon its execution and delivery or filing.

        Except as may be expressly set forth herein or in any Ancillary
Agreement, all assets, properties and other things of value to be transferred
to, and all liabilities to be assumed by, the Partnership or any of its
Subsidiaries shall be transferred or assumed, as applicable, "AS IS, WHERE IS,"
and the Partnership and its Subsidiaries shall bear the economic and legal risk
that any conveyance shall prove to be insufficient to vest in the Partnership
and its Subsidiaries good and marketable title, free and clear of any lien,
claim, equity or other encumbrance.

<PAGE>   9

                                   ARTICLE III

                         THE IPO AND REGISTRATION RIGHTS

        Section 3.1 Transactions Prior to the IPO. Subject to the conditions set
forth in Section 3.3, each of the parties shall use all commercially reasonable
efforts to consummate the IPO. Such efforts shall include the following:

               (a) Registration Statement. Tality shall file the Registration
        Statement, and such amendments or supplements thereto as may be
        necessary in order to cause the same to become and remain effective as
        required by Applicable Law or by the managing underwriters for the IPO
        (the "Underwriters"), including filing such amendments to the
        Registration Statement as may be required by the underwriting agreement
        to be entered into between Tality and the Underwriters (the
        "Underwriting Agreement"), the Securities and Exchange Commission (the
        "Commission") or federal, state or foreign securities laws. The parties
        shall also cooperate in preparing, filing with the Commission and
        causing to become effective a registration statement registering the
        Class A Common Stock under the Securities Exchange Act of 1934, as
        amended (the "Exchange Act"), and any registration statements or
        amendments thereof which are required to reflect the establishment of,
        or amendments to, any employee benefit and other plans necessary or
        appropriate in connection with the IPO, the Separation or any of the
        other transactions contemplated by this Agreement.

               (b) Underwriting Agreement. Tality shall enter into the
        Underwriting Agreement, in form and substance reasonably satisfactory to
        Cadence and Tality, and shall comply with its obligations thereunder.

               (c) Nasdaq Listing. Tality shall prepare, file and use all
        commercially reasonable efforts to seek to make effective an application
        for quotation of the Class A Common Stock issued in the IPO on the
        Nasdaq National Market (the "Nasdaq"), subject to official notice of
        issuance.

        Section 3.2 Cooperation. Tality shall consult with, and cooperate in all
respects with, Cadence in connection with the pricing of the Class A Common
Stock to be offered in the IPO and shall, at Cadence's direction, promptly take
any and all actions necessary or desirable to consummate the IPO as contemplated
by the Registration Statement and the Underwriting Agreement.

        Section 3.3 Conditions Precedent to Consummation of the IPO. The
obligations of the parties to use all commercially reasonable efforts to
consummate the IPO shall be conditioned on the satisfaction of all of the
following conditions:

               (a) Registration Statement. The Registration Statement shall have
        been declared effective by the Commission, and there shall not have been
        issued or threatened any stop order with respect thereto which remains
        in effect.

<PAGE>   10

               (b) Blue Sky. The actions and filings with regard to state
        securities and blue sky laws of the United States (and any comparable
        laws under any foreign jurisdictions) shall have been taken and, where
        applicable, have become effective or been accepted.

               (c) Nasdaq Listing. The Class A Common Stock to be issued in the
        IPO shall have been accepted for quotation on the Nasdaq, upon official
        notice of issuance.

               (d) Underwriting Agreement. Tality shall have entered into the
        Underwriting Agreement and all conditions to the obligations of Tality
        and the Underwriters thereunder shall have been satisfied or waived.

               (e) Common Stock Ownership. Cadence shall be satisfied in its
        sole discretion that the Cadence Group shall own voting securities of
        Tality having at least 80% of the voting rights of all Tality securities
        outstanding immediately following the IPO Closing Date.

               (f) No Legal Restraints. No order, injunction or decree issued by
        any Governmental Authority of competent jurisdiction or other legal
        restraint or prohibition preventing the consummation of the Separation
        or the IPO or any of the other transactions contemplated by this
        Agreement shall be in effect or been threatened.

               (g) Separation. The Separation Date shall have occurred.

               (h) No Termination. This Agreement shall not have been
        terminated.

        Section 3.4 Registration Rights

               (a) Definitions. For purposes of this Section 3.4 only:

                      (i) "Register", "Registered" and "Registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended, (the "Securities Act"),
and the declaration or ordering of effectiveness of such registration statement.

                      (ii) "Registrable Securities" means (A) any Class A Common
Stock or Class C Common Stock issued or issuable upon conversion of Class B
Common Stock, or in exchange for Limited Partnership Units in the Partnership
originally issued to Cadence, Holdings or any other member of the Cadence Group
(the "LP Units"); (B) all shares of Class A Common Stock held by Cadence Group
members' officers or employees as of the date on which the Registration
Statement was first filed with the Commission; (C) any Class A Common Stock or
Class C Common Stock issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the
securities described in (A) or (B) above; and (D) all other shares of Class A
Common Stock or Class C Common Stock hereafter acquired by members of the
Cadence Group. Notwithstanding the foregoing, "Registrable Securities" shall
exclude any Registrable Securities sold by a Person in a transaction in which
rights under this Section 4.4 are not assigned in accordance with this Agreement
or any Registrable Securities sold in a public

<PAGE>   11

offering, whether sold pursuant to Rule 144 promulgated under the Securities
Act, or in a registered offering, or otherwise.

                      (iii) "Holder" means any Person owning of record
Registrable Securities (or any security convertible into or exchangeable for
Registrable Securities), that have not been sold in a public offering and any
permitted assignee of such Registrable Securities (or securities convertible
into or exchangeable into Registrable Securities) to whom rights under this
Section 3.4 have been duly assigned in accordance with this Agreement.

                      (iv) "Form S-3" means such form under the Securities Act
as is in effect on the date hereof, or any successor registration form under the
Securities Act subsequently adopted by the Commission, which permits inclusion
or incorporation of substantial information by reference to other documents
filed by Tality with the Commission.

               (b) Demand Registration.

                      (i) Request by Holders. If Tality shall, at any time after
the expiration of the 180-day "lock-up" period pursuant to the Underwriting
Agreement (the "Lock-Up Expiration Date"), receive a written request from
Cadence, Holdings or any subsequent Holder of LP Units originally issued to
Cadence, Holdings or any other member of the Cadence Group (or any Registrable
Securities issued in exchange therefor) holding at least ten percent (10%) of
the aggregate outstanding number of such LP Units that Tality file a
registration statement on form S-1 (or any successor form thereto) under the
Securities Act covering the registration of Registrable Securities pursuant to
this Section 3.4(b), then Tality shall, within ten (10) Business Days after the
receipt of such written request, give written notice of such request ("Request
Notice") to all Holders, and use its best efforts to effect, as soon as
practicable, the registration under the Securities Act of all Registrable
Securities that Holders request to be registered and included in such
registration by written notice given by such Holders to Tality within twenty
(20) days after receipt of the Request Notice, subject only to the limitations
of this Section 3.4(b); provided, however, that the Registrable Securities
requested by all Holders to be registered pursuant to such request must be at
least ten percent (10%) of all Registrable Securities then held by or issuable
to them; provided further, that Tality shall not be obligated to effect any such
registration if Tality has, within the six (6) month period preceding the date
of such request, already effected a registration under the Securities Act
pursuant to this Section 3.4(b) or Section 3.4(d), or in which the Holders had
an opportunity to participate pursuant to Section 3.4(c), other than a
registration from which the Registrable Securities of Holders have been excluded
(with respect to all or any portion of the Registrable Securities the Holders
requested be included in such registration) pursuant to Section 3.4(c)(i).

                      (ii) Underwriting. If the Holders initiating the
registration request under this Section 3.4(b) (the "Initiating Holders") intend
to distribute the Registrable Securities covered by their request by means of an
underwriting, then they shall so advise Tality as a part of their request made
pursuant to this Section 3.4(b)(i) and Tality shall include such information in
the Request Notice. In such event, the right of any Holder to include such
Holder's Registrable Securities in such registration shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the initiating Holders and such

<PAGE>   12

Holder) to the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriters selected for
such underwriting by the Holders of a majority of the Registrable Securities
being registered and reasonably acceptable to Tality (including a market
stand-off agreement of up to 180 days if required by such underwriters).
Notwithstanding any other provision of this Section 3.4(b), if the
underwriter(s) advise(s) Tality in writing that marketing factors require a
limitation of the number of securities to be underwritten, then Tality shall so
advise all Holders of Registrable Securities which would otherwise be registered
and underwritten pursuant hereto, and the number of Registrable Securities that
may be included in the underwriting shall be reduced as required by the
underwriter(s) and allocated among the Holders of Registrable Securities on a
pro rata basis according to the number of Registrable Securities of each Holder
requesting registration (including the initiating Holders); provided, however,
that the number of Registrable Securities to be included in such underwriting
and registration shall not be reduced unless all other securities of Tality and
the employees, officers and directors (who are not also officers or directors of
Cadence) of Tality (or any Subsidiary of Tality) are first entirely excluded
from the underwriting and registration. Any Registrable Securities excluded and
withdrawn from such underwriting shall be withdrawn from the registration.

                      (iii) Maximum Number of Demand Registrations. Tality shall
be obligated to effect only three (3) such registrations pursuant to this
Section 3.4(b).

                      (iv) Deferral. Notwithstanding the foregoing, if Tality
shall furnish to Holders requesting the filing of a registration statement
pursuant to this Section 3.4(b), a certificate signed by the President or Chief
Executive Officer of Tality stating that in the good faith judgment of the Board
of Directors of Tality, it would be materially detrimental to Tality and its
stockholders for such registration statement to be filed, then Tality shall have
the right to defer such filing for a period of not more than ninety (90) days
after receipt of the request of the initiating Holders; provided, however, that
Tality may not utilize this right more than once in any twelve (12) month
period.

                      (v) Expenses. All expenses incurred in connection with any
registration pursuant to this Section 3.4(b), including all federal and "blue
sky" registration, filing and qualification fees, printer's and accounting fees,
and fees and disbursements of counsel for Tality and one counsel for the
Holders, reasonably acceptable to Tality (but excluding underwriters' discounts
and commissions relating to shares sold by the Holders), shall be borne by
Tality. Each Holder participating in a registration pursuant to this Section
3.4(b) shall bear such Holder's proportionate share (based on the total number
of shares sold in such registration other than for the account of Tality) of all
discounts, commissions or other amounts payable to underwriters or brokers in
connection with such offering by the Holders. Notwithstanding the foregoing,
Tality shall not be required to bear any expenses of any registration proceeding
begun pursuant to this Section 3.4(b) if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered, unless the Holders of a majority of the
Registrable Securities agree that such registration constitutes the use by the
Holders of one (1) demand registration pursuant to this Section 3.4(b) (in which
case such registration shall also constitute the use by all Holders of
Registrable Securities of one (l) such demand registration); provided further,
that if at the time of such withdrawal, the Holders have

<PAGE>   13

learned of a material adverse change in the condition (financial or otherwise),
business or prospects of Tality not known to the Holders at the time of their
request for such registration and have withdrawn their request for registration
with reasonable promptness after learning of such material adverse change, then
the Holders shall not be required to pay any of such expenses and such
registration shall not constitute the use of a demand registration pursuant to
this Section 3.4(b).

               (c) Piggyback Registrations. Tality shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of Tality (including registration statements
relating to secondary offerings of securities of Tality, but excluding
registration statements relating to any registration under Section 3.4(b) or
Section 3.4(d) or to any employee benefit plan or a corporate reorganization)
and shall afford each such Holder an opportunity to include in such registration
statement all or any part of the Registrable Securities of such Holder. Each
Holder desiring to include in any such registration statement all or any part of
such Holder's Registrable Securities shall within twenty (20) days after receipt
of the above-described notice from Tality, so notify Tality in writing, and in
such notice shall inform Tality of the number of Registrable Securities such
Holder wishes to include in such registration statement. If a Holder decides not
to include all of its Registrable Securities in any registration statement
thereafter filed by Tality, such Holder shall nevertheless continue to have the
right to include any of such Holder's Registrable Securities in any subsequent
registration statement or registration statements as may be filed by Tality with
respect to offerings of its securities, all upon the terms and conditions set
forth herein.

                      (i) Underwriting. If a registration statement as to which
Tality gives notice under this Section 3.4(c) is for an underwritten offering,
then Tality shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 3.4(c) shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting
(including a market stand-off agreement of up to 180 days if required by such
underwriters). Notwithstanding any other provision of this Agreement, if the
managing underwriter(s) determine(s) in good faith that marketing factors
require a limitation of the number of shares to be underwritten, then the
managing underwriter(s) may exclude Registrable Securities from the registration
and the underwriting, and the number of shares that may be included in the
registration and the underwriting shall be allocated, first to Tality and,
second, to each of the Holders requesting inclusion of their Registrable
Securities in such registration statement on a pro rata basis based on the total
number of Registrable Securities of each such Holder; provided, however, that
the right of the underwriters to exclude Registrable Securities from the
registration and underwriting as described above shall be restricted so that (A)
the number of Registrable Securities included in any such registration is not
reduced below twenty-five percent (25%) of the aggregate number of Registrable
Securities for which inclusion has been requested; and (B) all shares that are
not Registrable Securities and are held by any other Person, including any
employee, officer or director (other than a director who is also an officer or
director of Cadence) of Tality (or any Subsidiary of Tality) shall first be
excluded from

<PAGE>   14

such registration and underwriting before any Registrable Securities are so
excluded. If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to Tality and the
underwriter(s), delivered at least ten (10) Business Days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder that is a partnership, the Holder and the partners
and retired partners of such Holder, or the estates and family members of any
such partners and retired partners and any trusts for the benefit of any of the
foregoing Persons, and for any Holder that is a corporation, the Holder and all
corporations that are affiliates of such Holder, shall be deemed to be a single
"Holder," and any pro rata reduction with respect to such "Holder" shall be
based upon the aggregate amount of shares carrying registration rights owned by
all entities and individuals included in such "Holder," as defined in this
sentence.

                      (ii) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 3.4(c), including fees and disbursements
of one counsel for the Holders, reasonably acceptable to Tality (but excluding
underwriters' and brokers' discounts and commissions relating to shares sold by
the Holders), including all federal and "blue sky" registration, filing and
qualification fees, printers' and accounting fees, and fees and disbursements of
counsel for Tality, shall be borne by Tality.

                      (iii) Not Demand Registration. Registration pursuant to
this Section 3.4(c) shall not be deemed to be a demand registration pursuant to
Section 3.4(b) above. Except as otherwise provided herein, there shall be no
limit on the number of times the Holders may request registration of Registrable
Securities under this Section 3.4(c).

               (d) Form S-3 Registration. In case Tality shall, at any time
after the Lock-Up Expiration Date, receive a written request from Cadence,
Holdings or any subsequent Holder of LP Units originally issued to Cadence,
Holdings or any other member of the Cadence Group (or any Registrable Securities
issued in exchange therefor) holding at least ten percent (10%) of the aggregate
outstanding number of such LP Units that Tality effect a registration on Form
S-3, and any related qualification or compliance with respect to all or a part
of the Registrable Securities owned by such Holder or Holders, then Tality
shall:

                      (i) Notice. Promptly give written notice of the proposed
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and

                      (ii) Registration. As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after Tality provides the notice
contemplated by Section 3.4(d)(i); provided, however, that Tality shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 3.4(d):

<PAGE>   15

                             (A) if Form S-3 is not available to Tality for such
offering by the Holders;

                             (B) if the Holders, together with the holders of
any other securities of Tality entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $5,000,000;

                             (C) if Tality shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of Tality stating
that in the good faith judgment of the Board of Directors of Tality, it would be
materially detrimental to Tality and its stockholders for such Form S-3
Registration to be effected at such time, in which event Tality shall have the
right to defer the filing of the Form S-3 registration statement no more than
once during any twelve month period for a period of not more than ninety (90)
days after receipt of the request of the Holder or Holders under this Section
3.4(d);

                             (D) if Tality has, within the six (6) month period
preceding the date of such request, already effected a registration under the
Securities Act other than a registration from which the Registrable Securities
of Holders have been excluded (with respect to all or any portion of the
Registrable Securities the Holders requested be included in such registration)
pursuant to Section 3.4(c)(i); or

                             (E) in any particular jurisdiction in which Tality
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.

                      (iii) Expenses. Tality shall pay all expenses incurred in
connection with each registration requested pursuant to this Section 3.4(d),
including federal and "blue sky" registration, filing and qualification fees,
printers' and accounting fees and fees and disbursements of counsel, including
one counsel for the Holders, reasonably acceptable to Tality, but excluding
underwriters' or brokers' discounts and commissions relating to shares sold by
the Holders.

                      (iv) Not Demand Registration. Form S-3 registrations shall
not be deemed to be demand registrations as described in Section 3.4(b) above.
Except as otherwise provided herein, there shall be no limit on the number of
times the Holders may request registration of Registrable Securities under this
Section 3.4(d).

               (e) Obligations of Tality. Whenever required to effect the
registration of any Registrable Securities under this Agreement Tality shall, as
expeditiously as reasonably possible:

                      (i) Registration Statement. Prepare and file with the
Commission a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become
effective; provided, however, that Tality shall not be required to keep any such
registration statement effective for more than ninety (90) days.

                      (ii) Amendments and Supplements. Prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection with such registration statement as may be
necessary to comply

<PAGE>   16

with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.

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

                      (iv) Blue Sky. Use its best efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that Tality shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.

                      (v) Underwriting. In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting agreement
in usual and customary form, with the managing underwriter(s) of such offering.
Each Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.

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

                      (vii) Opinion and Comfort Letter. Furnish, at the request
of any Holder requesting registration of Registrable Securities, on the date
that such Registrable Securities are delivered to the underwriters for sale, if
such securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (A) an opinion, dated as of
such date, of the counsel representing Tality for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(B) a "comfort" letter dated as of such date, from the independent certified
public accountants of Tality, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.

               (f) Furnish Information. It shall be a condition precedent to the
obligations of Tality to take any action pursuant to Section 3.4(b), (c) or (d)
that the selling Holders shall furnish to Tality such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be reasonably required to timely effect
the Registration of their Registrable Securities.

<PAGE>   17

               (g) Indemnification. In the event any Registrable Securities are
included in a registration statement under Section 3.4(b), (c) or (d):

                      (i) By Tality. To the extent permitted by Applicable Law,
Tality shall indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as determined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, as amended,
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"):

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

                             (B) the omission or alleged omission to state
               therein a material fact required to be stated therein, or
               necessary to make the statements therein not misleading, or

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

and Tality shall reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 3.4(g)(i) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of Tality (which consent
shall not be unreasonably withheld or delayed), nor shall Tality be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.

                      (ii) By Selling Holders. To the extent permitted by
Applicable Law, each selling Holder shall indemnify and hold harmless Tality,
each of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls Tality within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which Tality or any

<PAGE>   18

such director, officer, controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of such other Holder may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder shall
reimburse any legal or other expenses reasonably incurred by Tality or any such
director, officer, controlling person, underwriter or other Holder, partner,
officer, director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
3.4(g)(ii) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder (which consent shall not be unreasonably withheld or
delayed); and provided further, that the total amounts payable in indemnity by a
Holder under this Section 3.4(g)(ii) in respect of any Violation shall not
exceed the net proceeds received by such Holder in the registered offering out
of which such Violation arises.

                      (iii) Notice. Promptly after receipt by an indemnified
party under this Section 3.4(g) of notice of the commencement of any action
(including any action by a Governmental Authority), such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 3.4(g), deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to an actual or potential conflict
of interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of liability to the indemnified
party under this Section 3.4(g) to the extent (but only to the extent) the
indemnifying party is materially prejudiced as a result thereof, but the
omission so to deliver written notice to the indemnified party shall not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 3.4(g).

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

<PAGE>   19

                      (v) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (A) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 3.4(g) but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 3.4(g) provides for indemnification in such case, or (B)
contribution under the Securities Act may be required on the part of any such
selling Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 3.4(g); then, and in each such
case, Tality and such Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such Holder is responsible for the portion
represented by the percentage that the public offering price of its Registrable
Securities offered by and sold under the registration statement bears to the
public offering price of all securities offered by and sold under such
registration statement, and Tality and other selling Holders are responsible for
the remaining portion; provided, however, that, in any such case: (1) no such
Holder shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered and sold by such
Holder pursuant to such registration statement; and (2) no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.

                      (vi) Survival. The obligations of Tality and Holders under
this Section 3.4(g) shall survive until the fifth anniversary of the completion
of any offering of Registrable Securities in a registration statement,
regardless of the expiration of any statutes of limitation or extensions of such
statutes.

               (h) Termination of Tality's Obligations. Tality shall have no
obligations pursuant to Sections 3.4(b) through (d) with respect to any
Registrable Securities proposed to be sold by a Holder in a registration
pursuant to Section 3.4(b), (c) or (d) more than seven (7) years after the
Separation Date, or, if, in the opinion of independent counsel to Tality (and
acceptable to the Holders), all such Registrable Securities proposed to be sold
by a Holder may then be sold under Rule 144 in one transaction without exceeding
the volume limitations thereunder.

               (i) No Registration Rights to Third Parties. Without the prior
written consent of Cadence, Tality covenants and agrees that it shall not grant,
or cause or permit to be created, for the benefit of any Person any registration
rights of any kind (whether similar to the demand, "piggyback" or Form S-3
registration rights described in this Section 3.4 or otherwise) relating to any
equity securities of Tality, other than rights that are subordinate in right to
those granted hereunder.

                                   ARTICLE IV

                           COVENANTS AND OTHER MATTERS

        Section 4.1 Further Instruments. At the request of either of the Tality
Parties, and without further consideration, the Cadence Parties shall execute
and deliver, and shall cause all

<PAGE>   20

other members of the Cadence Group to execute and deliver, to the Partnership
and its Subsidiaries such other instruments of transfer, conveyance, assignment,
substitution and confirmation and take such action as either of the Tality
Parties may reasonably deem necessary in order to effectively transfer, convey
and assign to the Partnership and its Subsidiaries and confirm the Partnership's
and its Subsidiaries' title to all of the assets and rights contemplated to be
transferred to the Partnership and its Subsidiaries pursuant to this Agreement
and the Ancillary Agreements to put the Partnership and its Subsidiaries in
actual possession and operating control thereof and to permit the Partnership
and its Subsidiaries to exercise all rights with respect thereto (including
rights under contracts and other arrangements as to which the consent of any
third party to the transfer thereof shall not have previously been obtained). At
the request of either of the Cadence Parties and without further consideration,
the Tality Parties shall execute and deliver, and shall cause all other members
of the Tality Group to execute and deliver, to Cadence and its Subsidiaries all
instruments, assumptions, novations, undertakings, substitutions or other
documents and take such other action as Cadence may reasonably deem necessary in
order to have the Partnership fully and unconditionally assume and discharge the
liabilities contemplated to be assumed by the Partnership and its Subsidiaries
under this Agreement and the Ancillary Agreements and to relieve each member of
the Cadence Group of any liability or obligation with respect thereto and
evidence the same to third parties. Neither the Cadence Parties nor the Tality
Parties shall be obligated, in connection with the foregoing, to expend money
other than reasonable out-of-pocket expenses, attorneys' fees and disbursements
and recording or similar fees. Furthermore, each party hereto, at the request of
the other party, shall execute and deliver such other instruments and do and
perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements.

        Section 4.2 Agreement for Exchange of Information.

               (a) Generally. Each of the parties agrees to provide, or cause to
        be provided, to any of the other parties, at any time before or after
        the Separation Date, as soon as reasonably practicable after written
        request therefor, any Information in the possession or under the control
        of such party that the requesting party reasonably needs (i) to comply
        with reporting, disclosure, filing or other requirements imposed on the
        requesting party (including under applicable securities laws) by a
        Governmental Authority having jurisdiction over the requesting party;
        (ii) for use in any other judicial, regulatory, administrative or other
        proceeding, or in order to satisfy audit, accounting, claims,
        regulatory, litigation or other similar requirements; (iii) to comply
        with its obligations under this Agreement or any Ancillary Agreement; or
        (iv) in connection with the ongoing businesses of the Cadence Parties or
        the Tality Parties, as the case may be; provided, however, that if a
        party determines that providing its Information to the other parties
        could be commercially detrimental to such party, violate any law or
        agreement, or waive any attorney-client privilege, the parties shall
        take all reasonable measures to permit its compliance with such
        disclosure obligation in a manner that avoids any such harm or
        consequence.

               (b) Internal Accounting Controls; Financial Information. After
        the Separation Date, each party shall (i) maintain in effect at its own
        cost and expense adequate systems and controls for its business to the
        extent necessary to enable the other parties to satisfy

<PAGE>   21

        their reporting, accounting, audit and other obligations; and (ii)
        provide, or cause to be provided, to the other parties and their
        Subsidiaries in such form as requested and at no charge to the
        requesting party, all financial and other data and information as the
        requesting party determines necessary or advisable in order to prepare
        its financial statements and reports or filings with any Governmental
        Authority.

               (c) Ownership of Information. Any Information owned by a party
        that is provided to a requesting party pursuant to this Section 4.2
        shall remain the property of the providing party. Unless specifically
        set forth herein, nothing contained in this Agreement shall be construed
        as granting or conferring ownership or license rights in any such
        Information or varying an attorney-client or other privilege applicable
        to such Information.

               (d) Limitation of Liability. No member of either the Cadence
        Group or the Tality Group shall have any liability to a member of the
        Tality Group or Cadence Group, respectively, in the event that any
        Information exchanged or provided pursuant to this Section 4.2 is found
        to be incomplete or inaccurate, in the absence of gross negligence or
        willful misconduct by the party providing such Information.

               (e) Other Agreements Providing for Exchange of Information. The
        rights and obligations granted under this Section 4.2 are subject to any
        specific limitations, qualifications or additional provisions on the
        sharing, exchange or confidential treatment of Information set forth in
        this Agreement and any Ancillary Agreement, including the Master
        Confidentiality Agreement.

               (f) Production of Witnesses; Records; Cooperation. After the
        Separation Date, except in the case of a legal or other proceeding by a
        party hereto against another party hereto (which shall be governed by
        such discovery rules as may be applicable under Section 4.4 or
        otherwise), each party hereto shall use all commercially reasonable
        efforts to make available to the other parties, upon written request,
        the former, current and future directors, officers, employees, other
        personnel and agents of such party as witnesses and any books, records
        or other documents within its control or which it otherwise has the
        ability to make available, to the extent that any such person (giving
        consideration to business demands of such directors, officers,
        employees, other personnel and agents) or books, records or other
        documents may reasonably be required in connection with any legal,
        administrative or other proceeding in which the requesting party may
        from time to time be involved, regardless of whether any such legal,
        administrative or other proceeding is a matter with respect to which
        indemnification may be sought hereunder. The requesting party shall bear
        all costs and expenses in connection therewith.

        Section 4.3 Auditors and Audits; Annual and Quarterly Statements and
Accounting. For so long as Cadence is required in accordance with United States
generally accepted accounting principles to consolidate Tality's results of
operations and financial position:

               (a) Selection of Auditors. The Tality Parties shall ensure that
        the Tality Auditors are the same as the Cadence Auditors.

<PAGE>   22

               (b) Fiscal Year. The Tality Parties shall ensure that their
        fiscal years for financial, accounting and federal, state and local
        income tax purposes shall be the same as Cadence's fiscal year.

               (c) Date of Auditors' Opinion and Quarterly Reviews. The Tality
        Parties shall use all commercially reasonable efforts to enable and
        cause the Tality Auditors to complete their audit such that they shall
        date their opinion on Tality's audited annual financial statements on
        the same date that the Cadence Auditors date their opinion on Cadence's
        audited annual financial statements, and to enable Cadence to meet its
        timetable for the printing, filing and public dissemination of Cadence's
        annual financial statements. The Tality Parties shall use all
        commercially reasonable efforts to enable and cause the Tality Auditors
        to complete their quarterly review procedures such that they shall
        provide clearance on Tality's quarterly financial statements on the same
        date that Cadence's Auditors provide clearance on Cadence's quarterly
        financial statements.

               (d) Annual, Quarterly and Other Financial Statements. The Tality
        Parties shall provide to Cadence on a timely basis all Information that
        Cadence requests to meet its schedule for the preparation, printing,
        filing and public dissemination of Cadence's annual, quarterly and other
        financial statements. Without limiting the generality of the foregoing,
        the Tality Parties shall provide all required financial Information with
        respect to the Tality Parties and their Subsidiaries to the Tality
        Auditors in a sufficient and reasonable time and in sufficient detail to
        permit the Tality Auditors to take all steps and perform all reviews
        necessary to provide sufficient assistance to the Cadence Auditors with
        respect to financial Information to be included or contained in
        Cadence's annual, quarterly and other financial statements. Similarly,
        the Cadence Parties shall provide to Tality on a timely basis all
        financial Information that Tality reasonably requires to meet its
        schedule for the preparation, printing, filing and public dissemination
        of Tality's annual and quarterly financial statements. Without limiting
        the generality of the foregoing, the Cadence Parties shall provide all
        required financial Information with respect to the Cadence Parties and
        their Subsidiaries to the Cadence Auditors in a sufficient and
        reasonable time and in sufficient detail to permit the Cadence Auditors
        to take all steps and perform all reviews necessary to provide
        sufficient assistance to the Tality Auditors with respect to Information
        to be included or contained in Tality's annual and quarterly financial
        statements.

               (e) Identity of Personnel Performing the Annual Audit and
        Quarterly Reviews. The Tality Parties shall authorize the Tality
        Auditors to make available to the Cadence Auditors both the personnel
        who performed or shall perform the annual audits and quarterly reviews
        of Tality and work papers related to the annual audits and quarterly
        reviews of Tality, in all cases within a reasonable time prior to the
        Tality Auditors' opinion date, so that the Cadence Auditors are able to
        perform the procedures they consider necessary to take responsibility
        for the work of the Tality Auditors as it relates to the Cadence
        Auditors' report on Cadence's financial statements, all within
        sufficient time to enable Cadence to meet its timetable for the
        printing, filing and public dissemination of Cadence's annual and
        quarterly statements. Similarly, the Cadence Parties shall authorize the
        Cadence Auditors to make available to the Tality Auditors both the
        personnel who performed or shall perform the annual audits and quarterly
        reviews of

<PAGE>   23

        Cadence and work papers related to the annual audits and quarterly
        reviews of Cadence, in all cases within a reasonable time prior to the
        Cadence Auditors' opinion date, so that the Tality Auditors are able to
        perform the procedures they consider necessary to take responsibility
        for the work of the Cadence Auditors as it relates to the Tality
        Auditors' report on Tality's statements, all within sufficient time to
        enable Tality to meet its timetable for the printing, filing and public
        dissemination of Tality's annual and quarterly financial statements.

               (f) Access to Books and Records. The Tality Parties shall, as
        requested by Cadence, provide Cadence's internal auditors and their
        designees access to the Tality Parties' and their Subsidiaries' books
        and records so that Cadence may conduct reasonable audits relating to
        the financial statements provided by Tality pursuant hereto as well as
        to the internal accounting controls and operations of Tality and its
        Subsidiaries. Similarly, the Cadence Parties shall provide Tality's
        internal auditors and their designees access to the Cadence Parties' and
        their Subsidiaries' books and records so that Tality may conduct
        reasonable audits relating to the financial statements provided by
        Cadence pursuant hereto as well as to the internal accounting controls
        and operations of Cadence and its Subsidiaries.

               (g) Notice of Change in Accounting Principles. The Tality Parties
        shall provide Cadence with as much prior notice as reasonably
        practicable (but in no event less than 30 days notice) of any proposed
        determination of, or any significant changes in, its accounting
        estimates, principles or methods from those in effect on the Separation
        Date. The Tality Parties shall consult with Cadence and, if requested by
        Cadence, the Tality Parties shall consult with the Cadence Auditors with
        respect to any such proposed determination or change.

        Section 4.4   Dispute Resolution.

               (a) Negotiation/Mediation. If a dispute, controversy or claim (a
        "Dispute") arises between the parties or any of their Subsidiaries
        relating to the interpretation or performance of this Agreement or any
        Ancillary Agreement, or any grounds for the termination hereof, duly
        authorized officers or employees of each party shall meet to attempt in
        good faith to negotiate a resolution of the Dispute prior to pursuing
        other available remedies. The date of receipt of written notice of a
        Dispute given by either of the Tality Parties to either of the Cadence
        Parties, or vice versa, with a request for a meeting between the parties
        shall be referred to herein as the "Dispute Resolution Commencement
        Date." Discussions and correspondence relating to trying to resolve such
        Dispute shall be treated as confidential information developed for the
        purpose of settlement and shall be exempt from discovery or production
        and shall not be admissible in court or any arbitration proceeding. If
        the parties are unable to resolve the Dispute within thirty (30) days
        after the Dispute Resolution Commencement Date, and any of the parties
        wishes to pursue its rights relating to such Dispute, then the Dispute
        shall be mediated by a mutually acceptable mediator appointed pursuant
        to the mediation rules of JAMS/Endispute within thirty (30) days after
        written notice by one party to the other demanding non-binding
        mediation. No party may unreasonably withhold consent to the selection
        of a mediator or the location of the mediation. The Cadence Parties and
        the

<PAGE>   24

        Tality Parties shall share the costs of the mediation equally between
        them, except that each party shall bear its own costs and expenses,
        including attorneys' fees and expenses, witness fees and expenses,
        travel expenses and preparation costs. The parties may also agree to
        replace mediation with some other form of non-binding or binding
        alternative dispute resolution ("ADR").

               (b) Arbitration. Any Dispute which the parties cannot resolve
        through mediation within ninety (90) days after the Dispute Resolution
        Commencement Date, unless otherwise mutually agreed in writing, shall be
        submitted to final and binding arbitration under the then current
        Commercial Arbitration Rules of the American Arbitration Association
        (the "AAA"), by one (1) arbitrator in Santa Clara County, California.
        Such arbitrator shall be selected by the mutual agreement of the parties
        or, failing such agreement, shall be selected according to the aforesaid
        AAA rules. The arbitrator shall be instructed to prepare and deliver a
        written, reasoned opinion stating his decision within thirty (30) days
        of the completion of the arbitration. The prevailing party in such
        arbitration shall be entitled to expenses, including costs and
        reasonable attorneys' and other professional fees, incurred in
        connection with the arbitration (but excluding any costs and fees
        associated with prior negotiation or mediation). The decision of the
        arbitrator shall be final and non-appealable and may be enforced in any
        court of competent jurisdiction. The use of any ADR procedures shall not
        be construed under the doctrine of laches, waiver or estoppel to
        adversely affect the rights of any party.

               (c) Exceptions. Any Dispute regarding any of the following
        matters is not required to be negotiated, mediated or arbitrated prior
        to seeking relief from a court of competent jurisdiction: breach of any
        obligation of confidentiality; or any other claim where interim relief
        from the court is sought to prevent serious and irreparable injury to
        one of the parties or to others. However, the parties to the Dispute
        shall make a good faith effort to negotiate and mediate such Dispute,
        according to the above procedures, while such court action is pending.

               (d) Continuity of Service and Performance. Unless otherwise
        agreed in writing, the parties shall continue to provide service and
        honor all other commitments under this Agreement and each Ancillary
        Agreement during the course of dispute resolution pursuant to the
        provisions of this Section 4.4 with respect to all matters not subject
        to any particular Dispute.

        Section 4.5 Non-Solicitation of Employees. For a period of one (1) year
following the Separation Date, the Tality Parties agree (and shall cause their
Subsidiaries) not to solicit or recruit or hire employees of any member of the
Cadence Group, without the prior consent of Cadence's Senior Vice President of
Human Resources (or his or her designee). Notwithstanding the foregoing, this
prohibition on solicitation, recruitment or hiring shall not apply to actions
taken by any member of the Tality Group either (a) solely as a result of an
employee's affirmative response to a general recruitment effort carried out
through a public solicitation or (b) as a result of an employee's initiative.

        Section 4.6 Employee Agreements. As used in this Section 4.6, "Employee
Agreement" means the Employee Proprietary Information and Inventions Agreement
and

<PAGE>   25

corresponding agreements in foreign countries executed by each employee of
Cadence or any of its Subsidiaries.

               (a) Survival of Employee Agreement Obligations and Cadence's
        Common Law Rights. The Employee Agreements of all Cadence employees
        transferring to Tality or one of its Subsidiaries as of the Separation
        Date shall remain in full force and effect according to their terms;
        provided, however, that none of the following acts committed by former
        Cadence employees within the scope of their employment with Tality or
        one of its Subsidiaries shall constitute a breach of such Employee
        Agreements: (i) the use or disclosure of Confidential Information (as
        that term is defined in the former Cadence employee's Employee
        Agreement) for or on behalf of Tality or one of its Subsidiaries, if
        such disclosure is consistent with the rights granted to Tality and its
        Subsidiaries and restrictions imposed on Tality and its Subsidiaries
        under this Agreement or any Ancillary Agreement; (ii) the disclosure and
        assignment to Tality or one of its Subsidiaries of rights in proprietary
        developments authored or conceived by the former Cadence employee after
        the Separation Date and resulting from the use of, or based upon
        intellectual property (whether patented or not) which is retained by
        Cadence, provided that in no event shall such disclosure and assignment
        be regarded as assigning or licensing the underlying intellectual
        property to Tality or one of its Subsidiaries; (iii) the rendering of
        any services, directly or indirectly, to Tality or one of its
        Subsidiaries to the extent such services are consistent with the
        assignment or license of rights granted to Tality and the restrictions
        imposed on Tality and its Subsidiaries under this Agreement, any
        Ancillary Agreement or any other agreement between the parties; and (iv)
        solicitation of the employees of one party by the other party prior to
        the Separation Date (so long as such solicitation does not violate
        Section 4.5). Further, Cadence retains any rights it has under statute
        or common law with respect to actions by its former employees to the
        extent such actions are inconsistent with the rights granted to Tality
        and restrictions imposed on Tality under this Agreement or any Ancillary
        Agreement.

               (b) Assignment, Cooperation for Compliance and Enforcement. To
        the extent permissible under Applicable Law, the following shall apply:

                      (i) Cadence retains all rights under the Employee
               Agreements of all former Cadence employees necessary to permit
               Cadence to protect the rights and interests of Cadence, but
               hereby transfers and assigns to Tality and its Subsidiaries its
               rights under the Employee Agreements of all former Cadence
               employees to the extent required to permit Tality to enjoin,
               restrain, recover damages from or obtain specific performance of
               the Employee Agreements or obtain other remedies against any
               employee who breaches his/her Employee Agreement; provided,
               however, that if such partial transfer and assignment is not
               permissible under Applicable Law, Cadence shall be deemed to have
               transferred and assigned all such rights.

                      (ii) Each of Cadence and Tality agrees, at its own cost
               and expense, to cooperate with the other as follows: (A) Tality
               shall advise Cadence of: (1) any violation(s) of the Employee
               Agreement by former Cadence employees, and (2) any violation(s)
               of the Tality Employee Agreement which affect Cadence's

<PAGE>   26

               rights; and (B) Cadence shall advise Tality of any violations of
               the Employee Agreement by current or former Cadence employees
               which affect Tality's rights; provided, however, that the
               foregoing obligations shall only apply to violations which become
               known to an attorney within the legal department of the party
               obligated to provide notice thereof.

                      (iii) Tality may enforce all rights transferred and
               assigned to it under this Agreement relating to the Employee
               Agreements. In addition, if Cadence has retained any rights under
               the Employee Agreements, Tality shall, if requested by Cadence,
               enforce the Employee Agreements of former Cadence employees to
               the extent necessary to reasonably protect the interests of any
               member of the Cadence Group; provided, however, that Tality shall
               not commence any legal action relating thereto without first
               consulting with Cadence's General Counsel (or his/her designee).
               If Tality, in seeking to enforce any Employee Agreement, notifies
               Cadence that it requires, or desires, Cadence to join in such
               action, then Cadence shall do so. In addition, if Cadence
               commences or becomes a party to any action to enforce a Employee
               Agreement of a former Cadence employee, Cadence shall, whether or
               not it becomes a party to the action, cooperate with Tality by
               making available its files and employees who have information or
               knowledge relevant to the dispute, subject to appropriate
               measures to protect the confidentiality of any proprietary or
               confidential information that may be disclosed in the course of
               such cooperation or action and subject to any relevant privacy
               laws and regulations. Any such action shall be conducted at the
               expense of Tality and Cadence and Tality shall agree on a case by
               case basis on compensation, if any, of Cadence for the value of
               the time of Cadence employees as reasonably required in
               connection with the action.

                      (iv) Cadence and Tality understand and acknowledge that
               matters relating to the making, performance, enforcement,
               assignment and termination of employee agreements are typically
               governed by the laws and regulations of the national, federal,
               state or local governmental unit where an employee resides, or
               where an employee's services are rendered, and that such laws and
               regulations may supersede or limit the applicability or
               enforceability of this Section 4.6. In such circumstances,
               Cadence and Tality agree to take action with respect to the
               employee agreements that best accomplishes the parties'
               objectives as set forth in this Section 4.6 and that is
               consistent with applicable law.

        Section 4.7 Government and Third Party Approvals. If and to the extent
that the valid, complete and perfected transfer, assignment or novation of any
asset or liability pursuant to the Assignment Agreement would be a violation of
Applicable Law or require any Third-Party Approval or Governmental Approval in
connection with the Separation or the IPO, then, unless Cadence shall otherwise
determine, the transfer or assignment to, or novation by, the Tality Group, as
the case may be, of such assets or liabilities shall be automatically deemed
deferred and any such purported transfer, assignment or novation shall be null
and void until such time as all such Third-Party Approvals or Governmental
Approvals have been obtained. Notwithstanding the foregoing, any asset allocated
to the Partnership the transfer of which is so delayed shall still be considered
an asset of the Partnership for purposes of determining whether

<PAGE>   27

any associated liability is a liability of the Partnership; provided, however,
that if such Third-Party Approvals or Governmental Approvals have not been
obtained within six months after the Separation Date, the parties shall use all
commercially reasonable efforts to achieve an alternative solution in accordance
with the parties' intentions. Tality shall (and it shall cause its Subsidiaries
to) reimburse Cadence for all additional costs and expenses incurred by Cadence
or any other member of the Cadence Group in connection with the performance of
its obligations under this Section 4.7.

        Section 4.8 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION.]

                                    ARTICLE V

                                  MISCELLANEOUS

        Section 5.1 Limitation of Liability. IN NO EVENT SHALL ANY MEMBER OF THE
CADENCE GROUP OR TALITY GROUP BE LIABLE TO ANY MEMBER OF THE TALITY GROUP OR
CADENCE GROUP, RESPECTIVELY, FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT,
INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY
OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT
(OTHER THAN AS SET FORTH IN ARTICLE III) OR ANY ANCILLARY AGREEMENT, WHETHER OR
NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED,
HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S
INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AS SET FORTH IN THE INDEMNIFICATION
AND INSURANCE MATTERS AGREEMENT.

        Section 5.2 Entire Agreement. This Agreement, the Ancillary Agreements
and the Exhibits and Schedules referenced or attached hereto and thereto,
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and shall supersede all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof and thereof.

        Section 5.3 Governing Law. This Agreement shall be construed in
accordance with and all Disputes hereunder shall be governed by the laws of the
State of Delaware, excluding its conflict of law rules. The Superior Court of
Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Section 4.4.

        Section 5.4 Termination. This Agreement and all Ancillary Agreements may
be terminated at any time prior to the IPO Closing Date by and in the sole
discretion of Cadence without the approval or consent of Tality. This Agreement
may be terminated at any time after the IPO Closing Date by mutual consent of
Cadence and Tality. In the event of termination pursuant to this Section 5.4, no
party shall have any liability of any kind to the other party.

        Section 5.5 Notices. Notices, offers, requests or other communications
required or permitted to be given by either party pursuant to the terms of this
Agreement shall be given in writing to the respective parties to the following
addresses:

<PAGE>   28

        if to the Cadence Parties:

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

        if to the Tality Parties:

               Tality Corporation
               2655 Seely Avenue
               Building 3
               San Jose, California 95134
               Attention:  Duane W. Bell, Chief Financial Officer
               Fax: (408) 894-2605

or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified U.S. mail, return receipt requested. All other notices may
also be sent by fax, confirmed by first class mail. All notices shall be deemed
to have been given and received on the earlier of actual receipt and three (3)
days from the date of postmark.

        Section 5.6 Counterparts. This Agreement and each of the Ancillary
Agreements, and the Exhibits and Schedules hereto and thereto, and the other
documents referred to herein or therein, may be executed in counterparts, each
of which shall be deemed to be an original but all of which shall constitute one
and the same agreement.

        Section 5.7 Binding Effect; Assignment. This Agreement and each
Ancillary Agreement shall inure to the benefit of and be binding upon the
parties hereto and thereto and their respective legal representatives and
successors, and nothing in this Agreement or any Ancillary Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. No party may assign
this Agreement or any rights or obligations hereunder, without the prior written
consent of Cadence, in the case of the Tality Parties, or Tality, in the case of
the Cadence Parties (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 5.8 Severability. If any term or other provision of this
Agreement or any Ancillary Agreement, or any of the Exhibits and Schedules
attached hereto is determined by a court, administrative agency or arbitrator to
be invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being

<PAGE>   29

enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the fullest extent possible.

        Section 5.9 Failure or Delay Not Waiver; Remedies Cumulative. No failure
or delay on the part of either party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement or any Ancillary Agreement, or the Exhibits or Schedules
attached hereto or thereto are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

        Section 5.10 Amendment. No modification or amendment shall be made to
this Agreement or any Ancillary Agreement, or the Exhibits or Schedules attached
hereto or thereto, except by an instrument in writing signed on behalf of each
of the parties to such agreement.

        Section 5.11 Authority. Each of the parties hereto and each of the
Ancillary Agreements represents to the other that (a) it has the corporate or
other requisite power and authority to execute, deliver and perform this
Agreement or such Ancillary Agreement, as the case may be; (b) the execution,
delivery and performance of this Agreement and each of the Ancillary Agreements
by it have been duly authorized by all necessary corporate or other actions; (c)
it has duly and validly executed and delivered this Agreement and each of the
Ancillary Agreements; and (d) this Agreement and each of the Ancillary
Agreements is a legal, valid and binding obligation, enforceable against it in
accordance with its terms subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and general equity principles.

        Section 5.12 Interpretation. The headings contained in this Agreement
and each of the Ancillary Agreements, in any Exhibit or Schedule hereto and in
the table of contents to this Agreement and each of the Ancillary Agreements are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or such Ancillary Agreement. Any capitalized
term used in any Exhibit or Schedule hereto or to any Ancillary Agreement but
not otherwise defined therein, shall have the meaning assigned to such term in
this Agreement or such Ancillary Agreement, as the case may be. When a reference
is made in this Agreement or any Ancillary Agreement to an Article or a Section,
Exhibit or Schedule, such reference shall be to an Article or Section of, or an
Exhibit or Schedule to, this Agreement or such Ancillary Agreement, as the case
may be, unless otherwise indicated. All Exhibits and Schedules hereto and to
each Ancillary Agreement are incorporated into and made a part of this Agreement
and the applicable Ancillary Agreement, respectively. The terms "including" and
"include" employed in this Agreement or any Ancillary Agreement (including any
of the Exhibits and Schedules incorporated into and made a part of this
Agreement or any such Ancillary Agreement) mean "including, without limitation,"
and "includes, without limitation," respectively.

        Section 5.13 Conflicting Agreements. In the event of any irreconcilable
conflict between this Agreement and any Ancillary Agreement or other agreement
executed in

<PAGE>   30

connection herewith, the provisions of such Ancillary Agreement shall prevail to
the extent that they specifically address the subject matter of the conflict.

        Section 5.14 Payment of Expenses. Except as otherwise provided in this
Agreement or any of the Ancillary Agreements or any other agreement related to
the IPO, all costs and expenses of the parties hereto in connection with the
Separation and the IPO (including underwriting discounts and commissions) shall
be allocated between the Tality Parties and the Cadence Parties as determined by
Cadence in its sole and absolute discretion.

        Section 5.15 Prior Agreement Superseded. This Agreement supersedes and
replaces in its entirety the Prior Agreement, which shall no longer be of any
force or effect.

<PAGE>   31

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

CADENCE DESIGN SYSTEMS, INC.                 TALITY, LP

By:                                          By:  TALITY CORPORATION,
   --------------------------------               AS GENERAL PARTNER
Name:  William Porter
Title: Senior Vice President,                  By:
       Chief Financial Officer                    ------------------------------
                                               Name:  Robert P. Wiederhold
                                               Title: President and Chief
                                                      Executive Officer

CADENCE HOLDINGS, INC.                       TALITY CORPORATION

By:                                          By:
   --------------------------------             --------------------------------
Name:  William Porter                        Name:  Robert P. Wiederhold
Title: Treasurer                             Title: President and Chief
                                                    Executive Officer<PAGE>   1
                                                                   EXHIBIT 10.20

                               TALITY CORPORATION
                        2000 DIRECTORS STOCK OPTION PLAN

1.   PURPOSE

     The purpose of the Tality Corporation Directors Stock Option Plan (the
     "Plan") is to advance the interests of Tality Corporation, a Delaware
     corporation (hereinafter the "Company"), by enabling the Company to
     attract, retain and motivate qualified individuals to serve on the
     Company's Board of Directors and to align the financial interests of such
     individuals with those of the Company's stockholders by providing for or
     increasing their proprietary interest in the Company. The stock options
     granted pursuant to this Plan are not qualified under Section 422 of the
     Internal Revenue Code of 1986, as amended (the "Code").

2.   DEFINITIONS

     (a)  "Board" means the Board of Directors of the Company.

     (b)  "Committee" means the Board and/or a committee of the Board acting
          pursuant to its authorization to administer this Plan under Section 7.

     (c)  "Common Stock" means the Company's Class A Common Stock, as presently
          constituted, subject to adjustment as provided in Section 9.

     (d)  "Fair Market Value" means, as of any date, the mean average of the
          high and low prices of the Common Stock for each of the last 20
          trading days prior to the such date on the national securities
          exchange, national market system or other trading market on which the
          Common Stock has the highest average trading volume. In the absence of
          such market for the Common Stock, the Fair Market Value shall be
          determined in good faith by the Board.

     (e)  "Non-Employee Director" means a member of the Board who is not at the
          time also an employee of the Company or any of its direct or indirect
          majority-owned subsidiaries (regardless of whether such subsidiary is
          organized as a corporation, partnership or other entity). For purposes
          of this Plan, the Chairman of the Board's status as an employee shall
          be determined by the Board.

3.   SHARES SUBJECT TO THE PLAN

     Subject to adjustment as provided in Section 9, the maximum number of
     shares of Common Stock which may be issued pursuant to this Plan shall not
     exceed Six Hundred Seventy-Five Thousand (675,000). Shares issued under
     this Plan may be authorized and unissued shares of Common Stock or shares
     of Common Stock reacquired by the Company. All or any shares of Common
     Stock subject to a stock option which for any reason are not issued or are
     reacquired under the stock option may again be made subject to a stock
     option under the Plan.

<PAGE>   2

4.   PARTICIPANTS

     Any person who is a Non-Employee Director shall be eligible for the award
     of stock options hereunder. Non-Employee Directors who are granted stock
     options hereunder shall be referred to as "Participants."

5.   NON-EMPLOYEE DIRECTOR AWARDS

     (a)  Each person who becomes a Non-Employee Director during any calendar
          year shall, upon election to the Board, automatically be granted an
          option to purchase 50,000 shares of Common Stock. If such person is
          also elected as the Chairman of the Board, such person shall, upon
          election as Chairman of the Board, automatically be granted an
          additional option to purchase 50,000 shares of Common Stock.

     (b)  Other than the calendar year in which such person becomes a
          Non-Employee Director, each Non-Employee Director, on July 1 of each
          calendar year, beginning July 1, 2001, shall automatically be granted
          an option to purchase 12,500 shares of Common Stock. In addition, if
          such Non-Employee Director is serving as Chairman of the Board, such
          Non-Employee Director shall automatically be granted an option to
          purchase an additional 12,500 shares of Common Stock.

     6.   TERMS AND CONDITIONS OF STOCK OPTIONS

     (a)  General Terms and Conditions: Stock options awarded pursuant to the
          Plan need not be identical but each stock option shall be subject to
          the following general terms and conditions:

          (1)  Terms and Restrictions Upon Shares: The Board may provide that
               the shares of Common Stock issued upon exercise of a stock option
               shall be subject to such further conditions, restrictions or
               agreements as the Board in its discretion may specify prior to
               the exercise of such stock option, including without limitation,
               deferrals on issuance, conditions on vesting or transferability,
               and forfeiture or repurchase provisions. The Committee may
               establish rules for the deferred delivery of Common Stock upon
               exercise of a stock option with the deferral evidenced by use of
               "Stock Units" equal in number to the number of shares of Common
               Stock whose delivery is so deferred. A "Stock Unit" is a
               bookkeeping entry representing an amount equivalent to the Fair
               Market Value of one share of Common Stock. Stock Units represent
               an unfunded and unsecured obligation of the Corporation except as
               otherwise provided by the Board. Settlement of Stock Units upon
               expiration of the deferral period shall be made in Common Stock
               or otherwise as determined by the Committee. The amount of Common
               Stock, or other settlement medium, to be so distributed may be
               increased by an interest factor or by dividend equivalents. Until
               a Stock Unit is settled, the number of shares of Common Stock
               represented by a Stock Unit shall be subject to adjustment
               pursuant to Section 9.

                                       2

<PAGE>   3

          (2)  Transferability of Option: Unless otherwise provided by the
               Committee, each stock option shall be transferable only by will
               or the laws of descent and distribution.

          (3)  Vesting. Options granted pursuant to Section 5 shall vest over a
               four year period, with 25% of each option vesting on the first
               through fourth anniversaries of the date of grant of such option.

          (4)  Other Terms and Conditions: No holder of a stock option shall
               have any rights as a stockholder with respect to any shares of
               Common Stock subject to a stock option hereunder until said
               shares have been issued. Stock options may also contain such
               other provisions, which shall not be inconsistent with any of the
               foregoing terms, as the Board or the Committee shall deem
               appropriate. The Board may waive conditions to and/or accelerate
               exercisability of a stock option, either automatically upon the
               occurrence of specified events (including in connection with a
               change of control of the Company) or otherwise in its discretion.
               No stock option, however, nor anything contained in the Plan,
               shall confer upon any Participant any right to serve as a
               director of the Company.

     (b)  Stock Option Price: The exercise price for each stock option shall be
          established by the Board or under a formula established by the Board.
          The exercise price shall not be less than the Fair Market Value of the
          stock on the date of grant. The exercise price shall be payable in
          cash, by payment under an arrangement with a broker where payment is
          made pursuant to an irrevocable direction to the broker to deliver all
          or part of the proceeds from the sale of the option shares to the
          Company, by the surrender of shares of Common Stock owned by the
          optionholder exercising the option and having a fair market value on
          the date of exercise equal to the exercise price but only if such will
          not result in an accounting charge to the Company, or by any
          combination of the foregoing. In addition, the exercise price shall be
          payable in such other form(s) of consideration as the Committee in its
          discretion shall specify, including without limitation by loan (as
          described in Section 8) or by techniques that may result in an
          accounting charge to the Company. For the purposes of determining the
          fair market value of shares of Common Stock surrendered to pay the
          exercise price of an option, "fair market value" shall mean the
          average of the high and low prices of the Common Stock on the last
          trading day preceding the date of delivery of such Common Stock to the
          Company on the national securities exchange, national market system or
          other trading market on which the Common Stock has the highest average
          trading volume.

7.   ADMINISTRATION OF THE PLAN

     The Plan shall be administered by the Board, except that as provided herein
     the Plan may be administered by a Committee of the Board, as appointed from
     time to time by the Board. The Board shall fill vacancies on and from time
     to time may remove or add members to the Committee. The Committee shall act
     pursuant to a majority vote or unanimous written consent.

                                       3

<PAGE>   4

     Subject to the express provisions of this Plan, the Committee shall be
     authorized and empowered to do all things necessary or desirable in
     connection with the administration of this Plan, including, without
     limitation: (a) to prescribe, amend and rescind rules relating to this Plan
     and to define terms not otherwise defined herein; (b) to prescribe the form
     of documentation used to evidence any stock option awarded hereunder,
     including provision for such terms as it considers necessary or desirable,
     not inconsistent with the terms established by the Board; (c) to establish
     and verify the extent of satisfaction of any conditions to exercisability
     applicable to stock options; (d) to determine whether, and the extent to
     which, adjustments are required pursuant to Section 9 hereof; and (e) to
     interpret and construe this Plan, any rules and regulations under the Plan
     and the terms and conditions of any stock option awarded hereunder, and to
     make exceptions to any procedural provisions in good faith and for the
     benefit of the Company. Notwithstanding any provision of this Plan, the
     Board may at any time limit the authority of the Committee to administer
     this Plan.

     All decisions, determinations and interpretations by the Board or, except
     as to the Board, the Committee, regarding the Plan, any rules and
     regulations under the Plan and the terms and conditions of any stock option
     awarded hereunder, shall be final and binding on all Participants and
     holders of stock options. The Board and the Committee may consider such
     factors as it deems relevant, in its sole and absolute discretion, in
     making such decisions, determinations and interpretations including,
     without limitation, the recommendations or advice of any officer or other
     employee of the Company and such attorneys, consultants and accountants as
     it may select.

8.   LOANS

     The Company may, if authorized by the Board, make loans for the purpose of
     enabling a Participant to exercise stock options and to pay the tax
     liability resulting from a stock option exercise under the Plan. The Board
     shall have full authority to determine the terms and conditions of such
     loans. Such loans may be secured by the shares of Common Stock received
     upon exercise of such stock option.

9.   ADJUSTMENT OF AND CHANGES IN THE STOCK

     If the outstanding securities of the class then subject to this Plan are
     increased, decreased or exchanged for or converted into cash, property or a
     different number or kind of shares or securities, or if cash, property or
     shares or securities are distributed in respect of such outstanding
     securities, in either case as a result of a reorganization,
     reclassification, dividend (other than a regular cash dividend) or other
     distribution, stock split, reverse stock split, spin-off or the like, or if
     substantially all of the property and assets of the Company are sold, then,
     unless the terms of such transaction shall provide otherwise, the maximum
     number and type of shares or other securities that may be issued under this
     Plan shall be appropriately adjusted. The Committee shall determine in its
     sole discretion the appropriate adjustment to be effected pursuant to the
     immediately preceding sentence. In addition, in connection with any such
     change in the class of securities then subject to this Plan, the Committee
     may make appropriate and proportionate adjustments in the number

                                       4

<PAGE>   5

     and type of shares or other securities or cash or other property that may
     be acquired pursuant to stock options theretofore awarded under this Plan
     and the exercise price of such stock options.

     No right to purchase or receive fractional shares shall result from any
     adjustment in stock options pursuant to this Section 9. In case of any such
     adjustment, the shares subject to the stock option shall be rounded up to
     the nearest whole share of Common Stock.

10.  REGISTRATION, LISTING OR QUALIFICATION OF STOCK

     In the event that the Board or the Committee determines in its discretion
     that the registration, listing or qualification of the shares of Common
     Stock issuable under the Plan on any securities exchange or under any
     applicable law or governmental regulation is necessary as a condition to
     the issuance of such shares under the stock option, the stock option shall
     not be exercisable or exercised in whole or in part unless such
     registration, listing, qualification, consent or approval has been
     unconditionally obtained.

11.  TAXES

     The Board or Committee may make such provisions or impose such conditions
     as it may deem appropriate for the withholding or payment by a Participant
     of any taxes which it determines are necessary or appropriate in connection
     with any issuance of shares under this Plan, and the rights of a holder of
     a stock option in any shares are subject to satisfaction of such
     conditions. The Company shall not be required to issue shares of Common
     Stock or to recognize the disposition of such shares until such obligations
     are satisfied. At the Participant's election, any such obligations may be
     satisfied by having the Company withhold a portion of the shares of Common
     Stock that otherwise would be issued to the holder of the stock option upon
     exercise of the stock option or by surrendering to the Company shares of
     Common Stock previously acquired. The Company and any affiliate of the
     Company shall not be liable to a Participant or any other persons as to any
     tax consequence expected, but not realized, by any Participant or other
     person due to the receipt of any stock options awarded hereunder.

12.  EFFECTIVE DATE, AMENDMENT AND TERMINATION OF PLAN

     This Plan shall become effective upon its approval by a majority of the
     outstanding shares of the Company in accordance with applicable law. Any
     stock options awarded prior to the such date shall be contingent on such
     approval and, if such approval is not obtained, shall be null and of no
     effect.

     Unless earlier suspended or terminated by the Board, no stock options may
     be awarded after the tenth anniversary of the date the Plan is approved by
     the Company's stockholders. The Board may periodically amend the Plan as
     determined appropriate, without further action by the Company's
     stockholders except to the extent required by applicable law.
     Notwithstanding the foregoing, and subject to adjustment pursuant to
     Section 9, the Plan may not be amended to materially increase the number of
     shares of Common Stock authorized for issuance under

                                       5

<PAGE>   6

     the Plan, unless any such amendment is approved by the Company's
     stockholders. The Plan may be earlier terminated at such earlier time as
     the Board may determine. Termination and expiration of the Plan will not
     affect the rights and obligations arising under stock options theretofore
     awarded and then in effect.

                                       6

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