<SUBMISSION>
<ACCESSION-NUMBER>0000950134-04-011901
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>13
<PERIOD>20040703
<FILING-DATE>20040810
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>CADENCE DESIGN SYSTEMS INC
<CIK>0000813672
<ASSIGNED-SIC>7372
<IRS-NUMBER>770148231
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0102
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-10606
<FILM-NUMBER>04964262
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2655 SEELY ROAD BLDG 5
<CITY>SAN JOSE
<STATE>CA
<ZIP>95134
<PHONE>4089431234
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>555 RIVER OAKS PARKWAY
<CITY>SAN JOSE
<STATE>CA
<ZIP>95134
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ECAD INC /DE/
<DATE-CHANGED>19880609
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>f01031e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
 <B><FONT size="5">UNITED STATES</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="5">SECURITIES AND EXCHANGE COMMISSION</FONT></B>
</DIV>

<DIV align="center">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<P align="center">
<HR size="1" width="41%" align="center" noshade>

<P align="center">
<B><FONT size="5">FORM 10-Q</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <FONT size="2">(Mark One)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><B><FONT size="2"><FONT face="wingdings">&#120;</FONT></FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <B><FONT size="2">QUARTERLY REPORT PURSUANT TO SECTION&nbsp;13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5" align="center" valign="top">
    <B><FONT size="2">For the quarterly period ended July&nbsp;3,
    2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5" align="center" valign="top">
    <B><FONT size="2">OR</FONT></B></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><B><FONT size="2"><FONT face="wingdings">&#111;</FONT></FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <B><FONT size="2">TRANSITION REPORT PURSUANT TO SECTION&nbsp;13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5" align="center" valign="top">
    <B><FONT size="2">For the transition period
    from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5" align="center" valign="top">
    <B><FONT size="2">Commission file number&nbsp;1-10606</FONT></B></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<HR size="1" width="41%" align="center" noshade>

<P align="center">
<B><FONT size="5">CADENCE DESIGN SYSTEMS, INC.</FONT></B>

<DIV align="center">
<FONT size="2">(Exact name of Registrant as Specified in Its
Charter)
</FONT>
</DIV>

<P align="center">
<HR size="1" width="41%" align="center" noshade>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Delaware</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">77-0148231</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <FONT size="2">(State or Other Jurisdiction of<BR>
    Incorporation or Organization)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">(I.R.S. Employer<BR>
    Identification No.)
    </FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">2655 Seely Avenue, Building&nbsp;5,
    San&nbsp;Jose, California</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">95134</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <FONT size="2">(Address of Principal Executive Offices)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">(Zip Code)
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <B><FONT size="2">(408)&nbsp;943-1234<BR>
    </FONT></B><FONT size="2">Registrant&#146;s Telephone Number,
    including Area Code
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<HR size="1" width="41%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Indicate by check mark whether the registrant
(1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12&nbsp;months (or for such shorter period
that the registrant was required to file such reports), and
(2)&nbsp;has been subject to such filing requirements for the
past
90&nbsp;days.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<U>&nbsp;X&nbsp;</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule&nbsp;12b-2 of the
Exchange
Act).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<U>&nbsp;X&nbsp;</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;3, 2004, 269,681,400&nbsp;shares of
the registrant&#146;s common stock, $0.01&nbsp;par value, were
outstanding.
</FONT>

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<P><HR noshade><P>

<DIV align="left">

</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">INDEX</FONT></B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="22%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">&nbsp;<A HREF='#101'>PART&nbsp;I.</A></FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">&nbsp;<A HREF='#101'>FINANCIAL
    INFORMATION</A></FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#102'>Item&nbsp;1.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#102'>Financial Statements:</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#103'>Condensed Consolidated
    Balance Sheets:</A><BR>
    July&nbsp;3, 2004 and January&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#104'>Condensed Consolidated
    Statements of Operations:</A><BR>
    Three and Six Months Ended July&nbsp;3, 2004 and June&nbsp;28,
    2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#105'>Condensed Consolidated
    Statements of Cash Flows:</A><BR>
    Six Months Ended July&nbsp;3, 2004 and June&nbsp;28, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#106'>Notes to Condensed
    Consolidated Financial Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#107'>Item&nbsp;2.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#107'>Management&#146;s Discussion
    and Analysis of Financial Condition and Results of Operations</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#108'>Item&nbsp;3.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#108'>Quantitative and Qualitative
    Disclosures About Market Risk</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#109'>Item&nbsp;4.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#109'>Controls and Procedures</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">&nbsp;<A HREF='#110'>PART&nbsp;II.</A></FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">&nbsp;<A HREF='#110'>OTHER
    INFORMATION</A></FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#111'>Item&nbsp;1.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#111'>Legal Proceedings</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#112'>Item&nbsp;2.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#112'>Changes in Securities and
    Use of Proceeds</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#113'>Item&nbsp;3.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#113'>Defaults Upon Senior
    Securities</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#114'>Item&nbsp;4.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#114'>Submission of Matters to a
    Vote of Security Holders</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#115'>Item&nbsp;5.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#115'>Other Information</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#116'>Item&nbsp;6.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#116'>Exhibits and Reports on
    Form&nbsp;8-K</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="8"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#117'>Signatures</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv10w01.txt">EXHIBIT 10.01</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv10w02.txt">EXHIBIT 10.02</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv10w16.txt">EXHIBIT 10.16</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv10w32.txt">EXHIBIT 10.32</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv10w78.txt">EXHIBIT 10.78</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv10w79.txt">EXHIBIT 10.79</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv10w80.txt">EXHIBIT 10.80</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv10w81.txt">EXHIBIT 10.81</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv31w01.txt">EXHIBIT 31.01</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv31w02.txt">EXHIBIT 31.02</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv32w01.txt">EXHIBIT 32.01</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f01031exv32w02.txt">EXHIBIT 32.02</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center">

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='101'></A>
</DIV>

<!-- link1 "PART I. FINANCIAL INFORMATION" -->

<P align="left">
<B><FONT size="2">PART&nbsp;I. FINANCIAL INFORMATION</FONT></B>

<DIV align="left">
<A name='102'></A>
</DIV>

<!-- link1 "Item 1. Financial Statements" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Item&nbsp;1. Financial Statements</FONT></B></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS, INC.</FONT></B>

<DIV align="left">
<A name='103'></A>
</DIV>

<!-- link1 "CONDENSED CONSOLIDATED BALANCE SHEETS" -->

<DIV align="center">
<B><FONT size="2">CONDENSED CONSOLIDATED BALANCE
SHEETS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(In thousands)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Unaudited)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">ASSETS</FONT></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;3,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current Assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">389,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">384,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">33,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables, net of allowance for doubtful
    accounts of $9,328 and $9,067, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,631</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">348,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">16,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">58,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">854,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">842,241</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">398,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">403,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">984,690</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">922,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,503</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">237,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Installment contract receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">121,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">239,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">289,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,795,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2,817,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="11" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">243,450</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,580</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">238,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">504,096</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">481,928</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-Term Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term portion of deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">16,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">420,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">290,050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">327,406</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">724,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">763,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; Equity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock and capital in excess of par value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,047,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,034,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(56,592</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(48,856</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retained earnings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">561,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">566,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,567,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,572,281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Liabilities and Stockholders&#146; Equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,795,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2,817,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these Condensed Consolidated Financial Statements.
</FONT>

<P align="center"><FONT size="2">1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS, INC.</FONT></B>

<DIV align="left">
<A name='104'></A>
</DIV>

<!-- link1 "CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS" -->

<DIV align="center">
<B><FONT size="2">CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(In thousands, except per share
amounts)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Unaudited)</FONT></B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,774</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,540</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">287,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,581</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">552,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">539,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs and Expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,043</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,465</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,170</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,133</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">161,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178,241</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">173,498</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,784</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,021</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock
    compensation&nbsp;(A)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,929</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total costs and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">277,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">550,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">550,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,803</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,699</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(640</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,256</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,314</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,898</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,844</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,407</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before provision (benefit) for
    income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,999</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,474</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,524</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,695</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,182</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,952</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,342</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">272,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">272,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common and potential common
    shares outstanding &#150;&nbsp;&#150; assuming dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">278,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">272,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="19" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD colspan="19" align="left" valign="top">
    <FONT size="2">(A)&nbsp;Amortization of deferred stock
    compensation would be further classified as follows:
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,081</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,771</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,877</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">509</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these Condensed Consolidated Financial Statements.
</FONT>

<P align="center"><FONT size="2">2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='105'></A>
</DIV>

<!-- link1 "CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS" -->

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(In thousands)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Unaudited)</FONT></B>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and Cash Equivalents at Beginning of Period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">384,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">371,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash Flows from Operating Activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,952</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(18,342</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net loss to net cash
    provided by operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">95,215</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">13,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in loss from investments, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain on sale of investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of investment securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from the sale of receivables
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">27,880</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provisions for losses on trade accounts
    receivable and sales returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">13,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other non-cash items
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(263</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3,249</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in operating assets and liabilities, net
    of effect of acquired businesses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(174</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(5,078</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,218</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(1,663</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,968</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(2,859</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Installment contract receivables
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,741</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(33,529</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20,953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,789</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(89,712</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,885</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(6,802</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">8,393</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">161,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">40,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash Flows from Investing Activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from sale and maturities of short-term
    investments &#150;&nbsp;&#150; available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from the sale of long-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from sale of equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,688</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(40,105</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of software licenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(650</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(2,282</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investment in venture capital partnerships and
    equity investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,417</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(9,402</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash paid in business combinations, net of cash
    acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(96,803</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(102,353</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used for investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(130,434</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(154,142</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash Flows from Financing Activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from credit facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">45,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Principal payments on credit facility and capital
    leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(321</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(63,247</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of convertible notes issuance costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,920</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from issuance of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">28,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of treasury stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(69,846</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(61,964</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used for financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,221</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(51,415</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of exchange rate changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(164,114</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and Cash Equivalents at End of Period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">389,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">207,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these Condensed Consolidated Financial Statements.
</FONT>

<P align="center"><FONT size="2">3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS, INC.</FONT></B>

<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)" -->

<DIV align="center">
<B><FONT size="2">NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Unaudited)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;1.</FONT></B></TD>
    <TD>
    <B><FONT size="2">BASIS OF PRESENTATION</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Condensed Consolidated Financial Statements
included in this Quarterly Report have been prepared by Cadence
Design Systems, Inc., or Cadence, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included
in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, Cadence
believes that the disclosures contained in this Quarterly Report
comply with the requirements of Section&nbsp;13(a) of the
Securities Exchange Act of 1934, as amended, for a Quarterly
Report on Form&nbsp;10-Q and are adequate to make the
information presented not misleading. These Condensed
Consolidated Financial Statements are meant to be, and should
be, read in conjunction with the Consolidated Financial
Statements and the notes thereto included in Cadence&#146;s
Annual Report on Form&nbsp;10-K for the fiscal year ended
January&nbsp;3, 2004, or the 2003 Annual Report.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unaudited Condensed Consolidated Financial
Statements included in this Quarterly Report reflect all
adjustments (which include only normal, recurring adjustments
and those items discussed in these Notes) that are, in the
opinion of management, necessary to state fairly the results for
the periods presented. The results for such periods are not
necessarily indicative of the results to be expected for the
full fiscal year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Preparation of the Condensed Consolidated
Financial Statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the Condensed Consolidated Financial Statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Restatement</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In Cadence&#146;s 2003 Annual Report, Cadence
restated its Consolidated Financial Statements as of and for the
fiscal year ended December&nbsp;28, 2002, and for the first
three quarters of fiscal 2003. The accompanying Condensed
Consolidated Financial Statements present restated results for
the three and six months ended June&nbsp;28, 2003. For the three
and six months ended June&nbsp;28, 2003, adjustments were made
to income (loss) on equity investments, amortization of deferred
stock compensation, revenue, amortization of internally
developed software, foreign currency transaction gains (losses),
Other expense, net, and the tax effect of these restatement
adjustments. Adjustments were also made to reclassify
amortization of certain intangible assets from Amortization of
acquired intangibles to Cost of product, Cost of services and
Cost of maintenance.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;2.</FONT></B></TD>
    <TD>
    <B><FONT size="2">STOCK-BASED COMPENSATION</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below provides a pro forma illustration
of the financial results of operations as if Cadence had
accounted for its grants of employee stock options under the
fair value method of Statement of Financial Accounting
Standards, or SFAS, No.&nbsp;123, &#147;Accounting for
Stock&nbsp;&#150;&nbsp;Based Compensation&#148;. The impact of
employee stock options on the pro forma financial results of
operations was estimated at the date of grant using the
Black-Scholes option pricing model. Cadence used expected
volatility, as well as other economic data, to estimate the
volatility for the option grants during the three and six months
ended July&nbsp;3, 2004 and June&nbsp;28, 2003, because
management believes the amount yielded by this method is
representative of prospective trends. Cadence determined the
estimated fair values of its options granted and shares
purchased under its employee
</FONT>

<P align="center"><FONT size="2">4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">stock purchase plans, or ESPPs, for the three and
six months ended July&nbsp;3, 2004 and June&nbsp;28, 2003 using
the following weighted average assumptions assuming a dividend
yield of zero for all periods:
</FONT>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Stock Options</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risk-free interest rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.62%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.36%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.34%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.36%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Volatility of the expected market price of
    Cadence&#146;s common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average expected life of an option
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Employee Stock</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Purchase Plans</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risk-free interest rate, based on weighted average
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.01%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Volatility of the expected market price of
    Cadence&#146;s common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average expected life of ESPP shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5&nbsp; Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table illustrates the effect on net
income (loss) and net income (loss) per share as if Cadence had
applied the fair value recognition provisions of SFAS
No.&nbsp;123 &#147;Accounting for Stock-Based Compensation&#148;
to stock-based compensation:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,952</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,342</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add: Stock-based employee compensation expense
    included in reported Net income (loss), net of related tax
    effects
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,892</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deduct: Stock-based employee compensation expense
    determined under fair-value method for all awards, net of
    related tax effects
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,330</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,581</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(40,097</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(57,119</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,060</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32,336</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,569</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted net income (loss) per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(.08</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;3.</FONT></B></TD>
    <TD>
    <B><FONT size="2">ACQUISITIONS</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Neolinear, Inc.</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2004, Cadence acquired Neolinear, Inc.,
or Neolinear, a privately-held developer of rapid analog design
technology. Cadence purchased Neolinear to acquire key personnel
and technology. As discussed in Note&nbsp;5, prior to the
acquisition Cadence held an equity investment in Neolinear of
approximately $3&nbsp;million, representing a 12% ownership. In
accordance with SFAS&nbsp;No.&nbsp;141, &#147;Business
Combinations,&#148; Cadence accounted for the acquisition of
Neolinear as a step acquisition. The aggregate initial purchase
price was $78.1&nbsp;million, which included the payment of
cash, the fair value of assumed options and acquisition costs.
The purchase price and goodwill will increase if certain
performance goals related to revenue targets and
</FONT>

<P align="center"><FONT size="2">5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">product development are achieved over a period of
approximately four years following the acquisition.
Neolinear&#146;s results of operations and the estimated fair
values of the assets acquired and liabilities assumed have been
included in Cadence&#146;s Condensed Consolidated Financial
Statements from the date of acquisition.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the preliminary
allocation of the purchase price for Neolinear and the estimated
amortization period for the acquired intangibles:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing technology (five-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Backlog (three-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patents (five-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-compete agreements (three-year
    weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks (five-year weighted-average useful
    life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,762</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,545</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,091</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $7.0&nbsp;million of purchase price allocated
to acquired in-process technology was determined through
established valuation techniques. The acquired in-process
technology was immediately expensed because technological
feasibility had not been established, and no future alternative
use exists. The write-off of acquired in-process technology is a
component of operating expenses in the Condensed Consolidated
Statements of Operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $38.3&nbsp;million of goodwill was assigned
to the Product segment. The goodwill is not expected to be
deductible for income tax purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Comparative pro forma financial information for
the acquisition of Neolinear has not been presented because the
results of operations were not material to Cadence&#146;s
Consolidated Financial Statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Acquisition-Related Earnouts</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For a number of Cadence&#146;s acquisitions,
payment of a portion of the purchase price is contingent upon
the acquired entity&#146;s achievement of certain performance
goals, which relate to one or more of the following criteria:
revenue, bookings, product proliferation, product development,
and employee retention. The specific performance goal levels,
and amounts and timing of contingent purchase price payments,
vary with each acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the three months ended July&nbsp;3, 2004,
Cadence recorded $18.4&nbsp;million of goodwill as contingent
purchase price to stockholders of acquired companies. The
$18.4&nbsp;million of goodwill consisted of $9.6&nbsp;million of
cash payments, $2.3&nbsp;million of accrued cash payments, and
the issuance of shares of common stock valued at
$6.5&nbsp;million.
</FONT>

<P align="center"><FONT size="2">6
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the six months ended July&nbsp;3, 2004,
Cadence recorded $28.3&nbsp;million of goodwill as contingent
purchase price to stockholders of acquired companies. The
$28.3&nbsp;million of goodwill consisted of $9.6&nbsp;million of
cash payments, $2.3&nbsp;million of accrued cash payments and
the issuance of shares of common stock valued at
$16.4&nbsp;million. In addition, during the six months ended
July&nbsp;3, 2004, Cadence recognized deferred stock
compensation of $1.3&nbsp;million in connection with these
acquisitions and in accordance with Financial Accounting
Standards Board Interpretation No.&nbsp;44, &#147;Accounting for
Certain Transactions Involving Stock Compensation (an
Interpretation of APB No.&nbsp;25)&#148;.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;4.</FONT></B></TD>
    <TD>
    <B><FONT size="2">GOODWILL AND ACQUIRED INTANGIBLES</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Goodwill</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in the carrying amount of goodwill
for the six months ended July&nbsp;3, 2004 were as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Product</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Services</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Segment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Segment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance as of January&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">792,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">922,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill resulting from acquisitions during the
    year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additions due to earnouts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,749</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,749</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance as of July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">854,549</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">984,690</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the six months ended July&nbsp;3, 2004,
Cadence recorded other adjustments of $4.7&nbsp;million in the
carrying amount of goodwill, primarily as a result of a decrease
in the initial purchase price totaling $3.8&nbsp;million related
to the 2003 acquisition of Celestry Design Technologies, Inc.
and $0.8&nbsp;million related to the 2003 acquisition of
Get2Chip.com, Inc.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Acquired Intangibles, net</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Acquired intangibles with finite lives as of
July&nbsp;3, 2004 and January&nbsp;3, 2004 were as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">As of July&nbsp;3, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">As of January&nbsp;3, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing technology and backlog
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">584,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(396,061</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.9&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">528,857</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(352,727</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.9&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Agreements and relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,385</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.6&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,139</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.9&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Distribution rights
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,010</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.0&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,505</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.5&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tradenames/ trademarks/ patents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,034</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,528</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.5&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,758</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.3&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">663,487</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(418,984</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.8&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">605,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(368,129</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.9&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">7
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the three months ended July&nbsp;3, 2004,
amortization of acquired intangibles was $26.4&nbsp;million as
compared to $26.0&nbsp;million for the same period in 2003. For
the six months ended July&nbsp;3, 2004, amortization of acquired
intangibles was $52.6&nbsp;million as compared to
$51.3&nbsp;million for the same period in 2003.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated future amortization expense is as
    follows (in thousands):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004&nbsp;&#150; remaining periods
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,477</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total estimated amortization expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,503</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amortization of costs from existing technology is
included in Cost of product and Cost of services. Amortization
of costs from acquired maintenance contracts is included in Cost
of maintenance.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;5.</FONT></B></TD>
    <TD>
    <B><FONT size="2">MARKETABLE AND NON-MARKETABLE INVESTMENT
    SECURITIES</FONT></B></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><FONT size="2">Marketable Securities</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence accounts for its marketable securities as
available-for-sale and classifies them as Short-term investments
in the Condensed Consolidated Balance Sheets. There were no net
recognized gains or losses from sales of marketable securities
during the three months ended July&nbsp;3, 2004. Net recognized
gains from the sale of marketable securities were
$3.3&nbsp;million for the six months ended July&nbsp;3, 2004.
There were no net recognized gains or losses from sales of
marketable securities for the three and six months ended
June&nbsp;28, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There were no recognized losses from
other-than-temporary declines in the market value of marketable
securities for the three months ended July&nbsp;3, 2004.
Recognized losses from other-than-temporary declines in the
market value of marketable securities totaled $0.7&nbsp;million
in the six months ended July&nbsp;3, 2004. There were no
recognized losses from other-than-temporary declines in market
value of marketable securities in the three and six months ended
June&nbsp;28, 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Non-Marketable Securities</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence uses either the cost or equity method of
accounting for its long-term, non-marketable investment
securities included in Other assets in the Condensed
Consolidated Balance Sheets. Cadence recorded net gains of
$2.7&nbsp;million and $4.0&nbsp;million from the sale of
non-marketable investment securities during the three and six
months ended July&nbsp;3, 2004, respectively. There were no
recognized gains or losses on the sale of non-marketable
investment securities during the three and six months ended
June&nbsp;28, 2003. If Cadence determines that an
other-than-temporary decline in fair value exists for a
non-marketable equity security, Cadence writes down the
investment to its fair value and records the related write-down
as an investment loss in its Condensed Consolidated Statements
of Operations.
</FONT>

<P align="center"><FONT size="2">8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the carrying value
of Cadence&#146;s non-marketable securities made directly by
Cadence or indirectly through Telos Venture Partners L.P., Telos
Venture Partners&nbsp;II, L.P., and Telos Venture
Partners&nbsp;III, L.P.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;3,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-Marketable
    Securities&nbsp;&#150;&nbsp;Application of Cost Method
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,688</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-Marketable
    Securities&nbsp;&#150;&nbsp;Application of Equity Method
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Cost Method Investments</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence recorded no write-downs due to
other-than-temporary declines in value of its cost method
investments during the three months ended July&nbsp;3, 2004.
Cadence recorded write-downs due to other-than-temporary
declines in value of its cost method investments of
$1.2&nbsp;million during the six months ended July&nbsp;3, 2004.
Cadence recorded write-downs due to other-than-temporary
declines in value of $3.0&nbsp;million and $4.5&nbsp;million
during the three and six months ended June&nbsp;28, 2003,
respectively. These write-downs are included in Other expense,
net, in the Condensed Consolidated Statements of Operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Equity Method Investments</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the first six months of 2004,
Cadence&#146;s voting interest ranged from approximately 10% to
49% of the following privately-held companies, which Cadence
accounted for under the equity method of accounting: Accent
S.r.l., Ammocore Technology, Inc., Clear Shape Technologies,
Inc., Coventor, Inc., CoWare, Inc., E-Z-CAD, Inc., Fyre Storm,
Inc., Hierarchical Design, Inc., Integrated Memory Logic, Inc.,
iReady Corporation, Neolinear, Inc., Rio Design Automation,
Inc., Theta Microelectronics, Inc. and ZCIST Co., Ltd. On
April&nbsp;15, 2004, Cadence acquired all of the outstanding
capital stock of Neolinear, Inc., as more fully described in
Note&nbsp;3.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the first six months of 2003,
Cadence&#146;s voting interest ranged from approximately 10% to
49% of the following privately-held companies, which Cadence
accounted for under the equity method of accounting: Accent
S.r.l., Ammocore Technology, Inc., Coventor, Inc., Fyre Storm,
Inc., Hierarchical Design, Inc., Integrated Memory Logic, Inc.,
iReady Corporation, Neolinear, Inc., Theta Microelectronics,
Inc., and ZCIST Co., Ltd.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents summary financial
data of our equity method investments for the three and six
months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Three Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Six Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24,053</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(52,610</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,768</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,292</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,746</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,258</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with the equity method of
accounting, Cadence records its proportional share of the
investee gains or losses in Other expense, net. Cadence records
its interest in equity method gains and losses in the quarter
following occurrence because it is not practicable to obtain
investee financial statements prior to the issuance of
Cadence&#146;s Condensed Consolidated Financial Statements.
Cadence&#146;s proportional share of net losses was
$6.1&nbsp;million and $12.4&nbsp;million for the three and six
months ended July&nbsp;3, 2004, respectively. Cadence&#146;s
proportional share of net losses was $3.6&nbsp;million and
$5.4&nbsp;million for the three and six months
</FONT>

<P align="center"><FONT size="2">9
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">ended June&nbsp;28, 2003, respectively. As of
July&nbsp;3, 2004, the difference between the carrying value of
Cadence&#146;s investments in the investee companies and
Cadence&#146;s share of the underlying net assets of the
investee companies was immaterial.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;6.</FONT></B></TD>
    <TD>
    <B><FONT size="2">RESTRUCTURING AND OTHER CHARGES</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence initiated a separate plan of
restructuring in each year beginning in 2001, in an effort to
reduce operating expenses and improve operating margins and cash
flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The restructuring plans initiated in 2001 through
2003, or the 2001 Restructuring, 2002 Restructuring and 2003
Restructuring, were intended to decrease costs by reducing
workforce and consolidating facilities and resources, to align
Cadence&#146;s cost structure with expected revenues. The 2001
and 2002 Restructurings primarily related to Cadence&#146;s
design services business and certain other
business/infrastructure groups throughout the world. The 2003
Restructuring was targeted at reducing costs throughout the
company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the first quarter of 2004, Cadence
commenced a new plan of restructuring, or the 2004
Restructuring, which was also intended to decrease costs and
realize efficiencies by reducing workforce and resources
throughout the company to align Cadence&#146;s cost structure
with projected revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The asset-related portion of the 2004
Restructuring was accounted for in accordance with
SFAS&nbsp;No.&nbsp;146 &#147;Accounting for Costs Associated
with Exit or Disposal Activities.&#148; The severance and
benefits charges under this restructuring plan were accounted
for in accordance with SFAS&nbsp;No.&nbsp;112
&#147;Employers&#146; Accounting for Postemployment Benefits
&#150; An Amendment of Financial Accounting Standards Board, or
FASB, Statements No.&nbsp;5 and 43.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Closure and space reduction costs included in
restructuring were comprised of payments required under leases
less any applicable estimated sublease income after the
properties were abandoned, lease buyout costs and costs to
maintain facilities during the period after abandonment. To
estimate the lease loss, which is the loss after Cadence&#146;s
cost recovery efforts from subleasing a building, certain
assumptions were made related to the time period over which the
relevant building would remain vacant and sublease terms,
including sublease rates and contractual common area charges.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since 2001, Cadence has recorded facilities
consolidation charges of $84.1&nbsp;million related to space
reductions or closures of 32 sites. As of July&nbsp;3, 2004, 22
of these sites had been vacated and space reductions occurred at
the remaining ten sites.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of July&nbsp;3, 2004, Cadence&#146;s best
estimate of the lease loss related to all worldwide
restructuring activities initiated since 2001 is
$17.5&nbsp;million. This amount will be adjusted in the future
based upon changes in the assumptions used to estimate the lease
loss. The lease loss could range as high as $41.4&nbsp;million
if sublease rental rates decrease in applicable markets or if it
takes longer than currently expected to find a suitable tenant
to sublease the facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Restructuring and other charges incurred by plan
of restructuring for the three months ended July&nbsp;3, 2004
were as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">- $</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(239</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(559</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(110</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">655</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,929</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">10
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Restructuring and other charges incurred by plan
of restructuring for the six months ended July&nbsp;3, 2004 were
as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(299</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(584</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(135</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,106</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Total restructuring and other costs accrued as of
July&nbsp;3, 2004 were $51.2&nbsp;million, consisting of
$23.4&nbsp;million in Accounts payable and accrued liabilities
and $27.8&nbsp;million in Other long-term liabilities in the
Condensed Consolidated Balance Sheets. Cadence expects to pay
substantially all of the asset-related and severance and
benefits-related restructuring liabilities for all its
restructuring plans prior to 2006 and all of the
facilities-related restructuring liabilities for all its
restructuring plans prior to 2016.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Activity for the second quarter of 2004 and the
six months ended July&nbsp;3, 2004 associated with each plan of
restructuring is discussed below.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">2004 Restructuring</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The 2004 Restructuring is expected to result in
the termination of approximately 121 employees. Costs resulting
from this restructuring include severance payments,
severance-related benefits and outplacement services. All
terminations and termination benefits associated with this
restructuring were communicated to the affected employees prior
to July&nbsp;3, 2004, with all termination benefits expected to
be paid by January&nbsp;1, 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
associated with restructuring and other charges related to the
2004 Restructuring for the three months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, April&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,669</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,699</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of foreign currency translation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">11
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
associated with restructuring and other charges related to the
2004 Restructuring for the six months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(59</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(59</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,980</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,010</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of foreign currency translation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">2003 Restructuring</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence incurred $0.4&nbsp;million and
$0.9&nbsp;million of expense in the three and six months ended
July&nbsp;3, 2004, respectively, related to the 2003
Restructuring. These expenses were primarily comprised of
contract termination charges as well as storage and disposal
charges associated with facilities vacated as part of the 2003
Restructuring.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
associated with restructuring and other charges related to the
2003 Restructuring for the three months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, April&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,674</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,082</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(239</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,207</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(253</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(859</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,319</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of foreign currency translation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(101</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(205</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,690</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
associated with restructuring and other charges related to the
2003 Restructuring for the six months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(299</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(80</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,023</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(610</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,606</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,239</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of foreign currency translation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(40</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,690</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">12
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><I><FONT size="2">2002 Restructuring</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the second quarter of 2004, Cadence
incurred $0.4&nbsp;million of facilities expenses related to the
2002 Restructuring, primarily comprised of changes in lease loss
estimates and other expenses incurred to sublease facilities.
The facilities expenses were offset by the release of
$0.5&nbsp;million related to the reversal of accrued contract
termination costs not incurred. The following table presents
activity associated with restructuring and other charges related
to the 2002 Restructuring for the three months ended
July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, April&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,034</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(559</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(110</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,109</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,120</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of foreign currency translation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(78</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents activity associated
with restructuring and other charges related to the 2002
Restructuring for the six months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,361</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,146</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,845</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(584</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(135</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(625</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,933</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,565</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of foreign currency translation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">2001 Restructuring</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence recorded facilities-related charges under
the 2001 Restructuring of $0.2&nbsp;million and
$0.5&nbsp;million in the three and six months ended July&nbsp;3,
2004, respectively, primarily due to changes in lease loss
estimates and costs associated with facilities vacated as part
of the 2001 Restructuring plan.
</FONT>

<P align="center"><FONT size="2">13
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
associated with restructuring and other charges related to the
2001 Restructuring for the three months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, April&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,106</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,106</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,612</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,612</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of foreign currency translation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(244</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(244</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
associated with restructuring and other charges related to the
2001 Restructuring for the six months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(96</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,315</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,411</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of foreign currency translation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">367</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">367</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;7.</FONT></B></TD>
    <TD>
    <B><FONT size="2">CONVERTIBLE NOTES</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, Cadence issued
$420.0&nbsp;million principal amount of Zero Coupon Zero Yield
Senior Convertible Notes due 2023, or the Notes, to two initial
purchasers in a private offering for resale to qualified
institutional buyers pursuant to SEC Rule&nbsp;144A. Cadence
received net proceeds of approximately $406.4&nbsp;million after
transaction fees of approximately $13.6&nbsp;million that were
recorded in other long-term assets and are being amortized to
interest expense using the straight-line method over five years,
which is the duration of the first redemption period. The Notes
were issued by Cadence at par and bear no interest. The Notes
are convertible into Cadence common stock initially at a
conversion price of $15.65&nbsp;per share, which would result in
an aggregate of 26.8&nbsp;million shares issued upon conversion,
subject to adjustment upon the occurrence of specified events.
Cadence may redeem for cash all or any part of the Notes on or
after August&nbsp;15, 2008 for 100.00% of the principal amount.
The holders may require Cadence to repurchase for cash all or
any portion of their Notes on August&nbsp;15, 2008 for 100.25%
of the principal amount, on August&nbsp;15, 2013 for 100.00% of
the principal amount or on August&nbsp;15, 2018 for 100.00% of
the principal amount. The Notes do not contain restrictive
financial covenants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;2, 2004 the Emerging Issues Task
Force of the FASB, or EITF, reached a tentative conclusion on
Issue&nbsp;04-08, &#147;Accounting Issues Related to Certain
Features of Contingently Convertible Debt and the Effect on
Diluted Earnings per Share&#148;, or EITF&nbsp;04-08. If the
EITF were to reach a consensus in agreement with the tentative
conclusion on EITF&nbsp;04-08, it would require Cadence to
include in diluted earnings per share, on the
&#147;if-converted&#148; method, the aggregate of approximately
26.8&nbsp;million shares of Cadence common stock into which the
Notes may be converted, regardless of whether the conversion
threshold has been met. If
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">a consensus is reached on EITF&nbsp;04-08,
adoption may require Cadence to restate previously reported
diluted earnings per share for all periods in which the Notes
were outstanding. Cadence believes that, if adopted in its
current form, EITF&nbsp;04-08 would have a material adverse
effect on its diluted earnings per share.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2003, Cadence filed with the SEC a
resale registration statement with respect to the Notes. This
registration statement was declared effective by the SEC on
April&nbsp;29, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the issuance of the Notes,
Cadence entered into convertible notes hedge transactions with
JP Morgan Chase Bank whereby Cadence has the option to purchase
up to 26.8&nbsp;million shares of Cadence&#146;s common stock at
a price of $15.65&nbsp;per share. These options expire on
August&nbsp;15, 2008 and must be settled in net shares. The cost
of the convertible notes hedge transactions to Cadence was
approximately $134.6&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, Cadence sold warrants to JP Morgan
Chase Bank for the purchase of up to 26.8&nbsp;million shares of
Cadence&#146;s common stock at a price of $23.08&nbsp;per share.
The warrants expire on various dates from February 2008 through
May 2008 and must be settled in net shares. Cadence received
approximately $56.4&nbsp;million in cash proceeds for the sales
of these warrants.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;8.</FONT></B></TD>
    <TD>
    <B><FONT size="2">CONTINGENCIES</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Legal Proceedings</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time, Cadence is involved in various
disputes and litigation matters that arise in the ordinary
course of business. These include disputes and lawsuits related
to intellectual property, mergers and acquisitions, licensing,
contract law, distribution arrangements and employee relations
matters. Periodically, Cadence reviews the status of each
significant matter and assesses its potential financial
exposure. If the potential loss from any claim or legal
proceeding is considered probable and the amount can be
estimated, Cadence accrues a liability for the estimated loss at
the low end of the range. Legal proceedings are subject to
uncertainties, and the outcomes are difficult to predict.
Because of such uncertainties, accruals are based only on the
best information available at the time. As additional
information becomes available, Cadence reassesses the potential
liability related to pending claims and litigation matters and
may revise estimates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">While the outcome of these litigation matters
cannot be predicted with any certainty, management does not
believe that the outcome of any current matters will have a
material adverse effect on Cadence&#146;s consolidated financial
position or results of operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Other Contingencies</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence provides its customers with a warranty on
sales of hardware products for a 90-day period. These warranties
are accounted for in accordance with SFAS&nbsp;No.&nbsp;5,
&#147;Accounting for Contingencies.&#148; To date, Cadence has
not incurred any significant costs related to warranty
obligations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s product license and services
agreements include a limited indemnification provision for
claims from third parties relating to Cadence&#146;s
intellectual property. Such indemnification provisions are
accounted for in accordance with SFAS&nbsp;No.&nbsp;5. The
indemnification is generally limited to the amount paid by the
customer. To date, claims under such indemnification provisions
have not been significant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time, Cadence has provided, and may
in the future provide, guarantees to third parties on behalf of
a foreign subsidiary. These guarantees are generally related to
maintaining operations in a certain locality or to secure leases
or other operating obligations of a subsidiary. The maximum
exposure on these guarantees is not significant, either
individually or in the aggregate.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;9.</FONT></B></TD>
    <TD>
    <B><FONT size="2">STOCKHOLDERS&#146; EQUITY</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Net Income (Loss) Per Share</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Basic net income (loss) per share is computed by
dividing net income (loss) during the period, the numerator, by
the weighted average number of shares of common stock
outstanding, the denominator. Diluted
</FONT>

<P align="center"><FONT size="2">15
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">net income (loss) per share gives effect to
equity instruments considered to be potential common shares, if
dilutive, computed using the treasury stock method of
accounting. During the six&nbsp;months ended July&nbsp;3, 2004
and during the three and six&nbsp;months ended June&nbsp;28,
2003, dilutive net loss per share is computed without the effect
of equity instruments considered to be potential common shares
because the impact would have been antidilutive.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a reconciliation of the weighted
average common shares used to calculate basic net income (loss)
per share to weighted average common and potential common shares
used to calculate diluted net income (loss) per share:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common shares used to calculate
    basic net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">272,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">272,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,532</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted Stock and ESPP shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common and potential common
    shares used to calculate diluted net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">278,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">272,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the potential shares
of Cadence common stock outstanding at July&nbsp;3, 2004 and
June&nbsp;28, 2003 which were not included in the computation of
diluted net income (loss) per share for the six months ended
July&nbsp;3, 2004 and for the three and six&nbsp;months ended
June&nbsp;28, 2003, because the effect of including these shares
would have been antidilutive:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options to purchase shares of common stock
    (various expiration dates through 2014)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants to purchase shares of common stock
    (various expiration dates through 2008)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Potential common shares in connection with
    convertible notes (expiring in 2018)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted Stock awards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,195</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total potential common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,970</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Stock Repurchase Plan</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2001, Cadence authorized a stock
repurchase program under which repurchased shares with a value
of up to $500.0&nbsp;million are used for general corporate
purposes, including the share issuance requirements of
Cadence&#146;s employee stock option and purchase plans and
acquisitions. Cadence spent $69.8&nbsp;million to
repurchase&nbsp;5.0&nbsp;million shares during the three months
ended July&nbsp;3, 2004. Cadence did not repurchase any shares
of its common stock during the three&nbsp;months ended
June&nbsp;28, 2003. Cadence spent $69.8&nbsp;million to
repurchase&nbsp;5.0&nbsp;million shares during the
six&nbsp;months ended July&nbsp;3, 2004, as compared to
$62.0&nbsp;million to repurchase&nbsp;6.2&nbsp;million shares
during the six&nbsp;months ended June&nbsp;28, 2003. As of
July&nbsp;3, 2004, the remaining repurchase authorization under
this program totaled $147.2&nbsp;million.
</FONT>

<P align="center"><FONT size="2">16
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Stock-Based Compensation</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Employee Stock Purchase Plans</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the common shares
issued under Cadence&#146;s ESPPs:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cadence shares issued under the ESPPs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,990,174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">932,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average purchase price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average fair value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The purchase dates under Cadence&#146;s ESPPs are
in February and August, accordingly Cadence did not issue shares
under its ESPPs during the three months ended July&nbsp;3, 2004
or the three months ended June&nbsp;28, 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Other Stock-Based Compensation</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At July&nbsp;3, 2004, Cadence had six other
stock-based employee compensation plans (excluding director
plans). Cadence accounts for these plans under the recognition
and measurement principles of Accounting Principles Board, or
APB, Opinion No.&nbsp;25 &#147;Accounting for Stock Issued to
Employees,&#148; and related interpretations. Under APB Opinion
No.&nbsp;25, compensation expense is recognized if an
option&#146;s exercise price on the measurement date is below
the fair value of Cadence&#146;s common stock. The compensation,
if any, is amortized to expense over the vesting period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Using the Black-Scholes option pricing model, the
weighted average fair value of options granted during the three
months ended July&nbsp;3, 2004 was $4.92 as compared to $5.96
during the three&nbsp;months ended June&nbsp;28, 2003. The
weighted average fair value of options granted during the
six&nbsp;months ended July&nbsp;3, 2004 was $5.15 as compared to
$5.63 during the six&nbsp;months ended June&nbsp;28, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For fixed awards, Cadence amortizes deferred
stock compensation to expense using the straight-line method
over the period that the stock options and restricted stock
vest, which is generally three to four&nbsp;years. For variable
awards, stock-based compensation expense is recognized on an
accelerated basis in accordance with FASB Interpretation
No.&nbsp;28, &#147;Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans&#148;. For the
three&nbsp;months ended July&nbsp;3, 2004 and June&nbsp;28, 2003
Cadence recorded amortization of deferred stock compensation of
$8.2&nbsp;million and $7.9&nbsp;million, respectively. For the
six&nbsp;months ended July&nbsp;3, 2004 and June&nbsp;28, 2003
Cadence recorded amortization of deferred stock compensation of
$16.2&nbsp;million and $13.9&nbsp;million, respectively.
</FONT>

<P align="center"><FONT size="2">17
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
recorded in deferred compensation included in the accompanying
Condensed Consolidated Balance Sheet as of July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="74%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deferred Stock</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance as of January&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48,856</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants and stock options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,060</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted stock related to acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted stock related to incentive stock awards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,632</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Forfeitures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance as of July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(56,592</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the six&nbsp;months ended July&nbsp;3,
2004, Cadence issued 1.4&nbsp;million shares of restricted stock
to certain employees. Cadence recorded deferred stock
compensation of $19.6&nbsp;million in the accompanying Condensed
Consolidated Balance Sheets in connection with these incentive
stock awards.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;10.</FONT></B></TD>
    <TD>
    <B><FONT size="2">COMPREHENSIVE INCOME (LOSS)</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other comprehensive income (loss) includes
foreign currency translation gains and losses and unrealized
gains and losses on marketable securities that are
available-for-sale, net of related tax effects. These
transactions have been excluded from Net income (loss) and are
reflected instead in Stockholders&#146; Equity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the activity in
Other comprehensive income (loss):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="38%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,952</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,342</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Translation gain (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,063</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrealized gain (loss) on investments, net of
    related tax effects
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,530</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,946</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Comprehensive income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(403</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,651</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,514</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;11.</FONT></B></TD>
    <TD>
    <B><FONT size="2">SEGMENT AND GEOGRAPHY REPORTING</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s chief operating decision maker is
its President and Chief Executive Officer, or CEO.
Cadence&#146;s CEO reviews Cadence&#146;s consolidated results
within three segments: Product, Services and Maintenance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Product segment includes revenue and
associated costs from software licensing, and sales and leases
of hardware technology and intellectual property. The Services
segment includes revenue and associated costs to provide
methodology and design services either to assist companies in
developing electronic designs or to assume responsibility for
the design effort for customers that outsource this work. The
Maintenance segment includes revenue and associated costs
primarily for a technical support organization. Maintenance
agreements are offered to customers either as part of
Cadence&#146;s product license agreements or separately.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Segment income (loss) from operations is defined
as gross margin less operating expenses (Marketing and sales,
Research and development and General and administrative),
Amortization of deferred stock
</FONT>

<P align="center"><FONT size="2">18
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">compensation, Restructuring and other charges,
Write-off of acquired in-process technology, Interest expense
and Other expense, net. Information about the profitability of
Cadence&#146;s segments is available only to the extent of gross
margin by segment and write-off of acquired in-process
technology. Operating expenses, Amortization of deferred stock
compensation, Restructuring and other charges, Interest expense
and Other expense, net, are managed on a functional basis.
Cadence does not identify or allocate Operating expenses,
Amortization of deferred stock compensation, Restructuring and
other charges, Interest expense and Other expense, net, because
the information is not available by segment and is not reviewed
by Cadence&#146;s CEO in making decisions about resources to be
allocated among the segments or to assess their performance.
There are no differences between the accounting policies used to
measure profit and loss for segments and those used on a
consolidated basis. Revenue is defined as revenue from external
customers only.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence does not identify or allocate its assets
by operating segment. Accordingly, assets are not being reported
by segment because the information is not available by segment
and is not reviewed by Cadence&#146;s CEO in making decisions
about resources to be allocated among the segments or to assess
their performance. Depreciation and amortization of purchased
software is allocated among the segments to determine each
segment&#146;s gross margin.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables present information about
reported segments for the three&nbsp;months ended July&nbsp;3,
2004 and June&nbsp;28, 2003:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">For the Three Months Ended July&nbsp;3, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Consolidated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Product</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Services</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Maintenance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,540</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">287,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,043</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,465</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">235,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses and amortization of deferred
    stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(215,682</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(215,682</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,929</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,929</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired<BR>
    in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense and Other expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Segment income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(223,525</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">19
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">For the Three Months Ended June&nbsp;28, 2003 &#150; Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Consolidated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Product</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Services</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Maintenance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,774</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,581</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">220,711</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses and amortization of deferred
    stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(214,020</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(214,020</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,352</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,352</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,800</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,800</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense and Other expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,538</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,538</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Segment income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140,093</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(223,910</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,999</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables present information about
reported segments for the six months ended July&nbsp;3, 2004 and
June&nbsp;28, 2003:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">For the Six Months Ended July&nbsp;3, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Consolidated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Product</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Services</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Maintenance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">552,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,170</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">107,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">286,466</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,223</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">135,993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">445,682</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses and amortization of deferred
    stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(427,692</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(427,692</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,364</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,364</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense and Other expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Segment income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">279,466</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,223</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">135,993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(445,156</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,474</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">20
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">For the Six Months Ended June&nbsp;28, 2003&nbsp;&#150; Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Consolidated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Product</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Services</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Maintenance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">539,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,133</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,987</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">133,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">426,404</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses and amortization of deferred
    stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(430,355</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(430,355</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,352</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,352</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense and Other expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,721</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,721</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Segment income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">269,487</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">133,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(444,428</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,524</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Internationally, Cadence markets and supports its
products and services primarily through its subsidiaries.
Revenue is attributed to geography based on the country in which
the customer is domiciled. Long-lived assets are attributed to
geography based on the country where the assets are located.
Until June&nbsp;28, 2003, Cadence licensed most of its software
products in Japan through a distributor, Innotech Corporation,
of which Cadence is an approximately 15% stockholder. In June
2003, Cadence purchased certain assets from Innotech, including
distribution rights for certain customers in Japan. Since June
2003, Cadence has directly licensed its software products to
customers for which Cadence acquired the distribution rights
from Innotech.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the three months ended July&nbsp;3, 2004, no
one customer accounted for more than 10% of total revenue, while
during the three months ended June&nbsp;28, 2003, one customer
accounted for 12% of total revenue. In the six months ended
July&nbsp;3, 2004, and the six months ended June&nbsp;28, 2003,
no one customer accounted for more than 10% of total revenue.
</FONT>

<P align="center"><FONT size="2">21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents a summary of revenue
by geography:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">For the</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">For the</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">North America:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United States
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145,854</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">291,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">282,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total North America
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">162,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">151,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">303,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">293,834</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Europe:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Germany
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United Kingdom
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Europe
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Europe
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,742</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japan and Asia:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,040</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Asia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Japan and Asia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,765</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">153,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">159,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">287,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,581</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">552,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">539,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents a summary of
long-lived assets by geography:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;3,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">North America:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United States
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,494,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,457,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total North America
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,497,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,461,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Europe
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,793</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japan and Asia:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,085</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Asia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,956</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Japan and Asia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,741</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,631,008</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,596,917</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">22
</FONT>

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<A name='107'></A>
</DIV>

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<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;2.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Management&#146;s Discussion and Analysis of
    Financial Condition and Results of Operations</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The following discussion should be read in
conjunction with the Condensed Consolidated Financial Statements
and notes thereto included elsewhere in this Quarterly Report on
Form&nbsp;10-Q and in conjunction with our Annual Report on
Form&nbsp;10-K for the fiscal year ended January&nbsp;3, 2004,
referred to as the 2003 Annual Report. Certain of such
statements, including, without limitation, statements regarding
the extent and timing of future revenues and expenses and
customer demand, statements regarding the deployment of our
products, statements regarding our reliance on third parties and
other statements using words such as &#147;anticipates,&#148;
&#147;believes,&#148; &#147;could,&#148; &#147;estimates,&#148;
&#147;expects,&#148; &#147;intends,&#148; &#147;may,&#148;
&#147;plans,&#148; &#147;should,&#148; &#147;will&#148; and
&#147;would,&#148; and words of similar import and the negatives
thereof, constitute forward-looking statements. These statements
are predictions based upon our current expectations about future
events. Actual results could vary materially as a result of
certain factors, including but not limited to, those expressed
in these statements. We refer you to the &#147;Factors That May
Affect Future Results,&#148; &#147;Results of Operations,&#148;
&#147;Disclosures About Market Risk,&#148; and &#147;Liquidity
and Capital Resources&#148; sections contained in this Quarterly
Report on Form&nbsp;10-Q, and the risks discussed in our other
SEC filings, which identify important risks and uncertainties
that could cause actual results to differ materially from those
contained in the forward-looking statements.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We urge you to consider these factors
carefully in evaluating the forward-looking statements contained
in this Quarterly Report. All subsequent written or oral
forward-looking statements attributable to our company or
persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. The forward-looking
statements included in this Quarterly Report are made only as of
the date of this Quarterly Report. We do not intend, and
undertake no obligation, to update these forward-looking
statements.</FONT></I>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

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    <B><FONT size="2">General</FONT></B></TD>
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We license electronic design automation, or EDA,
software, sell or lease hardware technology and intellectual
property and provide design and methodology services throughout
the world to help manage and accelerate electronic product
development processes. Our broad range of products and services
are used by the world&#146;s leading electronics companies to
design and develop complex integrated circuits, or ICs, and
personal and commercial electronic systems.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of our strategy, we have acquired
companies, businesses and third party intellectual property to
obtain technology and key personnel, and we expect to continue
making acquisitions in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Over the last several years IC manufacturers and
electronics companies experienced a downturn in demand and
production, which resulted in reduced research and development
spending by many of our customers. In the second half of 2003
and the first half of 2004, IC manufacturers and electronics
companies appear to have experienced a gradual recovery but they
have continued their focus on cost containment. In response to
the general downturn in the economy, and in the electronics
industry in particular, we have initiated significant
restructuring activities over the past several years, including
during the first half of 2004, to better align our cost
structure with projected demand for our products and services
and their resulting projected revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have identified certain items that management
uses as performance indicators to manage our business, including
revenue, certain elements of operating expenses and cash flow
from operations, and we describe these items more fully in the
&#147;Results of Operations&#148; below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We continue to experience a customer preference
for renewable license types, term and subscriptions, and expect
the timing of license renewals to continue to impact our results
of operations. Product revenue recognized from backlog comprised
approximately 60% of total product revenue in 2003, 45% in 2002,
and 30% in 2001. This trend is primarily due to increasing
customer preference for subscription licenses and customer
requirements for more flexible payment terms.
</FONT>

<P align="center"><FONT size="2">23
</FONT>
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    <B><FONT size="2">Restatement</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our 2003 Annual Report, we restated our
Consolidated Financial Statements as of and for the fiscal year
ended December&nbsp;28, 2002, and for the first three quarters
of fiscal 2003. The accompanying Condensed Consolidated
Financial Statements present restated results for the three and
six months ended June&nbsp;28, 2003. For the three and six
months ended June&nbsp;28, 2003, adjustments were made to income
(loss) on equity investments, amortization of deferred stock
compensation, revenue, amortization of internally developed
software, foreign currency transaction gains (losses), Other
expense, net and the tax effect of these restatement
adjustments. Adjustments were also made to reclassify
amortization of certain intangible assets from Amortization of
acquired intangibles to Cost of product, Cost of services and
Cost of maintenance.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><FONT size="2">Acquisitions</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2004, we acquired Neolinear, Inc., or
Neolinear, a privately-held developer of rapid analog design
technology. We purchased Neolinear to acquire key personnel and
technology. Prior to the acquisition we held an equity
investment in Neolinear of approximately $3&nbsp;million,
representing a 12% ownership interest. In accordance with
Statement of Financial Accounting Standards, or SFAS,
No.&nbsp;141, &#147;Business Combinations,&#148; we accounted
for the acquisition of Neolinear as a step acquisition. The
aggregate initial purchase price was $78.1&nbsp;million, which
included the payment of cash, the fair value of assumed options
and acquisition costs. The purchase price and goodwill will
increase if certain performance goals related to revenue targets
and product development are achieved over a period of
approximately four years following the acquisition.
Neolinear&#146;s results of operations and the estimated fair
values of the assets acquired and liabilities assumed have been
included in our Condensed Consolidated Financial Statements from
the date of acquisition.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><FONT size="2">Acquisition-Related Earnouts</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For a number of our acquisitions, payment of a
portion of the purchase price is contingent upon the acquired
entity&#146;s achievement of certain performance goals, which
relate to one or more of the following criteria: revenue,
bookings, product proliferation, product development, and
employee retention. The specific performance goal levels, and
amounts and timing of contingent purchase price payments, vary
with each acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the three months ended July&nbsp;3, 2004, we
recorded $18.4&nbsp;million of goodwill as contingent purchase
price to stockholders of acquired companies. The
$18.4&nbsp;million of goodwill consisted of $9.6&nbsp;million of
cash payments, $2.3&nbsp;million of accrued cash payments, and
the issuance of shares of common stock valued at
$6.5&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the six months ended July&nbsp;3, 2004, we
recorded $28.3&nbsp;million of goodwill as contingent purchase
price to stockholders of acquired companies. The
$28.3&nbsp;million of goodwill consisted of $9.6&nbsp;million of
cash payments, $2.3&nbsp;million of accrued cash payments, and
the issuance of shares of common stock valued at
$16.4&nbsp;million. In addition, during the six months ended
July&nbsp;3, 2004, we recognized deferred stock compensation of
$1.3&nbsp;million, in accordance with Financial Accounting
Standards Board Interpretation No.&nbsp;44, &#147;Accounting for
Certain Transactions Involving Stock Compensation (an
Interpretation of APB&nbsp;No.&nbsp;25)&#148;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our acquisitions completed
prior to July&nbsp;3, 2004, we may be obligated to pay up to an
aggregate of $55.2&nbsp;million in cash during the next
12&nbsp;months and an additional $48.6&nbsp;million in cash
during the three years following the next twelve months if
certain performance goals related to one or more of the
following criteria are achieved in full: revenue, bookings,
product proliferation, product development and employee
retention.
</FONT>

<P align="left">
<B><FONT size="2">Critical Accounting Estimates</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In preparing our Condensed Consolidated Financial
Statements, we make assumptions, judgments and estimates that
can have a significant impact on our revenue, operating income
(loss) and net income (loss), as well as on the value of certain
assets and liabilities on our Condensed Consolidated Balance
Sheets. We base our assumptions, judgments and estimates on
historical experience and various other factors that we believe
to
</FONT>

<P align="center"><FONT size="2">24
</FONT>

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<DIV align="left">
<FONT size="2">be reasonable under the circumstances. Actual
results could differ materially from these estimates under
different assumptions or conditions. On a regular basis, we
evaluate our assumptions, judgments and estimates and make
changes accordingly. We believe that the assumptions, judgments
and estimates involved in the accounting for revenue
recognition, accounting for income taxes, valuation of
long-lived and intangible assets and goodwill, and restructuring
charges have the greatest potential impact on our Condensed
Consolidated Financial Statements, so we consider these to be
our critical accounting estimates. Historically, our
assumptions, judgments and estimates relative to our critical
accounting estimates have not differed materially from actual
results.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our critical accounting estimates are as follows:
</FONT>
<P>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">revenue recognition;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">accounting for income taxes;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">valuation of long-lived and intangible assets,
    including goodwill;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">restructuring charges.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue recognition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We apply the provisions of Statement of Position,
or SOP, 97-2, &#147;Software Revenue Recognition,&#148; as
amended by Statement of Position&nbsp;98-9 &#147;Modification of
SOP&nbsp;97-2, Software Revenue Recognition, With Respect to
Certain Transactions,&#148; to all product revenue transactions
where the software is not incidental. We also apply the
provisions of SFAS, No.&nbsp;13, &#147;Accounting for
Leases,&#148; to all hardware lease transactions. We recognize
revenue when persuasive evidence of an arrangement exists, the
product has been delivered, the fee is fixed or determinable,
collection of the resulting receivable is probable, and
vendor-specific objective evidence of fair value, or VSOE,
exists.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Persuasive evidence of an
arrangement&nbsp;&#150;</FONT></I><FONT size="2"> For
subscription and term licenses and hardware leases, Cadence uses
the signed contract as evidence of an arrangement. For perpetual
licenses, hardware sales, maintenance renewals and small
fixed-price service projects, such as training classes and
small, standard methodology service engagements of approximately
$10,000 or less, Cadence uses a purchase order as evidence of an
arrangement. For all other service engagements, Cadence uses a
signed professional services agreement and a statement of work
to evidence an arrangement. Sales through Cadence&#146;s
Japanese distributor, Innotech, are evidenced by a master
agreement governing the relationship, together with binding
purchase orders from the distributor on a
transaction-by-transaction basis.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Product
delivery&nbsp;&#150;</FONT></I><FONT size="2"> Software and the
corresponding access keys are generally delivered to customers
electronically. Occasionally, Cadence will deliver the software
on a compact disc with standard transfer terms of free-on-board
shipping point. Cadence&#146;s software license agreements
generally do not contain acceptance provisions. With respect to
hardware, delivery of an entire system is deemed to occur upon
installation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Fee is fixed or
determinable&nbsp;&#150;</FONT></I><FONT size="2"> We assess
whether a fee is fixed or determinable at the outset of the
arrangement, primarily based on the payment terms associated
with the transaction. We generally use installment contracts for
term and subscription licenses and we have established a history
of collecting under the original contract without providing
concessions on payments, products or services. Our installment
contracts generally have payment periods that are equal to or
less than the term of the licenses, the payments are generally
collected quarterly, and periodic payments are generally made in
equal or nearly equal installments. Significant judgment is
involved in this determination, including determining whether a
contract amendment constitutes a concession. Our experience has
been that we are able to determine whether a fee is fixed or
determinable. While we do not expect that experience to change,
if we no longer had a history of collecting under the original
contract without providing concessions on term licenses, revenue
from term licenses would be required to be recognized when
payments under the installment contract become due and payable.
These changes would have a material impact on our results of
operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Collection is
probable&nbsp;&#150;</FONT></I><FONT size="2"> We assess
collectibility at the outset of the arrangement based on a
number of factors, including the customer&#146;s past payment
history and its current creditworthiness. If in our judgment
collection of a fee is not probable, we defer the revenue until
the uncertainty is removed, which generally
</FONT>

<P align="center"><FONT size="2">25
</FONT>

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<FONT size="2">means revenue is recognized upon our receipt of
cash payment. Our experience has been that we are able to
estimate whether collection is probable. While we do not expect
that experience to change, if we were to determine that
collection is not probable for any license arrangement with
installment payment terms, revenue from this license would be
recognized generally upon the receipt of cash payment. These
changes could have a material impact on our results of
operations.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Vendor-Specific Objective
Evidence&nbsp;&#150;</FONT></I><FONT size="2"> Our VSOE for
certain product elements of an arrangement is based upon the
pricing in comparable transactions when the element is sold
separately. VSOE for maintenance is generally based upon the
customer&#146;s stated annual renewal rates. VSOE for services
is generally based on the price charged when the services are
sold separately. For multiple element arrangements, VSOE must
exist to allocate the total fee among all delivered and
undelivered elements in the arrangement. If VSOE does not exist
for all elements to support the allocation of the total fee
among all delivered and undelivered elements of the arrangement,
revenue is deferred until such evidence does exist for the
undelivered elements, or until all elements are delivered,
whichever is earlier. If VSOE of all undelivered elements exists
but VSOE does not exist for one or more delivered elements,
revenue is recognized using the residual method. Under the
residual method, the VSOE of the undelivered elements is
deferred, and the remaining portion of the arrangement fee is
recognized as revenue. Our experience has been that we are able
to estimate VSOE. While we do not expect that experience to
change, if we could no longer support VSOE for undelivered
elements of multiple element arrangements, revenue would be
deferred until we have VSOE for the undelivered elements or all
elements are delivered, whichever is earlier. This change could
have a material impact on our results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Services
revenue&nbsp;&#150;</FONT></I><FONT size="2"> Services revenue
consists primarily of revenue received for performing
methodology and design services. Revenue from service contracts
is recognized either on the time and materials method, as work
is performed, or on the percentage-of-completion method. For
contracts with fixed or not-to-exceed fees on a monthly basis,
we estimate the percentage-of-completion, which is based on the
completion of milestones relating to the arrangement. We have a
history of accurately estimating project status and the costs
necessary to complete projects. A number of internal and
external factors can affect our estimates, including labor
rates, utilization and efficiency variances and specification
and testing requirement changes. If different conditions were to
prevail such that accurate estimates could not be made, then the
use of the completed contract method would be required and the
recognition of all revenue and costs would be deferred until the
project was completed. This change could have a material impact
on our results of operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

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    <TD width="1%"></TD>
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</TR>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Accounting for income taxes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We provide for the effect of income taxes in our
Condensed Consolidated Financial Statements in accordance with
SFAS&nbsp;No.&nbsp;109, &#147;Accounting for Income Taxes&#148;
and Financial Accounting Standards Board Interpretation
No.&nbsp;18, or FIN No.&nbsp;18, &#147;Accounting For Income Tax
in Interim Periods (An Interpretation of APB Opinion
No.&nbsp;28)&#148;. Under SFAS&nbsp;No.&nbsp;109, income tax
expense (benefit) is recognized for the amount of taxes payable
or refundable for the current year, and for deferred tax assets
and liabilities for the tax consequences of events that have
been recognized in an entity&#146;s financial statements or tax
returns. FIN&nbsp;No.&nbsp;18 specifies that tax payable (or tax
benefit) for an interim period related to ordinary income (or
loss) shall be computed at an estimated annual effective tax
rate and the tax payable (or tax benefit) related to all other
items shall be individually computed and recognized when items
occur. Estimates of the annual effective tax rate at the end of
interim periods are based on our evaluations of possible future
events and transactions and may be subject to subsequent
refinement or revision.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We must make significant assumptions, judgments
and estimates to determine our current provision for income
taxes, our deferred tax assets and liabilities and any valuation
allowance to be recorded against our deferred tax assets. Our
judgments, assumptions and estimates relating to the current
provision for income taxes take into account estimates of the
annual pre-tax book income and the geographic mix of income,
current tax laws, our interpretation of current tax laws and
possible outcomes of current and future audits conducted by
foreign and domestic tax authorities. Changes in our estimates
of the geographic mix of income or the annual pre-tax income,
tax law or our interpretation of tax laws and the resolution of
current and future tax audits could significantly impact the
amounts provided for income taxes in our results of operations,
financial position or cash flows. Our assumptions, judgments and
estimates, relating to the value of our net deferred tax assets,
take into
</FONT>

<P align="center"><FONT size="2">26
</FONT>

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<FONT size="2">account predictions of the amount and category of
future taxable income from potential sources including tax
planning strategies that would, if necessary, be implemented to
prevent a loss carryforward or tax credit carryforward from
expiring unused. Actual operating results and the underlying
amount and category of income in future years could render our
current assumptions, judgments and estimates of recoverable net
deferred taxes inaccurate, thus materially affecting our results
of operations and financial position.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">See the factors affecting future results below
entitled <I>&#147;Our operating results could be adversely
affected as a result of changes in our effective tax
rates&#148;, &#147;We have received an examination report from
the Internal Revenue Service proposing a tax deficiency in
certain of our tax returns, and the outcome of the examination
or any future examinations involving similar claims may have a
material adverse effect on our results of operations and cash
flows&#148; </I>and<I> &#147;Forecasting our estimated annual
effective tax rate is complex and subject to uncertainty, and
material differences between forecasted and actual tax rates
could have a material impact on our results of
operations&#148;.</I>
</FONT>

<P align="left">
<B><I><FONT size="2">Valuation of long-lived and intangible
assets, including goodwill</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At least annually we review goodwill resulting
from business combinations for impairment in accordance with
SFAS&nbsp;No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets.&#148; We completed our most recent annual impairment
review during the third quarter of 2003. We did not identify any
impairment to our goodwill as a result of this review. We review
long-lived assets, including certain identifiable intangibles,
for impairment whenever events or changes in circumstances
indicate that we will not be able to recover the asset&#146;s
carrying amount in accordance with SFAS&nbsp;No.&nbsp;144,
&#147;Accounting for the Impairment or Disposal of Long-Lived
Assets.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For long-lived assets to be held and used,
including acquired intangibles, we initiate our review whenever
events or changes in circumstances indicate that the carrying
amount of a long-lived asset may not be recoverable.
Recoverability of an asset is measured by comparing its carrying
amount to the expected future undiscounted cash flows expected
to result from the use and eventual disposition of that asset,
excluding future interest costs that would be recognized as an
expense when incurred. Any impairment to be recognized is
measured by the amount by which the carrying amount of the asset
exceeds its fair market value. Significant management judgment
is required in:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">identifying a triggering event that arises from a
    change in circumstances;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">forecasting future operating results;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">estimating the proceeds from the disposition of
    long-lived or intangible assets.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Material impairment charges could be necessary
should different conditions prevail or different judgments be
made.
</FONT>

<P align="left">
<B><I><FONT size="2">Restructuring charges</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We account for restructuring charges in
accordance with SEC Staff Accounting Bulletin No.&nbsp;100
&#147;Restructuring and Impairment Charges.&#148; Beginning in
fiscal 2001, we have undertaken significant restructuring
initiatives. All restructuring activities initiated prior to
fiscal 2003 were accounted for in accordance with Emerging
Issues Task Force of the Financial Accounting Standards Board,
or EITF, No.&nbsp;94-3, &#147;Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring)&#148; and EITF No.&nbsp;88-10 &#147;Costs
Associated with Lease Modifications or Terminations.&#148; For
restructuring activities initiated after fiscal 2002, we
accounted for the facilities and asset-related portions of these
restructurings in accordance with SFAS&nbsp;No.&nbsp;146
&#147;Accounting for Costs Associated with Exit or Disposal
Activities&#148; and SFAS&nbsp;No.&nbsp;144, &#147;Accounting
for the Impairment or Disposal of Long-Lived Assets&#148;,
respectively. The severance and benefits charges were accounted
for in accordance with SFAS&nbsp;No.&nbsp;112
&#147;Employers&#146; Accounting for Postemployment
Benefits&nbsp;&#150; An Amendment of Financial Accounting
Standards Board, or FASB, Statements No.&nbsp;5
and&nbsp;43.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These restructuring initiatives have required us
to make a number of estimates and assumptions related to losses
on excess facilities vacated or consolidated, particularly
estimating when, if at all, we will be able to sublet vacated
facilities and if we do, the sublease terms. Closure and space
reduction costs that are part of our
</FONT>

<P align="center"><FONT size="2">27
</FONT>

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<DIV align="left">
<FONT size="2">restructuring charges include payments required
under leases, less any applicable estimated sublease income
after the facilities are abandoned, lease buyout costs and costs
to maintain facilities during the abandonment period.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we have recorded estimated
provisions for termination benefits and outplacement costs,
long-term asset write-downs, and other restructuring costs. We
regularly evaluate the adequacy of our restructuring accrual,
and adjust the balance based on changes in estimates and
assumptions. We may incur future charges for new restructuring
activities as well as changes in estimates to amounts previously
recorded.
</FONT>

<P align="left">
<B><FONT size="2">Results of Operations</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We primarily generate revenue from licensing our
EDA software and selling or leasing hardware technology and
intellectual property, providing maintenance for the software
and hardware and providing design and methodology services. We
principally employ three license types: subscription, term and
perpetual. The different license types provide a customer with
different rights to use our products such as (i)&nbsp;the right
to access new technology, (ii)&nbsp;the duration of the license,
and (iii)&nbsp;payment terms. Customer decisions regarding these
aspects of license transactions determine the license type,
timing of revenue recognition and potential future business
activity. For example, if a customer chooses a fixed term of
use, this will result in either a subscription or term license.
A business implication of that decision is that at the
expiration of the license period the customer must decide
whether to continue using the technology and therefore renew the
license agreement. Because larger customers generally use
products from two or more of our five product groups, rarely
will a large customer completely terminate its relationship with
us at expiration of the license. See &#147;Critical Accounting
Estimates&#148; for additional discussion of licenses types and
timing of revenue recognition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To the extent a customer obtains rights to remix
to new technology or more flexible payment terms, revenue is
recognized over the life of the agreement. This distinction is a
critical determinant of revenue recognition. For example, a
$3.0&nbsp;million, 3-year product subscription license would
result in $1.0&nbsp;million of revenue recognized per year, or
$250,000&nbsp;per quarter. However, a $3.0&nbsp;million, 3-year
product term license, assuming equal or near equal payments,
would result in $3.0&nbsp;million of revenue recognized upon
delivery which is generally in the first quarter of the
arrangement, and no revenue recognized in succeeding quarters.
Because of our model under which we recognize revenue over
multiple periods, we do not believe that pricing volatility is a
material component of the change in our product revenue from
period to period, and we do not analyze changes in pricing from
one period to the next.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The amount of product revenue in future periods
will depend, among other things, on the terms and timing of our
contract renewals or additional product sales with existing
customers, the size of such transactions or renewals, and sales
to new customers. Product revenue in any period is also affected
by the extent to which customers prefer subscription, term or
perpetual licenses, and the extent to which contracts contain
flexible payment terms. Revenue is also affected by changes in
the extent to which existing contracts contain flexible payment
terms and changes in license types (e.g., subscription to term)
for existing customers. Contract renewals, and consequently
product revenues, are also affected by the competitiveness of
our products.
</FONT>

<P align="left">
<B><I><FONT size="2">Revenue</FONT></I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(In millions, except percentages)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">287.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">552.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">539.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">28
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Product revenue was higher in the three months
ended July&nbsp;3, 2004, as compared to the same period in 2003,
primarily because of increased revenue due to our sale of
certain intellectual property and Functional Verification
products, partially offset by a decline in revenue from our
Custom IC Design products. Product revenue was higher in the six
months ended July&nbsp;3, 2004, as compared to the same period
in 2003, primarily because of increased revenue due to our sale
of certain intellectual property.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Maintenance revenue increased in the three months
ended July&nbsp;3, 2004, as compared to the same period in 2003,
due to an increase in the renewal rate of existing maintenance
contracts and an increase in customers that renewed their
previously cancelled maintenance contracts. Services revenue
increased in the three and six months ended July&nbsp;3, 2004
due to an increase in the market demand for our services
offerings.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additional financial information about our
segments can be found in Note&nbsp;11 to our Condensed
Consolidated Financial Statements.
</FONT>

<P align="left">
<B><I><FONT size="2">Revenue Mix by Product Group</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We analyze our business by product groups,
combining revenues for both product and maintenance because of
their interrelationship. We have formulated a design solution
strategy that combines our design technologies into
&#147;platforms&#148;. We introduced our first platform in
September 2002. The data for product groups before the
introduction of a corresponding platform aggregates the revenues
for the individual products associated with a particular
platform.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Listed below is a description of our product
groups:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Functional Verification:
</FONT></I><FONT size="2">Products in this group, which include
the Incisive<SUP>TM</SUP> functional verification platform, are
used to verify that the high level, logical specification of an
integrated circuit design is correct.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Digital IC Design:
</FONT></I><FONT size="2">Products in this group, which include
the Encounter digital IC design platform, are used to accurately
convert the high-level, logical specification of a digital
integrated circuit into a detailed physical blueprint of the
integrated circuit, which is used for creation of the photomasks
used in chip manufacture.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Custom IC Design:
</FONT></I><FONT size="2">Our custom design products, led by our
Virtuoso&#174; custom design platform introduced in September
2003, are used for integrated circuits that must be designed at
the transistor level, including analog, radio frequency,
memories, high performance digital blocks, and standard cell
libraries.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Design for Manufacturing:
</FONT></I><FONT size="2">Included in this product group are our
physical verification and analysis products. These products are
used to analyze and verify that the physical blueprint of the
integrated circuit has been constructed correctly and can be
manufactured successfully.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">System Interconnect:
</FONT></I><FONT size="2">This product group includes our
printed circuit board and integrated circuit package design
products. In March 2004, we introduced the new Allegro&#174;
system interconnect design platform, which enables consistent
co-design of integrated circuits, IC packages, and printed
circuit boards.
</FONT>

<P align="center"><FONT size="2">29
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows the percentage of
product and maintenance revenue contributed by each of the five
product groups, and services and other:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;27,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Functional Verification
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Digital IC Design
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Custom IC Design
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Design for Manufacturing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">System Interconnect
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The percentage of revenue from a particular
platform will vary from quarter to quarter due to the timing and
extent of term license renewals for existing customers and the
particular technologies they elect to purchase.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a percentage of total revenue, Design for
Manufacturing and Services and other both increased in the
second quarter of 2004. The increase in Design for Manufacturing
comes from higher revenues in our electrical verification and
extraction products.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the three months ended July&nbsp;3, 2004, we
recognized $11.0&nbsp;million of revenue from the sale of
intellectual property, or IP. This sale of IP is included in
Services and other in the preceding table and in Product revenue
in the accompanying Condensed Consolidated Statement of
Operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The declines as a percentage of revenue in
Digital IC Design and Custom IC Design in the second quarter of
2004 are principally the offsetting effect of the higher
revenues in Design for Manufacturing and Services and other.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Services revenue increased $2.5&nbsp;million to
$37.3&nbsp;million in the second quarter of 2004, as compared to
the second quarter of 2003, and increased $2.4&nbsp;million to
$69.6&nbsp;million in the six months ended July&nbsp;3, 2004, as
compared to the same period of 2003. For the three and six
months ending July&nbsp;3, 2004, the increase in services
revenue was due to an increase in the market demand for our
services offerings.
</FONT>

<P align="left">
<B><I><FONT size="2">Revenue by Geography</FONT></I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(In millions, except percentages)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">U.S.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">291.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">282.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-U.S.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">287.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">552.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">539.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue by Geography as a Percent of Total
    Revenue</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">U.S.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-U.S.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Non-U.S.&nbsp;revenue remained relatively flat in
the three months ended July&nbsp;3, 2004, as compared to the
three months ended June&nbsp;28, 2003. Increases of
$12.3&nbsp;million in revenue in Europe and $4.7&nbsp;million in
revenue in Asia were offset by a $18.1&nbsp;million decrease in
revenue in Japan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Non-U.S.&nbsp;revenue increased $3.8&nbsp;million
in the six months ended July&nbsp;3, 2004, as compared to the
same period in 2003, due to increases of $9.3&nbsp;million in
revenue in Europe along with a $7.0&nbsp;million increase in
revenue in Asia, partially offset by a decrease of
$13.3&nbsp;million in revenue in Japan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The rate of revenue change varies geographically
due to differences in the timing and extent of term license
renewals for existing customers in those regions. In addition,
both our domestic and international businesses have been
affected by the revenue trends discussed above in this section.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Changes in foreign currency exchange rates caused
our revenue to increase by $4.7&nbsp;million in the three months
ended July&nbsp;3, 2004, as compared to the three months ended
June&nbsp;28, 2003, primarily due to strengthening of the
Japanese yen in relation to the U.S.&nbsp;dollar. Changes in
foreign currency exchange rates caused revenue to increase by
$10.1&nbsp;million in the six months ended July&nbsp;3, 2004, as
compared to the six months ended June&nbsp;28, 2003, also
primarily due to strengthening of the Japanese yen in relation
to the U.S.&nbsp;dollar.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cost of Revenue</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(In millions, except percentages)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cost of Revenue as a Percent of Related
    Revenue</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of product revenue includes costs associated
with the sale or lease of our hardware and licensing of our
software products. Cost of product revenue primarily includes
the cost of employee salary and benefits, amortization of
intangible assets directly related to Cadence products,
documentation and royalties payable to third-party vendors. Cost
of product revenue associated with our Cadence Verification
Acceleration, or CVA, hardware products also includes materials,
assembly labor and overhead. These additional manufacturing
costs make our cost of hardware product higher, as a percentage
of revenue, than our cost of software product.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of Cost of product revenue is as
follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product related costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Cost of product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">31
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of product revenue decreased
$1.9&nbsp;million in the second quarter of 2004, as compared to
the second quarter of 2003, primarily due to a decrease of
$5.3&nbsp;million in royalty expense, partially offset by an
increase of $4.3&nbsp;million in cost of goods sold for our
hardware business. Cost of product revenue decreased
$0.6&nbsp;million for the six months ended July&nbsp;3, 2004, as
compared to the same period in 2003, primarily due to decreases
of $2.3&nbsp;million in royalty expenses and $3.6&nbsp;million
in amortized software costs, partially offset by a
$5.1&nbsp;million increase in cost of goods sold for our
hardware business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of product revenue in the future will
primarily depend upon the actual mix of hardware and software
product contracts in any given period and the degree to which we
license and incorporate third-party technology in our products
licensed or sold in the quarter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of services revenue primarily includes costs
of employee salary and benefits, costs to maintain the
infrastructure necessary to manage a services organization and
provisions for contract losses, if any. Cost of services revenue
decreased $1.2&nbsp;million in the three months ended
July&nbsp;3, 2004, as compared to the same period in 2003,
primarily due to decreases in employee salary and benefit costs
of $2.3&nbsp;million resulting primarily from a reduction in the
number of services professionals, partially offset by a
$1.2&nbsp;million increase in costs related to outside
contractors engaged to support the services business. Cost of
services decreased $2.4&nbsp;million in the six months ended
July&nbsp;3, 2004, as compared to the same period in 2003
primarily due to a decrease of $2.0&nbsp;million in salary and
benefit costs. As a result, services gross margin as a
percentage of services revenue increased over the same periods
in 2003, primarily due to a reduction in the number of services
professionals.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of maintenance revenue includes the cost of
customer services, such as hot-line and on-site support,
production employees and documentation of maintenance updates.
Cost of maintenance revenue decreased $1.0&nbsp;million in the
three months ended July&nbsp;3, 2004, as compared to same period
in 2003, due to lower information technology costs and other
general operating expenses. Cost of maintenance revenue
decreased $3.0&nbsp;million in the six months ended July&nbsp;3,
2004, as compared to the same period in 2003, primarily due to a
$0.9&nbsp;million decrease in salary and benefits resulting
primarily from a reduced number of employees, and a
$2.1&nbsp;million decrease in information technology, facilities
and general operating expenses. Gross margin as a percentage of
maintenance revenue increased for the same periods in 2004 as
compared to 2003, due to decreased costs of maintenance.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Operating Expenses</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%&nbsp;Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%&nbsp;Change</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(In millions, except percentages)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">161.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">173.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Expenses as a Percent of Total
    Revenue</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Operating Expenses</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Overall operating expenses remained flat in the
three months ended July&nbsp;3, 2004, as compared to the same
period in 2003. Overall operating expenses decreased by
$6.9&nbsp;million in the six months ended July&nbsp;3, 2004, as
compared to the same period in 2003, primarily as a result of
cost reductions from our 2003
</FONT>

<P align="center"><FONT size="2">32
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">restructuring activities described more fully
below in &#147;Restructuring and Other Charges&#148;. We expect
our operating expenses to be up slightly during the remainder of
2004 as compared to the first half of 2004.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Foreign currency exchange rates increased
operating expenses by $2.9&nbsp;million in the three months
ended July&nbsp;3, 2004, and $6.2&nbsp;million in the six months
ended July&nbsp;3, 2004, as compared to the same periods in
2003, primarily due to the strengthening of the euro, British
pound and Japanese yen in relation to the U.S.&nbsp;dollar.
</FONT>

<P align="left">
<B><FONT size="2">Marketing and Sales</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Marketing and sales expense decreased
$2.4&nbsp;million in the three months ended July&nbsp;3, 2004,
as compared to the same period in 2003, primarily due to a
$2.9&nbsp;million decrease in commission payments to Innotech as
a result of our acquisition during 2003 from Innotech of the
distribution rights to certain of its customers. Marketing and
sales expense decreased $4.8&nbsp;million in the six months
ended July&nbsp;3, 2004, as compared to the same period in 2003,
primarily due to a $7.1&nbsp;million decrease in commission
payments to Innotech as a result of our acquisition from it of
distribution rights to certain of its customers and a
$2.1&nbsp;million reduction in depreciation due to prior year
restructuring activities, partially offset by a
$6.8&nbsp;million increase in salaries and benefits.
</FONT>

<P align="left">
<B><FONT size="2">Research and Development</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Research and development expense increased
$2.7&nbsp;million in the three months ended July&nbsp;3, 2004,
as compared to the same period in 2003, primarily due to a
$5.6&nbsp;million increase in salaries and benefits, partially
offset by a $1.5&nbsp;million reduction in discretionary
spending and a $1.2&nbsp;million reduction in depreciation due
to prior years&#146; restructuring activities. Research and
development expense increased $4.7&nbsp;million in the six
months ended July&nbsp;3, 2004, as compared to the same period
in 2003, primarily due to a $9.7&nbsp;million increase in
salaries and benefits, partially offset by a $2.1&nbsp;million
reduction in outside development costs and a $2.1&nbsp;million
reduction in depreciation due to prior year restructuring
activities.
</FONT>

<P align="left">
<B><FONT size="2">General and Administrative</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">General and administrative expense increased
$0.1&nbsp;million in the three months ended July&nbsp;3, 2004,
as compared to the same period in 2003, primarily due to a
$1.8&nbsp;million increase in salaries and benefits, offset by a
$1.8&nbsp;million reduction in legal expenses. General and
administrative expenses decreased $6.8&nbsp;million in the six
months ended July&nbsp;3, 2004, as compared to the same period
in 2003, primarily due to a $8.0&nbsp;million reduction in legal
expenses, partially offset by a $1.3&nbsp;million increase in
salaries and benefits.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Amortization of Acquired
    Intangibles</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amortization of acquired intangibles increased
$0.9&nbsp;million in the three months ended July&nbsp;3, 2004
and increased $2.0&nbsp;million in the six months ended
July&nbsp;3, 2004, as compared to the same periods in 2003,
primarily due to the amortization of intangibles acquired in
connection with acquisitions. We expect to continue to complete
acquisitions in the second half of 2004, which would result in
an increase in amortization of acquired intangibles in 2004 on
an annual basis as compared to 2003.
</FONT>

<P align="center"><FONT size="2">33
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Amortization of Deferred Stock
    Compensation</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock Compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We amortize deferred stock compensation related
to fixed awards using the straight-line method over the period
that the stock options and restricted stock vest. We recognize
stock compensation expense related to variable awards using an
accelerated method over the period that the stock options and
restricted stock are earned. Amortization of deferred stock
compensation increased $0.3&nbsp;million for the three months
ended July&nbsp;3, 2004, as compared to the same period in 2003,
primarily due to a $3.5&nbsp;million increase in the
amortization of deferred stock compensation related to incentive
stock grants, certain stock options and compensation expense
related to warrants issued to a third-party. This increase was
partially offset by a $3.2&nbsp;million decrease in the
amortization of deferred stock compensation related primarily to
our acquisition of Silicon Perspective Corporation. Amortization
of deferred stock compensation increased $2.3&nbsp;million for
the six months ended July&nbsp;3, 2004, as compared to the same
period in 2003, primarily due to a $6.1&nbsp;million increase in
the amortization of deferred stock compensation related to
incentive stock grants, certain stock options and compensation
expense related to warrants issued to a third-party. This
increase was partially offset by a $3.8&nbsp;million decrease in
the amortization of deferred stock compensation related
primarily to our acquisition of Silicon Perspective Corporation.
We expect the amortization of deferred stock compensation
expense to increase during the remainder of 2004 as a result of
the issuance of 1.4&nbsp;million shares of restricted stock to
certain employees during the three months ended July&nbsp;3,
2004.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Restructuring and Other
    Charges</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We initiated a separate plan of restructuring in
each year beginning in 2001 in an effort to reduce operating
expenses and improve operating margins and cash flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The restructuring plans initiated in 2001 through
2003, or the 2001 Restructuring, 2002 Restructuring and 2003
Restructuring, were intended to decrease costs by reducing
workforce and consolidating facilities and resources, to align
our cost structure with expected revenues. The 2001 and 2002
Restructurings primarily related to our design services business
and certain other business/infrastructure groups throughout the
world. The 2003 Restructuring was targeted at reducing costs
throughout the company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the first quarter of 2004, we commenced a
new plan of restructuring, or the 2004 Restructuring, which was
also intended to decrease costs and realize efficiencies by
reducing workforce and resources throughout the company to align
our cost structure with expected revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of restructuring and other charges by
plan of restructuring for the three months ended July&nbsp;3,
2004 is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">- $</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">34
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of restructuring and other charges by
plan of restructuring for the six months ended July&nbsp;3, 2004
is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We did not incur any restructuring charges during
the first quarter of 2003. As such, restructuring and other
charges by plan of restructuring for the three and six months
ended June&nbsp;28, 2003 is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">- $</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Frequently, asset write-downs are based on
significant estimates and assumptions, particularly regarding
remaining useful life and utilization rates. We may incur other
charges in the future if management determines that the useful
life or utilization of certain long-lived assets has been
reduced.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Closure and space reduction costs included
payments required under leases less any applicable estimated
sublease income after the properties were abandoned, lease
buyout costs, and costs to maintain facilities during the
abandonment period. To determine the lease loss, which is the
loss after our cost recovery efforts from subleasing a building,
certain assumptions were made related to the time period over
which the relevant building would remain vacant and sublease
terms, including sublease rates and contractual common area
charges.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of July&nbsp;3, 2004, our best estimate of the
lease loss related to all worldwide restructuring activities
initiated since 2001 is estimated to be $17.5&nbsp;million. This
amount will be adjusted in the future based upon changes in the
assumptions used to estimate the lease loss. The lease loss
could range as high as $41.4&nbsp;million if sublease rental
rates decrease in applicable markets or if it takes longer than
currently expected to find a suitable tenant to sublease the
facilities. Since 2001, we have recorded facilities
consolidation charges under the 2001 through 2004 Restructurings
of $84.1&nbsp;million related to reducing space or the closing
of 32 sites, of which 22 have been vacated and ten have been
downsized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because the restructuring charges and related
benefits are derived from management&#146;s estimates made
during the formulation of the restructurings, based on
then-currently available information, our restructuring
activities may not achieve the benefits anticipated on the
timetable or at the level contemplated. Demand for our products
and services and, ultimately, our future financial performance,
is difficult to predict with any degree of certainty.
Accordingly, additional actions, including further restructuring
of our operations, may be required in the future.
</FONT>

<P align="center"><FONT size="2">35
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is further discussion of the
activity under each restructuring plan:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2004 Restructuring&nbsp;&#150; The 2004
Restructuring is expected to result in the termination of
approximately 121 employees. Costs resulting from this
restructuring included severance payments, severance-related
benefits and outplacement services. All terminations and
termination benefits associated with this restructuring were
communicated to the affected employees prior to July&nbsp;3,
2004, with all termination benefits expected to be paid by
January&nbsp;1, 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We project annualized savings in employee salary
and benefits costs of approximately $16.2&nbsp;million resulting
from employee terminations under the 2004 Restructuring.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2003 Restructuring&nbsp;&#150; During the second
quarter of 2004, we incurred $0.4&nbsp;million of expense
related to the 2003 Restructuring, primarily comprised of
contract termination charges as well as storage and disposal
charges associated with facilities vacated as part of the 2003
Restructuring. We incurred a total of $0.9&nbsp;million during
the first six months of 2004 related to the 2003 plan, related
primarily to contract termination charges as well as storage and
disposal charges associated with facilities vacated as part of
the 2003 Restructuring.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to incur an additional $4&nbsp;million
to $6&nbsp;million of future costs in connection with the 2003
Restructuring, primarily for facilities-related charges, which
will be expensed as incurred.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2002 Restructuring&nbsp;&#150; During the second
quarter of 2004, we incurred $0.4&nbsp;million of facilities
expenses related to the 2002 Restructuring, primarily comprised
of changes in lease loss estimates and other expenses incurred
to sublease facilities. The facilities expenses were offset by
the release of $0.5&nbsp;million related to the reversal of
accrued contract termination costs not incurred.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2001 Restructuring&nbsp;&#150; Facilities-related
charges recorded during the second quarter of 2004 under the
2001 Restructuring were $0.2&nbsp;million, for a total of
$0.5&nbsp;million incurred during the first six months of 2004.
These additional charges are primarily the result of changes in
lease loss estimates and costs associated with facilities
vacated as part of the 2001 Restructuring.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Write-off of Acquired In-process
    Technology</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon consummation of our acquisition of Neolinear
in April 2004, we immediately charged to expense
$7.0&nbsp;million representing acquired in-process technology
that had not yet reached technological feasibility and had no
alternative future use. The value assigned to acquired
in-process technology was determined by identifying research
projects in areas for which technological feasibility had not
been established. The value was determined by estimating costs
to develop the acquired in-process technology into commercially
viable products, estimating the resulting net cash flows from
such projects and discounting the net cash flows back to their
present value. The discount rate of 28%, which was assumed in
this calculation, included a factor that reflects the
uncertainty surrounding successful development of the acquired
in-process technology. The in-process technology is expected to
be commercially viable in December 2004. As of July&nbsp;3,
2004, expenditures to complete the in-process technology totaled
$0.4&nbsp;million and aggregate expenditures to complete the
remaining in-process technology are expected to be approximately
$1.0&nbsp;million. These estimates are subject to change, given
the uncertainties of the development process, and no assurance
can be given that deviations from these estimates will not
occur. Additionally, these projects will require additional
research and development after they have reached a state of
technological and commercial feasibility.
</FONT>

<P align="center"><FONT size="2">36
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interest Expense</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest expense increased $1.1&nbsp;million in
the three months ended July&nbsp;3, 2004, as compared to the
three months ended June&nbsp;28, 2003, primarily due to a
$0.8&nbsp;million increase in imputed interest on
acquisition-related payments and $0.7&nbsp;million of
amortization expense related to the issuance of our Notes in
August 2003 as described in &#147;Liquidity and Capital
Resources&#148; below, partially offset by a decrease of
$0.5&nbsp;million in interest expense related to our
now-terminated credit facilities. Interest expense increased
$2.0&nbsp;million in the six months ended July&nbsp;3, 2004, as
compared to the six months ended June&nbsp;28, 2003, primarily
due to a $1.6&nbsp;million increase in imputed interest on
acquisition-related payments and $1.4&nbsp;million of
amortization expense related to the issuance of our Notes,
partially offset by a decrease of $1.0&nbsp;million in interest
expense related to our now-terminated credit facilities. After
the issuance of our Notes, we terminated our credit facilities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Other Expense, net</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other expense, net, for the six months ended
July&nbsp;3, 2004 and June&nbsp;28, 2003 is as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain on foreign exchange
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in loss from investments, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the three months ended July&nbsp;3, 2004,
Other income of $2.3&nbsp;million was comprised of
$2.7&nbsp;million of gains on the sale of short-term
investments, partially offset by $0.4&nbsp;million of Other
loss, net. In the three months ended June&nbsp;28, 2003, Other
loss of $2.3&nbsp;million was comprised of $2.1&nbsp;million of
impairment of investments&nbsp;and $0.2&nbsp;million of Other
loss, net. In the six months ended July&nbsp;3, 2004, Other
income of $4.0&nbsp;million was comprised of $7.3&nbsp;million
of gains on the sale of short-term investments, partially offset
by $2.1&nbsp;million of impairment of investments and
$1.2&nbsp;million of Other loss, net. In the six months ended
June&nbsp;28, 2003, Other loss of $7.9&nbsp;million was
comprised of $4.2&nbsp;million of impairment of investments,
$1.3&nbsp;million of losses on the sales of receivables and
$2.4&nbsp;million of Other loss, net. Equity in loss from
investments, net, reflects our proportional share of the net
losses of the investee companies for which we account for our
investment using the equity method of accounting. Additional
information about our investments that we account for using the
equity method of accounting can be found in Note&nbsp;5 to our
Condensed Consolidated Financial Statements.
</FONT>

<P align="center"><FONT size="2">37
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income Taxes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the provision
(benefit) for income taxes and the effective tax rate for the
three and six months ended July&nbsp;3, 2004 and June&nbsp;28,
2003:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Six Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">July&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;28,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision (Benefit) for Income Taxes (in millions)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effective Tax Rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our effective tax rate decreased for the three
months ended July&nbsp;3, 2004, compared to the three months
ended June&nbsp;28, 2003, due to an expected decrease in
non-deductible stock compensation, partially offset by an
expected decrease in tax benefits from foreign income taxed at a
lower rate than the U.S.&nbsp;statutory rate and lower research
and development tax credits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our effective tax rate reflects tax benefits
derived from expected earnings outside the United States which
are generally taxed at rates lower than the U.S.&nbsp;statutory
rate of 35% and which we intend to invest indefinitely outside
of the United States. During the three months ended July&nbsp;3,
2004, we changed our projected annual effective tax rate for the
year ending January&nbsp;1, 2005 to 24%. As of April&nbsp;3,
2004, we projected this rate to be 22%. This change is primarily
a result of projecting increased amounts of non-deductible
expenses related to stock compensation and write-offs of
acquired in-process technology. The annual effective tax rate
for the year ended January&nbsp;3, 2004 was 42.5%. The projected
annual effective tax rate for the year ending January&nbsp;1,
2005 is lower primarily due to a projected decrease in
non-deductible stock compensation, and a greater benefit from
foreign income taxed at a lower rate than the
U.S.&nbsp;statutory rate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IRS and other tax authorities regularly
examine our income tax returns. In November 2003, the IRS
completed its field examination of our federal income tax
returns for the tax years ended 1997 through 1999 and issued a
Revenue Agent&#146;s Report, referred to as the RAR, in which
the IRS proposes to assess an aggregate tax deficiency for the
three-year period of approximately $143&nbsp;million, plus
interest, which interest will accrue until the matter is
resolved. This interest is compounded daily at rates published
by the IRS, which rates have been between four and nine percent
since 1997, and adjusts quarterly. The IRS may also make similar
claims for years subsequent to 1999 in future examinations. The
RAR is not a final Statutory Notice of Deficiency, and we have
protested certain of the proposed adjustments with the IRS.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The most significant of the disputed adjustments
relates to transfer pricing arrangements that we have with a
foreign subsidiary. We believe that the proposed IRS adjustments
are inconsistent with applicable tax laws, and that we have
meritorious defenses to the proposed adjustments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IRS is currently examining our federal income
tax returns for the tax years ended 2000 through 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Significant judgment is required in determining
our provision for income taxes. In determining the adequacy of
our provision for income taxes, we have assessed the likelihood
of adverse outcomes resulting from these examinations, including
the current IRS examination and the IRS RAR for 1997 through
1999. However, the ultimate outcome of tax examinations cannot
be predicted with certainty, including the total amount payable
or the timing of any such payments upon resolution of these
issues. In addition, we cannot be certain that such amount will
not be materially different than that which is reflected in our
historical income tax provisions and accruals. Should the IRS or
other tax authorities assess additional taxes as a result of a
current or a future examination, we may be required to record
charges to operations in future periods that could have a
material adverse effect on our results of operations, financial
position or cash flows in the period or periods recorded.
</FONT>

<P align="center"><FONT size="2">38
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Liquidity and Capital Resources</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At July&nbsp;3, 2004, our principal sources of
liquidity consisted of $411.7&nbsp;million of Cash and cash
equivalents and Short-term investments, compared to
$418.4&nbsp;million at January&nbsp;3, 2004. The primary sources
of our cash for the six months ended July&nbsp;3, 2004 were
receipts from software licenses and the sale or lease of our
hardware products and intellectual property, proceeds from the
exercise of stock options and common stock purchases under our
employee stock purchase plans. In the first six months of 2004,
our primary uses of cash consisted of payroll costs, product and
services and general and administrative expenses, purchases of
treasury stock and cash paid in business combinations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At July&nbsp;3, 2004, we had net working capital
of $350.6&nbsp;million, as compared with $360.3&nbsp;million at
January&nbsp;3, 2004. The decrease in net working capital was
primarily due to an increase in Accounts payable and accrued
liabilities of $18.1&nbsp;million. This increase was partially
offset by a $7.2&nbsp;million increase in Inventories.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash provided by operating activities
increased $120.4&nbsp;million, to $161.0&nbsp;million, during
the first six months of 2004 as compared to $40.6&nbsp;million
net cash provided by operating activities during the first six
months of 2003. The increase is primarily related to a larger
reduction in Accounts payable and accrued liabilities in the
first six months of 2003 as compared to the first six months of
2004, primarily due to larger payments of accrued severance and
other accrued restructuring-related expenses in the first six
months of 2003 as compared to the first six months of 2004. In
addition, cash provided by operating activities increased due to
greater collections of installment contract receivables in the
first six months of 2004 as compared to the first six months of
2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have entered into agreements whereby we may
transfer qualifying accounts receivable to certain financing
institutions on a non-recourse basis. These transfers are
recorded as sales and accounted for in accordance with
SFAS&nbsp;No.&nbsp;140, &#147;Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.&#148; During the first six months of 2004, we
transferred accounts receivable totaling $5.1&nbsp;million,
which approximated fair value, to financing institutions on a
non-recourse basis, as compared to $27.9&nbsp;million
transferred during the first six months of 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our primary investing activities consisted of
business combinations and purchasing property, plant and
equipment, which combined represented $130.5&nbsp;million of
cash used for investing activities in the first six months of
2004, as compared to $142.5&nbsp;million in the first six months
of 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of our overall investment strategy, we
are a limited partner in three venture capital funds, Telos
Venture Partners, L.P., or Telos&nbsp;I, Telos Venture
Partners&nbsp;II, L.P., or Telos&nbsp;II, and Telos Venture
Partners&nbsp;III, L.P., or Telos&nbsp;III (Telos&nbsp;I,
Telos&nbsp;II and Telos&nbsp;III are referred to collectively as
Telos). We and certain of our deferred compensation trusts are
the sole limited partners of Telos&nbsp;I and Telos&nbsp;III,
and we are the sole limited partner of Telos II. The partnership
agreements governing Telos&nbsp;I, Telos&nbsp;II and
Telos&nbsp;III, which are substantially the same, require us to
meet capital calls principally for the purpose of funding
investments that are recommended by the applicable Telos general
partner, and approved by the Telos advisory committee as being
consistent with the partnership&#146;s limitations and stated
purposes. The Telos general partner, which is not affiliated
with us, manages the partnerships and may be removed by us
without cause. For all three partnerships, the advisory
committee is comprised solely of the members of the Venture
Committee of our Board of Directors, the current members of
which are our Chairman of the Board of Directors and two
independent members of our Board of Directors. As of
July&nbsp;3, 2004, we had contributed $90.6&nbsp;million to
these partnerships and are contractually committed to contribute
to them up to an additional $86.9&nbsp;million. Our commitments
expire concurrently with the termination date of each
partnership, which, in the case of Telos&nbsp;I is
December&nbsp;31, 2005, in the case of Telos&nbsp;II, is
July&nbsp;3, 2012, and, in the case of Telos&nbsp;III, is
June&nbsp;1, 2012. Our investments in the Telos partnerships are
recorded in Other assets in the accompanying Condensed
Consolidated Balance Sheets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash used for financing activities for the
first six months of 2004 was $26.2&nbsp;million compared to
$51.4&nbsp;million for the first six months of 2003. This change
was primarily attributable to the termination of our credit
facilities in August 2003 and lower proceeds from the issuance
of our common stock in the first six months of 2003. In the
first six months of 2004, our primary use of cash for financing
activities was
</FONT>

<P align="center"><FONT size="2">39
</FONT>

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<DIV align="left">
<FONT size="2">$69.8&nbsp;million for purchases of our common
stock, which was partially offset by $45.9&nbsp;million in
proceeds we received from the issuance of our common stock. In
the first six months of 2003, our primary use of cash for
financing activities was $62.0&nbsp;million used for purchases
of our common stock and $63.2&nbsp;million used for payments on
our now-terminated credit facilities, partially offset by
$45.0&nbsp;million in proceeds we received from those credit
facilities and $28.8&nbsp;million of proceeds we received from
the issuance of our common stock.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As compared to January&nbsp;3, 2004, Other
long-term liabilities decreased $37.3&nbsp;million to
$290.1&nbsp;million at July&nbsp;3, 2004. The decrease was
primarily attributable to $20.9&nbsp;million of reductions in
Other long-term liabilities that are now reflected as Accounts
payable and accrued liabilities relating to indemnity holdbacks
from purchase price payments for business acquisitions. The
components of Other long-term liabilities are $50.2&nbsp;million
of deferred compensation, $27.8&nbsp;million of accrued
restructuring charges and $212.1&nbsp;million relating to
indemnity holdbacks from acquisitions, deferred payments
relating to acquisitions and deferred tax liabilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We received the RAR from the IRS in which the IRS
proposes to assess an aggregate tax deficiency for the tax years
from 1997 to 1999 of approximately $143&nbsp;million, plus
interest, which interest will accrue until the matter is
resolved. The RAR is not a final Statutory Notice of Deficiency,
and we have filed a protest with the IRS to certain of the
proposed adjustments. We are challenging these proposed
adjustments vigorously. The IRS may also make similar claims for
tax returns filed for years subsequent to 1999. While we are
protesting certain of the proposed adjustments, we cannot
predict with certainty the ultimate outcome of the tax
examination, including the amount payable, or timing of such
payments, which may materially impact our cash flows in the
period or periods resolved.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to incur an additional $4&nbsp;million
to $6&nbsp;million of future costs in connection with our
restructuring activities, primarily for facilities-related
charges connected with the 2003 Restructuring, which will be
expensed as incurred. We expect annualized cost reductions
resulting from the 2004 Restructuring of approximately
$16.2&nbsp;million in employee salary and benefits costs,
related to employee terminations under the restructuring plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, we issued $420.0&nbsp;million
principal amount of Zero Coupon Zero Yield Senior Convertible
Notes due 2023, or the Notes, to two initial purchasers in a
private offering for resale to qualified institutional buyers
pursuant to SEC Rule&nbsp;144A. We received net proceeds of
approximately $406.4&nbsp;million after transaction fees of
approximately $13.6&nbsp;million that were recorded in Other
long-term assets and are being amortized to interest expense
using the straight-line method over five years, which is the
duration of the first redemption period. We issued the Notes at
par and the Notes bear no interest. The Notes are convertible
into our common stock initially at a conversion price of
$15.65&nbsp;per share, which would result in an aggregate of
26.8&nbsp;million shares issued upon conversion, subject to
adjustment upon the occurrence of specified events. We may
redeem for cash all or any part of the Notes on or after
August&nbsp;15, 2008 for 100.00% of the principal amount. The
holders may require us to repurchase for cash all or any portion
of their Notes on August&nbsp;15, 2008 for 100.25% of the
principal amount, on August&nbsp;15, 2013 for 100.00% of the
principal amount or on August&nbsp;15, 2018 for 100.00% of the
principal amount. The Notes do not contain restrictive financial
covenants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2003, we filed with the SEC a resale
registration statement with respect to the Notes. This
registration statement was declared effective by the SEC on
April&nbsp;29, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the issuance of the Notes, we
entered into convertible notes hedge transactions whereby we
have the option to purchase up to 26.8&nbsp;million shares of
our common stock at a price of $15.65&nbsp;per share. These
options expire on August&nbsp;15, 2008 and must be settled in
net shares. The cost of the convertible notes hedge transactions
to us was approximately $134.6&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we sold warrants to purchase up to
26.8&nbsp;million shares of our common stock at a price of
$23.08&nbsp;per share. The warrants expire on various dates from
February 2008 through May 2008 and must be settled in net
shares. We received approximately $56.4&nbsp;million in cash
proceeds for the sales of these warrants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our acquisitions completed
prior to July&nbsp;3, 2004, we may be obligated to pay up to an
aggregate of $55.2&nbsp;million in cash during the next
12&nbsp;months if certain performance goals related to one or
more of the following criteria are achieved in full: revenue,
bookings, product development, product
</FONT>

<P align="center"><FONT size="2">40
</FONT>

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<DIV align="left">
<FONT size="2">proliferation, and employee retention. In
addition, we may be required to pay an additional
$48.6&nbsp;million in cash during the next four years if certain
performance goals related to one or more of the following
criteria are achieved in full: revenue, bookings, product
development, product proliferation, and employee retention.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that current cash and short-term
investment balances and cash flow from operations will be
sufficient to meet our working capital and other capital
requirements for at least the next 12&nbsp;months. Also, while
we have no committed lines of credit, we believe our good credit
and strong banking relationships will provide us with access to
bank debt and opportunities to raise debt in the public markets
if additional liquidity is needed.
</FONT>

<P align="left">
<B><FONT size="2">New Accounting Standards</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;2, 2004 the EITF reached a tentative
conclusion on Issue&nbsp;04-08, &#147;Accounting Issues Related
to Certain Features of Contingently Convertible Debt and the
Effect on Diluted Earnings per Share&#148;, or EITF&nbsp;04-08.
If the EITF were to reach a consensus in agreement with the
tentative conclusion on EITF&nbsp;04-08, it would require us to
include in diluted earnings per share, on the
&#147;if-converted&#148; method, the aggregate of approximately
26.8&nbsp;million shares of our common stock into which the
Notes may be converted, regardless of whether the conversion
threshold has been met. If a consensus is reached on
EITF&nbsp;04-08, adoption may require us to restate previously
reported diluted earnings per share for all periods in which the
Notes were outstanding. We believe that, if adopted in its
current form, EITF&nbsp;04-08 would have a material adverse
effect on our diluted earnings per share.
</FONT>

<P align="left">
<B><FONT size="2">Factors That May Affect Future
Results</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Our business faces many risks. Described below
are what we believe to be the material risks that we face. If
any of the events or circumstances described in the following
risks actually occurs, our business, financial condition or
results of operations could suffer.</FONT></I>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Risks Related to Our Business</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">We are subject to the cyclical nature of
the integrated circuit and electronics systems industries, and
any downturn may reduce our revenue.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Purchases of our products and services are
dependent upon the commencement of new design projects by IC
manufacturers and electronics systems companies. The IC industry
is cyclical and is characterized by constant and rapid
technological change, rapid product obsolescence and price
erosion, evolving standards, short product life cycles and wide
fluctuations in product supply and demand.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IC and electronics systems industries have
experienced significant downturns, often connected with, or in
anticipation of, maturing product cycles of both these
industries&#146; and their customers&#146; products and a
decline in general economic conditions. These downturns have
been characterized by diminished product demand, production
overcapacity, high inventory levels and accelerated erosion of
average selling prices.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Over the past several years, IC manufacturers and
electronics systems companies have experienced a downturn in
demand and production which has resulted in reduced research and
development spending by many of our customers. While many of
these companies appear to have experienced a gradual recovery in
the second half of 2003 and the first half of 2004, they have
continued their focus on cost containment. Any economic downturn
could harm our business, operating results and financial
condition.
</FONT>

<P align="left">
<B><I><FONT size="2">Our failure to respond quickly to
technological developments could make our products uncompetitive
and obsolete.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The industries in which we compete experience
rapid technology developments, changes in industry standards,
changes in customer requirements and frequent new product
introductions and improvements. Currently, the industries we
serve are experiencing several revolutionary trends:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Migration to nanometer design: the size of
    features such as wires, transistors and contacts on ICs is
    shrinking due to advances in semiconductor manufacturing
    processes. Process feature sizes refer to
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">41
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">the width of the transistors and the width and
    spacing of the interconnect on the IC. Feature size is normally
    identified by the headline transistor length, which is shrinking
    from 180 nanometers to 130 nanometers and smaller. This is
    commonly referred to in the semiconductor industry as the
    migration to nanometer design. It represents a major challenge
    for participants in the semiconductor industry, from IC design
    and design automation to design of manufacturing equipment and
    the manufacturing process itself. Shrinkage of transistor length
    to such infinitesimal proportions is challenging fundamental
    laws of physics and chemistry.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The ability to design System-on-Chip, or SoC, ICs
    increases the complexity of managing a design that at the lowest
    level is represented by billions of shapes on the fabrication
    mask. In addition, SoCs typically incorporate microprocessors
    and digital signal processors that are programmed with software,
    requiring simultaneous design of the IC and the related software
    embedded on the IC.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Increased capability of Field-Programmable Gate
    Array technologies creates an alternative to IC implementation
    for some electronics companies. This could reduce demand for
    Cadence&#146;s IC implementation products and services.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">A growing number of low-cost design services
    businesses could reduce the need for some IC companies to invest
    in EDA products.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The challenges of nanometer design are leading
    some customers to work with older, less risky manufacturing
    processes. This may reduce their need to upgrade their EDA
    products and design flows.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we are unable to respond quickly and
successfully to these developments and the evolution of these
changes, we may lose our competitive position, and our products
or technologies may become uncompetitive or obsolete. To compete
successfully, we must develop or acquire new products and
improve our existing products and processes on a schedule that
keeps pace with technological developments in our industries. We
must also be able to support a range of changing computer
software, hardware platforms and customer preferences. We cannot
guarantee that we will be successful in this effort.
</FONT>

<P align="left">
<B><I><FONT size="2">We have experienced varied quarterly
operating results, and our operating results for any particular
fiscal period are affected by the timing of significant orders
for our software products, fluctuations in customer preferences
for license types and the timing of recognition of revenue under
those license types.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have experienced, and may continue to
experience, varied quarterly operating results. In particular,
we have experienced quarterly net losses for four of the past
five quarters, and we may experience net losses in future
periods. Various factors affect our quarterly operating results
and some of them are not within our control. Our quarterly
operating results are affected by the timing of significant
orders for our software products because a significant number of
licenses for our software products are in excess of
$5.0&nbsp;million. The failure to complete a license for one or
more orders for our software products in a particular quarter
could seriously harm our operating results for that quarter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operating results are also affected by the
mix of license types executed in any given period. We license
software using three different license types: term, subscription
and perpetual. Product revenue associated with term and
perpetual licenses is generally recognized at the beginning of
the license period, whereas product revenue associated with
subscription licenses is recognized over multiple periods over
the term of the license. Revenue may also be deferred under term
and perpetual licenses until payments become due and payable
from customers with nonlinear payment terms or as cash is
collected from customers with lower credit ratings.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We continue to experience increasing customer
preference for our subscription licenses and requests for more
flexible payment terms. We expect revenue recognized from
backlog to increase as a percentage of product revenue, on an
annual basis, assuming that customers continue to prefer
subscription licenses, or continue to request more flexible
payment terms, both of which cause revenue to be recognized over
time. In addition, revenue is impacted by the timing of license
renewals, the extent to which contracts contain flexible payment
terms and the mix of license types (i.e., perpetual, term or
subscription) for existing customers, which changes could have
the effect of accelerating or delaying the recognition of
revenue from the timing of recognition under the original
contract.
</FONT>

<P align="center"><FONT size="2">42
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We plan operating expense levels primarily based
on forecasted revenue levels. These expenses and the impact of
long-term commitments are relatively fixed in the short term. A
shortfall in revenue could lead to operating results below
expectations because we may not be able to quickly reduce these
fixed expenses in response to short-term business changes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should not view our historical results of
operations as reliable indicators of our future performance. If
revenue or operating results fall short of the levels expected
by public market analysts and investors, the trading price of
our common stock could decline dramatically.
</FONT>

<P align="left">
<B><I><FONT size="2">Our future revenue is dependent in part
upon our installed customer base continuing to license
additional products, renew maintenance agreements and purchase
additional services.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our installed customer base has traditionally
generated additional new license, service and maintenance
revenues. In future periods, customers may not necessarily
license additional products or contract for additional services
or maintenance. Maintenance is generally renewable annually at a
customer&#146;s option, and there are no mandatory payment
obligations or obligations to license additional software. If
our customers decide not to renew their maintenance agreements
or license additional products or contract for additional
services, or if they reduce the scope of the maintenance
agreements, our revenue could decrease, which could have an
adverse effect on our results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">We may not receive significant revenue from
our current research and development efforts for several years,
if at all.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Internally developing software products and
integrating acquired software products into existing platforms
is expensive, and these investments often require a long time to
generate returns. Our strategy involves significant investments
in software research and development and related product
opportunities. We believe that we must continue to dedicate a
significant amount of resources to our research and development
efforts to maintain our competitive position. However, we cannot
predict that we will receive significant revenue from these
investments, if at all.
</FONT>

<P align="left">
<B><I><FONT size="2">We have acquired and expect to acquire
other companies and businesses and may not realize the expected
benefits of these acquisitions.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have acquired and expect to acquire other
companies and businesses in the future. While we expect to
carefully analyze all potential acquisitions before committing
to the transaction, we cannot assure you that our management
will be able to integrate and manage acquired products and
businesses effectively or that the acquisitions will result in
long-term benefits to us or our stockholders. In addition,
acquisitions involve a number of risks. If any of the following
events occurs after we acquire another business, it could
seriously harm our business, operating results and financial
condition:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Difficulties in combining previously separate
    businesses into a single unit;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The substantial diversion of management&#146;s
    attention from day-to-day business when evaluating and
    negotiating these transactions and then integrating an acquired
    business;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The discovery, after completion of the
    acquisition, of liabilities assumed from the acquired business
    or of assets acquired that are not realizable;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The failure to realize anticipated benefits such
    as cost savings and revenue enhancements;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The failure to retain key employees of the
    acquired business;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Difficulties related to assimilating the products
    of an acquired business in, for example, distribution,
    engineering and customer support areas;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Unanticipated costs;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Customer dissatisfaction with existing license
    agreements with Cadence which may preclude access to products
    acquired by Cadence after the effective date of the
    license;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Failure to understand and compete effectively in
    markets in which we have limited previous experience.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In a number of our acquisitions, we have agreed
to make future cash or stock payments based on the performance
of the businesses we acquired. The performance goals pursuant to
which these future payments
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">may be made generally relate to achievement by
the acquired business of certain specified bookings, revenue,
product proliferation, product development or employee retention
goals during a specified period following completion of the
applicable acquisition. Future acquisitions may involve
issuances of stock as payment of the purchase price for the
acquired business and also incentive stock or option grants to
employees of the acquired businesses (which may be dilutive to
existing stockholders), expenditure of substantial cash
resources or the incurrence of material amounts of debt.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The specific performance goal levels and amounts
and timing of contingent purchase price payments vary with each
acquisition. In fiscal 2004 to date, we have recorded
1.1&nbsp;million shares to former stockholders of acquired
companies, as contingent earnout purchase price. In addition, in
fiscal 2004 to date, we made cash payments of $9.6&nbsp;million
and accrued an additional $2.3&nbsp;million of cash payments to
former stockholders of acquired companies, as contingent earnout
purchase price.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The additional goodwill and deferred stock
compensation resulting from acquisitions related to the
achievement of certain performance goals tied to one or more of
the following criteria: revenue, bookings, product
proliferation, product development and employee retention. The
goodwill is not expected to be deductible for income tax
purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our acquisitions completed
prior to July&nbsp;3, 2004, we may be obligated to pay up to an
aggregate of $55.2&nbsp;million in cash during the next
12&nbsp;months and an additional $48.6&nbsp;million in cash
during the three years following the next twelve months if
certain performance goals related to one or more of the
following criteria are achieved in full: revenue, bookings,
product proliferation, product development and employee
retention.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future acquisitions may result in increased
goodwill and other intangible assets, in addition to
acquisition-related charges. These assets may eventually be
written down to the extent they are deemed to be impaired, and
any such write-downs would adversely affect our results.
</FONT>

<P align="left">
<B><I><FONT size="2">Our failure to attract, train, motivate and
retain key employees may make us less competitive in our
industries and therefore harm our results of
operations.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our business depends on the efforts and abilities
of our senior management, our research and development staff,
and a number of other key management, sales, support, technical
and services employees. The high cost of training new employees,
not fully utilizing these employees, or losing trained employees
to competing employers could reduce our gross margins and harm
our business and operating results. Even in the current economic
climate, competition for highly skilled employees can be
intense, particularly in geographic areas recognized as high
technology centers such as the Silicon Valley area, where our
principal offices are located, and the other locations where we
maintain facilities. If economic conditions improve and job
opportunities in the technology industry become more plentiful,
we may experience increased employee attrition and increased
competition for skilled employees. To attract, retain and
motivate individuals with the requisite expertise, we may be
required to grant large numbers of stock options or other
stock-based incentive awards, which may be dilutive to existing
stockholders. We may also be required to pay key employees
significant base salaries and cash bonuses, which could harm our
operating results. Additionally, if certain proposed accounting
standards were adopted we would be required to record a charge
to compensation expense for option grants which may affect our
ability to provide equity compensation to employees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, regulations adopted by the NYSE and
NASDAQ require stockholder approval for new stock option plans
and significant amendments to existing plans, including
increases in options, and prohibit NYSE and NASDAQ member
organizations from giving a proxy to vote on equity compensation
plans unless the beneficial owner of the shares has given voting
instructions. These regulations could make it more difficult for
us to grant equity compensation to employees in the future. To
the extent that these regulations make it more difficult or
expensive to grant equity compensation to employees, we may
incur increased compensation costs or find it difficult to
attract, retain and motivate employees, which could materially
and adversely affect our business.
</FONT>

<P align="center"><FONT size="2">44
</FONT>

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<P align="left">
<B><I><FONT size="2">The competition in our industries is
substantial and we cannot assure you that we will be able to
continue to successfully compete in our
industries.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The EDA market and the commercial electronics
design and methodology services industries are highly
competitive. If we fail to compete successfully in these
industries, it could seriously harm our business, operating
results and financial condition. To compete in these industries,
we must identify and develop or acquire innovative and cost
competitive EDA products, integrate them into platforms and
market them in a timely manner. We must also gain industry
acceptance for our design and methodology services and offer
better strategic concepts, technical solutions, prices and
response time, or a combination of these factors, than those of
other design companies and the internal design departments of
electronics manufacturers. We cannot assure you that we will be
able to compete successfully in these industries. Factors that
could affect our ability to succeed include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The development by others of competitive EDA
    products or platforms and design and methodology services could
    result in a shift of customer preferences away from our products
    and services and significantly decrease revenue;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Decisions by electronics manufacturers to perform
    design and methodology services internally, rather than purchase
    these services from outside vendors due to budget constraints or
    excess engineering capacity;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The challenges of developing (or acquiring
    externally-developed) technology solutions which are adequate
    and competitive in meeting the requirements of next-generation
    design challenges;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The significant number of current and potential
    competitors in the EDA industry and the low cost of entry;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Intense competition to attract acquisition
    targets, which may make it more difficult for us to acquire
    companies at an acceptable price or at all;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The combination of or collaboration among many
    EDA companies to deliver more comprehensive offerings than they
    could individually.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently compete in the EDA market primarily
with Synopsys, Inc., Mentor Graphics Corporation and Magma
Design Automation, Inc. We also compete with numerous smaller
EDA companies, with manufacturers of electronic devices that
have developed or have the capability to develop their own EDA
products, and with numerous electronics design and consulting
companies. Manufacturers of electronic devices may be reluctant
to purchase services from independent vendors such as us because
they wish to promote their own internal design departments.
</FONT>

<P align="left">
<B><I><FONT size="2">We may need to change our pricing models to
compete successfully.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The intensely competitive markets in which we
compete can put pressure on us to reduce our prices. If our
competitors offer deep discounts on certain products in an
effort to recapture or gain market segment share or to sell
other software or hardware products, we may then need to lower
prices or offer other favorable terms to compete successfully.
Any such changes would be likely to reduce margins and can
adversely affect operating results. Any broadly-based changes to
our prices and pricing policies could cause sales and software
license revenues to decline or be delayed as our sales force
implements and our customers adjust to the new pricing policies.
Some of our competitors may bundle products for promotional
purposes or as a long-term pricing strategy or provide
guarantees of prices and product implementations. These
practices could, over time, significantly constrain the prices
that we can charge for our products. If we cannot offset price
reductions with a corresponding increase in the number of sales
or with lower spending, then the reduced license revenues
resulting from lower prices could have an adverse affect on our
results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">We rely on our proprietary technology as
well as software and other intellectual property rights licensed
to us by third parties, and we cannot assure you that the
precautions taken to protect our rights will be adequate or that
we will continue to be able to adequately secure such
intellectual property rights from third parties.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends, in part, upon our
proprietary technology. We generally rely on patents,
copyrights, trademarks, trade secret laws, licenses and
restrictive agreements to establish and protect our proprietary
</FONT>

<P align="center"><FONT size="2">45
</FONT>

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<DIV align="left">
<FONT size="2">rights in technology and products. Despite
precautions we may take to protect our intellectual property, we
cannot assure you that third parties will not try to challenge,
invalidate or circumvent these safeguards. We also cannot assure
you that the rights granted under our patents or attendant to
our other intellectual property will provide us with any
competitive advantages, or that patents will be issued on any of
our pending applications, or that future patents will be
sufficiently broad to protect our technology. Furthermore, the
laws of foreign countries may not protect our proprietary rights
in those countries to the same extent as applicable law protects
these rights in the United States. Many of our products include
software or other intellectual property licensed from third
parties. We may have to seek new or renew existing licenses for
such software and other intellectual property in the future. Our
design services business holds licenses to certain software and
other intellectual property owned by third parties. Our failure
to obtain, for our use, software or other intellectual property
licenses or other intellectual property rights on favorable
terms, or the need to engage in litigation over these licenses
or rights, could seriously harm our business, operating results
and financial condition.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Intellectual property infringement by or
against us could result in our loss of key
technology.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There are numerous patents in the EDA industry
and new patents are being issued at a rapid rate. It is not
always practicable to determine in advance whether a product or
any of its components infringes the patent rights of others. As
a result, from time to time, we may be forced to respond to or
prosecute intellectual property infringement claims to protect
our rights or defend a customer&#146;s rights. These claims,
regardless of merit, could consume valuable management time,
result in costly litigation, or cause product shipment delays,
all of which could seriously harm our business, operating
results and financial condition. In settling these claims, we
may be required to enter into royalty or licensing agreements
with the third parties claiming infringement. These royalty or
licensing agreements, if available, may not have terms favorable
to us. Being forced to enter into a license agreement with
unfavorable terms could seriously harm our business, operating
results and financial condition. Any potential intellectual
property litigation could force us to do one or more of the
following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Pay damages, license fees or royalties to the
    party claiming infringement;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Stop licensing products or providing services
    that use the challenged intellectual property;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Obtain a license from the owner of the infringed
    intellectual property to sell or use the relevant technology,
    which license may not be available on reasonable terms, or at
    all;&nbsp;or
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Redesign the challenged technology, which could
    be time-consuming and costly.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we were forced to take any of these actions,
our business and results of operations may suffer.
</FONT>

<P align="left">
<B><I><FONT size="2">We may not be able to effectively implement
our restructuring activities, and our restructuring activities
may not result in the expected benefits, which would negatively
impact our future results of operations.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The EDA market and the commercial electronics
design and methodology services industries are highly
competitive and change quickly. We have responded to increased
competition and changes in the industries in which we compete by
restructuring our operations and reducing the size of our
workforce. Despite our restructuring efforts over the last few
years, we cannot assure you that we will achieve all of the
operating expense reductions and improvements in operating
margins and cash flows currently anticipated from these
restructuring activities in the periods contemplated, or at all.
Our inability to realize these benefits, and our failure to
appropriately structure our business to meet market conditions,
could negatively impact our results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of our recent restructuring activities,
we have reduced the workforce in certain revenue-generating
portions of our business, particularly in our services business.
This reduction in staffing levels could require us to forego
certain future strategic opportunities due to limited resources,
which could negatively affect our long-term revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, these workforce reductions could
result in a lack of focus and reduced productivity by remaining
employees due to changes in responsibilities or concern about
future prospects, which in turn may negatively affect our future
revenues. Further, we believe our future success depends, in
large part, on our
</FONT>

<P align="center"><FONT size="2">46
</FONT>

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<DIV align="left">
<FONT size="2">ability to attract and retain highly skilled
personnel. Our restructuring activities could negatively affect
our ability to attract such personnel as a result of perceived
risk of future workforce reductions.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also cannot assure you that we will not be
required to implement further restructuring activities or
reductions in our workforce based on changes in the markets and
industries in which we compete or that any future restructuring
efforts will be successful.
</FONT>

<P align="left">
<B><I><FONT size="2">The lengthy sales cycle of our products and
services makes the timing of our revenue difficult to predict
and may cause our operating results to fluctuate
unexpectedly.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have a lengthy sales cycle that generally
extends at least three to six months. The length of the sales
cycle may cause our revenue and operating results to vary
unexpectedly from quarter to quarter. The complexity and expense
associated with our business generally requires a lengthy
customer education, evaluation and approval process.
Consequently, we may incur substantial expenses and devote
significant management effort and expense to develop potential
relationships that do not result in agreements or revenue and
may prevent us from pursuing other opportunities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, sales of our products and services
may be delayed if customers delay approval or commencement of
projects because of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The timing of customers&#146; competitive
    evaluation processes;&nbsp;or
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Customers&#146; budgetary constraints and budget
    cycles.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Lengthy sales cycles for acceleration and
emulation hardware products subject us to a number of
significant risks over which we have limited control, including
insufficient, excess or obsolete inventory, variations in
inventory valuation and fluctuations in quarterly operating
results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Also, because of the timing of large orders and
our customers&#146; buying patterns, we may not learn of
bookings shortfalls, revenue shortfalls, earnings shortfalls or
other failures to meet market expectations until late in a
fiscal quarter, which could cause even more immediate and
serious harm to the trading price of our common stock.
</FONT>

<P align="left">
<B><I><FONT size="2">The profitability of our services business
depends on factors that are difficult to control, such as the
high cost of our services employees, our cost of performing our
fixed-price services contracts and the success of our design
services business, which has historically suffered
losses.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To be successful in our services business, we
must overcome several factors that are difficult to control,
including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Our cost of services employees is high and
    reduces our gross margin.</FONT></I><FONT size="2"> Gross margin
    represents the difference between the amount of revenue from the
    sale of services and our cost of providing those services. We
    must pay high salaries to attract and retain professional
    services employees. This results in a lower gross margin than
    the gross margin in our software business. In addition, the high
    cost of training new services employees or not fully utilizing
    these employees can significantly lower gross margin. It is
    difficult to adjust staffing levels quickly to reflect customer
    demand for services; therefore, the services business has in the
    past and could continue to experience losses.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">A portion of services contracts consists of
    fixed-price contracts.</FONT></I><FONT size="2"> Some of our
    customers pay a fixed price for services provided, regardless of
    the cost we must incur to perform the contract. If our cost in
    performing the services were to exceed the amount the customer
    has agreed to pay, we would experience a loss on the contract,
    which could harm our business, operating results and financial
    condition.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">We have historically suffered losses in our
    design services business.</FONT></I><FONT size="2"> The market
    for electronics design services is sensitive to customer
    budgetary constraints and engineering capacity. Our design
    services business has historically suffered losses. If our
    design services business fails to increase its revenue to offset
    its expenses, the design services business will continue to
    experience losses. Our failure to succeed in the design services
    business may harm our business, operating results and financial
    condition.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">47
</FONT>

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<P align="left">
<B><I><FONT size="2">Our international operations may seriously
harm our financial condition because of the effect of foreign
exchange rate fluctuations and other risks to our international
business.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have significant operations outside the United
States. Our revenue from international operations as a
percentage of total revenue was approximately 46% for the second
quarter of 2004 and 47% for the second quarter of 2003. We
expect that revenue from our international operations will
continue to account for a significant portion of our total
revenue. We also transact business in various foreign
currencies. Recent economic and political uncertainty and the
volatility of foreign currencies in certain regions, most
notably the Japanese yen and the European Union euro, have had,
and may in the future have, a seriously harmful effect on our
revenue and operating results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Fluctuations in the rate of exchange between the
U.S.&nbsp;dollar and the currencies of other countries in which
we conduct business could seriously harm our business, operating
results and financial condition. For example, if there is an
increase in the rate at which a foreign currency exchanges into
U.S.&nbsp;dollars, it will take more of the foreign currency to
equal the same amount of U.S.&nbsp;dollars than before the rate
increase. If we price our products and services in the foreign
currency, we will receive fewer U.S.&nbsp;dollars than we did
before the rate increase went into effect. If we price our
products and services in U.S.&nbsp;dollars, an increase in the
exchange rate will result in an increase in the price for our
products and services compared to those products of our
competitors that are priced in local currency. This could result
in our prices being uncompetitive in markets where business is
transacted in the local currency.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Exposure to foreign currency transaction risk can
arise when transactions are conducted in a currency different
from the functional currency of one of our subsidiaries. A
subsidiary&#146;s functional currency is the currency in which
it primarily conducts its operations, including product pricing,
expenses and borrowings. Although we attempt to reduce the
impact of foreign currency fluctuations, significant exchange
rate movements may hurt our results of operations as expressed
in U.S.&nbsp;dollars.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our international operations may also be subject
to other risks, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The adoption and expansion of government trade
    restrictions;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Limitations on repatriation of earnings;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Limitations on the conversion of foreign
    currencies;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reduced protection of intellectual property
    rights in some countries;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Recessions in foreign economies;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Longer collection periods for receivables and
    greater difficulty in collecting accounts receivable;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Difficulties in managing foreign operations;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Political and economic instability;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Unexpected changes in regulatory requirements;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Tariffs and other trade barriers;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">U.S.&nbsp;government licensing requirements for
    exports which may lengthen the sales cycle or restrict or
    prohibit the sale or licensing of certain products.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have offices throughout the world, including
key research facilities outside of the United States. Our
operations are dependent upon the connectivity of our operations
throughout the world. Activities that interfere with our
international connectivity, such as computer &#147;hacking&#148;
or the introduction of a virus into our computer systems, could
significantly interfere with our business operations.
</FONT>

<P align="left">
<B><I><FONT size="2">Our operating results could be adversely
affected as a result of changes in our effective tax
rates.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future effective tax rates could be adversely
affected by the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Earnings being lower than anticipated in
    countries where we are taxed at lower statutory rates as
    compared to the U.S.&nbsp;statutory tax rate;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">An increase in expenses not deductible for tax
    purposes, including write-offs of acquired in-process technology
    and impairment of goodwill;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Changes in the valuation of our deferred tax
    assets and liabilities;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Changes in tax laws or the interpretation of such
    tax laws;&nbsp;or
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">48
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">New accounting standards or interpretations of
    such standards.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any significant change in our future effective
tax rates could adversely impact our results of operations for
future periods.
</FONT>

<P align="left">
<B><I><FONT size="2">We have received an examination report from
the Internal Revenue Service proposing a tax deficiency in
certain of our tax returns, and the outcome of the examination
or any future examinations involving similar claims may have a
material adverse effect on our results of operations and cash
flows.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IRS and other tax authorities regularly
examine our income tax returns. In November 2003, the IRS
completed its field examination of our federal income tax
returns for the tax years 1997 through 1999 and has issued the
RAR in which the IRS proposes to assess an aggregate tax
deficiency for the three-year period of approximately
$143&nbsp;million, plus interest, which interest will accrue
until the matter is resolved. This interest is compounded daily
at rates published by the IRS, which rates have been between
four and nine percent since 1997, and adjusts quarterly. The IRS
may also make similar claims for years subsequent to 1999 in
future examinations. The RAR is not a final Statutory Notice of
Deficiency, and we have filed a protest to certain of the
proposed adjustments with the IRS.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The most significant of the disputed adjustments
relates to transfer pricing arrangements that we have with a
foreign subsidiary. We believe that the proposed IRS adjustments
are inconsistent with the applicable tax laws, and that we have
meritorious defenses to the proposed adjustments. We are
challenging these proposed adjustments vigorously.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IRS is currently examining our federal income
tax returns for tax years ended 2000 through 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Significant judgment is required in determining
our provision for income taxes. In determining the adequacy of
our provision for income taxes, we regularly assess the
likelihood of adverse outcomes resulting from these
examinations, including the current IRS examination and the IRS
RAR for 1997 through 1999. However, the ultimate outcome of tax
examinations cannot be predicted with certainty, including the
total amount payable or the timing of any such payments upon
resolution of these issues. In addition, we cannot assure you
that such amount will not be materially different than that
which is reflected in our historical income tax provisions and
accruals. Should the IRS or other tax authorities assess
additional taxes as a result of a current or a future
examination, we may be required to record charges to operations
in future periods that could have a material impact on the
results of operations, financial position or cash flows in the
applicable period or periods recorded.
</FONT>

<P align="left">
<B><I><FONT size="2">Forecasting our estimated annual effective
tax rate is complex and subject to uncertainty, and material
differences between forecasted and actual tax rates could have a
material impact on our results of operations.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Forecasts of our income tax position and
resultant effective tax rate are complex and subject to
uncertainty because our income tax position for each year
combines the effects of a mix of profits (losses) earned by us
and our subsidiaries in tax jurisdictions with a broad range of
income tax rates as well as benefits from available deferred tax
assets and costs resulting from tax audits. To forecast our
global tax rate, pre-tax profits and losses by jurisdiction are
estimated and tax expense by jurisdiction is calculated. If the
mix of profits and losses or effective tax rates by jurisdiction
is different than those estimates, our actual tax rate could be
materially different than forecasted, which could have a
material impact on our results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">Failure to obtain export licenses could
harm our business by rendering us unable to ship products and
transfer our technology outside of the United
States.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We must comply with U.S.&nbsp;Department of
Commerce regulations in shipping our software products and
transferring our technology outside the United States and to
foreign nationals. Although we have not had any significant
difficulty complying with these regulations so far, any
significant future difficulty in complying could harm our
business, operating results and financial condition.
</FONT>

<P align="center"><FONT size="2">49
</FONT>

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<P align="left">
<B><I><FONT size="2">Proposed regulations related to equity
compensation could cause us to recognize an additional expense,
which would result in a reduction in our net
income.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;31, 2004, the Financial Accounting
Standards Board, or FASB, issued a proposed Statement
&#147;Share Based Payment, an Amendment of FASB Statements
No.&nbsp;123 and 95&#148; relating to the accounting for
equity-based compensation. This statement proposes changes to
U.S.&nbsp;Generally Accepted Accounting Principles, or GAAP,
that, if implemented, would require us to record a charge to
compensation expense for stock option grants. On July&nbsp;20,
2004, the U.S.&nbsp;House of Representatives passed a bill that
would block implementation of the FASB&#146;s proposed
regulations and would instead require companies to record a
charge to compensation expense for stock option grants to their
named executive officers (i.e., the chief executive officer and
the four most highly compensated executive officers, other than
the chief executive officer, as of the end of the most recent
fiscal year). We currently account for stock options under
SFAS&nbsp;No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148;. As permitted by SFAS&nbsp;No.&nbsp;123, we
have elected to use the intrinsic value method prescribed by
Accounting Principles Board Opinion No.&nbsp;25, or APB Opinion
No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees,&#148; to measure compensation expense for stock-based
awards granted to employees, under which the granting of stock
options is not considered compensation, if the option exercise
price is not less than the fair market value of the common stock
at the grant date. Starting in 2005, the FASB&#146;s proposal
would require that stock-based awards be accounted for using a
fair-value based method, which would require us to measure the
compensation expense for all such awards, including stock
options, at fair-value at the grant date. The House bill would
also require that stock-based awards to our named executive
officers be accounted for using a fair-value based method, with
some modifications. We cannot predict whether the proposed FASB
regulations or House bill will be adopted, and if adopted,
whether either will be adopted in its current form, but if
either is adopted in its current form, there would be an adverse
affect on our results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">Errors or defects in our products and
services could expose us to liability and harm our
reputation.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our customers use our products and services in
designing and developing products that involve a high degree of
technological complexity, each of which has its own
specifications. Because of the complexity of the systems and
products with which we work, some of our products and designs
can be adequately tested only when put to full use in the
marketplace. As a result, our customers or their end users may
discover errors or defects in our software or the systems we
design, or the products or systems incorporating our design and
intellectual property may not operate as expected. Errors or
defects could result in:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Loss of current customers and loss of or delay in
    revenue and loss of market segment share;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Failure to attract new customers or achieve
    market acceptance;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Diversion of development resources to resolve the
    problem;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Increased service costs;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Liability for damages.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">If we become subject to unfair hiring
claims, we could be prevented from hiring needed employees,
incur liability for damages and incur substantial costs in
defending ourselves.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Companies in our industry whose employees accept
positions with competitors frequently claim that these
competitors have engaged in unfair hiring practices or that the
employment of these persons would involve the disclosure or use
of trade secrets. These claims could prevent us from hiring
employees or cause us to incur liability for damages. We could
also incur substantial costs in defending ourselves or our
employees against these claims, regardless of their merits.
Defending ourselves from these claims could also divert the
attention of our management from our operations.
</FONT>

<P align="left">
<B><I><FONT size="2">Our business is subject to the risk of
earthquakes, floods and other natural catastrophic
events.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our corporate headquarters, including certain of
our research and development operations, and certain of our
distribution facilities, are located in the Silicon Valley area
of Northern California, which is a region known to experience
seismic activity. In addition, several of our facilities,
including our corporate headquarters, certain of our research
and development operations, and certain of our distribution
operations, are in areas
</FONT>

<P align="center"><FONT size="2">50
</FONT>

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<DIV align="left">
<FONT size="2">of San&nbsp;Jose, California that have been
identified by the Director of the Federal Emergency Management
Agency, or FEMA, as being located in a special flood area. The
areas at risk are identified as being in a one hundred year
flood plain, using FEMA&#146;s Flood Hazard Boundary Map or the
Flood Insurance Rate Map. If significant seismic or flooding
activity were to occur, our operations may be interrupted, which
would adversely impact our business and results of operations.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">We maintain research and other facilities
in parts of the world that are not as politically stable as the
United States, and as a result we may face a higher risk of
business interruption from acts of war or terrorism than other
businesses located only or primarily in the United
States.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We maintain international research and other
facilities, some of which are in parts of the world that are not
as politically stable as the United States. Consequently, we may
face a greater risk of business interruption as a result of
terrorist acts or military conflicts than businesses located
domestically. Furthermore, this potential harm is exacerbated
given that damage to or disruptions at our international
research and development facilities could have an adverse effect
on our ability to develop new or improve existing products as
compared to other businesses which may only have sales offices
or other less critical operations abroad. We are not insured for
losses or interruptions caused by acts of war or terrorism.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risks
Related to Our Securities</FONT></B>

<P align="left">
<B><I><FONT size="2">Our debt obligations expose us to risks
that could adversely affect our business, operating results and
financial condition, and could prevent us from fulfilling our
obligations under such indebtedness.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have a substantial level of debt. As of
July&nbsp;3, 2004, we had $420.1&nbsp;million of outstanding
indebtedness, including $420.0&nbsp;million from the Notes that
we issued in August 2003. The level of our indebtedness, among
other things, could:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make it difficult for us to satisfy our payment
    obligations on our debt as described below;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make it difficult for us to incur additional debt
    or obtain any necessary financing in the future for working
    capital, capital expenditures, debt service, acquisitions or
    general corporate purposes;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">limit our flexibility in planning for or reacting
    to changes in our business;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">reduce funds available for use in our operations;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make us more vulnerable in the event of a
    downturn in our business;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make us more vulnerable in the event of an
    increase in interest rates if we must incur new debt to satisfy
    our obligations under the Notes;&nbsp;or
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">place us at a possible competitive disadvantage
    relative to less leveraged competitors and competitors that have
    greater access to capital resources.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we experience a decline in revenue due to any
of the factors described in this section entitled &#147;Factors
That May Affect Future Results&#148; or otherwise, we could have
difficulty paying amounts due on our indebtedness. In the case
of the Notes, although the Notes mature in 2023, the holders of
the Notes may require us to repurchase their notes at an
additional premium in 2008, which makes it probable that we will
be required to repurchase the Notes in 2008 if the Notes are not
otherwise converted into our common stock. If we are unable to
generate sufficient cash flow or otherwise obtain funds
necessary to make required payments, or if we fail to comply
with the various requirements of our indebtedness, including the
Notes, we would be in default, which would permit the holders of
our indebtedness to accelerate the maturity of the indebtedness
and could cause defaults under our other indebtedness. Any
default under our indebtedness could have a material adverse
effect on our business, operating results and financial
condition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are not restricted under our outstanding
indebtedness from incurring additional debt, including other
senior indebtedness or secured indebtedness. In addition, our
outstanding indebtedness does not restrict our ability to pay
dividends, issue or repurchase stock or other securities or
require us to achieve or maintain any minimum financial results
relating to our financial position or results of operations. Our
ability to recapitalize, incur additional debt and take a number
of other actions that are not limited by the terms of our
outstanding indebtedness could have the effect of diminishing
our ability to make payments on such indebtedness when due.
Although our outstanding indebtedness does not contain such
financial and other restrictive covenants,
</FONT>

<P align="center"><FONT size="2">51
</FONT>

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<DIV align="left">
<FONT size="2">future indebtedness could include such covenants.
If we incur additional indebtedness or other liabilities, our
ability to pay our obligations on our outstanding indebtedness
could be adversely affected.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">We may be unable to adequately service our
indebtedness, which may result in defaults and other costs to
us.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may not have sufficient funds or may be unable
to arrange for additional financing to pay the outstanding
obligations due on our indebtedness. Any future borrowing
arrangements or debt agreements to which we become a party may
contain restrictions on or prohibitions against our repayment on
our outstanding indebtedness. With respect to the Notes, at
maturity, the entire outstanding principal amount of the Notes
will become due and payable. Holders may require us to
repurchase for cash all or any portion of the Notes on
August&nbsp;15, 2008 for 100.25% of the principal amount,
August&nbsp;15, 2013 for 100.00% of the principal amount and
August&nbsp;15, 2018 for 100.00% of the principal amount. As a
result, although the Notes mature in 2023, the holders may
require us to repurchase the Notes at an additional premium in
2008, which makes it probable that we will be required to
repurchase the Notes in 2008 if the Notes are not otherwise
converted into our common stock. If we are prohibited from
paying our outstanding indebtedness, we could try to obtain the
consent of lenders under those arrangements, or we could attempt
to refinance the borrowings that contain the restrictions. If we
do not obtain the necessary consents or refinance the
borrowings, we may be unable to satisfy our outstanding
indebtedness. Any such failure would constitute an event of
default under our indebtedness, which could, in turn, constitute
a default under the terms of any other indebtedness then
outstanding.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, a material default on our
indebtedness could suspend our eligibility to register
securities using certain registration statement forms under SEC
guidelines which permit incorporation by reference of
substantial information regarding us, which could potentially
hinder our ability to raise capital through the issuance of our
securities and will increase the costs of such registration to
us.
</FONT>

<P align="left">
<B><I><FONT size="2">The price of our common stock may fluctuate
significantly, which may make it difficult for stockholders to
sell our common stock when desired or at attractive
prices.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The market price of our common stock is subject
to significant fluctuations in response to the factors set forth
in this section entitled &#147;Factors That May Affect Future
Results&#148; and other factors, many of which are beyond our
control. Such fluctuations, as well as economic conditions
generally, may adversely affect the market price of our common
stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the stock markets in recent years
have experienced extreme price and trading volume fluctuations
that often have been unrelated or disproportionate to the
operating performance of individual companies. These broad
market fluctuations may adversely affect the price of our common
stock, regardless of our operating performance.
</FONT>

<P align="left">
<B><I><FONT size="2">Conversion of the Notes will dilute the
ownership interests of existing stockholders.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The terms of the Notes permit the holders to
convert the Notes into shares of our common stock. The Notes are
convertible into our common stock initially at a conversion
price of $15.65&nbsp;per share, which would result in an
aggregate of approximately 26.8&nbsp;million shares of our
common stock issued upon conversion, subject to adjustment upon
the occurrence of specified events. The conversion of some or
all of the Notes will dilute the ownership interest of our
existing stockholders. Any sales in the public market of the
common stock issuable upon conversion could adversely affect
prevailing market prices of our common stock. Prior to the
conversion of the Notes, if the trading price of our common
stock exceeds the conversion price of the Notes by 145.00% or
more over specified periods, earnings per share will be diluted
if and to the extent the convertible notes hedge instruments are
not exercised. We may redeem for cash all or any part of the
Notes on or after August&nbsp;15, 2008 for 100.00% of the
principal amount. The holders may require us to repurchase for
cash all or any portion of their notes on August&nbsp;15, 2008
for 100.25% of the principal amount, on August&nbsp;15, 2013 for
100.00% of the principal amount, or on August&nbsp;15, 2018 for
100.00% of the principal amount.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each $1,000 of principal of the Notes is
initially convertible into 63.879&nbsp;shares of our common
stock, subject to adjustment upon the occurrence of specified
events. Holders of the Notes may convert their Notes
</FONT>

<P align="center"><FONT size="2">52
</FONT>

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<DIV align="left">
<FONT size="2">prior to maturity only if: (1)&nbsp;the price of
our common stock reaches $22.69 during periods of time specified
by the Notes, (2)&nbsp;specified corporate transactions occur,
(3)&nbsp;the Notes have been called for redemption or
(4)&nbsp;the trading price of the Notes falls below a certain
threshold. As a result, although the Notes mature in 2023, the
holders may require us to repurchase their notes at an
additional premium in 2008, which makes it probable that we will
be required to repurchase the Notes in 2008 if the Notes are not
otherwise converted into our common stock.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although the conversion price is currently
$15.65&nbsp;per share, the convertible notes hedge and warrant
transactions that we entered into in connection with the
issuance of the Notes effectively increased the conversion price
of the Notes until 2008 to approximately $23.08&nbsp;per share,
which would result in an aggregate issuance upon conversion
prior to August&nbsp;15, 2008 of approximately 18.2&nbsp;million
shares of our common stock. We have entered into convertible
notes hedge and warrant transactions to reduce the potential
dilution from the conversion of the Notes, however we cannot
guarantee that such convertible notes hedge and warrant
instruments will fully mitigate the dilution. In addition, the
existence of the Notes may encourage short selling by market
participants because the conversion of the Notes could depress
the price of our common stock.
</FONT>

<P align="left">
<B><I><FONT size="2">Proposed regulations related to certain
features of contingently convertible debt could cause us to
include the number of contingently issuable shares in our
diluted earnings per share calculation, which would result in
significantly lower diluted earnings per share.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;2, 2004, the EITF reached a
tentative conclusion on EITF&nbsp;04-08. If the EITF were to
reach a consensus in agreement with the tentative conclusion on
EITF&nbsp;04-08, it would require us to include in diluted
earnings per share, on the &#147;if-converted&#148; method, the
aggregate of approximately 26.8&nbsp;million shares of our
common stock into which the Notes may be converted, regardless
of whether the conversion threshold has been met. If a consensus
is reached on EITF&nbsp;04-08, adoption may require us to
restate previously reported diluted earnings per share for all
periods in which the Notes were outstanding. We cannot predict
whether the proposed regulations will be adopted, but if adopted
as proposed this statement would have a material adverse effect
on our diluted earnings per share.
</FONT>

<P align="left">
<B><I><FONT size="2">We may, at the option of the noteholders
and only in certain circumstances, be required to repurchase the
Notes in shares of our common stock upon a significant change in
our corporate ownership or structure, and issuance of shares to
repurchase the notes would result in dilution to our existing
stockholders.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the terms of the Notes, we may be required
to repurchase the Notes following a significant change in our
corporate ownership or structure, such as a change of control,
prior to maturity of the Notes. Following a significant change
in our corporate ownership or structure, in certain
circumstances, we may choose to pay the repurchase price of the
Notes in cash, shares of our common stock or a combination of
cash and shares of our common stock. In the event we choose to
pay all or any part of the repurchase price of notes in shares
of our common stock, this would result in dilution to the
holders of our common stock.
</FONT>

<P align="left">
<B><I><FONT size="2">Convertible notes hedge and warrant
transactions entered into in connection with the issuance of the
Notes may affect the value of our common stock.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We entered into convertible notes hedge
transactions with JP Morgan Chase Bank, an affiliate of one of
the initial purchasers of the Notes, at the time of issuance of
the Notes, with the objective of reducing the potential dilutive
effect of issuing our common stock upon conversion of the Notes.
We also entered into warrant transactions. In connection with
our convertible notes hedge and warrant transactions, JP Morgan
Chase Bank, or its affiliates purchased our common stock in
secondary market transactions and entered into various
over-the-counter derivative transactions with respect to our
common stock. This entity or its affiliates is likely to modify
its hedge positions from time to time prior to conversion or
maturity of the Notes by purchasing and selling shares of our
common stock, other of our securities or other instruments it
may wish to use in connection with such hedging. The effect, if
any, of any of these transactions and activities on the market
price of our common stock or the Notes could adversely affect
the value of our common stock and, as a result, the number of
shares and the value of the common stock holders will receive
upon conversion of the
</FONT>

<P align="center"><FONT size="2">53
</FONT>

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<DIV align="left">
<FONT size="2">Notes. In addition, subject to movement in the
trading price of our common stock, if the convertible notes
hedge transactions settle in our favor, we could be exposed to
credit risk related to the other party.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Rating agencies may provide unsolicited
ratings on the Notes that could reduce the market value or
liquidity of our common stock.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not requested a rating of the Notes from
any rating agency and we do not anticipate that the Notes will
be rated. However, if one or more rating agencies independently
elects to rate the Notes and assigns the Notes a rating lower
than the rating expected by investors, or reduces their rating
in the future, the market price or liquidity of the Notes and
our common stock could be harmed. A resulting decline in the
market price of the Notes as compared to the price of our common
stock may require us to repurchase the Notes.
</FONT>

<P align="left">
<B><I><FONT size="2">Anti-takeover defenses in our governing
documents and certain provisions under Delaware law could
prevent an acquisition of our company or limit the price that
investors might be willing to pay for our common
stock.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our governing documents and certain provisions of
the Delaware General Corporation Law that apply to us could make
it difficult for another company to acquire control of our
company. For example:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our certificate of incorporation allows our board
    of directors to issue, at any time and without stockholder
    approval, preferred stock with such terms as it may determine.
    No shares of preferred stock are currently outstanding. However,
    the rights of holders of any of our preferred stock that may be
    issued in the future may be superior to the rights of holders of
    our common stock.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">We have a rights plan, commonly known as a
    &#147;poison pill,&#148; which would make it difficult for
    someone to acquire our company without the approval of our board
    of directors.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Section&nbsp;203 of the Delaware General
    Corporation Law generally prohibits a Delaware corporation from
    engaging in any business combination with a person owning 15% or
    more of its voting stock, or who is affiliated with the
    corporation and owned 15% or more of its voting stock at any
    time within three years prior to the proposed business
    combination, for a period of three years from the date the
    person became a 15% owner, unless specified conditions are met.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All or any one of these factors could limit the
price that certain investors would be willing to pay for shares
of our common stock and could delay, prevent or allow our board
of directors to resist an acquisition of our company, even if
the proposed transaction were favored by a majority of our
independent stockholders.
</FONT>

<DIV align="left">
<A name='108'></A>
</DIV>

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<DIV>&nbsp;</DIV>

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<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;3.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Quantitative and Qualitative Disclosures About
    Market Risk</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disclosures
about Market Risk</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interest Rate Risk</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our exposure to market risk for changes in
interest rates relates primarily to our short-term investment
portfolio. While we are exposed to interest rate fluctuations in
many of the world&#146;s leading industrialized countries, our
interest income and expense is most sensitive to fluctuations in
the general level of U.S.&nbsp;interest rates. In this regard,
changes in U.S.&nbsp;interest rates affect the interest earned
on our cash and cash equivalents, short-term and long-term
investments and costs associated with foreign currency hedges.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We invest in high quality credit issuers and, by
policy, limit the amount of our credit exposure to any one
issuer. As part of our policy, our first priority is to reduce
the risk of principal loss. Consequently, we seek to preserve
our invested funds by limiting default risk, market risk and
reinvestment risk. We mitigate default risk by investing in only
high quality credit securities that we believe to have low
credit risk and by positioning our portfolio to respond
appropriately to a significant reduction in a credit rating of
any investment issuer or guarantor. The short-term
interest-bearing portfolio includes only marketable securities
with active secondary or resale markets to ensure portfolio
liquidity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below presents the carrying value and
related weighted average interest rates for our interest-bearing
instruments. All highly liquid investments with a maturity of
three months or less at the date of
</FONT>

<P align="center"><FONT size="2">54
</FONT>

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<DIV align="left">
<FONT size="2">purchase are considered to be cash equivalents;
investments with maturities between three and 12&nbsp;months are
considered to be short-term investments. Investments with
maturities greater than 12&nbsp;months are considered long-term
investments. The carrying value of our interest-bearing
instruments approximated fair value at July&nbsp;3, 2004.
</FONT>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Interest Rate</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest-Bearing Instruments:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash equivalents&nbsp;&#150;&nbsp;variable rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">147.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.62%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commercial Paper&nbsp;&#150;&nbsp;fixed rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.30%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash&nbsp;&#150;&nbsp;variable rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.83%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total interest-bearing instruments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">368.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.33%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total non-interest bearing cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">389.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Foreign Currency Risk</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operations include transactions in foreign
currencies and, therefore, we benefit from a weaker dollar, and
we are adversely affected by a stronger dollar relative to major
currencies worldwide. The primary effect of foreign currency
transactions on our results of operations from a weakening
U.S.&nbsp;dollar is an increase in revenue offset by a smaller
increase in expenses. Conversely, the primary effect of foreign
currency transactions on our results of operations from a
strengthening U.S.&nbsp;dollar is a reduction in revenue offset
by a smaller reduction in expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We enter into foreign currency forward exchange
contracts with financial institutions to protect against
currency exchange risks associated with existing assets and
liabilities. A foreign currency forward exchange contract acts
as a hedge by increasing in value when underlying asset
exposures decrease in value or underlying liability exposures
increase in value. Conversely, a foreign currency forward
exchange contract decreases in value when underlying asset
exposures increase in value or underlying liability exposures
decrease in value. These forward contracts are not accounted for
as hedges and, therefore, the unrealized gains and losses are
recognized in Other expense, net, in advance of the actual
foreign currency cash flows with the fair value of these forward
contracts being recorded as accrued liabilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not use forward contracts for trading
purposes. Our forward contracts generally have maturities of
180&nbsp;days or less. Recognized gains and losses with respect
to our current hedging activities will ultimately depend on how
accurately we are able to match the amount of currency forward
exchange contracts with underlying asset and liability exposures.
</FONT>

<P align="center"><FONT size="2">55
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below provides information, as of
July&nbsp;3, 2004, about our forward foreign currency contracts.
The information is provided in U.S.&nbsp;dollar equivalent
amounts. The table presents the notional amounts, at contract
exchange rates, and the weighted average contractual foreign
currency exchange rates expressed as units of the foreign
currency per U.S.&nbsp;dollar. All of these forward contracts
mature prior to September&nbsp;17, 2004.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Notional</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Contract</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Principal</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Rate</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Forward Contracts:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japanese yen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Euro
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.83</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Hong Kong dollars
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Canadian dollars
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">British pound sterling
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated fair value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">While we actively and continually manage our
foreign currency risks, there can be no assurance that our
foreign currency hedging activities will substantially offset
the impact of fluctuations in currency exchange rates on our
results of operations, cash flows and financial position.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Equity Price Risk</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, we issued $420.0&nbsp;million
principal amount of the Notes to two initial purchasers in a
private offering for resale to qualified institutional buyers
pursuant to SEC Rule&nbsp;144A, for which we received net
proceeds of approximately $406.4&nbsp;million after transaction
fees of approximately $13.6&nbsp;million. The Notes are
convertible into our common stock initially at a conversion
price of $15.65&nbsp;per share, which would result in an
aggregate of 26.8&nbsp;million shares issued upon conversion,
subject to adjustment upon the occurrence of specified events.
We may redeem for cash all or any part of the Notes on or after
August&nbsp;15, 2008 for 100.00% of the principal amount. The
holders may require us to repurchase for cash all or any portion
of their Notes on August&nbsp;15, 2008 for 100.25% of the
principal amount, on August&nbsp;15, 2013 for 100.00% of the
principal amount or on August&nbsp;15, 2018 for 100.00% of the
principal amount. The Notes do not contain restrictive financial
covenants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each $1,000 of principal of the Notes will
initially be convertible into 63.8790&nbsp;shares of our common
stock, subject to adjustment upon the occurrence of specified
events. Holders of the Notes may convert their Notes prior to
maturity only if: (1)&nbsp;the price of our common stock reaches
$22.69 during periods of time specified by the Notes,
(2)&nbsp;specified corporate transactions occur, (3)&nbsp;the
Notes have been called for redemption or (4)&nbsp;the trading
price of the Notes falls below a certain threshold.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, in the event of a significant change
in our corporate ownership or structure, the holders may require
us to repurchase all or any portion of their Notes for 100% of
the principal amount.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the issuance of the Notes, we
entered into convertible notes hedge transactions with
JP&nbsp;Morgan Chase Bank, whereby we have the option to
purchase up to 26.8&nbsp;million shares of our common stock at a
price of $15.65&nbsp;per share. These options expire on
August&nbsp;15, 2008 and must be settled in net shares. The cost
of the convertible notes hedge transactions to us was
approximately $134.6&nbsp;million. As of July&nbsp;3, 2004, the
estimated fair value of the convertible notes hedge transactions
was $117.2&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we sold to JP&nbsp;Morgan Chase Bank
warrants to purchase up to 26.8&nbsp;million shares of our
common stock at a price of $23.08&nbsp;per share. The warrants
expire on various dates from February 2008 through May 2008 and
must be settled in net shares. We received approximately
$56.4&nbsp;million in cash
</FONT>

<P align="center"><FONT size="2">56
</FONT>

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<DIV align="left">
<FONT size="2">proceeds for the sales of these warrants. As of
July&nbsp;3, 2004, the estimated fair value of the warrants sold
was $43.5&nbsp;million.
</FONT>
</DIV>

<DIV align="left">
<A name='109'></A>
</DIV>

<!-- link1 "Item 4. Controls and Procedures" -->

<P align="left">
<B><FONT size="2">Item&nbsp;4.&nbsp;Controls and
Procedures</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence carried out an evaluation required by
Rule&nbsp;13a-15 of the Securities Exchange Act of 1934 under
the supervision and with the participation of Cadence&#146;s
management, including the Chief Executive Officer, or CEO, and
the Chief Financial Officer, or CFO, of the effectiveness of the
design and operation of our disclosure controls and procedures
as of July&nbsp;3, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Disclosure controls and procedures are designed
with the objective of ensuring that (i)&nbsp;information
required to be disclosed in Cadence&#146;s reports filed under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
SEC&#146;s rules and forms; and (ii)&nbsp;information is
accumulated and communicated to management, including the CEO
and CFO, as appropriate to allow timely decisions regarding
required disclosure. Internal controls are procedures designed
with the objective of providing reasonable assurance regarding
the reliability of financial reporting and permitting the
preparation of Cadence&#146;s financial statements in conformity
with generally accepted accounting principles, including that
its (A)&nbsp;transactions are properly authorized, recorded and
reported and (B)&nbsp;assets are safeguarded against
unauthorized or improper use.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The evaluation of Cadence&#146;s disclosure
controls and procedures and internal controls included a review
of its processes and implementation and the effect on the
information generated for use in this Quarterly Report on
Form&nbsp;10-Q. In the course of this evaluation, Cadence sought
to identify any significant deficiencies or material weaknesses
in its controls, to determine whether it had identified any acts
of fraud involving personnel who have a significant role in its
internal controls, and to confirm that any necessary corrective
action, including process improvements, were being undertaken.
This type of evaluation is done every fiscal quarter so that
Cadence&#146;s conclusions concerning the effectiveness of these
controls can be reported in its periodic reports filed with the
SEC. Cadence&#146;s internal controls are also evaluated on an
ongoing basis by its internal auditors and by other personnel in
its Finance organization. The overall goals of these evaluation
activities are to monitor Cadence&#146;s disclosure and internal
controls and to make modifications as necessary. Cadence intends
to maintain these controls, modifying them as circumstances
warrant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The evaluation allowed Cadence to make
conclusions, as set forth below, regarding the state of its
disclosure controls and procedures as of July&nbsp;3, 2004. In
connection with this evaluation, to improve the quality and
timeliness of information available to management, Cadence made
certain changes in its internal controls over financial
reporting in 2004, as described below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As reported in its 2003 Annual Report, Cadence
restated its Consolidated Balance Sheet as of December&nbsp;28,
2002 and the Consolidated Statements of Operations for 2002, and
the Condensed Consolidated Statements of Operations for the
first three quarters of 2003, to properly reflect the equity
method of accounting for certain equity investments and for
certain other adjustments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the first quarter of 2004, Cadence&#146;s
independent auditors issued a letter to our Audit Committee
related to the audit of Cadence&#146;s Consolidated Financial
Statements for the year ended January&nbsp;3, 2004 in which they
noted certain matters involving Cadence&#146;s internal controls
and operation that they considered to be &#147;reportable
conditions&#148;, as defined under standards established by the
American Institute of Certified Public Accountants. Reportable
conditions are matters coming to the attention of our
independent auditors that, in their judgment, relate to
significant deficiencies in the design or operation of our
internal controls that could adversely affect Cadence&#146;s
ability to record, process, summarize and report financial data
consistent with the assertions of management in the financial
statements. The reportable conditions, which are less serious
findings than findings of material weaknesses, were: the absence
of appropriate controls relating to investments in
non-marketable securities and the absence of appropriate
documentation, review and approval of significant non-revenue
related transactions, and the corresponding accounting entries
originating from departments other than corporate accounting. As
a result of these findings, Cadence&#146;s Audit Committee
authorized and directed management to implement actions to
address these deficiencies and to enhance the reliability and
effectiveness of Cadence&#146;s control procedures.
</FONT>

<P align="center"><FONT size="2">57
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To address the insufficiency of appropriate
controls relating to investments in non-marketable securities,
Cadence implemented changes to its internal controls regarding
reporting by Telos and its Mergers, Acquisitions and Alliances,
or MA&#38;A, group to Cadence&#146;s corporate accounting group
regarding Cadence and Telos investments. These changes included
the implementation of written reporting and review policies to
ensure that Cadence&#146;s corporate accounting group receives
and validates as complete and accurate, on a quarterly basis,
all pertinent information relating to investments held directly
by Cadence, as well as by Telos, so that Cadence can properly
account for its investments in non-marketable securities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To address the absence of appropriate
documentation, reviews and approvals of transactions, and
accounting entries originating from departments other than
corporate accounting, as of July&nbsp;3, 2004, Cadence had taken
actions designed to enhance its internal controls, including
adopting and implementing formal written policies and procedures
to ensure appropriate communication between Cadence&#146;s
corporate accounting group and other departments, including
MA&#38;A, Tax, Stock Administration and foreign locations, to
facilitate the timely identification, documentation, review and
approval of, and to ensure proper accounting for, significant
non-revenue related and non-routine transactions. These policies
and procedures were fully implemented prior to the completion of
Cadence&#146;s second quarter 2004 accounting close process.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence believes that these efforts have
addressed the significant deficiencies that affected or could
have affected its internal controls. Based upon the foregoing,
Cadence&#146;s CEO and CFO have concluded that Cadence&#146;s
controls and procedures, after implementation of the
aforementioned actions, are effective in meeting the
above-stated objectives. Cadence continues to improve and refine
its internal controls. This process is ongoing, and Cadence
seeks to foster an exemplary internal control environment.
Cadence&#146;s management, including its CEO and CFO, has
concluded that, as of July&nbsp;3, 2004, its disclosure controls
and procedures are designed, and are effective, to give
reasonable assurance that information it must disclose in
reports filed with the SEC is properly recorded, processed and
summarized, and then reported within the time periods specified
in the rules and forms of the SEC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other than as summarized above, there have been
no changes in Cadence&#146;s internal controls over financial
reporting or in other factors that have materially affected, or
are reasonably likely to materially affect, its internal
controls.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Despite management&#146;s conclusions regarding
the effectiveness of Cadence&#146;s controls and procedures, a
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Cadence&#146;s
management, including its CEO and CFO, necessarily applied its
judgment in assessing the benefits of controls relative to their
costs. In particular, Cadence has investments in certain
unconsolidated entities, which investments are accounted for
using either the cost basis or equity method of accounting.
Because Cadence does not control or manage these entities, its
disclosure controls and procedures with respect to information
it receives from such entities are often more limited than those
it maintains with respect to its consolidated subsidiaries.
Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if
any, have been detected. The design of any system of controls is
based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote. Because of the
inherent limitations in a control system, misstatements due to
error or fraud may occur and may not be detected.
</FONT>

<DIV align="left">
<A name='110'></A>
</DIV>

<!-- link1 "PART II. OTHER INFORMATION" -->

<P align="left">
<B><FONT size="2">PART&nbsp;II.&nbsp;OTHER INFORMATION</FONT></B>

<DIV align="left">
<A name='111'></A>
</DIV>

<!-- link1 "Item 1. Legal Proceedings" -->

<P align="left">
<B><FONT size="2">Item&nbsp;1.&nbsp;Legal Proceedings</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time, we are involved in various
disputes and litigation matters that arise in the ordinary
course of business. These include disputes and lawsuits related
to intellectual property, mergers and acquisitions, licensing,
contract law, distribution arrangements and employee relations
matters. Periodically, we review the status of each significant
matter and assess its potential financial exposure. If the
potential loss from any claim or legal proceeding is considered
probable and the amount can be estimated, we accrue a liability
for the estimated loss at the low end of the range. Legal
proceedings are subject to uncertainties, and
</FONT>

<P align="center"><FONT size="2">58
</FONT>

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<DIV align="left">
<FONT size="2">the outcomes are difficult to predict. Because of
such uncertainties, accruals are based only on the best
information available at the time. As additional information
becomes available, we reassess the potential liability related
to pending claims and litigation matters and may revise
estimates.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">While the outcome of these disputes and
litigation matters cannot be predicted with any certainty,
management does not believe that the outcome of any current
matters will have a material adverse effect on our consolidated
financial position or results of operations.
</FONT>

<DIV align="left">
<A name='112'></A>
</DIV>

<!-- link1 "Item 2. Changes in Securities and Use of Proceeds and Issuer Purchases of Equity SecuritiesA. Recent Sales of Unregistered Securities:" -->

<P align="left">
<B><FONT size="2">Item&nbsp;2.&nbsp;Changes in Securities and
Use of Proceeds and Issuer Purchases of Equity
Securities</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">A.&nbsp;Recent Sales of Unregistered
    Securities:</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our acquisition of Plato
Design Systems, Inc., or Plato, completed in April 2002, on
May&nbsp;26, 2004, we issued to former Plato shareholders an
additional 526,221&nbsp;shares of our common stock, based on the
achievement of performance goals. Such shares were issued
pursuant to an exemption from registration pursuant to
Section&nbsp;3(a)(10) of the Securities Act of 1933, as amended
because the terms and condition of the issuance were approved by
the California Department of Corporations after a hearing on the
fairness of such terms.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our acquisition of Silicon
Perspective Corporation, or SPC, completed in December 2001, on
April&nbsp;8, 2004, we issued to former SPC shareholders an
additional 3,393,101&nbsp;shares of our common stock, based on
the achievement of performance goals. Such shares were issued
pursuant to an exemption from registration pursuant to
Section&nbsp;3(a)(10) of the Securities Act of 1933, as amended
because the terms and condition of the issuance were approved by
the California Department of Corporations after a hearing on the
fairness of such terms.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">B.&nbsp;Stock Repurchases:</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2001, we authorized a stock repurchase
program under which repurchased shares with a value of up to
$500.0&nbsp;million are used for general corporate purposes,
including the share issuance requirements of our employee stock
option and purchase plans and acquisitions. The following table
sets forth illustrates the repurchases we made during the three
months ended July&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares Purchased</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Maximum Number of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">as Part of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares that May Yet</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Publicly Announced</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Be Purchased Under</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Purchased</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Repurchase Program</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Repurchase Program</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Period:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">April&nbsp;4, 2004&nbsp;&#150; May&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">-&nbsp;-&nbsp;-&nbsp;-</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">217.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">May&nbsp;4, 2004&nbsp;&#150; June&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,535,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,535,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">182.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">June&nbsp;4, 2004&nbsp;&#150; July&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,493,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,493,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">147.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,028,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,028,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">59
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='113'></A>
</DIV>

<!-- link1 "Item 3. Defaults Upon Senior Securities" -->

<P align="left">
<B><FONT size="2">Item&nbsp;3.&nbsp;Defaults Upon Senior
Securities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None.
</FONT>

<DIV align="left">
<A name='114'></A>
</DIV>

<!-- link1 "Item 4. Submission of Matters to a Vote of Security Holders" -->

<P align="left">
<B><FONT size="2">Item&nbsp;4.&nbsp;Submission of Matters to a
Vote of Security Holders</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the Annual Meeting of Stockholders held on
June&nbsp;15, 2004, the stockholders of Cadence approved the
following matters:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">1.&nbsp;A proposal to elect eight
    (8)&nbsp;directors of Cadence to serve for the following year
    and until their successors are elected or until such
    director&#146;s earlier resignation or removal.
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Nominee</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">In Favor</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Withheld</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">H. Raymond Bingham
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">224,221,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,424,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Susan L. Bostrom
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">221,779,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,867,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Donald L. Lucas
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,754,359</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,892,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dr.&nbsp;Alberto Sangiovanni-Vincentelli
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213,622,381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,024,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">George M. Scalise
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">219,308,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,338,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dr.&nbsp;John B. Shoven
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">206,606,384</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,040,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Roger S. Siboni
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">212,869,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,777,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lip-Bu Tan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">225,806,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,839,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">2.&nbsp;A proposal to approve an amendment and
    restatement of the 1987 Stock Option Plan to enable Cadence to
    issue up to three million shares of incentive stock thereunder
    was approved by a vote of 166,450,882 for, 48,387,307 opposed,
    2,140,958 withheld and 31,667,487 broker non-votes.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">3.&nbsp;A proposal to approve an amendment to the
    Amended and Restated Employee Stock Purchase Plan to increase
    the number of shares available for purchase thereunder by nine
    million was approved by a vote of 166,256,066 for, 48,648,522
    opposed, 2,074,559 withheld and 31,667,487 broker non-votes.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">4.&nbsp;A proposal for the ratification of the
    selection of KPMG LLP as independent auditors for the fiscal
    year ending January&nbsp;1, 2005 was approved by a vote of
    245,777,350 for, 874,078 opposed, and 1,995,206 withheld and no
    broker non-votes.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left">
<A name='115'></A>
</DIV>

<!-- link1 "Item 5. Other Information" -->

<P align="left">
<B><FONT size="2">Item&nbsp;5.&nbsp;Other Information</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;16, 2004, the listing of our common
stock on the NASDAQ Stock Market became effective. Our common
stock is now listed on both the NYSE and the NASDAQ under the
symbol CDN.
</FONT>

<P align="center"><FONT size="2">60
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='116'></A>
</DIV>

<!-- link1 "Item 6. Exhibits and Reports on Form 8-K" -->

<P align="left">
<B><FONT size="2">Item&nbsp;6.&nbsp;Exhibits and Reports on
Form&nbsp;8-K</FONT></B>

<P align="left">
<FONT size="2">(a)&nbsp;The following exhibits are filed
herewith:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="80%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><FONT size="1">Exhibit</FONT></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1987 Stock Incentive Plan
    (formerly 1987 Stock Option Plan), as amended.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Stock Option Agreement and Form of Stock
    Option Exercise Request, as currently in effect under the
    Registrant&#146;s 1987 Stock Incentive Plan (formerly 1987 Stock
    Option Plan), as amended.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Residential Lease dated
    May&nbsp;1, 2004 to Residential Lease and Option to Purchase,
    dated as of March&nbsp;1, 2003, between 849 College Avenue, Inc.
    a subsidiary of the Registrant, and Kevin Bushby.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 2002 Deferred Compensation
    Venture Investment Plan, as amended.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of May&nbsp;12,
    2004, between the Registrant and Michael J. Fister.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of May&nbsp;24,
    2004, between the Registrant and Lavi A. Lev.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of May&nbsp;26,
    2004, between the Registrant and Kevin Bushby.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of May&nbsp;18,
    2004, between the Registrant and R.L. Smith McKeithen.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Executive Officer, Michael J. Fister, pursuant to
    Rule&nbsp;13a-14 of the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Financial Officer, William Porter, pursuant to Rule&nbsp;13a-14
    of the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Executive Officer, Michael J. Fister, pursuant to 18&nbsp;U.S.C.
    Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
    the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Financial Officer, William Porter, pursuant to 18&nbsp;U.S.C.
    Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
    the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">(b)&nbsp;Reports on Form&nbsp;8-K:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;28, 2004, a current report on
Form&nbsp;8-K was furnished to the SEC to report that Sean M.
Maloney has decided not to stand for reelection to
Cadence&#146;s Board of Directors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;12, 2004, a current report on
Form&nbsp;8-K was filed with the SEC to report that Michael J.
Fister was named President and Chief Executive Officer,
succeeding Ray Bingham, who was elected chairman of the Cadence
Board of Directors, that former chairman Donald L. Lucas would
continue on the Board as a director, and that Roger S. Siboni
was appointed as lead director.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;12, 2004, a current report on
Form&nbsp;8-K was furnished to the SEC to report that Michael J.
Fister was named President and Chief Executive Officer,
succeeding Ray Bingham, who was elected chairman of the Cadence
Board of Directors, that former chairman Donald L. Lucas would
continue on the Board as a director, and that Roger S. Siboni
was appointed as lead director.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;22, 2004, a current report on
Form&nbsp;8-K was filed with the SEC to report first quarter
2004 financial results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;21, 2004, a current report on
Form&nbsp;8-K was furnished to the SEC to report that Cadence
issued a press release and conducted a conference call
announcing its financial results for the first quarter of 2004.
</FONT>

<P align="center"><FONT size="2">61
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='117'></A>
</DIV>

<!-- link1 "SIGNATURES" -->

<P align="center">
<B><FONT size="2">SIGNATURES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="34%"></TD>
    <TD width="66%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <B><FONT size="2">CADENCE DESIGN SYSTEMS, INC.</FONT></B></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <B><FONT size="2">(Registrant)</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left">

</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">DATE:&nbsp;August&nbsp;10, 2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">By:&nbsp;/s/ Michael J. Fister
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Michael J. Fister<BR>
    President, Chief Executive Officer and Director
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">DATE:&nbsp;August&nbsp;10, 2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">By:&nbsp;/s/ William Porter
    </FONT></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">William Porter<BR>
    Senior Vice President<BR>
    and Chief Financial Officer
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">62
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">EXHIBIT INDEX</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><FONT size="1">Exhibit</FONT></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1987 Stock Incentive Plan
    (formerly 1987 Stock Option Plan), as amended.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Stock Option Agreement and Form of Stock
    Option Exercise Request, as currently in effect under the
    Registrant&#146;s 1987 Stock Incentive Plan (formerly 1987 Stock
    Option Plan), as amended.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Residential Lease dated
    May&nbsp;1, 2004 to Residential Lease and Option to Purchase,
    dated as of March&nbsp;1, 2003, between 849 College Avenue, Inc.
    a subsidiary of the Registrant, and Kevin Bushby.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 2002 Deferred Compensation
    Venture Investment Plan, as amended.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of May&nbsp;12,
    2004, between the Registrant and Michael J. Fister.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of May&nbsp;24,
    2004, between the Registrant and Lavi A. Lev.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of May&nbsp;26,
    2004, between the Registrant and Kevin Bushby.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of May&nbsp;18,
    2004, between the Registrant and R.L. Smith McKeithen.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Executive Officer, Michael J. Fister, pursuant to
    Rule&nbsp;13a-14 of the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Financial Officer, William Porter, pursuant to Rule&nbsp;13a-14
    of the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Executive Officer, Michael J. Fister, pursuant to 18&nbsp;U.S.C.
    Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
    the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Financial Officer, William Porter, pursuant to 18&nbsp;U.S.C.
    Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
    the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.01
<SEQUENCE>2
<FILENAME>f01031exv10w01.txt
<DESCRIPTION>EXHIBIT 10.01
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.01

                          CADENCE DESIGN SYSTEMS, INC.

                            1987 STOCK INCENTIVE PLAN

      1.    PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the employees of the Company
and any parent or subsidiary corporations, and to promote the success of the
Company's business. The Plan was initially established as the 1987 Stock Option
Plan, and was most recently amended on September 16, 1999. The Plan is hereby
amended and restated in its entirety, effective upon adoption by the Company's
stockholders.

      2.    DEFINITIONS. As used herein, the following definitions shall apply:

            (a)   "BOARD" shall mean the Committee, if one has been appointed,
or the Board of Directors of the Company, if no Committee is appointed.

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

            (c)   "COMMON STOCK" shall mean the Common Stock of the Company.

            (d)   "COMPANY" shall mean CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation.

            (e)   "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.

            (f)   "CONSULTANT" shall mean any consultants, independent
contractors or advisers (provided that such persons render bona fide services
not in connection with the offering and sale of securities in capital raising
transactions) rendering services to the Company or a Parent or Subsidiary.

            (g)   "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean
the absence of any interruption of termination of service, whether as an
Employee or Consultant. Continuous Status as an Employee or Consultant shall not
be considered interrupted in the case of sick leave, military leave, or any
other leave of absence.

            (h)   "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee or other compensation paid solely on account of
service as a director by the Company shall not be sufficient to constitute
"employment" by the Company.

            (i)   "INCENTIVE STOCK" means shares of Common Stock granted to a
Participant pursuant to Section 10 hereof.

<PAGE>

            (j)   "INCENTIVE STOCK AGREEMENT" means a written agreement between
the Company and a holder of an award of Incentive Stock evidencing the terms and
conditions of an individual Incentive Stock grant. Each Incentive Stock
Agreement shall be subject to the terms and conditions of the Plan.

            (k)   "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.

            (l)   "OPTION" shall mean a stock option granted pursuant to the
Plan, which may be either an Incentive Stock Option or a "non-statutory stock
option," at the discretion of the Board and as reflected in the terms of the
Stock Option Agreement.

            (m)   "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.

            (n)   "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Internal Revenue Code of
1986, as amended.

            (o)   "PARTICIPANT" shall mean an Employee or Consultant who
receives a Stock Award.

            (p)   "PLAN" shall mean this 1987 Stock Incentive Plan.

            (q)   "QUALIFYING PERFORMANCE CRITERIA" shall mean any one or more
of the following performance criteria as determined pursuant to an objective
formula, either individually, alternatively or in any combination, applied to
either the Company as a whole or to a business unit, segment or Subsidiary,
either individually, alternatively or in any combination, and measured over a
performance period determined by the Board, on an absolute basis or relative to
a pre-established target, to previous results or to a designated comparison
group, in each case as specified by the Board in the Stock Award: (a) cash flow
(including measures of operating or free cash flow), (b) earnings per share
(including measures of GAAP earnings per share or non-GAAP measures such as
non-GAAP earnings per-share or per-share earnings before interest, taxes,
depreciation and amortization), (c) return on equity, (d) total stockholder
return, (e) return on capital, (f) return on assets or net assets, (g) revenue,
(h) income or net income (on a GAAP basis or a non-GAAP basis), (i) operating
income or net operating income, (j) operating profit or net operating profit,
(k) operating margin, (l) return on operating revenue, (m) market share, (n)
bookings and segments of bookings such as net product bookings, (o) market
penetration, (p) technology development or proliferation, or (q) customer
loyalty or satisfaction as measured by a customer loyalty or satisfaction index
determined by an independent consultant expert in measuring such matters.

            (r)   "RULE 16b-3" shall mean Rule 16b-3 of the Securities Exchange
Act of 1934, as amended, or any successor to Rule 16b-3, as in effect when
discretion is being exercised with respect to the Plan.

                                       2
<PAGE>

            (s)   "SHARE" shall mean a share of Common Stock, as adjusted in
accordance with Section 12 of the Plan.

            (t)   "STOCK AWARD" shall mean any right granted under the Plan,
including an Option or Incentive Stock.

            (u)   "STOCK OPTION AGREEMENT" means a written agreement between the
Company and a holder of an Option award evidencing the terms and conditions of
an individual Option grant. Each Stock Option Agreement shall be subject to the
terms and conditions of the Plan.

            (v)   "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code of 1986, as amended.

      3.    STOCK SUBJECT TO THE PLAN.

            (a)   RESERVED SHARES. Subject to the provisions of Sections 3(b)
and 12 of the Plan, the number of shares reserved for issuance under the Plan is
seventy-one million three hundred seventy thousand one hundred (71,370,100)
shares of Common Stock; provided, however, that no more than three million
(3,000,000) shares of Common Stock authorized under the Plan may be issued
pursuant to Awards of Incentive Stock. Shares issued under the Plan may be
authorized, but unissued, or reacquired Common Stock.

            (b)   UNEXERCISABLE, FORFEITED OR TERMINATED AWARDS. If a Stock
Award should expire, become unexercisable, be forfeited or otherwise terminate
for any reason without having been exercised in full, the unpurchased or
forfeited Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan, provided,
however, that if a Stock Award is canceled, forfeited or treated as having been
canceled for purposes of Section 162(m) the canceled Stock Award shall count
against the maximum number of shares for which a Stock Award may be granted to
any person under the terms of the Plan.

      4.    ADMINISTRATION OF THE PLAN.

            (a)   PROCEDURE. The Board of Directors of the Company shall
administer the Plan. The Board of Directors may appoint a Committee consisting
of not less than two members of the Board of Directors to administer the Plan on
behalf of the Board of Directors, subject to such terms and conditions as the
Board of Directors may prescribe. The Committee shall consist of two or more
"Non-Employee Directors" (a director who is receiving no compensation from the
Company other than for service on the Board of Directors or who does not receive
such additional compensation which exceeds the limits specified in the
definition of such term under Rule 16b-3 and otherwise meets the requirement
under Rule 16b-3 for "non-employee directors") or "Outside Directors" (a
director who is not either a current or former officer of the Company nor a
current employee of the Company, and who is receiving no compensation from the
Company other than for service on the Board of Directors or who does not receive
such

                                       3
<PAGE>

additional compensation which exceeds the limits specified in the definition of
such term under Section 162(m) of the Code). Once appointed, the Committee shall
continue to serve until otherwise directed by the Board of Directors. From time
to time the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause), and
appoint new members in substitution therefor, fill vacancies however caused and
remove all members of the Committee, and thereafter directly administer the
Plan. Notwithstanding anything in this Section 4 to the contrary, at any time
the Board or the Committee may delegate to a committee of one or more members of
the Board of Directors the authority to grant Options to all Employees and
Consultants or any portion or class thereof. Members of the Board who are either
eligible for Options or have been granted Options may vote on any matters
affecting the administration of the Plan or grant of any Options pursuant to the
Plan, except that no such member shall act upon the granting of an Option to
himself, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting of Options to him.

            (b)   POWERS OF THE BOARD. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion: (i) to grant Stock Awards
under the Plan; (ii) to determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the Common
Stock; (iii) to determine the exercise price per share of Options to be granted,
which exercise price shall be determined in accordance with Section 8(a) of the
Plan; (iv) to determine the Employees or Consultants to whom, and the time or
times at which, Stock Awards shall be granted, the number of shares to be
represented by each Stock Award, and the terms of such Stock Awards; (v) to
interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations
relating to the Plan; (vii) to determine the terms and provisions of each Stock
Award granted (which need not be identical) in accordance with the Plan, and,
with the consent of the holder thereof with respect to any adverse change,
modify or amend each Stock Award; (viii) to accelerate or defer (the latter with
the consent of the Participant) the exercise date and vesting of any Option;
(ix) to authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of a Stock Award previously granted by the
Board; and (x) to make all other determinations deemed necessary or advisable
for the administration of the Plan.

            (c)   EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Participants and
any other holders of any Stock Awards granted under the Plan.

      5.    ELIGIBILITY. Stock Awards may be granted only to Employees or
Consultants as defined in Section 2 hereof. An Employee or Consultant who has
been granted a Stock Award may, if he is otherwise eligible, be granted an
additional Stock Award.

            Incentive Stock Options may only be granted to Employees. The
aggregate fair market value (determined at the time the Option is granted) of
the stock with respect to which Incentive Stock Options are exercisable for the
first time by such individual during any calendar

                                       4
<PAGE>

year (under this Plan or under any other incentive stock option plan of the
Company or any Parent or Subsidiary of the Company) shall not exceed $100,000.
To the extent that the grant of an Option exceeds this limit, the portion of the
Option that exceeds such limit shall be treated as a non-statutory stock option.

            The Plan shall not confer upon any Participant any right with
respect to continuation of employment or consultancy by the Company, nor shall
it interfere in any way with his right or the Company's right to terminate his
employment at any time or his consultancy pursuant to the terms of the
Consultant's agreement with the Company.

            No person shall be eligible to be granted Stock Awards covering more
than 2,216,702 shares of Common Stock in any calendar year. The foregoing limit
shall be adjusted pursuant to the provisions of Section 12.

      6.    TERM OF THE PLAN. The Plan became effective upon its adoption by the
Board of Directors. Subsequently amended, the Plan shall continue in effect
until May 21, 2007 unless sooner terminated under Section 15 of the Plan.

      7.    TERM OF OPTION; VESTING PROVISIONS.

            (a)   OPTION TERM. The term of each Option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Incentive Stock Option
granted to an Employee who immediately before the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter time as may be provided in the Stock Option Agreement.

            (b)   VESTING PROVISIONS. The terms on which each Option shall vest
shall be determined by the Board in its Discretion, and shall be set forth in
Stock Option Agreement relating to each such Option. Without limiting the
discretion of the Board, vesting provisions may include time-based vesting or
vesting based on achievement of performance or other criteria. Performance
criteria may, but need not, be based on Qualifying Performance Criteria.

      8.    OPTION EXERCISE PRICE AND CONSIDERATION.

            (a)   EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is determined
by the Board, but shall be subject to the following:

                  (i)   In the case of an Incentive Stock Option:

                        (1)   Granted to an Employee who, immediately before the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the fair market value per Share on the date of grant.

                                       5
<PAGE>

                        (2)   Granted to any Employee, the per Share exercise
price shall be no less than 100% of the fair market value per Share on the date
of grant.

                  (ii)  In the case of an Option granted on or after the
effective date of registration of any class of equity security of the Company
pursuant to Section 12 of the Exchange Act and prior to six months after the
termination of such registration, the per Share exercise price shall be not less
than 100% of the fair market value per Share on the date of grant.

                  (iii) Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or non-statutory stock option) may be granted with an
exercise price lower than set forth in the preceding paragraphs if such Option
is granted pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code.

            (b)   FAIR MARKET VALUE. The fair market value shall be determined
by the Board in its discretion: provided however, that where there is a public
market for the Common Stock, the fair market value per Share shall be the
average of the high and low prices of the Common Stock on the date of grant, as
reported on the New York Stock Exchange.

            (c)   CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, promissory
note, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
option shall be exercised, or any combination of such methods of payment, or
such other consideration and method of payment for the issuance of Shares to the
extent permitted under applicable law. In making its determination as to the
type of consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.

      9.    EXERCISE OF OPTION.

            (a)   PROCEDURE FOR EXERCISE RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Participant, and as shall be permissible under the terms of
the Plan.

            An Option may not be exercised for a fraction of a Share.

            An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect

                                       6
<PAGE>

to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 12 of
the Plan.

            Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

            (b)   TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If a
Participant ceases to serve as an Employee or Consultant, the Participant may,
but only within thirty (30) days (or such longer period of time as determined by
the Board) after the date Participant ceases to be an Employee or Consultant of
the Company, exercise the Option to the extent that Participant was entitled to
exercise it at the date of such termination. To the extent that Participant was
not entitled to exercise the Option at the date of such termination, or if
Participant does not exercise such Option (which Participant was entitled to
exercise) within the time specified herein, the Option shall terminate.

            (c)   DEATH OF PARTICIPANT. In the event of the death of a
Participant:

                  (i)   during the term of the Option who is at the time of
Participant's death an Employee or Consultant of the Company and who shall have
been in Continuous Status as an Employee or Consultant since the date of grant
of the Option, the Option may be exercised at any time within three (3) months
(or such longer period of time as determined by the Board) following the date of
death, by the Participant's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Participant continued living
three (3) months (or such longer period of time as determined by the Board)
after the date of death; or

                  (ii)  within one (1) month (or such longer period of time as
determined by the Board) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within three
(3) months (or such longer period of time as determined by the Board) following
the date of death, by the Participant's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.

      10.   INCENTIVE STOCK.

            (a)   GENERAL. Incentive Stock is an award or issuance of shares of
Common Stock under the Plan, the grant, issuance, retention, vesting and/or
transferability of which is subject during specified periods of time to such
conditions (including continued employment or performance conditions) and terms
as the Board deems appropriate. The Board may specify that the grant, vesting or
retention of any or all Incentive Stock is intended to satisfy the requirements
for "performance-based compensation" under Section 162(m) of the Code. To the
extent that any Incentive Stock is designated by the Board as "performance-based
compensation" under Section 162(m) of the Code, (i) the performance criteria for
the grant, vesting or retention of any such Incentive Stock shall be a measure
based on one or more Qualifying Performance Criteria

                                       7
<PAGE>

selected by the Board, specified at the time the Incentive Stock is granted, and
shall be a preestablished goal under Treasury Regulation Section
1.162-27(e)(2)(i), (ii) the Board shall certify the extent to which any
Qualifying Performance Criteria has been satisfied, and the amount payable as a
result thereof, prior to payment of any Incentive Stock that is intended to
satisfy the requirements for "performance-based compensation" under Section
162(m) of the Code, and (iii) the award shall comply with all other applicable
requirements relating to "performance based compensation" under Section 162(m)
of the Code and the Treasury Regulations issued thereunder. To the extent a
performance-based award is not intended to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the Code, the
performance criteria for the grant, vesting or retention of any such Incentive
Stock may be a measure based on one or more Qualifying Performance Criteria
selected by the Board, or any other criteria deemed appropriate by the Board.

            (b)   INCENTIVE STOCK AGREEMENT. Each Incentive Stock Agreement
shall contain provisions regarding (i) the number of shares of Common Stock
subject to such award or a formula for determining such, (ii) the purchase price
of the shares, if any, and the means of payment for the shares, (iii) the
performance criteria, if any, and level of achievement versus these criteria
that shall determine the number of shares granted, issued, retainable and/or
vested, (iv) such terms and conditions on the grant, issuance, vesting and/or
forfeiture of the shares as may be determined from time to time by the Board,
(v) restrictions on the transferability of the shares and (vi) such further
terms and conditions in each case not inconsistent with this Plan as may be
determined from time to time by the Board. Shares of Incentive Stock may be
issued in the name of the Participant and held by the Participant or held by the
Company, in each case as the Board may provide.

            (c)   SALES PRICE. Subject to the requirements of applicable law,
the Board shall determine the price, if any, at which shares of Incentive Stock
shall be sold or awarded to a Participant, which may vary from time to time and
among Participants and which may be below the fair market value of such shares
(as determined in Section 8(b)) at the date of grant or issuance.

            (d)   SHARE VESTING. Except as set forth herein, the grant,
issuance, retention and/or vesting of shares of Incentive Stock shall be at such
time and in such installments as determined by the Board. The Board shall have
the right to make the timing of the grant and/or the issuance, ability to retain
and/or vesting of shares of Incentive Stock subject to continued employment,
passage of time and/or such performance criteria as deemed appropriate by the
Board, provided that, in no event shall an award of Incentive Stock vest sooner
than (i) three (3) years after the date of grant, if the vesting of the
Incentive Stock is based solely on Continuous Status as an Employee or
Consultant and the grant of Incentive Stock is not a form of payment of earned
incentive compensation or other performance-based compensation, provided,
however, that notwithstanding the foregoing vesting limitations, shares of
Incentive Stock vesting under this paragraph (i) may vest in installments so
long as the vesting schedule, at any point in time, is not more favorable than
what would be vested under a monthly pro rata installment schedule (i.e., 1/36
per month for 3 years), or (ii) one (1) year after the date of grant, if the
vesting of Incentive Stock is also subject to the attainment of performance
goals. Notwithstanding the foregoing, the Board may accelerate vesting (in a
Stock Award agreement or otherwise) of any

                                       8
<PAGE>

Stock Award in the event of a Participant's termination of service as an
Employee or Consultant, a change in control of the Company or similar event,
provided that, in the case of award of Incentive Stock that is intended to
qualify as "performance based compensation" under Section 162(m), such
acceleration shall comply with the requirements set forth in Treasury Regulation
Section 1.162-27(e)(2)(iii).

            (e)   TRANSFERABILITY. Shares of Incentive Stock shall be
transferable by the Participant only upon such terms and conditions as are set
forth in the Incentive Stock Agreement, as the Board shall determine in its
discretion, so long as Incentive Stock awarded under the Incentive Stock
Agreement remains subject to the terms of the Incentive Stock Agreement.

            (f)   DISCRETIONARY ADJUSTMENTS. Notwithstanding satisfaction of any
performance goals, the number of shares granted, issued, retainable and/or
vested under an award of Incentive Stock on account of either financial
performance or personal performance evaluations may be reduced by the Board on
the basis of such further considerations as the Board shall determine, but may
not be increased. In addition, the Board may appropriately adjust any evaluation
of performance under a Qualifying Performance Criteria to exclude any of the
following events that occurs during a performance period: (i) asset write-downs,
(ii) litigation or claim judgments or settlements, (iii) the effect of changes
in tax law, accounting principles or other such laws or provisions affecting
reported results, (iv) accruals for reorganization and restructuring programs
and (v) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management's discussion and analysis
of financial condition and results of operations appearing in the Company's
annual report to stockholders for the applicable year.

      11.   NON-TRANSFERABILITY OF OPTIONS. Except as otherwise expressly
provided in the terms of an individual Option which is a non-statutory stock
option, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Participant, only by the Participant. Notwithstanding the foregoing, the person
to whom the Option is granted may, by delivering written notice to the Company,
in a form satisfactory to the Company, designate a third party who, in the event
of the death of the Participant, shall thereafter be entitled to exercise the
Option.

      12.   ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Stock Award, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as to
which no Stock Awards have yet been granted or which have been returned to the
Plan upon cancellation, expiration, forfeiture or other termination of a Stock
Award, as well as the price per share of Common Stock covered by each such
outstanding Stock Award, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split or the payment of a stock dividend with respect to the Common Stock or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall

                                       9
<PAGE>

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

            In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Stock Award will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such instances, declare
that any Stock Award shall terminate as of a date fixed by the Board and give
each Participant the right to exercise his Option as to all or any part of the
Optioned Stock or otherwise accelerate the vesting of such Stock Award. If the
Board, at its sole discretion, permits acceleration as to all or any part of a
Stock Award, the aggregate fair market value (determined at the time Stock Award
is granted) of stock with respect to which Incentive Stock Options first become
exercisable in the year of such dissolution, liquidation, sale of assets or
merger cannot exceed $100,000. Any remaining accelerated Incentive Stock Options
shall be treated as non-statutory stock options.

      13.   MISCELLANEOUS.

            (a)   ADDITIONAL RESTRICTIONS ON STOCK AWARDS. Either at the time a
Stock Award is granted or by subsequent action, the Board may, but need not,
impose such restrictions, conditions or limitations as it determines appropriate
as to the timing and manner of any resales by an Participant or other subsequent
transfers by an Participant of any shares issued under an Option, including
without limitation (a) restrictions under an insider trading policy, (b)
restrictions designed to delay and/or coordinate the timing and manner of sales
by Participants, and (c) restrictions as to the use of a specified brokerage
firm for such resales or other transfers.

            (b)   STOCKHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Option unless and until such Participant has
satisfied all requirements for exercise of the Option pursuant to its terms.

            (c)   INVESTMENT ASSURANCES. The Company may require an Participant,
as a condition of exercising or acquiring Common Stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to the
Participant's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of the Stock Award; and (ii) to give
written assurances satisfactory to the Company stating that the Participant is
acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of

                                       10
<PAGE>

Common Stock upon the exercise the Option or acquisition of Common Stock under
the Plan has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

            (d)   WITHHOLDING OBLIGATIONS. To the extent provided by the terms
of a Stock Option Agreement or Incentive Stock Agreement, the Participant may
satisfy any federal, state or local tax withholding obligation relating to a
Stock Award by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Participant by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares of Common Stock from the shares of Common Stock
otherwise issuable to the Participant as a result of the Stock Award, provided,
however, that no shares of Common Stock are withheld with a value exceeding the
minimum amount of tax required to be withheld by law; or (iii) delivering to the
Company owned and unencumbered shares of Common Stock.

      14.   TIME OF GRANTING THE STOCK AWARD. The date of grant of a Stock Award
shall, for all purposes, be the date on which the Board makes the determination
granting such Stock Award. Notice of the determination shall be given to each
Employee or Consultant to whom a Stock Award is so granted within a reasonable
time after the date of such grant.

      15.   AMENDMENT AND TERMINATION OF THE PLAN.

            (a)   AMENDMENT AND TERMINATION. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or
any listing requirements of any securities exchange or national market system on
which the Common Stock is traded.

            (b)   EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not adversely affect Stock Awards already granted
and such Stock Awards shall remain in full force and effect as if this Plan had
not been amended or terminated, unless mutually agreed otherwise between the
Participant and the Board, which agreement must be in writing and signed by the
Participant and the Company.

      16.   CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to a Stock Award unless the exercise of the Option, if applicable, and
the issuance and delivery of such Shares pursuant the Stock Award shall comply
with all relevant provisions of the law, including without limitation, the
Securities Act of 1933, as amended; the Securities Exchange Act of 1934, as
amended; the rules and regulations promulgated thereunder, and the requirements

                                       11
<PAGE>

of any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

      17.   LIABILITY OF COMPANY. The Company shall not be liable to an
Participant or other persons as to any tax consequence expected, but not
realized, by any Participant or other person due to the receipt, exercise or
settlement of any Stock Award granted hereunder.

      18.   RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

            Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

      19.   STOCK AWARD AGREEMENT. Stock Awards shall be evidenced by written
award agreements in such form as the Board shall approve.

                                       12

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.02
<SEQUENCE>3
<FILENAME>f01031exv10w02.txt
<DESCRIPTION>EXHIBIT 10.02
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.02

                                                           OPTION NO. __________
                          CADENCE DESIGN SYSTEMS, INC.

                    NONQUALIFIED STOCK OPTION GRANT AGREEMENT
                               (SUBSEQUENT GRANT)

      CADENCE DESIGN SYSTEMS, INC., a Delaware corporation (the "Company"),
hereby grants as of ______________ to ___________ ("Optionee") a nonqualified
stock option to purchase a total of ______________ (________) shares of Common
Stock of the Company (the "Shares"), at an exercise price of $________ per share
(the "Exercise Price") subject to the terms, definitions and provisions of this
Option and the Company's 1987 Stock Incentive Plan (the "Plan") which is
incorporated herein by reference. Capitalized terms not otherwise defined herein
shall have the meanings set forth in the Plan. Vesting of this Option shall
commence on ___________ (the "Vesting Commencement Date").

      1.    NATURE OF THE OPTION. This Option is a nonqualified stock option and
is not intended to qualify as an incentive stock option as defined in Section
422 of the Internal Revenue Code of 1986, as amended.

      2.    EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the provisions of Section 9 of the Plan as follows:

            (i)   RIGHT TO EXERCISE.

                  (a)   This Option shall become vested and exercisable with
respect to 1/48th of the Shares for each full month of service following the
Vesting Commencement Date. A full month of service shall be completed upon
continuous service up to (but not including) the same date of the month as the
date of the Vesting Commencement Date.

                  (b)   This Option may not be exercised for a fraction of a
share.

                  (c)   In the event of Optionee's death, disability or other
termination of employment, the exercisability of this Option is governed by
Section 9 of the Plan and Sections 5, 6 and 7 below.

            (ii)  METHOD OF EXERCISE. This Option shall be exercisable by
delivery to the Company of an executed written notice in the form attached
hereto, or in such other form as may be approved by the Company, which shall
state the election to exercise the Option, the number of Shares in respect of
which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Stock Administration Group of the Company and
shall be accompanied by payment of the Exercise Price.

      3.    METHOD OF PAYMENT. Payment of the Exercise Price shall be made as
follows: (i) by cash or check; or (ii) by delivery of an irrevocable written
commitment from a broker-dealer


<PAGE>

approved by the Company that is a member in good standing of the New York Stock
Exchange to deliver the exercise price directly to the Company upon receipt of
the Shares or, in the case of a margin loan, upon receipt of a copy of the
notice of exercise of this Option.

      4.    RESTRICTIONS ON EXERCISE. This Option may not be exercised unless
such exercise, the issuance of the Shares upon such exercise and the method of
payment of consideration for the Shares are in compliance with (i) the
Securities Act of 1933, as amended, (ii) all applicable state securities laws,
(iii) all other applicable federal and state laws and regulations, and (iv) the
rules of any stock exchange or national market system upon which the Shares may
then be listed, as such laws, regulations and rules are in effect on the date of
exercise. As a condition to the exercise of this Option, the Company may require
Optionee to make any representation and warranty to the Company as may be
required by any applicable law or regulation.

      5.    TERMINATION OF STATUS AS AN EMPLOYEE. If Optionee ceases to serve as
an Employee or Consultant, Optionee may, but only three (3) months after the
date Optionee ceases to be an Employee or Consultant of the Company (or a Parent
or Subsidiary), exercise this Option to the extent that Optionee was entitled to
exercise it on the date of such termination. To the extent that Optionee was not
entitled to exercise this Option on the date of such termination, or if Optionee
does not exercise this Option within the time specified herein, the Option shall
terminate.

      6.    DEATH OF OPTIONEE. In the event of the death of Optionee:

            (i)   During the term of this Option and while an Employee or
Consultant of the Company (or a Parent or Subsidiary) and having been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within twelve (12) months
following the date of death, by Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had Optionee continued
living three (3) months after the date of death; or

            (ii)  Within one (1) month after the termination of Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within twelve (12) months following the date of death, by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the right to exercise had accrued at
the date of termination.

      7.    DISABILITY OF OPTIONEE. In the event of the disability of Optionee
during the term of this Option and while an Employee or Consultant of the
Company (or a Parent or Subsidiary) and having been in Continuous Status as an
Employee or Consultant since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the date Optionee
ceases to be an Employee or Consultant, by Optionee to the extent that Optionee
was entitled to exercise it at the date that Optionee ceased to be an Employee
or Consultant. To the extent that Optionee was not entitled to exercise this
Option on such date, or if Optionee does not exercise this Option within the
time specified herein, the Option shall terminate.

                                     - 2 -
<PAGE>

      8.    TRANSFERABILITY OF OPTION. Optionee may transfer all or any portion
of this Option, in accordance with the rules which may be established by the
Board of Directors or Committee, to (i) his or her spouse, former spouse,
parents, stepparents, children, stepchildren, grandchildren, grandparents,
siblings, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, sister-in-law, including adoptive
relationships, or any person sharing Optionee's household (other than a tenant
or employee) ("Family Members"), (ii) a trust in which the Family Members have
more than 50% of the beneficial interest, (iii) a foundation in which the Family
Members (or Optionee) control the management of assets, and (iv) any entity in
which Family Members (or Optionee) own more than 50% of the voting interests.
Following such a transfer, (x) this Option shall not again be transferable other
than by will or by the laws of descent and distribution; (y) this Option shall
continue to be subject to the same terms and conditions that were applicable
immediately prior to transfer, and (z) the term "Optionee" shall be deemed to
refer to the transferee for all purposes of this Agreement except as otherwise
provided in this Section 8. The events of termination of employment of Sections
5, 6 and 7 above shall continue to be applied with respect to the original
Optionee, following which this Option shall be exercisable by the transferee
only to the extent, and for the periods, specified by Sections 5, 6 and 7 above.

      9.    TERM OF OPTION. Notwithstanding any other provision of this Option,
this Option may not be exercised more than ten years from the date of grant of
this Option, and may be exercised during such term only in accordance with the
Plan and the terms of this Option.

                                              CADENCE DESIGN SYSTEMS, INC.
                                              a Delaware corporation

                                              By: ______________________________
                                                      William Porter,
                                              Its:    Senior Vice President,
                                                      Chief Financial Officer

                                     - 3 -
<PAGE>

                                   ACCEPTANCE

      Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Board upon any questions arising
under the Plan. Optionee acknowledges that there may be adverse tax consequences
upon exercise of this Option or disposition of the Shares and that Optionee
should consult a tax advisor prior to such exercise or disposition.

_______________________                              ___________________________
Dated
<PAGE>

CADENCE DESIGN SYSTEMS, INC.                  NOTICE OF EXERCISE OF STOCK OPTION

YOUR BROKER WILL NOT EXERCISE OR SELL ANY SHARES REPRESENTED BY THIS FORM UNTIL
YOU INSTRUCT YOUR BROKER TO ACT ON YOUR BEHALF.

================================================================================
Section I: Personal Data
================================================================================

Name:_______________________________________  SSN: _ _  -  _  _  -   _  _  _  _
Address:____________________________________  Phone: ___________________________
City, State, Zip:___________________________

================================================================================
Section II: Statement of Intent to Exercise
================================================================================

Type of Option (check one) ___Incentive Stock Option (ISO)  _____Non-qualified
                                                            Stock Option (NQSO)

<TABLE>
<CAPTION>
Option #  # Shares Exercise    Option Price per Share   Taxes (NQSO only)  Total Exercise Price
<S>       <C>                  <C>                      <C>                <C>
______    ______________    x  $_________________    +  TBD      =         $________________
______    ______________    x  $_________________    +  TBD      =         $________________
______    ______________    x  $_________________    +  TBD      =         $________________
                                   Total amount due to Cadence:            $________________
</TABLE>

I understand that for NQSO exercises I am required to pay Federal (27%), State
and FICA withholding taxes on the gain, as measured by the difference between
the option exercise price and the fair market value of the shares as of the Date
of Exercise. Tax calculations will be provided by the Stock Administrator.

================================================================================
Section III: Method of Exercise
================================================================================

_______ Exercise and hold

_______ Same day sale of all shares as listed above

_______ Same day sale of partial shares, number of shares to be sold: __________

================================================================================
Section IV: Method of Payment
================================================================================

____ Proceeds from sale of stock   ____ Cash in employee's account (with broker)

____ Personal check made out to    ____ Use of margin (with broker)
     Cadence Design Systems, Inc.

================================================================================
Section V: Registration
================================================================================

____ Issue stock in my name individually and mail to the above address.

____ Issue stock in my name and ____________________________ as joint tenants or
     as tenants in common. (Please circle correct choice!)

____ Issue in street name and send directly to Broker:

Name of Broker:_______________________ Address:_________________________________

Account No.:__________________________ Phone No.:_______________________________

================================================================================

Employee signature:_________________________   Date: ___________________________

           PLEASE FAX BACK TO STOCK ADMINISTRATION DEPT. 408-944-7835

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>4
<FILENAME>f01031exv10w16.txt
<DESCRIPTION>EXHIBIT 10.16
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.16

              FIRST AMENDMENT TO RESIDENTIAL LEASE

      This First Amendment to Residential Lease (this "First Amendment") is made
and entered into as of May 1, 2004, by and between 849 College Avenue, Inc.
("Landlord") and Kevin Bushby and Elizabeth Bushby (collectively, "Tenant").

                                    RECITALS:

      WHEREAS, Landlord and Tenant have entered into that certain Residential
Lease dated as of March 1, 2003 (the " Lease"); and

      WHEREAS, Landlord and Tenant desire to amend the Lease to modify the
provisions thereof as more particularly set forth herein.

      NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements herein set forth, and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
expressly acknowledged by the parties hereto, the parties hereto hereby covenant
and agree as follows:

      1.    Option(s) to Extend. The words and figures "three (3)" set forth in
the second line of Section 35(a) of the Lease are hereby deleted in their
entirety, and inserted in lieu thereof shall be the words and figures "five
(5)".

      2.    Ratification. The Lease, as modified by this First Amendment, is
hereby ratified and confirmed by Landlord and Tenant.

      IN WITNESS WHEREOF, the undersigned have caused this First Amendment to be
executed and delivered as of the date first above written.

849 COLLEGE AVENUE, INC.

By: /s/ R.L. Smith McKeithen                       /s/ Kevin Bushby
    ------------------------------------           ------------------------
Name: R. L. Smith McKeithen                        Kevin Bushby
Title: Sr. V. P. and General Counsel
                                                   /s/ Elizabeth Bushby
                                                   ------------------------
                                                   Elizabeth Bushby

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.32
<SEQUENCE>5
<FILENAME>f01031exv10w32.txt
<DESCRIPTION>EXHIBIT 10.32
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.32

                          CADENCE DESIGN SYSTEMS, INC.

                              AMENDED AND RESTATED
               2002 DEFERRED COMPENSATION VENTURE INVESTMENT PLAN

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                PAGE
<S>                                                             <C>
SECTION 1 Definitions......................................       1

SECTION 2 Eligibility......................................       6

SECTION 3 Deferral of Compensation.........................       6

SECTION 4 Designation of Beneficiary.......................      15

SECTION 5 Change of Control................................      16

SECTION 6 Trust Provisions.................................      17

SECTION 7 Amendment and Termination........................      17

SECTION 8 Administration...................................      17

SECTION 9 General and Miscellaneous........................      18
</TABLE>

                                                                             -i-
<PAGE>

                          CADENCE DESIGN SYSTEMS, INC.

               2002 DEFERRED COMPENSATION VENTURE INVESTMENT PLAN

      CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, hereby establishes
the Cadence Design Systems, Inc. Amended and Restated 2002 Deferred Compensation
Venture Investment Plan, effective as of July 1, 2002, amended and restated as
of July 1, 2004, for the purpose of providing certain deferred compensation
benefits to a select group of management and highly compensated executives of
the Employer. The Plan is an unfunded deferred compensation plan that is
intended to qualify for the exemptions provided in Sections 201, 301, and 401 of
ERISA.

                                   SECTION 1

                                   DEFINITIONS

1.    DEFINITIONS. As used in the Plan:

      1.1   "ACCOUNT" shall mean, for each Participant, a separate bookkeeping
account established under the Plan and maintained by Employer in the name of
such Participant, that is:

                  (a) Increased by: (i) an amount equal to the Deferred
Compensation of such Participant; and (ii) allocations of Profit made in
accordance with Section 3.8;

                  (b) Decreased by: (i) an amount equal to the cash distributed
to such Participant pursuant to a distribution election made pursuant to the
Plan; (ii) the fair market value of any other property distributed to such
Participant pursuant to a distribution election made in accordance with the
Plan; and (iii) allocations of Loss made in accordance with Section 3.8; and

                  (c) Otherwise adjusted in accordance with the provisions of
the Plan.

      1.2   "AVAILABLE CAPITAL" with respect to one of the Partnerships shall
mean, for each Participant, as of the time of determination, such Participant's
Deferred Compensation that has been designated for investment in such
Partnership measured from the Effective Date to the time of determination:

                  (a) increased by such Participant's deemed share of
Distributable Assets that the Committee has determined are available for
re-investment in such Partnership in accordance with Section 3.7(c), and assets
transferred to the Trust in accordance with Section 3.9 that have been
designated for investment in such Partnership (each determined by the Committee
in its sole discretion and measured from the Effective Date to the time of
determination); and

                  (b) reduced by the aggregate Losses allocated to such
Participant's Account (other than Losses attributable to Portfolio Investments,
as determined by the Committee in its sole discretion) from the Effective Date
to the time of determination (but only to the extent that such Losses reduce
amounts available in the Participant's account that had previously been
designated for investment in the Partnership, as determined by the Committee in
its sole discretion) and further reduced by any assets that had previously been
designated for investment in such Partnership that are transferred from the
Trust in accordance with Section 3.9;

<PAGE>

                  (c) and further reduced by the sum of, for each Portfolio
Investment acquired by such Partnership prior to the time of determination, the
product of (x) the cost basis of such Portfolio Investment as reported by the
Partnership, and (y) such Participant's Investment Percentage in respect of such
Portfolio Investment (or zero if such Participant has no Investment Percentage
in respect of such Portfolio Investment).

      1.3   "BASE SALARY" for a given Plan Year means an Employee's regular cash
compensation payable during the Plan Year, excluding any bonuses, commissions,
overtime, incentive payments, non-monetary awards, compensation deferred
pursuant to all Section 125 (cafeteria) or Section 401(k) (savings) plans of the
Employer and other special compensation, and reduced by the tax withholding
obligations imposed on the Employer and any other withholding requirements
imposed by law with respect to such amounts.

      1.4   "BENEFICIARY" shall mean the person entitled to receive a
Participant's deferred Compensation benefits in accordance with Section 4.1 in
the event of the Participant's death.

      1.5   "BOARD" shall mean the Board of Directors of the Employer, as
constituted from time to time.

      1.6   "CASH BONUS" shall mean amounts (if any) awarded under the bonus
plans or policies maintained by the Employer and any commissions earned on
sales.

      1.7   "CHANGE OF CONTROL" shall have the meaning set forth in Section 5.1.

      1.8   "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder.

      1.9   "COMMITTEE" shall mean the Compensation Committee of the Board or
any other committee designated by the Board to administer the Plan in accordance
with Section 8.1.

      1.10  "COMPENSATION" shall mean the Base Salary, Cash Bonuses, and
Directors Fees described in Section 3.1.

      1.11  "DEFERRAL ELECTION PERIOD" shall mean, during a Plan Year, a
semi-annual period (a) beginning on January 1 and ending at the close of
business on June 30, or (b) beginning on July 1 and ending at the close of
business on December 31.

      1.12  "DEFERRED COMPENSATION" shall mean, for each Participant, the
aggregate amount of Compensation which is subject to a deferral election made in
accordance with Section 3.1 that actually would have been paid to such
Participant in the absence of such deferral election, calculated from the
Effective Date to the time of determination. "Deferred Compensation" in respect
of a Plan Year, shall mean, for each Participant, the aggregate amount of
Compensation which is subject to a deferral election made in accordance with
Section 3.1 that actually would have been paid to such Participant in the
absence of such deferral election, calculated from January 1 of such Plan Year
to the close of business on December 31 of such Plan Year.

      1.13  "DIRECTORS FEES" for a given Plan Year means the annual retainer,
meeting fees, any committee meeting fees, and consulting fees payable to members
of the Board for services during such year.

      1.14  "DISTRIBUTABLE ASSETS" shall mean cash or Marketable Securities
distributed by either of the Partnerships to the Trust.

      1.15  "EFFECTIVE DATE" shall mean July 1, 2002.

                                                                             -2-
<PAGE>

      1.16  "ELIGIBLE COMPENSATION" shall mean an Employee's projected annual
compensation from the Employer, determined by the Employer at or before the
beginning of the Plan Year, which may consist of salary, bonus, and/or incentive
payments, determined before any deductions under any qualified plan of the
Employer (including a Code Section 401(k) or 125 plan) and excluding any special
or non-recurring compensatory payments such as moving or relocation bonuses or
automobile allowances.

      1.17  "EMPLOYEE" shall mean an employee of the Employer who (a) is a U.S.
citizen or is a lawful permanent resident of the U.S., within the meaning of
Code Section 7701(b)(1)(A)(i), (b) earns solely U.S. source income from the
Employer, and (c) is exclusively on the Employer's U.S. payroll system.
References to the term "Employee" herein shall include references to a
Non-Employee Director or Beneficiary where the context so requires.

      1.18  "EMPLOYER" shall mean Cadence Design Systems, Inc., a Delaware
corporation, and any successor organization thereto (but not Subsidiaries or
affiliates of the Employer).

      1.19  "EMPLOYER CONTRIBUTIONS" shall mean the Employer's discretionary
contribution, if any, pursuant to Section 3.1(d).

      1.20  "EMPLOYER PLAN" shall mean a non-qualified deferred compensation
plan (other than the Plan) sponsored by the Employer that is intended to qualify
for the exemptions provided in Sections 201, 301, and 401 of ERISA.

      1.21  "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.

      1.22  "GAAP" shall mean United States generally accept accounting
principles, consistently applied.

      1.23  "GENERAL PARTNERS" shall mean, collectively, the Telos II General
Partner and the Telos III General Partner.

      1.24  "IDLE FUNDS INCOME" shall mean any income attributable to the
following short-term investments of cash: (i) debt securities issued or backed
by the United States or a State; (ii) investment grade rated commercial paper;
(iii) certificates or other evidences of deposit in any commercial bank holding
over $500 million in deposits; (iv) money market or similar mutual fund
interests; and (v) other highly liquid investments.

      1.25  "INCUMBENT DIRECTORS" shall mean directors who are either: (i)
directors of the Employer as of the Effective Date; or (ii) elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Employer).

      1.26  "INSOLVENT" or "INSOLVENCY" shall have the meaning set forth in
Section 7 of the Trust Agreement.

      1.27  "INVESTMENT PERCENTAGE" shall mean, for each Participant, a
fraction, expressed as a percentage, which is assigned by the Committee in
respect of each Portfolio Investment made by one of the Partnerships during a
Plan Year:

                                                                             -3-
<PAGE>

            (x)   the numerator of which equals the sum of (i) the Available
Capital of such Participant with respect to the Investing Partnership
immediately following the close of business on the last day of the preceding
Plan Year, plus (ii) the Deferred Compensation of such Participant in respect of
such Plan Year that has been designated for investment in the Investing
Partnership, plus (iii) any increase in the Available Capital of such
Participant with respect to the Investing Partnership during such Plan Year by
operation of Section 1.2(a), minus (iv) any decrease in the Available Capital of
such Participant with respect to the Investing Partnership during such Plan Year
by operation of Section 1.2(b); and

            (y)   the denominator of which equals the sum of (i) the Available
Capital of all Participants with respect to the Investing Partnership
immediately following the close of business on the last day of the preceding
Plan Year, plus (ii) the Deferred Compensation of all Participants in respect of
such Plan Year that has been designated for investment in the Investing
Partnership, plus (iii) any increase in the Available Capital of all
Participants with respect to the Investing Partnership during such Plan Year by
operation of Section 1.2(a), minus (iv) any decrease in the Available Capital of
all Participants with respect to the Investing Partnership during such Plan Year
by operation of Section 1.2(b).

At all times following a Partnership's acquisition of a Portfolio Investment,
the aggregate Investment Percentages for all of the Participants in respect of
such Portfolio Investment shall equal 100 percent.

      1.28  "INVESTING PARTNERSHIP" shall mean, with respect to each Portfolio
Investment, the Partnership that acquired such Portfolio Investment.

      1.29  "MARKETABLE SECURITIES" shall mean a Security that is freely
tradable by the holder thereof. For purposes of the preceding sentence, a
Security shall be deemed to be freely tradable if: (i) Securities equivalent to
such Security are generally traded on one or more established public markets;
(ii) such Security is not subject to "lockup" or other contractual restrictions,
and (iii) the Trust and/or each Participant receiving such Security is not
subject to restrictions and limitations on the transferability thereof under
Rule 144(e) (except for restrictions and limitations specifically applicable to
a particular Participant, such as restrictions applicable to a Participant that
is an affiliate of the issuer of such Security).

      1.30  "NON-EMPLOYEE DIRECTOR" shall mean a director of the Employer who is
not otherwise an employee of the Employer.

      1.31  "PARTICIPANT" shall mean an Employee or Non-Employee Director who
(i) has become a Participant in the Plan pursuant to Sections 3.3(a) through
(e), as applicable, and (ii) has not ceased to be a Participant pursuant to
Section 3.3(h).

      1.32  "PARTNERSHIPS" shall mean, collectively, the Telos II Partnership
and the Telos III Partnership.

      1.33  "PERMANENT DISABILITY" shall mean that a Participant is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or otherwise meets the definition of "Permanent Disability" as set forth
in the Employer's Long Term Disability Plan. A Participant shall not be deemed
to have a Permanent Disability unless he or she furnishes proof of such
condition sufficient to satisfy the Committee, acting in its sole and absolute
discretion.

      1.34  "PLAN" shall mean the Cadence Design Systems, Inc. Amended and
Restated 2002 Deferred Compensation Venture Investment Plan, as set forth herein
and as hereafter amended from time to time.

                                                                             -4-
<PAGE>

      1.35  "PLAN YEAR" shall mean the calendar year beginning on January 1 and
ending at the close of business on December 31; provided, however, that the 2002
Plan Year shall be the period beginning on the Effective Date through the close
of business on December 31, 2002.

      1.36  "PORTFOLIO INVESTMENT" shall mean any promissory note, Security, or
other interest in a corporation or other business entity which is issued to
either of the Partnerships. Except as otherwise determined by the Committee
acting in its sole discretion, for purposes of determining a Participant's
Investment Percentage, each promissory note, Security or other interest in a
corporation or other entity which is issued to one of the Partnerships at a
specific time shall be deemed to be a separate Portfolio Investment from any
Security, promissory note, or other interest in such corporation or business
entity that is issued at a subsequent time; provided, however, that in the event
a Security held by one of the Partnerships is exchanged for another Security
pursuant to a merger, acquisition, reorganization, recapitalization or similar
transaction, a Participant's Investment Percentage applicable to such newly
received Security (immediately following receipt) shall equal the Participant's
Investment Percentage in respect of the Security exchanged therefor (as
determined immediately prior to such exchange).

      1.37  "PROFITS AND LOSSES" shall mean, for any period, items of deemed
income and gain as well as items of deemed loss, expense and deduction,
determined in accordance with GAAP (as if Participants' Accounts were invested
to acquire interests in one or both of the Partnerships or in any other manner
specified by the Committee, acting in its sole and absolute discretion);
provided, however, that Profits and Loss computed for each allocation period
under Section 3.8 shall not be determined by taking into account any unrealized
gains and losses; and provided, further, that Losses shall include all items of
cost and expense associated with the formation, operation, dissolution,
winding-up, or termination of the Plan and Trust.

      1.38  "SECURITY" or "SECURITIES" shall mean equity, debt, synthetic
securities of any type, or any other evidence of ownership of an asset or
entity.

      1.39  "SUBSIDIARY" shall mean any corporation (other than the Employer) in
an unbroken chain of corporations or other entities beginning with the Employer,
if each of the entities other than the last entity in the unbroken chain holds
equity or other indicia of ownership representing fifty percent (50%) or more of
the total combined voting power of all classes of equity or other indicia of
ownership in one of the other entities in such chain.

      1.40  "TELOS II GENERAL PARTNER" shall mean Telos Venture Management II,
LLC, a Delaware limited liability company.

      1.41  "TELOS II PARTNERSHIP" shall mean Telos Venture Partners II, L.P., a
Delaware limited partnership.

      1.42  "TELOS III GENERAL PARTNER" shall mean Telos Venture Management III,
LLC, a Delaware limited liability company.

      1.43  "TELOS III PARTNERSHIP" shall mean Telos Venture Partners III, L.P.,
a Delaware limited partnership.

      1.44  "TERMINATION DATE" shall have the meaning set forth in Section
3.3(h)(ii).

      1.45  "TRUST" shall mean the cash and other assets and/or properties held
and administered by Trustee pursuant to the Trust Agreement to carry out the
provisions of the Plan.

                                                                             -5-
<PAGE>

      1.46  "TRUST AGREEMENT" shall mean the Cadence Design Systems, Inc. 2002
Deferred Compensation Venture Investment Trust Agreement, including any
amendments thereto, entered into between the Employer and the Trustee to carry
out the provisions of the Plan.

      1.47  "TRUSTEE" shall mean the designated Trustee acting at any time under
the Trust Agreement.

      1.48  "1994 PLAN" shall mean the Cadence Design Systems, Inc. 1994
Deferred Compensation Plan, as amended from time to time.

      1.49  "1996 PLAN" shall mean the Cadence Design Systems, Inc. 1996
Deferred Compensation Plan, as amended from time to time.

                                    SECTION 2

                                   ELIGIBILITY

      2.1   ELIGIBILITY. Eligibility to participate in the Plan shall be limited
to (a) Employees who (i) have Eligible Compensation of at least $150,000 for the
Plan Year, (ii) are classified as officers, vice-presidents, directors, or an
equivalent title, and (iii) have been selected to participate in the Plan by the
Committee acting in its sole and absolute discretion, and (b) Non-Employee
Directors who have been selected to participate in the Plan by the Committee
acting in its sole and absolute discretion. Participation in the Plan shall
commence as of the effective date of the eligible Employee's or Non-Employee
Director's enrollment form, which shall be completed and submitted to the
Employer in accordance with the provisions of Section 3.3. Nothing in the Plan
or in any administrative form used to administer the Plan or Trust shall be
construed to require any contributions to be made to the Plan on behalf of the
Participant by the Employer. The Committee has the discretion to end the
eligibility of one or more Participants at any time in the sole and absolute
discretion of the Committee.

                                    SECTION 3

                            DEFERRAL OF COMPENSATION

      3.1   DEFERRAL OF COMPENSATION.

                  (a) Each eligible Employee or Non-Employee Director may elect,
in accordance with Section 3.3, to defer the receipt of a portion of the Base
Salary or Directors Fees for active service otherwise payable to him or her by
the Employer during each Plan Year or portion of a Plan Year that the
Participant is in the employ or service of the Employer. Each eligible Employee
may elect, in accordance with Section 3.3, to defer the receipt of a portion of
the Cash Bonus for active service otherwise payable to him or her by the
Employer during each Deferral Election Period or portion of a Deferral Election
Period that the Participant is in the employ or service of the Employer. The
Employer shall furnish each Participant with a statement of his or her Account
balance within 90 days of the end of each Plan Year or such longer period as the
Committee deems appropriate.

                        (i)   The amount or percentage of Compensation that a
Participant elects to defer under Section 3.3 will remain constant for the Plan
Year (or for Cash Bonus amounts, the Deferral Election Period) with respect to
which the election was made and shall not be subject to change during such
period, except to the extent that a Participant ceases to be eligible to defer
Compensation for the period due to the termination of such Participant's
employment or service to the Employer.

                                                                             -6-
<PAGE>

                        (ii)  Each such deferral election as to Base Salary or
Directors Fees, or discontinuance of a deferral election as to Base Salary or
Directors Fees, will continue in force for each successive Plan Year, until or
unless suspended or modified by the filing of a subsequent election with the
Employer by the Participant in accordance with Section 3.3.

                        (iii) Each deferral election as to an eligible
Employee's Cash Bonus shall continue in force only for the Deferral Election
Period with respect to which it was made and shall not apply to any successive
Deferral Election Periods or Plan Years. Any deferral election with respect to a
Cash Bonus must be made prior to the time the amount of the bonus is determined,
prior to the end of the period of time as to which the bonus is awarded, and at
a time that the amount of any such Cash Bonus remains substantially uncertain,
as determined by the Committee in its sole and absolute discretion.

                        (iv)  Subject to Section 3.1(c), Compensation deferral
elections shall be subject to minimum dollar and maximum percentage amounts as
follows: (i) the minimum annual deferral amount is $10,000, which shall be
withheld from the Participant's Compensation; and (ii) the maximum deferral
percentage amount is 80 percent of the Participant's Base Salary, 100 percent of
the Participant's Cash Bonus (if any), and 100 percent of the Participant's
Directors Fees, as applicable.

                        (v)   The Employer shall withhold the amount or
percentage of Base Salary specified to be deferred by an eligible Employee in
equal amounts for each payroll period and shall withhold the amount or
percentage of Cash Bonus (if any) specified to be deferred at the time or times
such Cash Bonus is or otherwise would be paid to the Employee. The Employer
shall withhold the amount or percentage of Directors Fees specified to be
deferred by a Non-Employee Director at the time or times such Directors Fees are
or otherwise would be paid to such Non-Employee Director.

                        (vi)  Subject to Sections 3.6, 7.1 and 7.2, all
deferrals of Compensation made pursuant to this Section 3.1(a) shall be fully
vested at all times.

                  (b) Notwithstanding any provision of this Section 3.1 to the
contrary, amounts deferred under the Plan shall be calculated and withheld from
the Employee's Base Salary and/or Cash Bonus (if any) after such Compensation
has been reduced to reflect any tax withholding obligations imposed on the
Employer, any other withholding requirements imposed by law, salary reduction
contributions to the Employer's Code Section 125 (cafeteria) and Code Section
401(k) (savings) plans, but before any reductions for contributions to the
Employer's Code Section 423 (employee stock purchase) plan, the 1994 Plan, or
the 1996 Plan.

                  (c) Notwithstanding any provision of this Section 3.1 to the
contrary, the Committee may, in its sole and absolute discretion, decline to
accept all or any portion of any Participant's Compensation deferral election.

                  (d) The Employer shall not be obligated to make any other
contribution to the Plan on behalf of any Participant or for any other purpose
at any time.

                        (i)   The Employer shall be entitled, in its sole and
absolute discretion, to make Employer Contributions to the Plan on behalf of one
or more Participants. Employer Contributions, if any, may be made without regard
to whether the Participant to whose account such contribution is credited has
made, or is making, Compensation deferrals pursuant to Section 3.1(a). The
Employer shall not be bound or obligated to apply any specific formula or basis
for calculating the amount of any Employer Contributions and the Employer shall
have sole and absolute discretion as to the allocation of any Employer
Contributions among Participants' Accounts. The use of any particular formula or
basis for making an Employer Contribution in one or more Deferral Election
Periods or Plan Years shall not bind or obligate the Employer

                                                                             -7-
<PAGE>

to use such formula or basis in any other Deferral Election Period or Plan Year.
Employer Contributions may be subject to a substantial risk of forfeiture in
accordance with the terms of a vesting schedule, which may be selected by the
Employer in its sole and absolute discretion.

                        (ii)  To the extent that the Trust lacks sufficient
assets at any time to fulfill its capital contribution obligations to one or
both of the Partnerships, the Employer shall be entitled, in its sole and
absolute discretion, to make capital contributions to the Trust to enable the
Trust to satisfy such capital contribution obligations. If Employer makes
capital contributions to the Trust in accordance with the preceding sentence,
then, solely for purposes of maintaining the Participants' Accounts under the
Plan, the Committee may establish an Account for Employer, and the provisions of
Section 3.8 may be amended in accordance with Section 7.1 to account for the
extent and timing of Employer's contributions to the Trust pursuant to this
Section 3.1(d)(ii).

      3.2   DISTRIBUTIONS OF ACCOUNT BALANCES. Subject to Section 3.2(f):

                  (a) A Participant shall elect whether he or she will receive
distribution of his or her entire Account, subject to applicable tax withholding
requirements, (i) upon reaching a specified age, (ii) upon passage of a
specified number of years, (iii) upon termination of his or her employment or
service with the Employer, (iv) upon the earlier to occur of (A) his or her
termination of employment or service with the Employer or (B) passage of a
specified number of years or attainment of a specified age, or (v) upon the
later to occur of (A) his or her termination of employment or service with the
Employer or (B) passage of a specified number of years or attainment of a
specified age, as elected by the Participant in accordance with the form
established by the Committee. Such form may permit a Participant to make an
election among some or all of the alternatives listed in this Section 3.2(a), as
determined in the Committee's sole and absolute discretion, and shall also
permit the Participant to make an election, pursuant to the provisions of
Section 3.2(e), to receive all amounts payable to him or her under the Plan in a
single lump sum or in equal monthly installments over a designated period of
five (5) or ten (10) years. A designation of the time of distribution shall be
required as a condition of participation in the Plan. These elections shall be
made in accordance with Section 3.4. All payments shall be made in the form of
cash.

                  (b) Distributions shall be made to the maximum extent
allowable under the Plan and the election made by the Participant, except that
no distribution shall be made to the extent that the receipt of such
distribution, when combined with the receipt of all other "applicable employee
remuneration" (as defined in Code Section 162(m)(4)), would cause any
remuneration received by the Participant to be nondeductible by the Employer
under Code Section 162(m)(l). The portion of any distributable amount that is
not distributed by operation of this Section 3.2(b) shall be distributed in
subsequent taxable years in which such distribution would not be subject to the
deductibility limitation of Code Section 162(m) in accordance with the manner
elected by the Participant. For Participants who have elected to receive payment
in a single lump sum or in equal monthly installments over a designated period
of five (5) or ten (10) years in accordance with Section 3.2(e), the
commencement date of the lump sum payment or the five (5) or ten (10) year
period (whichever is applicable) shall be automatically extended, when necessary
to satisfy the requirements of this Section 3.2(b), for one-year periods until
all Account balances have been distributed in the manner elected by the
Participants.

                  (c) Upon termination of a Participant's employment or service
with the Employer by reason of death or Permanent Disability prior to the time
when payment of his or her Account balance otherwise would have been made or
commenced under the provisions of Section 3.2(a), the Participant or his or her
Beneficiary will be entitled to receive all amounts credited to the Account as
of the date of the Participant's death or Permanent Disability (notwithstanding
any contrary election to receive distributions under the first sentence of
Section 3.2(a)). Upon termination of the Participant's employment or service
with the Employer

                                                                             -8-
<PAGE>

by reason other than death or Permanent Disability prior to the date when
payment of his or her Account balance otherwise would have been made or
commenced under the provisions of Section 3.2(a), the Employer may, in the sole
and absolute discretion of the Committee, distribute to the Participant all
amounts credited to the Participant's Account as of the date of such termination
(notwithstanding any contrary election to receive distributions under the first
sentence of Section 3.2(a)). Said amounts shall be payable in the form
determined pursuant to the provisions of Section 3.2(e).

                  (d) Upon the death of a Participant prior to the complete
distribution to him or her of the entire balance of his or her Account (and
after the date of termination of employment or service with the Employer), the
balance of his or her Account on the date of death shall be payable to the
Participant's Beneficiary pursuant to Section 3.2(e). Notwithstanding any other
provision of the Plan to the contrary, except for Section 3.2(f), the
Participant's Beneficiary may receive the distribution of the remaining portion
of such deceased Participant's Account in the form of a single lump sum if the
Beneficiary requests such a distribution and the Committee, in its sole and
absolute discretion, consents to such a distribution.

                  (e) The Employer shall distribute or direct distribution of
the balance of amounts previously credited to a Participant's Account, in a
single lump sum, or in monthly installments over a period of five (5) years or
ten (10) years, as the Participant shall designate pursuant to his or her
distribution election made pursuant to Section 3.4. The Participant's
distribution election shall be in the form established by the Committee in
accordance with the terms of the Plan. A designation of the form of distribution
shall be required as a condition of participation in the Plan. Subject to the
other provisions of this Section 3.2, distribution of the lump sum or the first
installment generally shall be made or commenced within ninety (90) days
following the date specified in the first sentence of Section 3.2(a). Subsequent
installments, if any, shall be made on the first day of each month following the
first installment as determined by Employer. The amount of each installment
shall be calculated by dividing the Account balance as of the date of the
distribution by the number of installments remaining pursuant to the
Participant's distribution election. Each such installment, if any, shall take
into account deemed allocations of items of Profit and Loss to the Participant's
Account. If at the time for a distribution of an installment payment, the
balance in a Participant's Account that may be distributed is less than the
amount of the distribution calculated in accordance with the prior two
sentences, then at such time only that lesser amount that may be distributed
shall be distributed to the Participant. The remaining amount (subject to any
necessary adjustments as determined by the Committee acting in its sole and
absolute discretion) that should have been distributed with such installment
shall be distributed at a reasonably administratively convenient time following
the time that any additional amounts that may be distributed have been allocated
to the Participant's Account. If the balance in a Participant's Account cannot
be distributed in its entirety on the date for final distribution of the
Participant's Account under such Participant's last effective distribution
election, then as that balance becomes distributable, it shall be distributed to
such Participant as soon as reasonably administratively convenient.

                  (f) Distributions shall be made in accordance with a
Participant's distribution election only to the extent that the Committee
determines, in its sole and absolute discretion, that the Trust has sufficient
Distributable Assets available to reasonably satisfy the distribution elections
made, or to be made, by all Participants; provided, however, that the Committee
shall be entitled, in its sole and absolute discretion, to permit distributions
to Participants in accordance with their positive Account balances or in any
other manner that the Committee deems appropriate. Notwithstanding any provision
of the Plan or the Trust Agreement to the contrary, no distribution shall be
made to any Participant except to the extent that such distribution is approved
by the Committee, acting in its sole and absolute discretion, and such
distribution does not:

                        (i)   require either the transfer of an interest in one
or both of the Partnerships or any other investment partnership or trust holding
some or all of the Distributable Assets;

                                                                             -9-
<PAGE>

                        (ii)  require a distribution of assets from one or both
of the Partnerships;

                        (iii) cause the Trust to be insolvent or cause the
Trust's assets to be insufficient to satisfy any unpaid debt or capital calls
made by one or both of the General Partners;

                        (iv)  cause one or both of the Partnerships or the Trust
to sell or distribute Securities other than Marketable Securities; or

                        (v)   create a negative balance in the Account of such
Participant or increase the amount by which such Account balance is negative.

      3.3   ELECTION TO DEFER COMPENSATION. Each eligible Employee or
Non-Employee Director's decision to become a Participant shall be entirely
voluntary.

                  (a) INITIAL ELECTIONS BY CURRENT EMPLOYEES AND NON-EMPLOYEE
DIRECTORS. An Employee or Non-Employee Director who is eligible to participate
in the Plan pursuant to Section 2.1 may elect to become a Participant in the
Plan by electing in writing, no later than the Effective Date, to defer his or
her Compensation under the Plan. An election under this Section 3.3(a) to defer
Compensation shall be effective only for the 2002 Plan Year.

                  (b) INITIAL ELECTIONS BY OTHER EMPLOYEES. Each Employee who
first becomes eligible to participate in the Plan pursuant to Section 2.1 during
the 2002 Plan Year or a subsequent Plan Year (whether by hire or promotion) may
elect to become a Participant in the Plan by electing in writing, within thirty
(30) days of the date of his or her hire or promotion (as the case may be), to
defer his or her Compensation under the Plan. An election under this Section
3.3(b) to defer Base Salary shall be effective only for the remainder of the
Plan Year with respect to which the election is made.

                  (c) INITIAL ELECTIONS BY OTHER NON-EMPLOYEE DIRECTORS. Each
individual who is elected a Non-Employee Director during a Plan Year and is
eligible to participate in the Plan pursuant to Section 2.1 may elect to become
a Participant in the Plan by electing in writing, within thirty (30) calendar
days of the effective date of his or her election to the Board, to defer his or
her Compensation under the Plan. An election under this Section 3.3(c) to defer
Compensation shall be effective only for the remainder of the Plan Year with
respect to which the election is made.

                  (d) ELECTIONS FOR SUBSEQUENT PLAN YEARS. An Employee or
Non-Employee Director who is eligible to participate in the Plan pursuant to
Section 2.1 may elect to become a Participant (or to continue or reinstate his
or her active participation) in the Plan for any subsequent Plan Year by
electing in writing, at least twenty (20) days (or such other period of time
determined by the Committee and communicated to eligible individuals prior to
the beginning of the Plan Year with respect to which the Compensation to be
deferred is otherwise payable to them) prior to the beginning of the Plan Year
with respect to which the Compensation to be deferred is otherwise payable to
the Employee or Non-Employee Director.

                  (e) SEPARATE ELECTION TO DEFER BONUSES. Each Employee who is
eligible to participate in the Plan pursuant to Section 2.1 shall make a
separate written Compensation deferral election with respect to the Cash Bonus
portion(s) (if any) of his or her Compensation. An election under this Section
3.3(e) to defer Cash Bonus shall be effective only for the Deferral Election
Period with respect to which the election is made. An Employee's Compensation
deferral election with respect to his or her Cash Bonus(es) shall be made prior
to the time the amount of the bonus is determined, prior to the end of the
period of time as to which the bonus is awarded, and at a time that the amount
of any such bonus remains substantially uncertain, as determined by the
Committee acting in its sole and absolute discretion.

                                                                            -10-
<PAGE>

                  (f) NO ELECTION CHANGES DURING PLAN YEAR OR DEFERRAL ELECTION
PERIOD. A Participant shall not be permitted to change or revoke his or her
election to defer (i) Base Salary or Directors Fees for a Plan Year after the
beginning of such Plan Year, (ii) Cash Bonus for a Deferral Election Period
after the beginning of such Deferral Election Period.

                  (g) SPECIFIC TIMING AND METHOD OF ELECTION. Notwithstanding
any provision of this Section 3.3 to the contrary, the Committee, in its sole
and absolute discretion, shall determine the manner and deadlines for
Participants to make Compensation deferral elections under the Plan. The
deadlines prescribed by the Committee may be earlier than the deadlines
otherwise specified in this Section 3.3, but shall not be later than such
specified deadlines.

                  (h) TERMINATION OF PARTICIPATION.

                        (i)   An eligible Employee or Non-Employee Director who
has become a Participant shall remain a Participant until his or her entire
vested positive Account balance is distributed. An eligible Employee or
Non-Employee Director who has become a Participant may or may not be an active
Participant making Compensation deferrals for a particular period, depending on
whether such Participant is entitled, and has elected, to make Compensation
deferrals for such Plan Year or Deferral Election Period.

                        (ii)  Notwithstanding any provision in the Plan or Trust
Agreement to the contrary, from and after the close of business on the date that
a Participant's employment or service to the Employer is terminated (the
"Termination Date"), such Participant shall no longer be entitled to make
Compensation deferrals under the Plan (except to the extent that such
Participant is subsequently re-hired or begins to provide services to the
Employer, and is deemed eligible to become an active Participant in the Plan in
accordance with Section 2.1). Except as otherwise determined by the Committee
acting in its sole and absolute discretion, from and after a Participant's
Termination Date: (A) the Available Capital of such Participant with respect to
either of the Partnerships shall not be deemed to be invested in either of the
Partnerships during any Plan Year which begins after the Termination Date; and
(B) the Participant's Investment Percentage in respect of each Portfolio
Investment made by one of the Partnerships during any Plan Year beginning after
the Termination Date shall equal zero percent.

      3.4   DISTRIBUTION ELECTION. Each Participant shall indicate on his or her
Compensation deferral election made pursuant to Section 3.3, the form and time
of payment of his or her positive Account balance as provided in Section 3.2.
Subject to Section 3.2(f), a Participant's election as to the form and time of
payment shall apply to all amounts credited to the Participant's Account, and
except to the limited extent provided below, shall be irrevocable. If permitted
by the Committee in its sole and absolute discretion, a Participant may change
the terms of such distribution election by making a new distribution election,
and any such new election will be effective as of the later of the date that is
(a) six (6) months following the date the new election is made, or (b) the first
day of the Plan Year following the Plan Year in which the new election is made
and will apply to the Participant's entire Account. A Participant may not make a
new election once distributions from the Plan have commenced or which would
first become effective at a time when distributions from the Plan have
commenced. The Participant's distribution election shall be in the form and
manner established by the Committee acting in its sole and absolute discretion.

      3.5   PAYMENT UPON CHANGE OF CONTROL. Notwithstanding any provision of the
Plan to the contrary, the aggregate balance credited to each Participant's
Account shall be distributed to such Participant, subject to Section 3.2(f), in
a single lump sum within ninety (90) days following a Change of Control, except
to the extent that one or more of the Committee, the Board, or the Employer's
401(k)/NQDC Administrative Committee (as each is composed immediately prior to
such Change in Control) determines in its sole and absolute discretion that no
such distribution shall be made following a Change of Control.

                                                                            -11-
<PAGE>

      3.6   EMPLOYEE'S RIGHTS UNSECURED. The right of a Participant or his or
her Beneficiary to receive a distribution hereunder shall be an unsecured claim
against the general assets of the Employer, and neither the Participant nor his
or her Beneficiary shall have any rights in or against any amount credited to
his or her Account or any specific assets of the Employer, except as otherwise
provided in the Trust Agreement. Nothing contained in the Plan, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind or a fiduciary relationship between the Plan and the Employer or any
other person.

      3.7   INVESTMENT OF CONTRIBUTIONS.

                  (a) Although no assets will be segregated or otherwise set
aside with respect to a Participant's Account, the amount that is ultimately
payable to the Participant with respect to his or her Account shall be
determined as if such Account had been invested in such manner as the Committee,
in its sole and absolute discretion, may specify from time to time. The
Committee, in its sole and absolute discretion, shall adopt (and may modify from
time to time) such rules and procedures as it deems necessary or appropriate to
implement the deemed investment of Participants' Accounts.

                  (b) The investment options available to each Participant for
the deemed investment of his or her Account shall be determined by the Committee
in its sole and absolute discretion and described in a separate written
document, a copy of which shall be attached hereto and by this reference is
incorporated herein. Prior to July 1, 2004, all of the Trust's assets were
invested to acquire limited partnership interests in the Telos II Partnership,
and such investment was the sole option available to Participants under the Plan
for the deemed investment of their Accounts. From and after July 1, 2004, it is
the Committee's intention to allow for the investment of the Trust's assets, at
the direction of the Committee, in either the Telos II Partnership or the Telos
III Partnership. From and after July 1, 2004, the Committee may allow
Participants, as part of their deferral election made pursuant to Section 3.3,
to direct the Trustee to make deemed investments of their Accounts in either of
the Partnerships; provided, however, that the Committee retains the authority to
limit the deemed investment of Participants' Accounts to one of the
Partnerships. Notwithstanding the forgoing, unless otherwise determined by the
Committee, all amounts in a Participant's Account prior to July 1, 2004, shall
be deemed to have been designated for investment in the Telos II Partnership. In
the event that the Committee makes additional investment options available to
Participants for the deemed investment of their Accounts, each Participant shall
have the right to direct the Trustee as to the deemed investment of the portion
of his or her Account among those options in accordance with policies and
procedures implemented by the Committee, the Trustee and the terms and
conditions of those options, and the Plan shall be amended to account for such
options.

                  (c) RECYCLING OF DISTRIBUTABLE ASSETS.

                        (i)   The Committee shall be entitled, in its sole and
absolute discretion, to direct the Trust to retain Distributable Assets (or cash
proceeds from the liquidation thereof) to satisfy any capital calls issued by
the either of the General Partners or any items of deemed debt or expense which
are allocable to a Participant's Account in accordance with the Plan.

                        (ii)  A Participant may request that the Committee,
acting in its sole and absolute discretion, direct the Trustee to retain
Distributable Assets (or cash proceeds from the liquidation thereof) and invest
such assets in one of the Partnerships or other available investment options in
accordance with policies and procedures implemented by the Trustee, provided,
however, that no Participant whose employment or service with the Employer has
terminated may request that the Committee direct the Trustee to re-invest any
Distributable Assets in either of the Partnerships.

                                                                            -12-
<PAGE>

                        (iii) If the Committee directs the Trustee to retain all
or a portion of a Participant's deemed share of Distributable Assets in
accordance with this Section 3.7(c), such assets shall be deemed to increase the
Available Capital of such Participant with respect to the Partnership in which
the Committee determines such Distributable Assets will be invested (to the
extent of the value thereof) until such time as such assets are re-invested by
the Trustee or used to satisfy any items of deemed debt or expense which are
allocable to such Participant's Account.

                  (d) Notwithstanding any provision of the Plan to the contrary,
the Committee may determine not to take account of a Participant's deemed
investment elections, if any, and determine to have the Participant's Account
deemed invested in any other manner as the Committee shall determine. The
Committee shall also be entitled to designate the manner in which the Trust's
assets shall be invested for interim short-term periods of time pending
investment in one of the Partnerships or following distribution from one of the
Partnerships but prior to distribution from the Trust or re-investment of the
Trust's assets in another investment option.

      3.8   ALLOCATIONS.

                  (a) Except as otherwise provided in the Plan, items of Profit
and Loss shall be allocated among the Participants' Accounts at the close of
business on last day of each Plan Year, as follows:

                        (i)   First, items of Profit and Loss attributable to
each Portfolio Investment, as determined by the Committee in its sole
discretion, shall be allocated among the Participants' Accounts in proportion to
each Participant's respective Investment Percentage for such Portfolio
Investment;

                        (ii)  Next, items of Profit attributable to Idle Funds
Income shall be allocated among the Participants' Accounts in proportion to each
Participant's deemed interest in the cash assets of the Trust (as determined by
the Committee in its sole and absolute discretion); and

                        (iii) Next, all remaining items of Profit and Loss shall
be allocated among the Participants' Accounts in proportion to the aggregate
Deferred Compensation of each Participant.

                  (b) Prior to the final allocation of items of Profit and Loss
in respect of a Plan Year, the Committee may make interim allocations of items
of Profit and Loss among the Participants' Accounts in proportion to the
Deferred Compensation of each Participant in respect of such Plan Year
(determined as of the time of such interim allocation) or in any other manner
that the Committee deems appropriate, acting in its sole and absolute
discretion. Immediately following the final allocation of items of Profit and
Loss in respect of a Plan Year, the Committee shall be entitled to cause items
of Profit and Loss among the Participants' Accounts to be re-allocated, as
necessary, to cause the Participants' Accounts to reflect the same amounts that
they would have reflected if all items of Profit and Loss for such Plan Year had
been allocated in accordance with Section 3.8(a).

                  (c) If an item of Loss otherwise allocable in respect of a
Plan Year under Sections 3.8(a) or 3.8(b) would create a negative balance in a
Participant's Account (or increase the amount by which such Account balance is
negative), the item shall not be allocated to such Participant's Account but
shall instead be specially allocated as follows:

                        (i)   First, to the Participants' Accounts as a group,
to the extent possible in proportion to respective positive Account balances,
until the Account balance of each Participant has been reduced to (but not less
than ) zero; and

                                                                            -13-
<PAGE>

                        (ii)  Next, to the Participants as a group in proportion
to the aggregate amount of Deferred Compensation for each Participant.

To the extent that there have been special allocations of Loss under this
Section 3.8(c) away from a Participant that have not been subsequently been
reversed pursuant to this sentence, the next available items of Profit otherwise
allocable to such Participant pursuant to Sections 3.8(a) and 3.8(b) shall be
specially allocated to the Participants to whom such items of Loss had been
specially allocated under this Section 3.8(c) so as to first offset in reverse
order such special allocations of Loss.

                  (d) To the extent that (i) Losses that otherwise would have
been allocated to a Participant under this Section 3.8 were allocated to one or
more other Participant's Accounts under Section 3.8(c) in consequence of such
Participant's Account balance having been equal to, reduced to, or less than
zero, (ii) such allocation has not been reversed pursuant to the subsequent
operation of Section 3.8(c) or this Section 3.8(d), and (iii) by operation of a
deferral election, Section 3.7(c) or Section 3.9, a Participant's Available
Capital subsequently increases, the Accounts of the Participants shall be
adjusted in connection with such increase in such Participant's Available
Capital (to the extent of the value thereof) to effect a reallocation of such
Losses to the Participant.

                  (e) From time to time, the Trustee shall be entitled, with
Committee approval, to borrow funds to satisfy the obligations of the Trust,
whether to cover expenses, meet capital calls issued by either of the General
Partners, or otherwise. The principal amount of any such loan, and costs
associated with interest expenses on such loan, shall be allocated to
Participants' Accounts as determined by the Committee in its sole and absolute
discretion.

                  (f) The selection of a given method of allocating deemed
expenses or other items of Profit and Loss among Participants' Accounts shall
not be deemed to restrict the Committee in any manner whatsoever from selecting
a different method for future allocations or to imply that a different method
would not be fair and equitable to Participants.

      3.9   TRANSFER OF ASSETS.

                  (a) The Committee shall be entitled, in its sole and absolute
discretion, to direct the Trustee to:

                        (i)   transfer assets to the Trust from the trust
established under the 1996 Plan for the benefit of the Participant (if such
individual is a participant under the 1996 Plan and such transfer is approved by
the plan administrator of the 1996 Plan in its sole and absolute discretion);

                        (ii)  transfer assets to the Trust from the trust
established under the 1994 Plan for the benefit of the Participant (if such
individual is a participant under the 1994 Plan and such transfer is approved by
the plan administrator of the 1994 Plan in its sole and absolute discretion);

                        (iii) transfer Distributable Assets to the trust
established under the 1994 Plan for the benefit of the Participant (if such
individual is a participant under the 1994 Plan and such transfer is approved by
the plan administrator of the 1994 Plan in its sole and absolute discretion);

                        (iv)  transfer to the Trust some or all of the assets of
any other trust established under the terms of an Employer Plan, and designate
which Partnership or other investment option such assets will be available for
deemed investment in; or

                                                                            -14-
<PAGE>

                        (v)   transfer of some or all of the Trust's assets to
any other trust established under the terms of an Employer Plan.

                  (b) In the event that assets are transferred in accordance
with Section 3.9(a) to the Trust, such assets shall be subject to the terms and
conditions of the Trust, provided, however, that such assets shall continue to
be subject to the distribution election made by a Participant under the
applicable Employer Plan unless such distribution election is revised as
permitted by the Plan. In the event that assets are transferred in accordance
with Section 3.9(a) to a trust established under an applicable Employer Plan,
such assets shall be subject to the terms and conditions of such trust,
provided, however, that such assets shall continue to be subject to the
Participant's distribution election under the Plan unless such distribution
election is revised as permitted by the applicable Employer Plan.

                  (c) Any transfer of assets made in accordance with this
Section 3.9 from the Trust to any other trust established under an Employer
Plan, or from any other trust established under an Employer Plan to the Trust,
shall not cause any individual's rights to a distribution under the Plan or any
Employer Plan to be a secured right to a distribution under the Plan or any
Employer Plan.

                                    SECTION 4

                           DESIGNATION OF BENEFICIARY

      4.1   DESIGNATION OF BENEFICIARY.

                  (a) Each Participant may designate a Beneficiary or
Beneficiaries to receive any amount due hereunder by the Participant by written
notice thereof to the Employer at any time prior to his or her death and may
revoke or change the Beneficiary designated therein without the Beneficiary's
consent by written notice delivered to the Employer at any time and from time to
time prior to the Participant's death.

                  (b) If a Participant designates a person other than or in
addition to his or her spouse as a primary Beneficiary, the designation shall be
ineffective unless the Participant's spouse consents to the designation. Any
spousal consent required under this Section 4.1 shall be ineffective unless it
(i) is set forth in writing in a form specified by the Committee in its sole and
absolute discretion, (ii) acknowledges the effect of the Participant's
designation of another person as his or her Beneficiary, and (iii) is signed by
the spouse and witnessed by a notary public. Any spousal consent required under
this Section 4.1 shall be valid only with respect to the spouse who signs the
consent.

                  (c) Any Beneficiary designation or revocation shall be
effective only if it is received by the Employer. However, when so received, the
designation or revocation shall be effective as of the date the notice is
executed (whether or not the Participant still is living), but without prejudice
to the Committee on account of any payment made before the change is recorded.
The last effective designation received by the Employer shall supersede all
prior designations.

                  (d) If the Participant dies without having effectively
designated a Beneficiary, or if no Beneficiary survives him or her, then such
amount shall be paid to his or her estate. Designations of Beneficiaries shall
be in the form and manner determined by the Committee in its sole and absolute
discretion.

                                                                            -15-
<PAGE>

                                    SECTION 5

                                CHANGE OF CONTROL

      5.1   CHANGE OF CONTROL. For purposes of the Plan, a Change of Control
shall mean the following:

                  (a) The first public announcement or public acknowledgment
(including without limitation, a report filed pursuant to Section 13(d) of the
Securities Exchange Act of 1934 as amended (the "Exchange Act")) by the Employer
that a "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Employer, a Subsidiary or an employee benefit plan
of the Employer or a Subsidiary, or other controlled affiliate of the Employer,
including any trustee of such plan acting as trustee) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act or
comparable successor rule), directly or indirectly, of securities of the
Employer representing fifty percent (50%) or more of the combined voting power
of the Employer's then outstanding Common Stock entitled to vote in the election
of directors, where such person's beneficial ownership of the Employer's Common
Stock was not initiated by the Employer or approved by the Employer's Board of
Directors; or

                  (b) The sale, lease or other disposition of all or
substantially all of the assets of the Employer;

                  (c) The merger or consolidation of the Employer with or into
another corporation not initiated by the Employer, in which the Employer is not
the surviving corporation and the stockholders of the Employer immediately prior
to the merger or consolidation fail to possess direct or indirect beneficial
ownership of more than eighty percent (80%) of the voting power of the
securities of the surviving corporation (or if the surviving corporation is a
controlled affiliate of another entity, then the required beneficial ownership
shall be determined with respect to the securities of that entity which controls
the surviving corporation and is not itself a controlled affiliate of any other
entity) immediately following such transaction, or a reverse merger not
initiated by the Employer, in which the Employer is the surviving corporation
and the stockholders of the Employer immediately prior to the reverse merger
fail to possess direct or indirect beneficial ownership of more than eighty
percent (80%) of the securities of the Employer (or if the Employer is a
controlled affiliate of another entity, then the required beneficial ownership
shall be determined with respect to the securities of that entity which controls
the Employer and is not itself a controlled affiliate of any other entity)
immediately following the reverse merger. For purposes of this Section 5.1(c),
any person who acquired securities of the Employer prior to the occurrence of a
merger, reverse merger, or consolidation in contemplation of such transaction
and who after such transaction possesses direct or indirect beneficial ownership
of at least ten percent (10%) of the Common Stock of the Employer or the
surviving corporation (or if the Employer or the surviving corporation is a
controlled affiliate, then of the appropriate entity as determined above)
immediately following such transaction shall not be included in the group of
stockholders of the Employer immediately prior to such transaction; or

                  (d) A change in the composition of the Board, as a result of
which fewer than a majority of the directors are Incumbent Directors; or

                  (e) Any liquidation or dissolution of the Employer.

                                                                            -16-
<PAGE>

                                    SECTION 6

                                TRUST PROVISIONS

      6.1   TRUST AGREEMENT. The Employer shall establish the Trust within an
administratively reasonable period of time following the adoption of the Plan
for the purpose of retaining assets set aside by the Employer pursuant to the
Trust Agreement for payment of amounts payable pursuant to the Plan. The Trust
shall be intended to constitute a grantor trust (within the meaning of subpart
E, part I, subchapter J, chapter 1, subtitle A of the Code). Any Plan benefits
not paid from the Trust shall be paid solely from the Employer's general funds,
and any benefits paid from the Trust shall be credited against and reduced by a
corresponding amount of the Employer's liability to Participants under the Plan.
No special or separate fund, other than the Trust, shall be required to be
established and no other segregation of assets shall be required to be made to
assist the Employer in meeting its obligations to pay benefits under the Plan.
All Trust assets shall be subject to the claims of the general creditors of the
Employer in the event the Employer is Insolvent. The obligations of the Employer
to pay benefits under the Plan constitutes an unfunded, unsecured promise to pay
benefits under the Plan and Participants and Beneficiaries shall have no greater
rights than the general creditors of the Employer.

                                    SECTION 7

                            AMENDMENT AND TERMINATION

      7.1   AMENDMENT. The Committee shall be entitled, in its sole and absolute
discretion, to amend the Plan in such manner as it may determine, at any time
and for any reason. Any such amendment shall become effective upon the date
stated therein, and shall be binding on all Participants, except as otherwise
provided in such amendment.

      7.2   TERMINATION. Notwithstanding any other provision of the Plan to the
contrary, the Committee shall have the right to terminate the Plan at any time
and for any reason and, subject to Section 3.2(f), direct the lump sum payments
of all assets held by the Trust if the Employer is not then Insolvent. Except as
otherwise provided in the Plan, no such termination shall reduce the balance
then credited to a Participant's Account.

                                    SECTION 8

                                 ADMINISTRATION

      8.1   ADMINISTRATION. The Employer is hereby designated as the
administrator of the Plan (within the meaning of section 3(16)(A) of ERISA). The
Committee shall administer and interpret the Plan in accordance with the
provisions of the Plan and the Trust Agreement. The Committee shall have all
powers and discretion necessary or appropriate to supervise the administration
of the Plan and to control its operation, including (but not limited to) the
following powers:

                  (a) To interpret and determine the meaning and validity of the
provisions of the Plan and to determine any question arising under, or in
connection with, the administration, operation or validity of the Plan or any
amendment thereto;

                  (b) To determine any and all considerations affecting the
eligibility of any employee or director to become a Participant or remain a
Participant in the Plan;

                                                                            -17-
<PAGE>

                  (c) To determine the status and rights of Participants and
their spouses, Beneficiaries or estates;

                  (d) To establish and revise the accounting method for the
Plan;

                  (e) To employ legal counsel, consultants, actuaries and agents
as it may deem desirable in the administration of the Plan and to rely on the
opinion of such counsel or the computations of such consultants or other agents
in carrying out the provisions of the Plan;

                  (f) To arrange for the preparation and delivery of an annual
statement of benefits for each Participant;

                  (g) To publish a claims and appeal procedure satisfying the
minimum requirements of section 503 of ERISA pursuant to which individuals or
estates may claim Plan benefits and appeal denials of such claims;

                  (h) To delegate some or all of the powers and responsibilities
under the Plan and the Trust Agreement to such person or persons as it shall
deem necessary, desirable or appropriate for administration of the Plan; and

                  (i) To cause deferrals of Compensation to be credited, and
items of Profit and Loss allocated, to Participants' Accounts and determine all
issues and questions regarding Account balances, and the time, form, manner and
amount of any distributions to Participants or Beneficiaries.

Any determination or decision by the Committee (or its delegates) shall be
conclusive and binding on all persons, and shall be given the maximum possible
deference allowed by law.

      8.2   LIABILITY OF COMMITTEE; INDEMNIFICATION. To the maximum extent not
prohibited by law, no member of the Committee shall be liable to any person and
in any event shall be indemnified by the Employer, from and against any and all
losses, claims, damages or liabilities (including attorneys' fees and amounts
paid, with the approval of the Committee and the Board in settlement of any
claim) for any duty, decision, action taken or omitted in connection with the
interpretation and administration of the Plan, so long as unless such duty,
decision, action taken or omitted was not attributable to the bad faith or
willful misconduct of such individual.

      8.3   EXPENSES. All costs and expenses of establishing, adopting and
administering the Plan and the Trust, including legal fees and expenses, shall
be borne by the Trust unless the Employer elects in its sole and absolute
discretion to pay all or a portion of those expenses; provided, however, that
the Employer shall bear, and shall not be reimbursed by, the Trust for any tax
liability of the Employer associated with the investment of the assets of the
Trust.

                                    SECTION 9

                            GENERAL AND MISCELLANEOUS

      9.1   RIGHTS AGAINST EMPLOYER. Except as expressly provided in the Plan,
neither the establishment nor the maintenance of the Plan shall be held or
construed as giving to any Employee or to any other person, any legal, equitable
or other rights against the Employer, or against its officers, directors, agents
or stockholders, or as giving to any Employee or Beneficiary any equitable or
other interest in the assets, business or shares of Employer stock or giving any
Employee the right to be retained in the employ of the

                                                                            -18-
<PAGE>

Employer. Neither the Plan nor any action taken hereunder shall be held or
construed as giving to any Employee the right to be retained in the employ of
the Employer or as affecting the right of the Employer to dismiss any Employee.
Any benefit paid or payable under the Plan shall not be deemed salary or other
compensation for the purpose of computing benefits under any other employee
benefit plan or arrangement of the Employer for the benefit of its Employees,
but Compensation deferrals under the Plan shall be deemed salary or other
compensation for the purpose of computing benefits under other employee benefit
plans or arrangements of the Employer for the benefit of its Employees, but only
to the extent provided under the terms of such other plans or arrangements.
Nothing in the Plan or in any instrument executed pursuant thereto shall confer
upon any Non-Employee Director any right to continue in the service of the
Employer in any capacity or shall affect any right of the Employer, the Board or
stockholders of the Employer to remove any Non-Employee Director pursuant to the
Employer's By-Laws and the provisions of the Delaware General Corporation Law.

      9.2   NO ASSIGNMENT OR TRANSFER. No right, title or interest of any kind
in the Plan shall be transferable or assignable by any Participant, former
Participant or his or her Beneficiary, spouse or estate or be subject to
alienation, anticipation, encumbrance, garnishment, attachment, execution or
levy of any kind, whether voluntary or involuntary, or be subject to the debts,
contracts, liabilities, engagements, or torts of the Participant, former
Participant or his or her Beneficiary or spouse. Any attempt to alienate,
anticipate, encumber, sell, transfer, assign, pledge, garnish, attach or
otherwise subject to legal or equitable process or encumber or dispose of any
interest in the Plan shall be void. Notwithstanding the foregoing, and only if
the Committee in its sole and absolute discretion so permits pursuant to such
procedures it may specify from time to time, a Participant's interest in the
Plan may be transferable to an alternate payee in accordance with a domestic
relations order.

      9.3   SEVERABILITY. If any provision of the Plan shall be declared illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions of the Plan but shall be fully severable, and the Plan
shall be construed and enforced as if said illegal or invalid provision had
never been inserted herein.

      9.4   CONSTRUCTION. The article and section headings and numbers are
included only for convenience of reference and are not be taken as limiting or
extending the meaning of any of the terms and provisions of the Plan. Whenever
appropriate, words used in the singular shall include the plural or the plural
may be read as the singular. When used herein, the masculine gender includes the
feminine gender.

      9.5   GOVERNING LAW. The provisions of the Plan shall be construed,
administered and enforced in accordance with ERISA, and to the extent not
preempted by ERISA, with the laws of the State of Delaware (other than its
conflict of laws provisions).

      9.6   PAYMENT DUE TO INCOMPETENCE. If the Committee receives evidence that
a Participant or Beneficiary entitled to receive any payment under the Plan is
physically or mentally incompetent to receive such payment, the Committee may,
in its sole and absolute discretion, direct the payment to any other person or
trust which has been legally appointed by the courts or to any other person
determined by the Employer to be a proper recipient on behalf of such person
otherwise entitled to payment, or any of them, in such manner and proportion as
the Employer may deem proper. Any such payment shall be in complete discharge of
the Employer's obligations under the Plan to the extent of such payment.

      9.7   TAXES. The Employer may withhold from any benefits payable under the
Plan, all federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling.

                                                                            -19-
<PAGE>

      9.8   ATTORNEY'S FEES. The Employer shall pay the reasonable attorney's
fees incurred by any Participant in an action brought against the Employer to
enforce the Participant's rights under the Plan, provided that such fees shall
only be payable in the event that the Participant prevails in such action.

      9.9   PLAN BINDING ON SUCCESSORS/ASSIGNEES. The Plan shall be binding upon
and inure to the benefit of the Employer and its successor and assigns and the
Participant and the Participant's designee and estate.

   [Remainder of this page intentionally left blank; signature page follows.]

                                                                            -20-
<PAGE>

                                    EXECUTION

      IN WITNESS WHEREOF, the Employer has caused its authorized officer to
execute this amendment and restatement of the Plan on this _____ day of
__________, 2004.

CADENCE DESIGN SYSTEMS, INC.

Signature: ________________________________

By: _______________________________________

Title: ____________________________________

                                                                            -21-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.78
<SEQUENCE>6
<FILENAME>f01031exv10w78.txt
<DESCRIPTION>EXHIBIT 10.78
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.78

                          CADENCE DESIGN SYSTEMS, INC.
                              EMPLOYMENT AGREEMENT
                             WITH MICHAEL J. FISTER

      THIS AGREEMENT (this "Agreement") is made effective as of May 12, 2004
(the "Effective Date"), between CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), and Michael J. Fister ("Executive").

      WHEREAS, the Company is engaged in the electronic design automation
software business; and

      WHEREAS, the Company desires to secure the services of Executive as
President and Chief Executive Officer, and Executive desires to perform such
services for the Company, on the terms and conditions as set forth herein.

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

1.    TERM AND DUTIES.

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

      1.2   SERVICES.

            (a)   Executive shall have the title President and Chief Executive
Officer ("CEO"). Executive's duties will be assigned to Executive from time to
time by the Board of Directors of the Company (the "Board"). Executive shall
report directly to the Board.

<PAGE>

            (b)   During his employment with the Company as CEO, the Company
shall recommend Executive's membership on the Board to the Board's Corporate
Governance and Nominating Committee.

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

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

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

2.    COMPENSATION.

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

      2.1   BASE SALARY. The Company shall initially pay Executive a base salary
of Eight Hundred Thousand Dollars ($800,000) per year ("Base Salary"), payable
in

                                       2
<PAGE>

installments in accordance with the Company's customary payroll practices, less
such deductions and withholdings required by law or authorized by Executive. The
Board or the Compensation Committee of the Board (the "Compensation Committee")
shall review the amount of the Base Salary from time to time, but no less
frequently than annually. Any increase approved during the first four (4) months
of the Company's fiscal year shall become retroactively effective as of the
beginning of such fiscal year, and any increase approved thereafter shall become
effective on the date determined by the Board or the Compensation Committee, as
appropriate.

      2.2   BONUS. Executive shall participate in the Company's Senior Executive
Bonus Plan or its successor (the "Bonus Plan") at an annual target bonus of one
hundred percent (100%) of Executive's Base Salary (the "Target Bonus") for the
Company's fiscal year with respect to which such bonus shall be determined
pursuant to the terms of such Bonus Plan (the criteria for earning a bonus
thereunder are set annually by the Compensation Committee). For fiscal 2004,
Executive shall be guaranteed a bonus equal to the amount of annual Base Salary
paid to Executive for the portion of the year that Executive was employed by the
Company. The Board or the Compensation Committee shall review the amount of the
Target Bonus from time to time, but no less frequently than annually. The Board
or the Compensation Committee may choose, in its sole discretion, to approve a
bonus payment in excess of 100% of Executive's Base Salary for any fiscal year.

      2.3   SIGN-ON BONUS.

      The Company shall pay Executive a sign-on bonus of $1,000,000, 50% of
which shall be paid within thirty (30) days after the Effective Date and 50% of
which shall be paid on the earliest to occur of:

      (i)   the date which is 180 days after the Effective Date,

      (ii)  the termination of Executive's employment as the result of a
            Permanent Disability (as defined in Section 4.4 hereof) or death,
            and

                                       3
<PAGE>

      (iii) the termination of Executive's employment without Cause (as defined
            in Section 4.2 hereof) or as a result of an event constituting a
            Constructive Termination (as defined in Section 4.3 hereof);

      provided, however, that Executive shall not receive any such payment if
Executive voluntarily terminates his employment for any reason other than a
Constructive Termination (as defined in Section 4.3 hereof) or is terminated for
Cause (as defined in Section 4.2 hereof) before the applicable payment date.

      2.4   EQUITY GRANTS.

            (a)   Inducement Grants. As an inducement to entering into this
Agreement, Executive shall receive a grant of restricted stock and stock options
on the Effective Date, as follows: (i) Executive shall be entitled to receive
600,000 shares of restricted stock pursuant to the Company's 1993 Nonstatutory
Stock Incentive Plan and/or the Company's 2000 Nonstatutory Equity Incentive
Plan, such grant of restricted shares to vest over three (3) years, with 33 1/3%
of the shares vesting at the end of each full year of Executive's employment
over the three-year period measured from the Effective Date, and be subject to
such other terms and conditions as shall be documented in a restricted stock
agreement, substantially in the form attached hereto as Exhibit A, which
Executive shall execute and deliver to the Company concurrently with the grant
of such shares; and (ii) Executive shall receive a grant of 3,000,000 options
for Company common stock pursuant to the Company's 2000 Nonstatutory Equity
Incentive Plan, such option grant to have an exercise price equal to the average
of the high and low prices (as published by the NYSE) of Company stock on the
date of grant, and to vest over four years, with 25% of the options vesting at
the end of Executive's first full year of employment measured from the Effective
Date and the remainder vesting over the next 36 months in equal amounts each
month, and be subject to such other terms and conditions as shall be documented
in the option grant

                                       4
<PAGE>

agreement, which shall be in the Company's customary form to be executed and
delivered by Executive concurrently with such grant.

            (b)   Subsequent Grants. After the inducement grants described
above, Executive shall be eligible to receive grants of either restricted stock
or stock options, or both, as the Compensation Committee may determine from time
to time. All stock options shall be granted at one hundred percent (100%) of the
fair market value of the Company's common stock on the date of grant, except as
otherwise mandated by applicable law or regulations. Any awards shall vest in
accordance with the Company's vesting policy for additional grants to executive
officers of the Company in effect on the date of the grant by the Compensation
Committee, and shall contain such other terms and conditions as shall be set
forth in the agreement documenting the grant.

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

3.    EXPENSES AND BENEFITS.

      3.1   REASONABLE AND NECESSARY BUSINESS EXPENSES. In addition to the
compensation provided for in Section 2 hereof, the Company shall reimburse
Executive for all reasonable, customary and necessary expenses incurred in the
performance of Executive's duties hereunder. Executive shall first account for
such expenses by submitting a signed statement itemizing such expenses prepared
in accordance with the policy set by the Company for reimbursement of such
expenses.

                                       5
<PAGE>

The amount, nature and extent of reimbursement for such expenses shall always be
subject to the control, supervision and direction of the Company's Chief
Financial Officer, and/or its General Counsel, and the Board.

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

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

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

            (c)   Executive shall be eligible to participate in any other
benefit plan or arrangement implemented for other executive officers of the
Company for which he satisfies the same eligibility requirements applicable to
those executive officers.

      3.3   RELOCATION BENEFITS.

            (a)   During the first two weeks of Executive's employment with the
Company, the Company shall reimburse Executive for reasonable and actual
expenses incurred by him and his wife for travel, lodging and meals in
connection with their temporary relocation to the San Jose, California area.

            (b)   During the next three months of Executive's employment with
the Company as CEO, the Company shall reimburse Executive for all (i) reasonable
and actual costs associated with leasing a furnished apartment, and (ii) such
other reasonable and actual relocation expenses agreed to by the Company.

            (c)   During the next 24 months of Executive's employment with the
Company as CEO, the Company shall provide Executive with (i) a $5,000 per month
housing allowance, and (ii) reimbursement of such other reasonable and actual
relocation expenses agreed to by the Company.

                                       6
<PAGE>

            (d)   During the first two years of Executive's employment with the
Company as CEO, Executive shall be entitled to reimbursement for the reasonable
and actual cost of moving his household goods and certain other personal items
to the San Jose, California area pursuant to the terms of the Company's Domestic
Relocation Policy then in effect.

            (e)   If during the first five years of Executive's employment with
the Company as CEO he sells his home in Portland, Oregon and/or buys a new home
in the San Francisco/San Jose, California area (or any other location in
proximity to the Company's then corporate headquarters), the Company (i) will
reimburse Executive for his reasonable and documented closing costs (including
title search, title insurance, transfer taxes, escrow fees, appraisals, points
and other loan origination fees) associated with such sale and/or purchase and
(ii) will absorb and/or reimburse Executive for the broker's commission paid in
connection with the sale of Executive's home in Portland, Oregon, provided that
Executive complies and cooperates with the Company's Domestic Relocation Policy
then in effect, including, but not limited to, using a third party reasonably
satisfactory to the Company to handle such sale.

            (f)   To the extent any of the relocation benefits provided by this
Section 3.3 are included in Executive's gross income for tax purposes, Executive
shall receive an additional amount equal to (x) the amount of the relocation
benefits included in Executive's income (net of any related income tax deduction
allowable to Executive for the underlying expenses) divided by the remainder of
1 minus TR (as defined below), minus (y) the amount included in Executive's
income (as so netted). For purposes of this Section 3.3(f), "TR" shall equal the
highest effective marginal tax rate taking into account all applicable federal,
state and local income taxes (and reflecting the value of lost or phased out
itemized deductions) and applicable employment taxes all assumed at the highest
rate otherwise applicable to Executive.

                                       7
<PAGE>

      3.4   SARBANES-OXLEY ACT LOAN PROHIBITION. To the extent that any company
benefit, program, practice, arrangement, or any term of this Agreement would or
might otherwise result in the Company's extension of a credit arrangement to
Executive not permissible under the Sarbanes-Oxley Act of 2002 (a "Loan"), the
Company will use reasonable efforts to provide Executive with a substitute for
such Loan, which is lawful and of at least equal value.

4.    TERMINATION OF EMPLOYMENT AS CEO.

      4.1   GENERAL. Executive's employment by the Company as CEO under this
Agreement shall terminate immediately upon delivery to Executive of written
notice of termination by the Company, upon the Company's receipt of written
notice of termination by Executive at least thirty (30) days before the
specified effective date of such termination, or upon Executive's death or
Permanent Disability (as defined in Section 4.4 hereof); provided, however, that
only five (5) business days' written notice shall be required under this Section
4.1 in connection with Executive's voluntary termination of his employment in
connection with a Constructive Termination (as defined in Section 4.3 hereof).
In the event of such termination, except where Executive is terminated for Cause
(as defined in Section 4.2 hereof) or as the result of a Permanent Disability or
death, or where Executive voluntarily terminates his employment for any reason
other than in connection with a Constructive Termination, and upon execution by
Executive at or about the effective date of such termination of the Executive
Transition and Release Agreement, in the form attached hereto as Exhibit C (the
"Transition Agreement"), the Company shall provide Executive with the benefits
set forth in the Transition Agreement.

      4.2   DEFINITION OF CAUSE. For purposes of this Agreement, "Cause" shall
be limited to (1) Executive's gross misconduct or fraud in the performance of
his services hereunder; (2) Executive's conviction or guilty plea or plea of
nolo contendere with respect to any felony; (3) Executive's engaging in any
material act of theft or other

                                       8
<PAGE>

material misappropriation of company property in connection with his employment;
(4) Executive's material breach of this Agreement after written notice delivered
to Executive identifying such breach and his failure to cure such breach, if
curable, within thirty (30) days following delivery of such notice; (5)
Executive's material breach of the Proprietary Information Agreement (as defined
in Section 8 hereof) after written notice delivered to Executive identifying
such breach and his failure to cure such breach, if curable, within thirty (30)
days following delivery of such notice; or (6) Executive's material breach of
the Company's Code of Business Conduct as such code may be revised from time to
time after written notice delivered to Executive identifying such breach and his
failure to cure such breach, if curable, within thirty (30) days following
delivery of such notice. In no event may the Company terminate Executive's
employment for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of at
least a majority of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to Executive and an opportunity for Executive,
together with Executive's counsel, to be heard before the Board), finding that
in the good faith opinion of the Board, Executive was culpable for the conduct
constituting "Cause" and specifying the particulars thereof.

      4.3   CONSTRUCTIVE TERMINATION. Notwithstanding anything in this Section 4
to the contrary, Executive may, upon written notice to the Company, voluntarily
end his employment upon or within ninety (90) days following the occurrence of
an event constituting a Constructive Termination (but with at least five (5)
business days' written notice to the Company) and be eligible for the benefits
set forth in the Transition Agreement in exchange for executing and delivering
that agreement in accordance with Section 9.3 hereof. For purposes of this
Agreement, "Constructive Termination" shall mean:

            (a)   a material adverse change, without Executive's written
consent, in Executive's authority, duties, title or reporting relationship to
the Board causing

                                       9
<PAGE>

Executive's position to be of materially less stature or responsibility, after
written notice delivered to the Company of such change and the Company's failure
to cure such change, if curable, within thirty (30) days following delivery of
such notice; provided, however, that such a material adverse change shall in all
events be deemed to occur if Executive no longer serves as the Chief Executive
Officer of a publicly traded company, unless Executive consents in writing to
such change;

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

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

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

            (e)   any failure by the Company to obtain the assumption of this
Agreement by any successor to the Company.

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

      4.5   CHANGE IN CONTROL.

            (a)   Should there occur a Change in Control (as defined below) and
if within three (3) months before the Change in Control or thirteen (13) months
following

                                       10
<PAGE>

the Change in Control either (i) Executive's employment under this Agreement is
terminated without Cause or (ii) Executive terminates his employment pursuant to
this Agreement as a result of an event constituting a Constructive Termination,
then, in exchange for executing and delivering the Transition Agreement,
Executive shall be entitled to all of the benefits set forth therein, except
that (i) the payments of salary and bonus described in Section 5 of that
Agreement shall equal two (2) years of Executive's Base Salary and Target Bonus
at the level in effect on the Transition Commencement Date (as defined in such
agreement) or, if greater, at the highest level in effect at any time during the
term of this Agreement; and (ii) all of the unvested options and other stock
awards outstanding and held by Executive on the Transition Commencement Date
shall immediately vest and become exercisable in full on the Transition
Commencement Date.

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

                  (i)   any "person" (as such term is used in sections 13(d) and
                        14(d) of the Securities Exchange Act of 1934, as
                        amended) becomes the "beneficial owner" (as defined in
                        Rule 13d-3 of that Act), directly or indirectly, of
                        securities of the Company representing more than fifty
                        percent (50%) of the total voting power represented by
                        the Company's then outstanding voting securities; or

                  (ii)  a change in the composition of the Board occurring
                        within a two-year period, as a result of which fewer
                        than a majority of the directors are Incumbent Directors
                        ("Incumbent Directors" means directors who either (A)
                        are directors of the Company as of the Effective Date,
                        or (B) are elected, or nominated for election, to the
                        Board with the affirmative votes of at least a

                                       11
<PAGE>

                        majority of the Incumbent Directors at the time of such
                        election or nomination, but will not include an
                        individual whose election or nomination is in connection
                        with an actual or threatened proxy contest relating to
                        the election of directors to the Board);

                  (iii) the consummation of a merger or consolidation of the
                        Company with any other corporation, other than a merger
                        or consolidation in which the holders of the Company's
                        outstanding voting securities immediately prior to such
                        merger or consolidation receive, in exchange for their
                        voting securities of the Company in consummation of such
                        merger or consolidation, securities possessing at least
                        fifty percent (50%) of the total voting power
                        represented by the outstanding voting securities of the
                        surviving entity (or parent thereof) immediately after
                        such merger or consolidation; or

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

      4.6   TERMINATION FOR CAUSE, ON ACCOUNT OF DEATH, PERMANENT DISABILITY, OR
VOLUNTARY TERMINATION. In the event Executive's employment is terminated for
Cause, or on account of death or Permanent Disability, or Executive voluntarily
terminates his employment with the Company other than in connection with a
Constructive Termination, then:

            (a)   Executive will be paid only (a) any earned but unpaid Base
Salary and any outstanding expense reimbursements submitted and approved
pursuant to Section 3.1 hereof, (b) any amount owed to Executive pursuant to
Sections 2.3 and 3.3 hereof, and (c) other unpaid vested amounts or benefits
under the compensation,

                                       12
<PAGE>

incentive and benefit plans of the Company in which Executive participates, in
each case under this clause (c) as of the effective date of such termination;
and

            (b)   Executive shall not become a party to the Transition Agreement
and shall not be bound by any of the terms and provisions thereof.

5.    EXCISE TAX.

      In the event that any benefits payable to Executive pursuant to the
Transition Agreement ("Termination Benefits") (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any comparable successor provisions, and (ii)
but for this Section 5 would be subject to the excise tax imposed by Section
4999 of the Code, or any comparable successor provisions (the "Excise Tax"),
then Executive's Termination Benefits shall be either (a) provided to Executive
in full, or (b) provided to Executive as to such lesser extent which would
result in no portion of such benefits being subject to the Excise Tax, whichever
of the foregoing amounts, when taking into account applicable federal, state,
local and foreign income and employment taxes, the Excise Tax, and any other
applicable taxes, results in the receipt by Executive, on an after-tax basis, of
the greatest amount of benefits, notwithstanding that all or some portion of
such benefits may be taxable under the Excise Tax. Unless the Company and
Executive otherwise agree in writing, any determination required under this
Section 5 shall be made in writing in good faith by a nationally recognized
accounting firm selected by the Company (the "Accountants"). In the event of a
reduction of benefits hereunder, Executive shall be given the choice of which
benefits to reduce. If Executive does not provide written identification to the
Company of which benefits he chooses to reduce within ten (10) days after notice
of the Accountants' determination, and Executive has not disputed the
Accountants' determination, then the Company shall select the benefits to be
reduced. For purposes of making the calculations required by this Section 5, the
Accountants may make reasonable assumptions and approximations concerning

                                       13
<PAGE>

applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code, and other applicable legal authority.
The Company and Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section 5. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.

      If, notwithstanding any reduction described in this Section 5, the
Internal Revenue Service (the "IRS") determines that Executive is liable for the
Excise Tax as a result of the receipt of the payment of benefits as described
above, then Executive shall be obligated to pay back to the Company, within
thirty (30) days after a final IRS determination or in the event that Executive
challenges the final IRS determination, a final judicial determination, a
portion of the payment equal to the "Repayment Amount." The Repayment Amount
with respect to the payment of benefits shall be the smallest such amount, if
any, as shall be required to be paid to the Company so that Executive's net
after-tax proceeds with respect to any payment of benefits (after taking into
account the payment of the Excise Tax and all other applicable taxes imposed on
such payment) shall be maximized. The Repayment Amount with respect to the
payment of benefits shall be zero if a Repayment Amount of more than zero would
not result in Executive's net after-tax proceeds with respect to the payment of
such benefits being maximized. If the Excise Tax is not eliminated pursuant to
this paragraph, Executive shall pay the Excise Tax.

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

                                       14
<PAGE>

subsection as soon as administratively possible after Executive pays the Excise
Tax so that Executive's net after-tax proceeds with respect to the payment of
benefits are maximized.

6.    DISPUTE RESOLUTION.

      (a)   Each of the parties expressly agrees that, to the extent permitted
by applicable law and to the extent that the enforceability of this Agreement is
not thereby impaired, any and all disputes, controversies or claims between
Executive and the Company arising under this Agreement (as opposed to the
Transition Agreement), except those arising under Sections 6(d) and 9.10 hereof
or under the Proprietary Information Agreement (as defined in Section 8 hereof),
shall be determined exclusively by final and binding arbitration before a single
arbitrator in accordance with the JAMS Arbitration Rules and Procedures, or
successor rules then in effect, and that judgment upon the award of the
arbitrator may be rendered in any court of competent jurisdiction. This
includes, without limitation, any and all disputes, controversies, and/or claims
arising out of or concerning Executive's employment by the Company as CEO or the
termination of Executive's employment as CEO or this Agreement, and includes,
without limitation, claims by Executive against directors, officers or employees
of the Company, whether arising under theories of liability or damages based on
contract, tort or statute, to the full extent permitted by law. As a material
part of this agreement to arbitrate claims, the parties expressly waive all
rights to a jury trial in court on all statutory or other claims. This Section 6
does not purport to limit either party's ability to recover any remedies
provided for by statute, including attorneys' fees.

      (b)   The arbitration shall be held in the San Jose, California
metropolitan area, and shall be administered by JAMS or, in the event JAMS does
not then conduct arbitration proceedings, a similarly reputable arbitration
administrator. Under such proceeding, the parties shall select a mutually
acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except
as provided herein, the Federal Arbitration Act

                                       15
<PAGE>

shall govern the interpretation and enforcement of such arbitration proceeding.
The arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of California, or federal law, if California law is
preempted, and the arbitrator is without jurisdiction to apply any different
substantive law. The parties agree that they will be allowed to engage in
adequate discovery, the scope of which will be determined by the arbitrator,
consistent with the nature of the claims in dispute. The arbitrator shall have
the authority to entertain a motion to dismiss and/or a motion for summary
judgment by any party and shall apply the standards governing such motions under
the Federal Rules of Civil Procedure. The arbitrator shall render an award that
shall include a written statement of opinion setting forth the arbitrator's
findings of fact and conclusions of law. Judgment upon the award may be entered
in any court having jurisdiction thereof. The parties intend this arbitration
provision to be valid, enforceable, irrevocable and construed as broadly as
possible.

      (c)   The Company shall be responsible for payment of the arbitrator's
fees as well as all administrative fees associated with the arbitration. The
parties shall be responsible for their own attorneys' fees and costs (including
expert fees and costs), except as provided in Section 9.14 hereof.

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

                                       16
<PAGE>

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

      Following the termination of his full-time employment for any reason
(other than death), Executive shall cooperate with the Company in all matters
relating to the winding up of his pending work on behalf of the Company and the
orderly transfer of any such pending work to other employees of the Company as
may be designated by the Company. Executive also agrees to participate as a
witness in any litigation or regulatory proceeding to which the Company or any
of its affiliates is a party at the request of the Company upon delivery to
Executive of reasonable advance notice and the Company's written obligation to
reimburse Executive for all reasonable and documented expenses incurred in
connection therewith. Furthermore, Executive agrees to return to the Company all
property of the Company, including all hard and soft copies of records,
documents, materials and files relating to confidential, proprietary or
sensitive company information in his possession or control, as well as all other
company-owned property in his possession or control, at the time of the
termination of his full-time employment, except to the extent that the Company
determines that retention of any of such property is necessary, desirable or
convenient in order to permit Executive to satisfy his obligations under this
Section 7 or under the Transition Agreement, after which time Executive shall
promptly return all such retained company property.

8.    PROPRIETARY INFORMATION AGREEMENT.

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

9.    GENERAL.

      9.1   WAIVER. Neither party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other

                                       17
<PAGE>

party of any of the provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other shall neither be
construed as, nor constitute, a continuing waiver of such breach or of other
breaches of the same or any other provision of this Agreement.

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

      9.3   NOTICES. All notices and other communications required or permitted
to be given under this Agreement must be in writing and shall be considered
effective either (a) upon personal service or (b) upon delivery by facsimile and
depositing such notice in the U.S. Mail, postage prepaid, return receipt
requested and, if addressed to the Company, in care of the General Counsel at
the Company's principal corporate address, and, if addressed to Executive, at
his most recent address shown on the Company's corporate records or at any other
address that Executive may specify by notice to the Company, or (c) three (3)
days after depositing such notice in the U.S. Mail as described in clause (b) of
this paragraph.

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

      9.5   ENTIRE AGREEMENT. The parties hereto acknowledge that each has read
this Agreement, understands it, and agrees to be bound by its terms. The parties
further agree that this Agreement, the exhibits to this Agreement, and the
documents, plans and policies referred to in this Agreement (which are hereby
incorporated herein

                                       18
<PAGE>

by reference) constitute the complete and exclusive statement of the agreement
between the parties and supersede all proposals (oral or written),
understandings, representations, conditions, covenants, and all other
communications between the parties relating to the subject matter hereof.

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

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

      9.8   AMENDMENTS. This Agreement, and the terms and conditions of the
matters addressed in this Agreement, may only be amended in writing executed
both by the Executive and the Chairman of the Board and/or the General Counsel
of the Company.

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

                                       19
<PAGE>

pursuant to Section 2.5 hereof and the referenced Indemnification Agreement, the
dispute resolution provisions of Section 6 hereof and, to the extent applicable,
this Section 9.

      9.10  FORMER EMPLOYERS. Executive represents and warrants to the Company
that he is not subject to any employment, confidentiality or other agreement or
restriction that would prevent him from fully satisfying his duties under this
Agreement or that would be violated if he did so. Without the Company's prior
written approval, Executive will not:

            (a)   disclose any proprietary information belonging to a former
                  employer or other entity without its written permission;

            (b)   contact any former employer's customers or employees to
                  solicit their business or employment on behalf of the Company
                  in violation of Executive's existing obligations to his former
                  employer; or

            (c)   distribute announcements about or otherwise publicize
                  Executive's employment with the Company.

      Executive shall indemnify and hold the Company harmless from any
liabilities, including reasonable defense costs, it may incur because he is
alleged to have broken any of these promises or improperly revealed or used such
proprietary information or to have threatened to do so, or if a former employer
challenges Executive's entering into this Agreement or rendering services
pursuant to it.

      9.11  DEPARTMENT OF HOMELAND SECURITY VERIFICATION REQUIREMENT. If
Executive has not already done so, he will timely file all documents, if any,
required by the Department of Homeland Security to verify his identity and his
lawful employment in the United States. Notwithstanding any other provision of
this Agreement, if Executive fails to meet any such requirements promptly after
receiving a written request from the Company to do so, his employment will
terminate immediately upon notice from the Company and he will not be entitled
to any compensation from the

                                       20
<PAGE>

Company of any type, and, if already paid by the Company, Executive will be
required to repay the sign-on bonus described in Section 2.3 hereof.

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

      9.13  REIMBURSEMENT OF EXECUTIVE'S ATTORNEYS' FEES. The Company shall
reimburse, as promptly as practicable after its receipt of documentation
therefor, all of Executive's reasonable and documented attorneys' fees and
expenses in connection with the negotiation, and execution and delivery of, this
Agreement and the exhibits attached hereto.

      9.14  ATTORNEYS' FEES. In the event of any dispute, controversy, claim,
litigation or arbitration arising out of or concerning Executive's employment by
the Company as CEO or the termination of Executive's employment as CEO or this
Agreement, the prevailing party in any such dispute, controversy, claim,
litigation or arbitration shall be entitled to reasonable attorneys' fees
(excluding expert fees and costs).

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

                                       21
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Agreement on this 12th
day of May, 2004.

CADENCE DESIGN SYSTEMS, INC.                    EXECUTIVE

By:________________________________             ________________________________
         R.L. Smith McKeithen                   Michael J. Fister

Title: Sr. VP & General Counsel

<PAGE>

                                    EXHIBIT A

                       FORM OF RESTRICTED STOCK AGREEMENT

<PAGE>

                          CADENCE DESIGN SYSTEMS, INC.
                  NONSTATUTORY INCENTIVE STOCK AWARD AGREEMENT
              ________ NONSTATUTORY EQUITY INCENTIVE PLAN ("PLAN")

Cadence Design Systems, Inc. (the "Company"), pursuant to the Plan, hereby
grants you an Incentive Stock Award as set forth below. This award is subject to
all of the terms and conditions set forth in this Nonstatutory Incentive Stock
Award Agreement ("Agreement") and in the Incentive Stock Award Terms and the
Plan located on the Cadence Stock Information Website (located at
http://ess.cadence.com); provided, however, that in the event of a conflict
between the terms of this Agreement and the terms of the Plan, the terms of this
Agreement shall prevail.

Grantee:                                             _____________
ID Number:                                           _____________
Nonstatutory Incentive Stock Award Number:           _____________
Date of Award:                                       _____________
Vesting Commencement Date:                           _____________
Number of Shares Subject to Incentive Stock Award:   _____________

VESTING SCHEDULE:  33 1/3% of the shares vest on _________
                   33 1/3% of the shares vest on _________
                   33 1/3% of the shares vest on _________

Acceptance: Your right to the Incentive Stock will be forfeited unless you
deliver to the Company a counterpart of this Agreement together with an
Acknowledgment and Statement of Decision Regarding Section 83(b) Election in the
form attached hereto as Exhibit A, duly executed by you and your spouse, if
applicable, no later than __________, 2004, unless you have received an
extension from the Company in writing.

CADENCE DESIGN SYSTEMS, INC.

By: _____________________________________

Title: ______________________________________

Date: ________ ___, 2004

ACKNOWLEDGED AND AGREED

_________________________________________
Employee

_________________________________________
Spouse

<PAGE>

                          CADENCE DESIGN SYSTEMS, INC.
                    NONSTATUTORY INCENTIVE STOCK AWARD TERMS
                    ______ NONSTATUTORY EQUITY INCENTIVE PLAN

      Pursuant to your Nonstatutory Incentive Stock Award Agreement
("Agreement") and these Nonstatutory Incentive Stock Award Terms (collectively,
your "Incentive Stock Award"), CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), has granted you an Incentive Stock Award under its
_____ Nonstatutory Equity Incentive Plan (the "Plan") for the number of shares
of Incentive Stock indicated in your Agreement and subject to the restrictions
indicated in your Agreement. The Plan is incorporated herein by reference.
Defined terms not explicitly defined in your Incentive Stock Award but defined
in the Plan shall have the same definitions as in the Plan.

      The details of your Incentive Stock Award are as follows:

1.    INCENTIVE STOCK AWARD. Subject to the provisions of Section 2 hereof and
Section 3 hereof, upon the issuance to you of Incentive Stock hereunder, you
shall have all the rights of a stockholder with respect to such Incentive Stock,
including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.

2.    RESTRICTIONS ON SALE OR OTHER TRANSFER. Each share of Incentive Stock
awarded to you pursuant to this Agreement may not be sold or otherwise
transferred except pursuant to the following provisions:

      a.    The shares shall be held in book entry form with the Company's
transfer agent until the restrictions set forth herein lapse in accordance with
the provisions of Section 3 hereof or until the shares are forfeited pursuant to
paragraph (c) of this Section 2. Notwithstanding the foregoing, you may request
that stock certificates evidencing such shares be issued in your name and
delivered to you, with each such certificate bearing the following legend:

      The shares of Cadence Design Systems, Inc. common stock evidenced by this
      certificate may not be sold or otherwise transferred except pursuant to
      the provisions of the Incentive Stock Agreement by and between Cadence
      Design Systems, Inc. and the registered owner of such shares. Additional
      information on the restrictions imposed under such Incentive Stock
      Agreement may be obtained from the Corporate Secretary of Cadence Design
      Systems, Inc.

<PAGE>

      b.    No such shares may be sold, transferred or otherwise alienated or
hypothecated so long as such shares are subject to the restriction provided for
in this Section 2.

      c.    Upon your termination of employment with the Company or its
subsidiaries for any reason other than those which result in a lapse of
restrictions pursuant to Section 3 hereof, then any such shares as to which the
foregoing restrictions have yet to lapse pursuant to Section 3 shall be
forfeited by you and acquired by the Company at no cost to the Company on the
date of such termination of employment, and you shall forthwith surrender and
deliver to the Company any certificates evidencing such shares.

3.    LAPSE OF RESTRICTIONS

      a.    The restrictions set forth in Section 2 hereof shall lapse (provided
that such shares have not previously been forfeited pursuant to the provisions
of paragraph (c) of Section 2 hereof) as to 33 1/3% of the total number of
shares subject to this Incentive Stock Award upon Grantee's completion of each
year of employment with the Company over the three-year period measured from the
Vesting Commencement Date.

      b.    Notwithstanding the forgoing, the restrictions set forth in Section
2 hereof shall lapse (provided that such shares have not previously been
forfeited pursuant to the provisions of paragraph (c) of Section 2 hereof) upon
all shares that remain subject to the foregoing restrictions if, prior to the
vesting of all of the shares subject to this Incentive Stock Award pursuant to
the schedule described in paragraph (a) of this Section 3, the employment of the
Grantee by the Company or its subsidiaries is terminated on account of death or
permanent and total disability, as determined in accordance with applicable
Company personnel policies.

      c.    Notwithstanding the foregoing, all or a portion of the shares
subject to this Incentive Stock Award shall vest on an accelerated basis, and
the restrictions set forth in Section 2 hereof shall concurrently lapse with
respect to those shares, upon the termination of Grantee's employment as Chief
Executive Officer of the Company under certain prescribed circumstances set
forth in Section 4.5 of the Grantee's Employment Agreement with the Company,
dated as of May 12, 2004, and Sections 4, 5 and 6 of the Executive Transition
and Release Agreement attached as Exhibit C to such Employment Agreement.

      d.    The foregoing notwithstanding, no such lapse of restriction shall
become effective unless and until Grantee or Grantee's legal representative
shall surrender to the Company the certificates representing such shares, if
any, and upon surrender thereof the Company shall cause new certificates
evidencing such shares to be issued and delivered to Grantee or Grantee's legal

<PAGE>

representative, free from the restriction provided for in Section 2 hereof or
any other restrictions on the sale or other transfer of such shares. The
foregoing notwithstanding, no stock certificate shall be delivered to Grantee or
Grantee's legal representative as hereinabove provided unless and until Grantee
or Grantee's legal representative shall have paid to the Company in cash the
full amount of all federal and state withholding or other employment taxes
applicable to the taxable income of Grantee resulting from the lapse of such
restrictions.

4.    NO RIGHTS TO CONTINUED EMPLOYMENT OR SERVICE. Nothing in the Plan or this
Incentive Stock Award shall confer upon you any right to continue in the employ
of the Company or its Affiliates (or to continue acting as a Consultant) or
shall affect the right of the Company or its Affiliates to terminate your
employment with or without cause or the right to terminate your relationship as
a Consultant pursuant to the terms of your consultant agreement with the Company
or its Affiliates.

5.    TAX CONSEQUENCES. Set forth below is a brief summary as of the Date of
Award of the some of the federal tax consequences of our grant of an Incentive
Stock Award to you. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. YOU SHOULD CONSULT A TAX ADVISOR BEFORE
MAKING ANY TAX ELECTION RELATING TO YOUR AWARD. The income tax consequences of
our grant of Incentive Stock to you depend upon whether or not you make an
election under section 83(b) of the Internal Revenue Code to be taxed upon
grant. To make the election, you must file the statement required under section
83(b) with the Internal Revenue Service no later than 30 days after the grant of
the shares to you. Once made, the election is irrevocable. A suggested form is
available from the Company. Copies of the election must also be attached to your
federal income tax return for the year of the grant and a copy must be provided
to the Company.

      a.    NO SECTION 83(b) ELECTION MADE. If you do not make the section 83(b)
election, our grant of Incentive Stock to you is not a taxable event for you.
Rather, recognition of taxable income is postponed until the restrictions on the
shares lapse -- in other words, each time you vest in any of the shares. At each
such time, you will recognize ordinary income equal to the value (the average of
the high and low price of Company common stock on the New York Stock Exchange on
the day the shares vest, or on the next trading day if the vesting date falls on
a day that is not a trading day) of the Incentive Stock and that amount will be
your basis in those shares. Any dividends with a record date prior to that time
will be taxed to you as ordinary income, not as dividends, when paid. If those
shares are otherwise a capital asset in your hands, any gain or loss on a
subsequent sale or other taxable disposition will be capital gain or loss.

<PAGE>

      b.    SECTION 83(b) ELECTION MADE. If you make the section 83(b) election,
you will recognize ordinary income at the time of our grant of Incentive Stock
to you equal to the value of such shares on the date of the grant determined
without regard to any of the restrictions thereon and that amount will be your
basis in those shares. If those shares are subsequently forfeited before the
restrictions lapse, you will be entitled to no deduction on account thereof. If
those shares are otherwise a capital asset in your hands, any gain or loss on a
sale or other taxable disposition after the restrictions lapse will be capital
gain or loss.

6.    ENFORCEMENT. This Agreement shall be construed, administered and enforced
in accordance with the laws of the State of Delaware.

                                   ACCEPTANCE

      By executing the Agreement, you represent that you are familiar with the
terms and provisions of the Plan and accept your Incentive Stock Award subject
to all of the terms and provisions thereof. You hereby agree to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors of the Company upon any questions arising under the Plan.

<PAGE>

                                    EXHIBIT A
                       TO INCENTIVE STOCK AWARD AGREEMENT

                    ACKNOWLEDGMENT AND STATEMENT OF DECISION
                        REGARDING SECTION 83(b) ELECTION

      The undersigned (which term includes the undersigned's spouse) has been
issued ___________[NUMBER OF UNVESTED SHARES] unvested shares (the "Incentive
Stock") of Common Stock of Cadence Design Systems, Inc., a Delaware corporation
(the "Company"), under Section ___ of the Company's ______ Nonstatutory Equity
Incentive Plan (the "Plan"), and is returning to Company a signed Nonstatutory
Incentive Stock Award Agreement (the "Agreement") together with this
Acknowledgment and Statement of Decision Regarding Section 83(b) Election.
Capitalized terms not otherwise defined herein have the meanings set forth in
the Agreement and in the Plan. The undersigned hereby states as follows:

      1.    The undersigned acknowledges receipt of a copy of the Plan, the
Agreement and the Nonstatutory Incentive Stock Terms (the "Terms") relating to
the issuance of such Incentive Stock. The undersigned has carefully reviewed the
Plan, the Agreement and the Terms.

      2.    The undersigned either [check and complete as applicable]:

            (a)   ____ has consulted, and has been fully advised by, the
                  undersigned's own tax advisor,
                  _____________________________________, whose business address
                  is ______________________________, regarding all federal,
                  state and local tax consequences of acquiring the Incentive
                  Stock, including the tax rules governing the issuance, vesting
                  and forfeiture of the Incentive Stock, advisability of making
                  an election pursuant to Section 83(b) of the Internal Revenue
                  Code of 1986, as amended (an "83(b) Election") and the
                  consequences of the sale of shares to pay Withholding
                  Obligations; or

            (b)   ____ has knowingly chosen not to consult such a tax advisor.

      3.    The undersigned hereby states that the undersigned has decided
[check as applicable]:

            (a)   ____ to make an 83(b) Election with respect to the Incentive
                  Stock, and will submit to the Company no later than 30 days
                  following the date hereof an executed 83(b) Election form; or

            (b)   ____ not to make an 83(b) Election with respect to the
                  Incentive Stock.

<PAGE>

      4.    The undersigned acknowledges that, if an 83(b) Election is to be
filed, he/she/they will be solely responsible for the accuracy of the
information set forth in, and the tax consequences of filing, the 83(b)
Election, and for properly filing such election with the Internal Revenue
Service (and any other applicable taxing authority) on a timely basis and
including a copy thereof in the undersigned's income tax return. In addition,
the undersigned understands that the 83(b) Election must be filed no later than
30 days after the date the Incentive Stock is deemed issued, which could be as
early as the date the Company provided you with the Agreement.

      5.    Neither the Company nor any of its affiliates, employees, officers,
directors, attorneys or accountants has made any warranty or representation to
the undersigned with respect to the tax consequences of the undersigned's
acquisition, holding, vesting, or forfeiture of Incentive Stock, the making or
failure to make an 83(b) Election, the sale of shares to pay Withholding
Obligations, or any other tax consequences pertaining to the Plan or the
Agreement. THE COMPANY MAKES NO RECOMMENDATION REGARDING THE ADVISABILITY OF
MAKING AN 83(b) ELECTION, BUT CAUTIONS THAT THERE ARE SIGNIFICANT TAX
CONSEQUENCES THAT WOULD ARISE FROM MAKING THE ELECTION, AND THAT THE AGREEMENT
SHOULD NOT BE SIGNED AND THE ELECTION SHOULD NOT BE MADE WITHOUT A COMPLETE
UNDERSTANDING THOSE CONSEQUENCES. THE UNDERSIGNED ACKNOWLEDGES THAT IT IS THE
UNDERSIGNED'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO ASCERTAIN AND
UNDERSTAND THE TAX CONSEQUENCES OF PARTICIPATING IN THE PLAN AND TO FILE, OR
REFRAIN FROM FILING, ANY 83(b) ELECTION, EVEN IF THE UNDERSIGNED REQUESTS THE
COMPANY OR ITS REPRESENTATIVES TO EXPLAIN THOSE CONSEQUENCES OR MAKE THAT FILING
ON THE UNDERSIGNED'S BEHALF.

Date: ___________________________                 ______________________________
                                                  [NAME]

Date: ___________________________                 ______________________________
                                                  Spouse of [NAME]

<PAGE>

                                    EXHIBIT B

                               INDEMNITY AGREEMENT

<PAGE>

                               INDEMNITY AGREEMENT

      This Indemnity Agreement, dated as of May 12, 2004, is made by and between
Cadence Design Systems, Inc., a Delaware corporation (the "Company"),
and,              the President and Chief Executive Officer of the Company (the
"Indemnitee").

                                    RECITALS

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

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

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

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

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

                                       1
<PAGE>

defense, which may discourage such a director or officer from serving in that
position;

      F.    Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
individuals to serve as officers and directors of the Company and its
subsidiaries and to encourage such individuals to take the business risks
necessary for the success of the Company and its subsidiaries, it is necessary
for the Company to contractually indemnify its officers and directors and the
officers and directors of its subsidiaries in connection with claims against
such persons in connection with their service, and has further concluded that
the failure to provide such contractual indemnification could result in great
harm to the Company and its subsidiaries and the Company's shareholders;

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

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

                                    AGREEMENT

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

      1.    DEFINITIONS.

            (a)   COVERED PERSON. For purposes of this Agreement, a "covered
person" shall include the Indemnitee and any heir, executor, administrator or
other legal representative of the Indemnitee following his death or incapacity.

            (b)   EXPENSES. For purposes of this Agreement, "expenses" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Section 145 or otherwise.

                                       2
<PAGE>

            (c)   PROCEEDING. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever, and including any of the foregoing commenced by or on behalf of the
Company, derivatively or otherwise.

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

      2.    AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue
to serve the Company and/or its subsidiaries in his present capacity, so long as
he is duly appointed or elected or until such time as he tenders his resignation
in writing, provided, however, that nothing contained in this Agreement is
intended to create any right to continued employment by Indemnitee.

      3.    MAINTENANCE OF LIABILITY INSURANCE.

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

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

      4.    MANDATORY INDEMNIFICATION.

            (a)   RIGHT TO INDEMNIFICATION. In the event a covered person was or
is made a party or is threatened to be made a party to or is involved in any
proceeding, by reason of the fact that the Indemnitee is or was a director,
officer or employee of the Company (including any subsidiary or affiliate
thereof or any constituent corporation or any of the foregoing absorbed in any
merger) or is or was serving at the request of the Company (including such
subsidiary, affiliate or constituent corporation) as a director, officer or
employee

                                       3
<PAGE>

of another corporation, or of a partnership, joint venture, trust or other
entity, including service with respect to employee benefit plans, such person
shall be indemnified and held harmless by the Company to the fullest extent
permitted by applicable law, against all expenses, liability and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
and other taxes and penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
indemnification shall continue after the Indemnitee has ceased to serve in such
capacity and shall inure to the benefit of his heirs, executors and
administrators; provided, however, that except for a proceeding pursuant to
Section 7, the Company shall indemnify any such person in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Company.

            (b)   EXCEPTION FOR AMOUNTS COVERED BY INSURANCE. Notwithstanding
the foregoing, the Company shall not be obligated to indemnify a covered person
for expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) which have been paid directly to such person by D&O Insurance.

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

      5.    MANDATORY ADVANCEMENT OF EXPENSES. The Company shall pay all
expenses incurred by a covered person, or in defending any such proceeding as
they are incurred in advance of its final disposition; provided, however, that
if the Delaware General Corporations Law then so requires, the payment of such
expenses incurred in advance of the final disposition of such proceeding shall
be made only upon delivery to the Company of an undertaking, by or on behalf of
such covered person, to repay all amounts so advanced if it should be determined
ultimately that such person is not entitled to the payment of such expenses by
the Company.

      6.    NOTICE AND OTHER INDEMNIFICATION PROCEDURES.

            (a)   Promptly after receipt by a covered person of notice of the
commencement of or the threat of commencement of any proceeding, such

                                       4
<PAGE>

person shall, if such person believes that indemnification with respect thereto
may be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

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

            (c)   In the event the Company shall be obligated to advance the
expenses for any proceeding against the covered person, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by the covered person (such approval not to be unreasonably
withheld), upon the delivery to the covered person of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the covered person and the retention of such counsel by the Company, the Company
will not be liable to the covered person under this Agreement for any fees of
counsel subsequently incurred by the covered person with respect to the same
proceeding, provided that (i) the covered person shall have the right to employ
separate counsel in any such proceeding at the covered person's expense; and
(ii) if (A) the employment of counsel by the covered person has been previously
authorized by the Company, (B) the covered person shall have reasonably
concluded that there may be a conflict of interest between the Company the
covered person in the conduct of any such defense of (C) the Company shall not,
in fact, have employed counsel to assume the defense of such proceeding, the
fees and expenses of the covered person's counsel shall be at the expense of the
Company.

      7.    RIGHT OF INDEMNITEE TO BRING SUIT. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Company within
sixty (60) days after a written claim has been received by the Company, except
in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the covered person may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in a suit brought
by the Company to recover and advancement of expenses pursuant to the terms of
an undertaking, the covered person shall be entitled to be paid also the expense
of prosecuting or defending such suit. In (i) any suit brought by a covered
person to enforce a right to indemnification hereunder (but not in a suit
brought by a covered person to enforce a right to an advancement of expenses) it
shall be a defense that indemnification is not permitted by applicable law, and

                                       5
<PAGE>

(ii) in any suit by the Company to recover an advancement of expenses pursuant
to the terms hereof, the Company shall be entitled to recover such expenses upon
a final adjudication that indemnification is not permitted by applicable law.
Neither the failure of the Company (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the covered
person is proper in the circumstances, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel or its
stockholders) that indemnification is not proper, shall create a presumption
that the covered person is not entitled to indemnification or, in the case of
such a suit brought by a covered person, be a defense to such suit. In any suit
brought by a covered person to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Company to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving that
the covered person is not entitled to be indemnified, or to such advancement of
expenses, shall be on the Company.

      8.    LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any subsidiary against the Indemnitee, his spouse, heirs, estate, executors
or administrators after the expiration of one year from the act or omission of
the Indemnitee upon which such proceeding is based; however, in a case where the
Indemnitee fraudulently conceals the facts underlying such cause of action, no
proceeding shall be brought and no cause of action shall be asserted after the
expiration of one year from the earlier of (i) the date the Company or any
subsidiary of the Company discovers such facts, or (ii) the date the Company of
any subsidiary of the Company could have discovered such facts by the exercise
of reasonable diligence. Any claim or cause of action of the Company or any
subsidiary of the Company, including claims predicated upon the negligent act or
omission of the Indemnitee, shall be extinguished and deemed released unless
asserted by filing of a legal action within such period. This Section 8 shall
not apply to any cause of action which has accrued on the date hereof and of
which the Indemnitee is aware on the date hereof, but as to which the Company
has no actual knowledge apart from the Indemnitee's knowledge.

      9.    NON-EXCLUSIVITY. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee or any covered person may have under any
provision of law, the Company's Certificate of Incorporation or Bylaws, the vote
of the Company's shareholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an officer, director or employee of the
Company, and the Indemnitee's right hereunder shall continue after the

                                       6
<PAGE>

Indemnitee has ceased to so act and shall inure to the benefit of any heir,
executor, administrator or other legal representative of the Indemnitee.

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

      11.   SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to Section 10
hereof.

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

      13.   SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.

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

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

      16.   CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of

                                       7
<PAGE>

Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.

      17.   GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.

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

                                            CADENCE DESIGN SYSTEMS, INC.

                                            By:  _______________________________

                                            Its: _______________________________

                                            Address: ___________________________

                                                     ___________________________

                                            INDEMNITEE

                                            By:  _______________________________

                                            Address: ___________________________

                                                     ___________________________

                                       8
<PAGE>

                                    EXHIBIT C

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

<PAGE>

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

      This Executive Transition and Release Agreement (this "Agreement") is
entered into between Michael J. Fister ("Executive") and Cadence Design Systems,
Inc., a Delaware corporation ("Cadence" or the "Company").

      1.    TRANSITION COMMENCEMENT DATE. As of ((Transition Commencement Date))
(the "Transition Commencement Date"), Executive will no longer hold the position
of President and Chief Executive Officer ("CEO") and will be relieved of all of
Executive's authority and responsibilities in those positions. Executive will be
paid (a) any earned but unpaid base salary for his services as CEO prior to the
Transition Commencement Date and any outstanding expense reimbursements
submitted and approved pursuant to Section 3.1 of Executive's Employment
Agreement with the Company dated as of May 12, 2004 (the "Employment
Agreement"); (b) any amounts owed to Executive pursuant to Sections 2.3 and 3.3
of the Employment Agreement; and (c) other unpaid vested amounts or benefits
under the compensation, incentive and benefit plans of the Company in which
Executive participates, in each case under this clause (c) as of the Transition
Commencement Date. The payment of the foregoing amounts shall be made to
Executive by not later than the next regular payroll date following the
Transition Commencement Date.

      As of the first day of the month following the Transition Commencement
Date, Executive will no longer participate in Cadence's medical, dental, and
vision insurance plans (unless Executive elects to continue coverage pursuant to
COBRA), and will not be eligible for a bonus for any services rendered after
that date, except as expressly provided herein.

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

            a.    the date on which Executive provides Cadence with his written
                  resignation from his employment with Cadence pursuant to this
                  Agreement;

            b.    the date on which Cadence terminates Executive's employment
                  due to a material breach by Executive of his duties or
                  obligations under paragraph 3(b), 3(c) or 3(d) of this
                  Agreement, after written notice delivered to Executive
                  identifying such breach and his failure to cure such breach,
                  if curable, within thirty (30) days following delivery of such
                  notice; and

            c.    one year from the Transition Commencement Date.

<PAGE>

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

            a.    During the Transition Period, Executive will assume the
position of ((New Position Title)). In this position, Executive will render
those services requested by Cadence's ((Management Representative)) on an
as-needed basis. Executive's time rendering those services is not expected to
exceed 20 hours per month. Executive shall not be required to perform those
services on the Company's premises and shall instead be permitted to perform
those services at a location determined by Executive. Except as otherwise
provided in paragraph 3(b) of this Agreement, Executive's obligations hereunder
will not preclude Executive from accepting and holding full-time employment
elsewhere.

            b.    As a Cadence ((New Position)), as well as other positions
Executive may have held with Cadence, Executive has obtained extensive and
valuable knowledge and information concerning Cadence's business (including
confidential information relating to Cadence and its operations, intellectual
property, assets, contracts, customers, personnel, plans, marketing plans,
research and development plans and prospects). Executive acknowledges and agrees
that it would be virtually impossible for Executive to work as an employee,
consultant or advisor in the electronic design automation industry without
inevitably disclosing confidential and proprietary information belonging to
Cadence. Accordingly, during the Transition Period, Executive will not, directly
or indirectly, provide services, whether as an employee, consultant, independent
contractor, agent, sole proprietor, partner, joint venture, corporate officer or
director, on behalf of any corporation, limited liability company, partnership,
or other entity or person or successor thereto that (i) is listed on Exhibit A
attached hereto, as modified or amended by Cadence's Board of Directors from
time to time and delivered to Executive prior to the Company's termination of
his employment as CEO or the Company's notifying him of such termination as CEO
(or, in the event Executive terminates his employment as CEO, prior to the date
on which Executive has notified the Company of his decision to terminate such
employment), or (ii) is named as a competitor of Cadence in the most recent
applicable document filed by Cadence before the Transition Commencement Date
with the Securities and Exchange Commission that contains such information;
provided, however, that the number of competitors designated pursuant to clause
(i) above shall not, when added to the competitors designated pursuant to clause
(ii) above, result in the total number of competitors being greater than ten
(10).

            c.    During the Transition Period and for a period of one year
following the Transition Termination Date, Executive will be prohibited, to the
fullest extent allowed by applicable law, and except with the written advance
approval of the then CEO or General Counsel, from voluntarily or involuntarily,
for any reason whatsoever, directly or indirectly, individually or on behalf of
persons or entities not now parties to this Agreement, encouraging, inducing,
attempting to induce, soliciting or attempting to solicit for employment,
contractor or consulting opportunities anyone who is employed at that time, or
was employed during the previous one year, by Cadence or any Cadence affiliate.

                                       2
<PAGE>

            d.    During the Transition Period, Executive will be prohibited, to
the fullest extent allowed by applicable law, and except with the written
advance approval of the then CEO or General Counsel, from directly or
indirectly, individually or on behalf of persons or entities not now parties to
this Agreement, intentionally and knowingly interfering or attempting to
interfere with the relationship or prospective relationship of Cadence or any
Cadence affiliate with any former, present or future client, customer, joint
venture partner, or financial backer of Cadence or any Cadence affiliate.

            e.    Executive will fully cooperate with Cadence in all matters
relating to his employment, including the winding up of work performed in
Executive's prior position and the orderly transition of such work to other
Cadence employees. Executive also agrees to participate as a witness in any
litigation or regulatory proceeding to which the Company or any of its
affiliates is a party at the request of the Company upon delivery to Executive
of reasonable advance notice and the Company's written commitment to reimburse
Executive for all reasonable expenses incurred in connection therewith.

            f.    Executive will not make any statement, written or oral, that
disparages Cadence or any of its affiliates, or any of Cadence's or its
affiliates' products, services, policies, business practices, employees,
executives, officers or directors. The foregoing provision shall not preclude
Executive from making any statements required by law.

            g.    Notwithstanding paragraph 9 hereof, the parties agree that
damages would be an inadequate remedy for Cadence in the event of a breach or
threatened breach by Executive of paragraph 3(b), 3(c), 3(d) or 3(f) hereof. In
the event of any such breach or threatened breach, Cadence may, either with or
without pursuing any potential damage remedies, obtain from a court of competent
jurisdiction, and enforce, an injunction prohibiting Executive from violating
this Agreement and requiring Executive to comply with the terms of this
Agreement.

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

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

            b.    all of the unvested options and other outstanding stock awards
                  held by Executive on the Transition Commencement Date that
                  would have vested over the succeeding twenty four (24) month
                  period had Executive continued to serve as CEO under his
                  Employment Agreement during that period shall immediately vest
                  and become exercisable in full on the Effective Date of this
                  Agreement, and there shall be no further vesting of those
                  options or stock awards during the Transition Period. This
                  acceleration will have no effect on any other provisions of
                  the stock awards;

                                       3
<PAGE>

            c.    Executive's employment pursuant to this Agreement shall be
                  considered a continuation of employee status and continuous
                  service for all purposes under any stock options previously
                  granted to Executive by the Company and outstanding on the
                  Transition Commencement Date; and

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

Except as so provided or as otherwise set forth in paragraph 6 hereof, Executive
will receive no other compensation or benefits from Cadence in consideration of
Executive's services during the Transition Period.

      5.    TERMINATION PAYMENTS AND BENEFITS. In consideration for Executive's
acceptance of this Agreement, Cadence will provide to Executive within or
commencing within ten (10) business days after the Effective Date (as defined in
paragraph 8 hereof) and after Executive has returned to the Company all hard and
soft copies of records, documents, materials and files relating to confidential,
proprietary or sensitive company information in his possession or control during
his period of employment as CEO, as well as all other company-owned property
then in his possession, the following termination payments and benefits to which
Executive would not otherwise be entitled:

            a.    a lump-sum payment equal to 180% of Executive's annual Base
                  Salary at the highest rate in effect during Executive's
                  employment as CEO, less applicable tax deductions and
                  withholdings; and

            b.    an amount equal to 180% of Executive's annual Target Bonus at
                  the highest target rate in effect during Executive's
                  employment as CEO, less applicable tax deductions and
                  withholdings, payable in twelve (12) monthly pro rata
                  installments, provided that the twelfth payment is contingent
                  upon Executive's further execution of a Release of Claims in
                  the form of Attachment 1 to this Agreement; provided, further,
                  that the Company shall have no further obligation to make any
                  monthly installments after the Transition Termination Date
                  should such date occur pursuant to paragraph 2(a) or 2(b)
                  hereof.

      6.    CHANGE IN CONTROL. If this Agreement is executed by Executive
pursuant to Section 4.5 of the Employment Agreement in connection with a Change
in Control (as defined in Section 4.5 of the Employment Agreement), then the
following adjustments shall be made to paragraphs 4 and 5 hereof:

            a.    all of the unvested options and other outstanding stock awards
                  held by Executive on the Transition Commencement Date shall

                                       4
<PAGE>

                  immediately vest in full and become exercisable on the
                  Transition Commencement Date as to all the underlying shares
                  of the Company's common stock;

            b.    the lump sump payment to be made to Executive pursuant to
                  paragraph 5(a) hereof shall be equal to 200% of Executive's
                  annual Base Salary at the highest rate in effect during
                  Executive's employment as CEO, less applicable tax deductions
                  and withholdings; and

            c.    the amount to be paid to Executive pursuant to paragraph 5(b)
                  hereof shall be equal, in the aggregate, to 200% of
                  Executive's annual Target Bonus at the highest target rate in
                  effect during Executive's employment as CEO, less applicable
                  tax deductions and withholdings.

      7.    GENERAL RELEASE OF CLAIMS.

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

                  i.    any amounts or benefits to which Executive is or becomes
entitled to pursuant to the provisions of this Agreement (including, without
limitation, paragraphs 1, 4, 5 and 6 hereof) or pursuant to the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of Executive's full-time employment as CEO;

                                       5
<PAGE>

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

                  iii.  claims related to Executive's COBRA rights.

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

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

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

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

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

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

      9.    ARBITRATION. Subject to paragraph 3(g) hereof, all claims, disputes,
questions, or controversies arising out of or relating to this Agreement,
including without limitation the construction or application of any of the
terms, provisions, or conditions of this Agreement, will be resolved exclusively
in final and binding arbitration in accordance with the Arbitration Rules and
Procedures, or successor rules then in effect, of Judicial Arbitration &
Mediation Services, Inc. ("JAMS"). The arbitration will be held in the San Jose,
California, metropolitan area, and will be conducted and administered by JAMS,
or in the event JAMS does not then conduct arbitration proceedings, a similarly
reputable arbitration administrator. Executive and Cadence will select a
mutually

                                       6
<PAGE>

acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except
as provided by this Agreement, the Federal Arbitration Act will govern the
administration of the arbitration proceedings. The arbitrator will apply the
substantive law (and the law of remedies, if applicable) of the State of
California, or federal law, as applicable, and the arbitrator is without
jurisdiction to apply any different substantive law. Executive and Cadence will
each be allowed to engage in adequate discovery, the scope of which will be
determined by the arbitrator consistent with the nature of the claim[s] in
dispute. The arbitrator will have the authority to entertain a motion to dismiss
and/or a motion for summary judgment by any party and will apply the standards
governing such motions under the Federal Rules of Civil Procedure. The
arbitrator will render a written award and supporting opinion that will set
forth the arbitrator's findings of fact and conclusions of law. Judgment upon
the award may be entered in any court of competent jurisdiction. Cadence will
pay the arbitrator's fees, as well as all administrative fees, associated with
the arbitration. Each party will be responsible for paying its own attorneys'
fees and costs (including expert witness fees and costs, if any), except as
provided in paragraph 13 hereof.

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

      11.   INTEGRATED AGREEMENT. This Agreement, together with the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of Executive's full-time employment as CEO, is intended by the parties to be a
complete and final expression of their rights and duties respecting the subject
matter of this Agreement. Except as expressly provided herein, nothing in this
Agreement is intended to negate Executive's agreement to abide by Cadence's
policies while serving as a Cadence employee, including but not limited to
Cadence's Employee Handbook, Sexual Harassment Policy and Code of Business
Conduct, or Executive's continuing obligations under Executive's Employee
Proprietary Information and Inventions Agreement, or any other agreement
governing the disclosure and/or use of proprietary information, which Executive
signed while working with Cadence or its predecessors; nor to waive any of
Executive's obligations under state and federal trade secret laws.

      12.   FULL SATISFACTION OF COMPENSATION OBLIGATIONS; ADEQUATE
CONSIDERATION. Executive agrees that the payments and benefits provided herein,
together with any payments or benefits to which Executive is or may become
entitled to pursuant to the provisions of the Employment Agreement that survive
the termination of Executive's full-time employment as CEO pursuant to Section
9.9 of the Employment Agreement, are in full satisfaction of all obligations of
Cadence to Executive arising out of or in connection with Executive's employment
through the Transition Termination Date, including, without limitation, all
compensation, salary, bonuses, reimbursement of expenses, and benefits.

      13.   ATTORNEYS' FEES. In the event of any dispute, controversy, claim,
litigation or arbitration arising out of or concerning Executive's employment by
Cadence or the termination of Executive's employment or this Agreement, the
prevailing party in any

                                       7
<PAGE>

such dispute, controversy, claim, litigation or arbitration shall be entitled to
reasonable attorneys' fees (excluding expert fees and costs).

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

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

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

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

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

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

                                       8
<PAGE>

                             EXECUTION OF AGREEMENT

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

Dated: __________________.                      Dated:  _______________.

Michael J. Fister                               CADENCE DESIGN SYSTEMS, INC.

___________________________                     By: ____________________________
                                                    Name
                                                    Title
                                       9
<PAGE>

                                  ATTACHMENT 1

                                RELEASE OF CLAIMS

      1.    For valuable consideration, I irrevocably, fully and finally release
Cadence Design Systems, Inc. ("Cadence"), its parent, subsidiaries, affiliates,
directors, officers, agents and employees from all causes of action, claims,
suits, demands or other obligations or liabilities, whether known or unknown,
suspected or unsuspected, that I ever had or now have as of the time that I sign
this Release which relate to my hiring, my employment with Cadence, the
termination of my employment with Cadence and claims asserted in shareholder
derivative actions or shareholder class actions against Cadence and its officers
and Board of Directors, to the extent those derivative or class actions relate
to the period during which I served as CEO. The claims released include, but are
not limited to, any claims arising from or related to my employment with
Cadence, such as claims arising under (as amended) Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1974, the Americans with Disabilities Act, the Equal Pay Act, the Fair
Labor Standards Act, the California Fair Employment and Housing Act, the
California Labor Code, the Employee Retirement Income and Security Act of 1974
(except for any vested right I have to benefits under an ERISA plan), the state
and federal Worker Adjustment and Retraining Notification Act, and the
California Business and Professions Code; any other local, state, federal, or
foreign law governing employment; and the common law of contract and tort. This
Release is not intended to, and does not, encompass (i) any right to
compensation or benefits that I have under my Executive Transition and Release
Agreement with Cadence (including, without limitation, paragraphs 1, 4, 5 and 6
thereof) or pursuant to those provisions of my Employment Agreement dated as of
May 12, 2004 with Cadence, which, pursuant to Section 9.9 of such Employment
Agreement, survive the termination of my full-time employment as CEO, (ii) any
claims I may have for workers' compensation benefits under any of Cadence's
workers' compensation insurance policies or funds, and (iii) any claims related
to my COBRA rights.

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

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

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

      4.    I acknowledge that Cadence has given me 21 days in which to consider
this Release and advised me to consult an attorney about it. I further
acknowledge that

<PAGE>

once I execute this Release, I will have an additional 7 days in which to revoke
my acceptance of this Release by means of a written notice of revocation given
to ________. This Release will not be final and effective until the expiration
of this revocation period.

Dated: _______________________.             ____________________________________
                                                     Michael J. Fister

                                            ____________________________________
                                                        Sign Name

                                       2
<PAGE>

                                    EXHIBIT D

                        PROPRIETARY INFORMATION AGREEMENT

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.79
<SEQUENCE>7
<FILENAME>f01031exv10w79.txt
<DESCRIPTION>EXHIBIT 10.79
<TEXT>
<PAGE>
-
                                                                   EXHIBIT 10.79
                                   TERM SHEET

DATE: May 18, 2004

RE: Employment Agreement - Lavi Lev

CATEGORY                                TERMS

ANNUAL BASE SALARY:                     -     $450,000

ANNUAL BONUS FOR 2004:                  -     $450,000 to be paid at the same
                                              times and in the same relative
                                              percentages as per the Senior
                                              Executive Bonus Plan

ANNUAL TARGET BONUS BEYOND 2004:        -     $450,000- under the terms of the
                                              Cadence Senior Executive Bonus
                                              Plan, based on criteria set
                                              annually by the Compensation
                                              Committee (currently operating
                                              margin, revenue, net product
                                              bookings and individual
                                              performance)

EQUITY GRANTS/OPTIONS:                  -     Subject to shareholder approval
                                              and Executive remaining employed,
                                              an award of 250,000 incentive
                                              shares, vesting over 3 years
                                              according to the following
                                              schedule: December 15, 2004
                                              (41,667 shares), June 15, 2005
                                              (41,667 shares), December 15, 2005
                                              (41,667 shares), June 15, 2006
                                              (41,667 shares), December 15, 2006
                                              (41,667 shares) and June 15, 2007
                                              (41,667 shares)

                                        -     In the event that the shareholders
                                              of the Company fail to approve
                                              Proposal 2 at the June 15, 2004
                                              Annual Meeting, the Company and
                                              Executive shall negotiate in good
                                              faith to provide Executive
                                              incentives consistent with this
                                              Term Sheet in alternative forms of
                                              compensation

<PAGE>

SEPARATION AGREEMENT                    -     In exchange for a release of
                                              claims:

(TERMINATION WITHOUT CAUSE,                   -     12 months Annual Base Salary
CONSTRUCTIVE TERMINATION,                           (at the commencement of
RESIGNATION WITH EFFECTIVE                          employment transition
TERMINATION DATE BETWEEN                            period) and Annual Target
DECEMBER 15 AND DECEMBER 31,                        Bonus (at the conclusion of
2004, OR TERMINATION WITHIN                         the employment transition
13 MONTHS AFTER CHANGE IN                           period)
CONTROL)
                                              -     Continued vesting of options
                                                    and restricted stock for up
                                                    to 12 months (Executive is
                                                    available to consult -- up
                                                    to 20 hours per month)

                                              -     Paid COBRA coverage for 12
                                                    months

                                        -     Non-compete during 12-month
                                              Transition Period in EDA industry
                                              unless prior consent of Company
                                              obtained; such consent not to be
                                              unreasonably withheld. Executive
                                              to acknowledge reasonableness of
                                              Company's withholding of consent
                                              with respect to Synopsis, Mentor,
                                              Magma, Monterey Design, PDF
                                              Solutions and up to 5 other
                                              companies named by the Board of
                                              Directors or the most current list
                                              of competitors identified in the
                                              Company's SEC filings

                                        -     Non-solicit of employees for 2
                                              years

                                        2
<PAGE>

CHANGE IN CONTROL BENEFITS:             -     Same as above plus accelerated
                                              vesting of all stock options and
                                              restricted stock upon termination
                                              without cause or constructive
                                              termination

OTHER:                                  -     During Executive's employment,
                                              Executive to participate in
                                              Cadence's health, life, disability
                                              insurance programs for
                                              self/family; retirement and
                                              non-qualified deferred
                                              compensation plans

                                        -     Executive commits to remaining
                                              employed with Cadence at least
                                              through December 15, 2004

                                        -     Indemnification by Company to
                                              maximum extent allowed by law

                                        -     Arbitration provision governing
                                              all aspects of Executive's
                                              employment, except IP-related
                                              issues and non-compete,
                                              non-solicit and non-disparagement
                                              provisions

                                        3
<PAGE>

                          CADENCE DESIGN SYSTEMS, INC.
                              EMPLOYMENT AGREEMENT
                                  WITH LAVI LEV

      THIS AGREEMENT (this "Agreement") is made effective as of May 24, 2004
(the "Effective Date"), between CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), and LAVI LEV ("Executive").

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

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

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

1.    TERM AND DUTIES.

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

      1.2   SERVICES.

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

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

<PAGE>

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

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

2.    COMPENSATION.

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

      2.1   BASE SALARY. The Company shall initially pay Executive a base salary
of Four Hundred Fifty Thousand Dollars ($450,000) per year ("Base Salary"),
payable in installments in accordance with the Company's customary payroll
practices, less such deductions and withholdings required by law or authorized
by Executive. The Board of Directors of the Company (the "Board") or the
Compensation Committee of the Board (the "Compensation Committee") shall review
the amount of the Base Salary from time to time, but no less frequently than
annually.

      2.2   BONUS. Executive shall participate in the Company's Senior Executive
Bonus Plan or its successor (the "Bonus Plan") at an annual target bonus of Four
Hundred Fifty Thousand Dollars ($450,000) (the "Target Bonus") pursuant to the
terms

<PAGE>

of such Bonus Plan (the criteria for earning a bonus thereunder are set annually
by the Compensation Committee). For fiscal 2004, so long as Executive remains
employed by the Company as Executive Vice President and General Manager through
December 15, 2004, Executive shall be guaranteed a bonus of Four Hundred Fifty
Thousand Dollars ($450,000), to be paid at the times and in the manner as set
forth in the Bonus Plan. The Board or the Compensation Committee shall review
the amount of the Target Bonus from time to time, but no less frequently than
annually.

      2.3   EQUITY GRANTS.

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

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

                                        3
<PAGE>

the Company and Executive dated as of January 1, 2003, and attached hereto as
Exhibit A.

3.    EXPENSES AND BENEFITS.

      3.1   REASONABLE AND NECESSARY BUSINESS EXPENSES. In addition to the
compensation provided for in Section 2 hereof, the Company shall reimburse
Executive for all reasonable, customary and necessary expenses incurred in the
performance of Executive's duties hereunder. Executive shall first account for
such expenses by submitting a signed statement itemizing such expenses prepared
in accordance with the policy set by the Company for reimbursement of such
expenses. The amount, nature and extent of reimbursement for such expenses shall
always be subject to the control, supervision and direction of the CEO, Chief
Financial Officer and the Board, or such other persons as may be specified from
time to time by the CEO.

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

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

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

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

                                        4
<PAGE>

would be significantly more expensive to the Company than making a Loan, then
the Company need not make or maintain a Loan or provide a substitute for it.

4.    TERMINATION OF EMPLOYMENT.

      4.1   GENERAL. Executive's employment by the Company under this Agreement
shall terminate immediately upon delivery to Executive of written notice of
termination by the Company, upon the Company's receipt of written notice of
termination by Executive within thirty (30) days before the specified effective
date of such termination, or upon Executive's death or Permanent Disability (as
defined in Section 4.4 hereof). In the event that (i) the Company terminates
Executive's employment, except where Executive is terminated for Cause (as
defined in Section 4.2 hereof) or as the result of a Permanent Disability or
death, or (ii) where Executive voluntarily terminates his employment in
connection with a Constructive Termination (as defined in Section 4.3 hereof),
or (iii) where Executive voluntarily terminates his employment, for any reason,
with an effective date between December 15, 2004 and December 30, 2004, the
Company shall provide Executive with the benefits as set forth in the Executive
Transition and Release Agreement, in the form attached hereto as Exhibit B
("Transition Agreement") upon execution by Executive at or about the effective
date of such termination of the Transition Agreement.

      4.2   DEFINITION OF CAUSE. For purposes of this Agreement, "Cause" shall
be deemed to mean (1) Executive's gross misconduct or fraud in the performance
of his duties under this Agreement; (2) Executive's conviction or guilty plea or
plea of nolo contendere with respect to any felony or act of moral turpitude;
(3) Executive's engaging in any material act of theft or material
misappropriation of company property in connection with his employment; (4)
Executive's material breach of this Agreement, after written notice delivered to
Executive of such breach and failure to cure such breach, if curable, within
thirty (30) days following delivery of such notice; (5) Executive's material
breach of the Proprietary Information Agreement (as defined in

                                        5
<PAGE>

Section 8 hereof); (6) Executive's material failure/refusal to perform his
assigned duties, and, where such failure/refusal is curable, if such
failure/refusal is not cured within thirty (30) days following delivery of
written notice thereof from the Company; or (7) Executive's material breach of
the Company's Code of Business Conduct, as such code may be revised from time to
time, after written notice delivered to Executive identifying such breach and
his failure to cure such breach, if curable, within thirty (30) days following
delivery of such notice.

      4.3   CONSTRUCTIVE TERMINATION. Notwithstanding anything in this Section 4
to the contrary, Executive may, upon written notice to the Company, voluntarily
end his employment upon or within ninety (90) days following the occurrence of
an event constituting a Constructive Termination and be eligible to receive the
benefits set forth in the Transition Agreement in exchange for executing and
delivering that agreement in accordance with Section 9.3 hereof. For purposes of
this Agreement, "Constructive Termination" shall mean:

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

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

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

            (d)   any failure by the Company to obtain the written assumption of
this Agreement by any successor to the Company.

                                        6
<PAGE>

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

      4.5   CHANGE IN CONTROL.

            (a)   Should there occur a Change in Control (as defined below) and
if within ninety (90) days prior to, or thirteen (13) months following, the
Change in Control either (i) Executive is terminated without Cause or (ii)
Executive resigns his employment as a result of an event constituting a
Constructive Termination, then, in exchange for signing the Transition
Agreement, Executive shall be entitled to all of the benefits set forth therein,
except that Section 4(b) of the Transition Agreement will be replaced by the
following provision: "all outstanding stock options granted and restricted stock
issued by the Company to the Executive prior to the Change in Control (as
defined in Section 4.5 of Executive's Employment Agreement) shall have their
vesting fully accelerated so as to be 100% vested as of the Effective Date of
this Agreement. This acceleration will have no effect on any other provisions of
the plans governing the stock options and restricted stock."

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

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

                                        7
<PAGE>

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

                  (iii) the consummation of a merger or consolidation of the
                        Company with any other corporation, other than a merger
                        or consolidation in which-the holders of the Company's
                        outstanding voting securities immediately prior to such
                        merger or consolidation receive, in exchange for their
                        voting securities of the Company in consummation of such
                        merger or consolidation, securities possessing at least
                        fifty percent (50%) of the total voting power
                        represented by the outstanding voting securities of the
                        surviving entity (or parent thereof) immediately after
                        such merger or consolidation; or

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

      4.6   TERMINATION FOR CAUSE, ON ACCOUNT OF DEATH, PERMANENT DISABILITY, OR
VOLUNTARY TERMINATION. In the event Executive's employment is terminated for
Cause, or on account of death or Permanent Disability, or Executive

                                        8

<PAGE>

voluntarily terminates his employment with the Company, except if Executive
voluntarily terminates his employment for any reason with an effective date
between December 15, 2004 and December 30, 2004, then Executive will be paid
only (a) any earned but unpaid base salary and any outstanding expense
reimbursements submitted and approved pursuant to Section 3.1 hereof, and (b)
other unpaid vested amounts or benefits under Company compensation, incentive
and benefit plans, in each case as of the effective date of such termination.

5.    EXCISE TAX.

      In the event that any benefits payable to Executive pursuant to the
Transition Agreement ("Termination Benefits") (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any comparable successor provisions, and (ii)
but for this Section 5 would be subject to the excise tax imposed by Section
4999 of the Code, or any comparable successor provisions (the "Excise Tax"),
then Executive's Termination Benefits hereunder shall be either (a) provided to
Executive in full, or (b) provided to Executive as to such lesser extent which
would result in no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, when taking into account applicable federal,
state, local and foreign income and employment taxes, the Excise Tax, and any
other applicable taxes, results in the receipt by Executive, on an after-tax
basis, of the greatest amount of benefits, notwithstanding that all or some
portion of such benefits may be taxable under the Excise Tax. Unless the Company
and Executive otherwise agree in writing, any determination required under this
Section 5 shall be made in writing in good faith by a nationally recognized
accounting firm selected by the Company (the "Accountants"). In the event of a
reduction of benefits hereunder, Executive shall be given the choice of which
benefits to reduce. If Executive does not provide written identification to the
Company of which benefits he chooses to reduce within ten (10) days after
written notice of the Accountants' determination, and

                                        9
<PAGE>

Executive has not disputed the Accountants' determination, then the Company
shall select the benefits to be reduced. For purposes of making the calculations
required by this Section 5, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of the Code, and other
applicable legal authority. The Company and Executive shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5.

      If, notwithstanding any reduction described in this Section 5, the IRS
determines that Executive is liable for the Excise Tax as a result of the
receipt of any Termination Benefits, then Executive shall be obligated to pay
back to the Company, within thirty (30) days after a final IRS determination or
in the event that Executive challenges the final IRS determination, a final
judicial determination, a portion of the Termination Benefits equal to the
"Repayment Amount." The Repayment Amount shall be the smallest such amount, if
any, as shall be required to be paid to the Company so that Executive's net
after-tax proceeds with respect to the Termination Benefits (after taking into
account the payment of the Excise Tax and all other applicable taxes imposed on
such benefits) shall be maximized. The Repayment Amount shall be zero if a
Repayment Amount of more than zero would not result in Executive's net after-tax
proceeds with respect to the Termination Benefits being maximized. If the Excise
Tax is not eliminated pursuant to this paragraph, Executive shall pay the Excise
Tax.

      Notwithstanding any other provision of this Section 5, if (1) there is a
reduction in the payment of the Termination Benefits as described in this
Section 5, (2) the IRS later determines that Executive is liable for the Excise
Tax, the payment of which would result in the maximization of Executive's net
after-tax proceeds (calculated as if

                                       10

<PAGE>

Executive's benefits had not previously been reduced), and (3) Executive pays
the Excise Tax, then the Company shall pay to Executive those Termination
Benefits which were reduced pursuant to this subsection as soon as
administratively possible after Executive pays the Excise Tax so that
Executive's net after-tax proceeds with respect to the payment of the
Termination Benefits are maximized.

6.    DISPUTE RESOLUTION.

      (a)   Each of the parties expressly agrees that, to the extent permitted
by applicable law and to the extent that the enforceability of this Agreement is
not thereby impaired, any and all disputes, controversies or claims between
Executive and the Company arising under this Agreement (as opposed to the
Transition Agreement), except those arising under Section 6(d) hereof or under
the Proprietary Information Agreement (as defined in Section 8 hereof), shall be
determined exclusively by final and binding arbitration before a single
arbitrator in accordance with the JAMS Arbitration Rules and Procedures, or
successor rules then in effect, and that judgment upon the award of the
arbitrator may be rendered in any court of competent jurisdiction. This
includes, without limitation, any and all disputes, controversies, and/or claims
arising out of or concerning Executive's employment by the Company or the
termination of his employment or this Agreement, and includes, without
limitation, claims by Executive against directors, officers or employees of the
Company, whether arising under theories of liability or damages based on
contract, tort or statute, to the full extent permitted by law. As a material
part of this agreement to arbitrate claims, the parties expressly waive all
rights to a jury trial in court on all statutory or other claims. This Section 6
does not purport to limit either party's ability to recover any remedies
provided for by statute, including attorneys' fees.

      (b)   The arbitration shall be held in the San Jose, California
metropolitan area, and shall be administered by JAMS or, in the event JAMS does
not then conduct arbitration proceedings, a similarly reputable arbitration
administrator. Under such

                                       11

<PAGE>

proceeding, the parties shall select a mutually acceptable, neutral arbitrator
from among the JAMS panel of arbitrators. Except as provided herein, the Federal
Arbitration Act shall govern the interpretation and enforcement of such
arbitration proceeding. The arbitrator shall apply the substantive law (and the
law of remedies, if applicable) of the State of California, or federal law, if
California law is preempted, and the arbitrator is without jurisdiction to apply
any different substantive law. The parties agree that they will be allowed to
engage in adequate discovery, the scope of which will be determined by the
arbitrator, consistent with the nature of the claims in dispute. The arbitrator
shall have the authority to entertain a motion to dismiss and/or a motion for
summary judgment by any party and shall apply the standards governing such
motions under the Federal Rules of Civil Procedure. The arbitrator shall render
an award that shall include a written statement of opinion setting forth the
arbitrator's findings of fact and conclusions of law. Judgment upon the award
may be entered in any court having jurisdiction thereof. The parties intend this
arbitration provision to be valid, enforceable, irrevocable and construed as
broadly as possible.

      (c)   The Company shall be responsible for payment of the arbitrator's
fees as well as all administrative fees associated with the arbitration. The
parties shall be responsible for their own attorneys' fees and costs (including
expert fees and costs), except that if any party prevails on a statutory claim
that entitles the prevailing party to a reasonable attorneys' fees (with or
without expert fees) as part of the costs, the arbitrator may award reasonable
attorneys' fees (with or without expert fees) to the prevailing party in accord
with such statute.

      (d)   The parties agree, however, that damages would be an inadequate
remedy for the Company in the event of a breach or threatened breach of Section
1.3 of this Agreement or any provision of the Proprietary Information Agreement
(as defined in Section 8 hereof). In the event of any such breach or threatened
breach, Cadence may, either with or without pursuing any potential damage
remedies, obtain from a court of

                                       12

<PAGE>

competent jurisdiction, and enforce, an injunction prohibiting Executive from
violating Section 1.3 of this Agreement or any provision of the Proprietary
Information Agreement (as defined in Section 8 hereof) and requiring Executive
to comply with the terms of those agreements.

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

      Following his termination of full-time employment for any reason (other
than death), Executive shall cooperate with the Company in all matters relating
to the winding up of his pending work on behalf of the Company and the orderly
transfer of any such pending work to other employees of the Company as may be
designated by the Company. Such cooperation shall be provided by Executive at
mutually-convenient times. Executive also agrees to participate as a witness in
any litigation or regulatory proceeding to which the Company is a party at the
request of the Company upon delivery to Executive of reasonable advance notice.
With respect to the cooperation/participation described in the preceding
sentences, the Company will reimburse Executive for all reasonable expenses
incurred by Executive in the course of such cooperation/participation.
Furthermore, Executive agrees to return to the Company all property of the
Company, including all hard and soft copies of records, documents, materials and
files relating to confidential, proprietary or sensitive company information in
his possession or control, as well as all other company-owned property in his
possession or control, at the time of the termination of his full-time
employment, except to the extent that retention of any of such property is
necessary or desirable or convenient in order to permit Executive to satisfy his
obligations under this Section 7 or under the Transition Agreement, after which
time Executive shall promptly return all such retained company property.

                                       13

<PAGE>

8.    PROPRIETARY INFORMATION AGREEMENT.

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

9.    GENERAL.

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

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

      9.3   NOTICES. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be considered
effective either (a) upon personal service or (b) upon delivery by facsimile and
depositing such notice in the U.S. Mail, postage prepaid, return receipt
requested and, if addressed to the Company, in care of the General Counsel at
the Company's principal corporate address, and, if addressed to Executive, at
his most recent address shown on the Company's corporate records or at any other
address which Executive may specify in any appropriate notice to the Company, or
(c) upon only depositing such notice in the U.S. Mail as described in clause (b)
of this paragraph.

                                       14

<PAGE>

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

      9.5   ENTIRE AGREEMENT. The parties hereto acknowledge that each has read
this Agreement, understands it, and agrees to be bound by its terms. The parties
further agree that this Agreement, the exhibits to this Agreement, any existing
stock option agreements between the parties, and the documents, plans and
policies referred to in this Agreement (which are hereby incorporated herein by
reference) constitute the complete and exclusive statement of the agreement
between the parties and supersedes all proposals (oral or written),
understandings, agreements (including, but not limited to, the Executive
Retention Agreement signed by Executive on or about July 1, 2003),
representations, conditions, covenants, and all other communications between the
parties relating to the subject matter hereof; provided, however, that the
Employee Invention and Confidential Information Agreement signed by Executive on
or about December 8, 2000 and Executive's agreement, made prior to the Effective
Date of this Agreement, to abide by the Company's policies, including but not
limited to the Company's Employee Handbook, Sexual Harassment Policy and Code of
Business Conduct, remain in full force and effect and govern Executive's conduct
from the date of execution of such agreements until the Effective Date of this
Agreement.

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

      9.7   ASSIGNMENT AND SUCCESSORS. The Company shall have the right to
assign its rights and obligations under this Agreement to an entity that,
directly or indirectly, acquires all or substantially all of the assets of the
Company. The rights and obligations of the Company under this Agreement shall
inure to the benefit and shall be binding upon the successors and assigns of the
Company. Executive shall not have

                                       15

<PAGE>

any right to assign his obligations under this Agreement and shall only be
entitled to assign his rights under this Agreement upon his death, solely to the
extent permitted by this Agreement, or as otherwise agreed to by the Company.

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

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

      9.10  DEPARTMENT OF HOMELAND SECURITY VERIFICATION REQUIREMENT. If
Executive has not already done so, he will timely file all documents required by
the Department of Homeland Security to verify his identity and his lawful
employment in the United States. Notwithstanding any other provision of this
Agreement, if Executive fails to meet any such requirements promptly after
receiving a written request from the Company to do so, his employment will
terminate immediately upon notice from the Company and he will not be entitled
to any compensation from the Company of any type.

      9.11  HEADINGS. The headings of the several sections and paragraphs of
this Agreement are inserted solely for the convenience of reference and are not
a part of

                                       16

<PAGE>

and are not intended to govern, limit or aid in the construction of any term or
provision hereof.

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

                                       17

<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Agreement on this 24th
day of May, 2004.

CADENCE DESIGN SYSTEMS, INC.                    EXECUTIVE

By: /s/ R.L. Smith McKeithen                    /s/ Lavi Lev
    ------------------------------              --------------------------------
    R.L. Smith McKeithen Lavi Lev               Lavi Lev

Title: Sr. VP & General Counsel

                                       18

<PAGE>

                                    EXHIBIT A

                            INDEMNIFICATION AGREEMENT

<PAGE>

                               INDEMNITY AGREEMENT

      This Indemnity Agreement (this "Agreement"), dated as of January 1, 2003,
is made by and between Cadence Design Systems, Inc., a Delaware corporation (the
"Company"), and Lavi Lev, Executive Vice President of the Company (the
"Indemnitee").

                                    RECITALS

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

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

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

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

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

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

<PAGE>

and its subsidiaries, it is necessary for the Company to contractually indemnify
its officers and directors and the officers and directors of its subsidiaries,
and to assume for itself maximum liability for claims against such persons in
connection with their service;

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

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

                                    AGREEMENT

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

      1.    Definitions.

            (a)   Covered Person. For purposes of this Agreement, a "covered
person" shall include the Indemnitee and any heir, executor, administrator or
other legal representative of the Indemnitee following the Indemnitee's death or
incapacity.

            (b)   Expenses. For purposes of this Agreement, "expenses" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Section 145 of the Delaware General Corporation Law or otherwise.

            (c)   Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, legislative, investigative or any other
type whatsoever, and including any of the foregoing commenced by or on behalf of
the Company, derivatively or otherwise.

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

      2.    Agreement to Serve. The Indemnitee agrees to serve and/or continue
to serve the Company and/or its subsidiaries in the Indemnitee's present
capacity, so long as the Indemnitee is duly appointed or elected or until such
time as the Indemnitee tenders a written resignation; provided, however, that
nothing contained in this Agreement is intended to create any right to continued
employment by Indemnitee.

                                        2
<PAGE>

      3.    Maintenance of Liability Insurance.

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

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

      4.    Mandatory Indemnification.

            (a)   Right to Indemnification. In the event a covered person was or
is made a party or is threatened to be made a party to or is involved in any
proceeding, by reason of the fact that the Indemnitee is or was a director,
officer or employee of the Company (including any subsidiary or affiliate
thereof or any constituent corporation or any of the foregoing absorbed in any
merger) or is or was serving at the request of the Company (including such
subsidiary, affiliate or constituent corporation) as a director, officer or
employee of another corporation, or of a partnership, joint venture, trust or
other entity, including service with respect to employee benefit plans, such
person shall be indemnified and held harmless by the Company to the fullest
extent permitted by applicable law, against all expenses, liability and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
and other taxes and penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
indemnification shall continue after the Indemnitee has ceased to serve in such
capacity and shall inure to the benefit of the Indemnitee's heirs, executors and
administrators; provided, however, that except for a proceeding pursuant to
Section 7, the Company shall indemnify any such person in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Company.

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

            (c)   Partial Indemnification. If a covered person is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, forfeitures, attorneys' fees, ERISA excise
taxes or penalties, and amounts paid in settlement) incurred by the Indemnitee
in the investigation, defense, settlement or appeal of a proceeding,

                                        3
<PAGE>

but is not entitled, however, to indemnification for all of the total amount
thereof, the Company shall nevertheless indemnify such person for such total
amount except as to the portion thereof to which the Indemnitee is not entitled.

      5.    Mandatory Advancement of Expenses. The Company shall pay all
expenses incurred by a covered person, or in defending any such proceeding as
they are incurred in advance of its final disposition; provided, however, that
if the Delaware General Corporation Law then so requires, the payment of such
expenses incurred in advance of the final disposition of such proceeding shall
be made only upon delivery to the Company of an undertaking, by or on behalf of
such covered person, to repay all amounts so advanced if it should be determined
ultimately that such person is not entitled to the payment of such expenses by
the Company.

      6.    Notice and Other Indemnification Procedures.

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

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

            (c)   In the event the Company shall be obligated to advance the
expenses for any proceeding against the covered person, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by the covered person (such approval not to be unreasonably
withheld or delayed), upon the delivery to the covered person of written notice
of its election so to do. After delivery of such notice, approval of such
counsel by the covered person and the retention of such counsel by the Company,
the Company will not be liable to the covered person under this agreement for
any fees of counsel subsequently incurred by the covered person with respect to
the same proceeding, provided that (i) the covered person shall have the right
to employ separate counsel in any such proceeding at the covered person's
expense; and (ii) if (A) the employment of counsel by the covered person has
been previously authorized by the Company, (B) the Company shall not, in fact,
have employed counsel to assume the defense of such proceeding, or (C) it is
determined by legal counsel for the Company and the Indemnitee that a conflict
of interest exists requiring the Indemnitee to retain separate counsel, the fees
and expenses of the covered person's counsel shall be at the expense of the
Company.

      7.    Right of Indemnitee to Bring Suit. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Company within
sixty days after a written claim has been received by the Company, except in the
case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty days, the covered person may at any time thereafter bring
suit against the Company to recover the unpaid amount of the claim. If

                                        4
<PAGE>

successful in whole or in part in any such suit, or in a suit brought by the
Company to recover an advancement of expenses pursuant to the terms of an
undertaking, the covered person shall be entitled to be paid also the expense of
prosecuting or defending such suit. In any suit brought by a covered person to
enforce a right to indemnification hereunder (but not in a suit brought by a
covered person to enforce a right to an advancement of expenses) it shall be a
defense that indemnification is not permitted by applicable law. Further, in any
suit by the Company to recover an advancement of expenses pursuant to the terms
of an undertaking, the Company shall be entitled to recover such expenses upon a
final adjudication that indemnification is not permitted by applicable law.
Neither the failure of the Company (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the covered
person is proper in the circumstances, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel or its
stockholders) that indemnification is not proper, shall create a presumption
that the covered person is not entitled to indemnification or, in the case of
such a suit brought by a covered person, be a defense to such suit. In any suit
brought by a covered person to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Company to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving that
the covered person is not entitled to be indemnified, or to such advancement of
expenses, shall be on the Company.

      8.    Limitation of Actions and Release of Claims. No proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any subsidiary against the Indemnitee, the Indemnitee's spouse, heirs,
estate, executors or administrators after the expiration of one year from the
act or omission of the Indemnitee upon which such proceeding is based; however,
in a case where the Indemnitee fraudulently conceals the facts underlying such
cause of action, no proceeding shall be brought and no cause of action shall be
asserted after the expiration of one year from the earlier of (i) the date the
Company or any subsidiary of the Company discovers such facts, or (ii) the date
the Company of any subsidiary of the Company could have discovered such facts by
the exercise of reasonable diligence. Any claim or cause of action of the
Company or any subsidiary of the Company, including claims predicated upon the
negligent act or omission of the Indemnitee, shall be extinguished and deemed
released unless asserted by filing of a legal action within such period. This
Section 8 shall not apply to any cause of action which has accrued on the date
hereof and of which the Indemnitee is aware on the date hereof, but as to which
the Company has no actual knowledge apart from the Indemnitee's knowledge.

      9.    Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee or any covered person may have under any
provision of law, the Company's Certificate of Incorporation or Bylaws, the vote
of the Company's shareholders or disinterested directors, other agreements, or
otherwise, both as to action in the Indemnitee's official capacity and to action
in another capacity while occupying the Indemnitee's position as an officer,
director or employee of the Company, and the Indemnitee's right hereunder shall
continue after the Indemnitee has ceased to so act and shall inure to the
benefit of any heir, executor, administrator or other legal representative of
the Indemnitee.

                                        5
<PAGE>

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

      11.   Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to Section 10
hereof.

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

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

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

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

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

                                        6
<PAGE>

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

                           CADENCE DESIGN SYSTEMS, INC.

                           By: R.L. Smith McKeithen
                               -----------------------------------

                               R.L. Smith McKeithen
                               Sr. Vice President, General Counsel and Secretary
                               2655 Seely Avenue
                               San Jose, CA 95134

                           INDEMNITEE

                           /s/ Lavi Lev
                           ---------------------------------------
                           Name: Lavi Lev

                           Address: 21771 HEBER WAY
                                    SARITOGA, CA 95070
f
                              7
<PAGE>

                                    EXHIBIT B

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

<PAGE>

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

      This Executive Transition and Release Agreement (this "Agreement") is
entered into between Lavi Lev ("Executive") and Cadence Design Systems, Inc.
("Cadence" or the "Company").

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

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

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

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

            c.    one year from the Transition Commencement Date; if, however,
                  that year concludes on or before December 15, 2005, then it is
                  agreed that the period shall end on December 16, 2005.

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

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

            b.    As a Cadence Executive Vice President and General Manager, as
well as other positions Executive may have held with Cadence, Executive has
obtained extensive and valuable knowledge and information concerning Cadence's
business (including confidential information relating to Cadence and its
operations, intellectual property assets, contracts, customers, personnel,
plans, marketing plans, research and development plans and prospects). Executive
acknowledges and agrees that it would be virtually impossible for Executive to
work as an employee, consultant or advisor in

<PAGE>

the electronic design automation ("EDA") industry (as defined below) without
inevitably disclosing confidential and proprietary information belonging to
Cadence. Accordingly, during the Transition Period, Executive will not, without
the prior written consent of Cadence, directly or indirectly, provide services,
whether as an employee, consultant, independent contractor, agent, sole
proprietor, partner, joint venture, corporate officer or director, on behalf of
any corporation, limited liability company, partnership, or other entity or
person that (i) is engaged in the EDA industry, (ii) directly competes against
Cadence or any of its existing or future affiliates in the EDA industry anywhere
in the world, or (iii) produces, markets, distributes or sells any products,
directly or indirectly through intermediaries, that are competitive with EDA
industry products produced, marketed, sold or distributed by Cadence. Such prior
written consent shall not be unreasonably withheld by Cadence; provided,
however, that such consent may be in all cases withheld with respect to the
companies listed in Exhibit A attached hereto and up to five (5) other companies
as may be designated by the Board of Directors of Cadence from time to time and
delivered to Executive prior to the Company's termination of his employment (or,
in the event Executive terminates his employment, prior to the date on which
Executive has notified the Company of his decision to terminate such employment)
or are named as a competitor of Cadence in the most recent applicable document
filed by Cadence before the Transition Commencement Date with the Securities and
Exchange Commission that contains such information.

            As used in this paragraph, the term "EDA industry" means the
research, design or development of electronic design automation software,
electronic design verification, emulation hardware and related products, such
products containing hardware, software and both hardware and/or software
products, designs or solutions for, and all intellectual property embodied in
the foregoing, or in commercial electronic design and/or maintenance services,
such services including all intellectual property embodied in the foregoing.

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

                                        2
<PAGE>

of this paragraph 3(c) shall also be in effect for a period of one year
following the Termination Date. This paragraph 3(c) does not alter any of the
obligations the Executive may have under the Employee Proprietary Information
Agreement, dated as of May 24, 2004.

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

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

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

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

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

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

            c.    if Executive elects to continue coverage under Cadence's
                  medical, dental, and vision insurance plans pursuant to COBRA
                  following

                                        3
<PAGE>

                  the Transition Commencement Date, Cadence will pay Executive's
                  COBRA premiums during the Transition Period; and

            d.    continued access to Cadence voicemail.

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

      5.    FIRST TERMINATION PAYMENT AND BENEFITS. Provided that Executive does
not resign from employment with Cadence and Cadence does not terminate
Executive's employment with Cadence due to a breach by Executive of Executive's
duties under this Agreement, and in consideration for Executive's acceptance of
this Agreement and Executive's further execution and delivery of a Release of
Claims in the form of Attachment 1 hereto, Cadence will provide to Executive
within ten business days after the Effective Date (as defined in paragraph 9
hereof) of this Agreement and after Executive has returned to the Company all
hard and soft copies of records, documents, materials and files relating to
confidential, proprietary or sensitive company information in his possession or
control, as well as all other Company-owned property, the following termination
payment to which Executive would not otherwise be entitled:

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

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

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

      7.    GENERAL RELEASE OF CLAIMS.

            a.    Executive hereby irrevocably, fully and finally releases
Cadence, its parent, subsidiaries, affiliates, directors, officers, agents and
employees ("Releasees") from all causes of action, claims, suits, demands or
other obligations or liabilities, whether known or unknown, suspected or
unsuspected, that Executive ever had or now has as of the time that Executive
signs this Agreement which relate to his hiring, his employment with the
Company, the termination of his employment with the Company and claims asserted
in shareholder derivative actions or shareholder class actions against the
Company and its officers and Board of Directors, to the extent those

                                        4
<PAGE>

derivative or class actions relate to the period during which Executive served
as Executive Vice President and General Manager. The claims released include,
but are not limited to, any claims arising from or related to Executive's
employment with Cadence, such as claims arising under (as amended) Title VII of
the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1974, the Americans with Disabilities Act,
the Equal Pay Act, the Fair Labor Standards Act, the California Fair Employment
and Housing Act, the California Labor Code, the Employee Retirement Income and
Security Act of 1974 (except for any vested right Executive has to benefits
under an ERISA plan), the state and federal Worker Adjustment and Retraining
Notification Act, and the California Business and Professions Code; any other
local, state, federal, or foreign law governing employment; and the common law
of contract and tort. In no event, however, shall any claims, causes of action,
suits, demands or other obligations or liabilities be released pursuant to the
foregoing if and to the extent they relate to:

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

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

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

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

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

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

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

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

                                        5
<PAGE>

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

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

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

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

                                        6
<PAGE>

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

      12.   FULL SATISFACTION OF COMPENSATION OBLIGATIONS; ADEQUATE
CONSIDERATION. Executive agrees that the payments and benefits provided herein
are in full satisfaction of all obligations of Cadence to Executive arising out
of or in connection with Executive's employment through the Termination Date,
including, without limitation, all compensation, salary, bonuses, reimbursement
of expenses, and benefits.

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

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

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

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

                                        7
<PAGE>

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

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

                                        8
<PAGE>

                             EXECUTION OF AGREEMENT

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

Dated: ____________________________.         Dated: ___________________________.

Lavi Lev                                     CADENCE DESIGN SYSTEMS, INC.

____________________________________         By: _______________________________
                                                        <<HRVP_Name>>
                                                        <<HRVP_ Title_1>>

                                        9
<PAGE>

                                  ATTACHMENT 1

                                RELEASE OF CLAIMS

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

                  i.    any amounts or benefits to which I am or become entitled
to pursuant to the provisions of this Agreement or pursuant to the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of my full-time employment;

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

                  iii.  claims related to my COBRA rights; and

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

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

<PAGE>

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

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

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

Dated: ____________________                _____________________________________
                                                        Print Name
                                           _____________________________________
                                                        Sign Name

                                       12
<PAGE>

                                  ATTACHMENT 2

                                RELEASE OF CLAIMS

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

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

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

                  iii.  claims related to my COBRA rights; and

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

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

<PAGE>

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

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

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

Dated: ____________________.               _____________________________________
                                                       Print Name
                                           _____________________________________
                                                       Sign Name

                                       14
<PAGE>

                                    EXHIBIT C

            EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

<PAGE>

            AMENDMENT TO THE CADENCE DESIGN SYSTEMS, INC. EMPLOYMENT
                             AGREEMENT WITH LAVI LEV

      The following provision is substituted for the existing Paragraph 2 in the
Executive Transition and Release Agreement, which is attached to the Cadence
Design Systems, Inc. Employment Agreement with Lavi Lev ("Employment
Agreement"):

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

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

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

            c.    one year from the Transition Commencement Date; if, however,
                  that year concludes on or before February 1, 2006, then it is
                  agreed that the period shall end on February 2, 2006.

      Except as expressly provided by this amendment, the Employment Agreement
and its exhibits remain in full force and effect.

      IN WITNESS WHEREOF, the parties have executed this Amendment to the
Employment Agreement on this 24th day of June, 2004.

CADENCE DESIGN SYSTEMS, INC.                        EXECUTIVE

By: /s/ R.L. Smith McKeithen                        /s/ lavi Lev
    ---------------------------------------         ---------------------------
    R.L. Smith McKeithen                            Lavi Lev

Title: Sr. VP & General Counsel

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.80
<SEQUENCE>8
<FILENAME>f01031exv10w80.txt
<DESCRIPTION>EXHIBIT 10.80
<TEXT>
<PAGE>


                                                                   EXHIBIT 10.80

                          CADENCE DESIGN SYSTEMS, INC.
                              EMPLOYMENT AGREEMENT
                                WITH KEVIN BUSHBY

      THIS AGREEMENT (this "Agreement") is made effective as of May 26, 2004
(the "Effective Date"), between CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), and KEVIN BUSHBY ("Executive").

      WHEREAS, Executive is currently employed by the Company as Executive Vice
President, Worldwide Field Operations;

      WHEREAS, Executive and 849 College Avenue, Inc., a wholly-owned subsidiary
of the Company (the "Landlord"), have entered into that certain Residential
Lease dated as of March 1, 2003 (the "Residential Lease"); and

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

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

1.    TERM AND DUTIES.

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

      1.2   SERVICES.

            (a)   Executive shall continue to have the title of Executive Vice
President, Worldwide Field Operations. Executive's duties will be assigned to
Executive by the Company's Chief Executive Officer ("CEO"), to whom Executive
will report at all

<PAGE>

 times during his employment (other than during any Transition Period described
 in Exhibit B), unless Executive otherwise agrees in writing.

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

      1.3   SERVICES TO BE EXCLUSIVE. During his employment with the Company,
Executive agrees to devote his full productive time and best efforts to the
performance of Executive's duties hereunder. Executive further agrees, as a
condition to the performance by the Company of each and all of its obligations
hereunder, that so long as Executive is employed by the Company or receiving
compensation or any other consideration from the Company, he will not directly
or indirectly render services of any nature to, otherwise become employed by,
serve on the board of directors of, or otherwise participate or engage in any
other business without the CEO's prior written consent. Nothing herein contained
shall preclude Executive from (a) serving on the board of directors of up to two
other companies so long as such companies are not engaged in the "EDA industry"
(as that phrase is defined in Exhibit B), and (b) having outside personal
investments and involvement with appropriate community activities. With respect
to the activities described in the previous sentence, Executive may devote a
reasonable amount of time to such matters, provided that they shall in no manner
interfere with or derogate from Executive's work for the Company.

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

2.    COMPENSATION.

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

      2.1   BASE SALARY. The Company shall pay Executive a base salary of Four
Hundred Fifty Thousand Dollars ($450,000) per year ("Base Salary"), payable in

                                       2
<PAGE>

installments in accordance with the Company's customary payroll practices, less
such deductions and withholdings required by law or authorized by Executive. The
Board of Directors of the Company (the "Board") or the Compensation Committee of
the Board (the "Compensation Committee") shall review the amount of the Base
Salary from time to time, but no less frequently than annually.

      2.2   BONUS. Executive shall participate in the Company's Senior Executive
Bonus Plan or its successor (the "Bonus Plan") at an annual target bonus of Six
Hundred Fifty Thousand Dollars ($650,000) (the "Target Bonus") pursuant to the
terms of such Bonus Plan (the criteria for earning a bonus thereunder are set
annually by the Compensation Committee). The Board or the Compensation Committee
shall review the amount of the Target Bonus from time to time, but no less
frequently than annually.

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

      2.4   INDEMNIFICATION. In the event Executive is made, or threatened to be
made, a party to any legal action or proceeding, whether civil or criminal, by
reason of the fact that Executive is or was a director or officer of the Company
or serves or served any other corporation or other person which is at least
fifty percent (50%) or more owned by the Company or controlled by the Company in
any capacity at the Company's

                                        3
<PAGE>

request, Executive shall be indemnified by the Company, and the Company shall
pay Executive's related expenses when and as incurred, all to the fullest extent
not prohibited by law, as more fully described in that Indemnification Agreement
between the Company and Executive dated as of May 14, 2004, and attached hereto
as Exhibit A.

3.    EXPENSES AND BENEFITS.

      3.1   REASONABLE AND NECESSARY BUSINESS EXPENSES. In addition to the
compensation provided for in Section 2 hereof, the Company shall reimburse
Executive for all reasonable, customary and necessary expenses incurred in the
performance of Executive's duties hereunder. Executive shall first account for
such expenses by submitting a signed statement itemizing such expenses prepared
in accordance with the policy set by the Company for reimbursement of such
expenses. The amount, nature and extent of reimbursement for such expenses shall
always be subject to the control, supervision and direction of the CEO, Chief
Financial Officer and the Board, or such other persons as may be specified from
time to time by the CEO.

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

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

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

            (c)   In lieu of payments to the Cadence UK Employee Benefit Trust
2002, to provide funding for a private retirement plan for Executive, the
Company shall pay Executive, through fiscal 2005 (1) each month, an amount equal
to 0.833% of Executive's annual Base Salary, and (2) an amount equal to 10% of
any bonus paid to

                                        4
<PAGE>

Executive at the time any bonus payments are made (even if the bonus for fiscal
2005 is paid in 2006);

            (d)   The Company shall provide Executive with cost of living
adjustment payments in the net amount (after deduction of all applicable taxes
and other withholdings) of $6,600 per month until the later of (i) the end of
the Transition Period defined in Exhibit B, or (ii) the termination of
Executive's full-time employment for any reason;

            (e)   The Company shall provide, at its cost, the legal and other
assistance necessary to process "green cards" (or other permanent resident
status) for Executive and the other members of Executive's immediate family, who
are eligible as derivative beneficiaries, as well as to address any other U.S.
immigration issues that may arise for Executive and his family during
Executive's employment with the Company, including during the Transition Period,
if applicable, described in the Executive Transition and Release Agreement, in
the form attached hereto as Exhibit B (the "Transition Agreement"). However,
this paragraph shall not be construed as a guarantee by the Company that the
Executive will be able to obtain a "green card";

            (f)   In the event Executive's employment with the Company is
terminated other than for Cause (as defined in Section 4.2 hereof) or if
Executive resigns his employment as a result of an event constituting a
Constructive Termination (as defined in Section 4.3 hereof), and Executive
relocates from the San Francisco Bay Area to the United Kingdom within twelve
(12) months after such termination of Executive's full-time employment, or such
other date agreed to in writing by the Company in its sole discretion, the
Company shall reimburse Executive for all reasonable, customary and necessary
moving and relocation expenses, including airfare for Executive's family,
incurred by Executive;

            (g)   The Company will cause the Landlord not to exercise its right
to terminate the Residential Lease, except upon Executive's default thereunder,
during

                                        5
<PAGE>

Executive's full-time employment with the Company. If the Residential Lease
expires during Executive's employment with the Company, the Company will
negotiate in good faith to extend the term of the Residential Lease. In the
event Executive's employment with the Company is terminated other than for Cause
(as defined in Section 4.2 hereof) or if Executive resigns his employment as a
result of an event constituting Constructive Termination (as defined in Section
4.3 hereof), the Company will cause the Landlord not to exercise its right to
terminate the Residential Lease, except upon Executive's default thereunder,
such that Executive will remain a tenant until 12 months following the date upon
which Executive's employment is terminated other than for Cause or as a result
of a Constructive Termination;

            (h)   The Company shall, pursuant to its standard tax equalization
practices and subject to the limitation set forth below, pay such additional
amounts to Executive as may be necessary to cause Executive's overall income tax
expense with respect to his (a) base salary and cash bonus received, and
ordinary income from the exercise of stock options during the year ended
December 31, 2003, and (b) base salary and cash bonus received from the Company
during the calendar years ended December 31, 2004 and 2005, to be no greater
than what such income tax expense would have been with respect to such base
salary, cash bonus and, in the case of the year ended December 31, 2003,
ordinary income from the exercise of stock options, had Executive resided in the
United Kingdom for the entirety of each such year. The equalization payments
hereunder shall be determined by taking into account such factors as the Company
reasonably determines are relevant to the determination of Executive's overall
tax cost and tax cost applicable to base salary and cash bonus, and shall be
grossed up as necessary to take into account any taxes imposed on the amounts
paid pursuant to the preceding sentence. Notwithstanding anything in this
paragraph to the contrary, the amount payable by the Company to Executive
hereunder (not including any "gross up" payment pursuant to the preceding
sentence) with respect

                                        6
<PAGE>

to each of the years ended December 31, 2004 and 2005 shall in no event exceed
the amount that would be payable with respect to such year if the aggregate tax
rate applicable to Executive for such year exceeded the aggregate tax rate that
would have been applicable to Executive had he been a resident of the United
Kingdom for the entirety of such year by no more than three percent (3%). In
addition to the foregoing, the Company shall pay to Executive, on an after-tax
basis, the following (1) any fines, penalties and interest incurred as a result
of a delay in filing caused, or incorrect information provided to Executive, by
the Company, and (2) the reasonable cost incurred by Executive to prepare his
income tax returns for the taxable year ended December 31, 2003, and, to the
extent related to items pertaining solely to his income from the Company, for
the taxable years ended December 31, 2004 and 2005.

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

4.    TERMINATION OF EMPLOYMENT.

      4.1   GENERAL. Executive's employment by the Company under this Agreement
shall terminate immediately upon delivery to Executive of written notice of
termination by the Company, upon the Company's receipt of written notice of
termination by Executive within thirty (30) days before the specified effective
date of such termination, or upon Executive's death or Permanent Disability (as
defined in Section 4.4 hereof). In the event of such termination, except where
Executive is terminated for Cause (as defined in Section 4.2 hereof) or as the
result of a Permanent

                                       7
<PAGE>

Disability or death, or where Executive voluntarily terminates his employment
other than a Constructive Termination (as defined in Section 4.3 hereof), and
upon execution by Executive at or about the effective date of such termination
of the Transition Agreement, in the form attached hereto as Exhibit B, the
Company shall provide Executive with the benefits as set forth in the Transition
Agreement.

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

      4.3   CONSTRUCTIVE TERMINATION. Notwithstanding anything in this Section 4
to the contrary, Executive may, upon written notice to the Company, voluntarily
end his employment upon or within ninety (90) days following the occurrence of
an event constituting a Constructive Termination and be eligible to receive the
benefits set forth in the Transition Agreement in exchange for executing and
delivering that agreement in accordance with Section 9.3 hereof. For purposes of
this Agreement, "Constructive Termination" shall mean:

                                        8
<PAGE>

            (a)   a material adverse change, without Executive's written
consent, in Executive's authority or duties causing Executive's position to be
of materially less stature or responsibility, after written notice delivered to
the Company of such change and the Company's failure to cure such change, if
curable, within thirty (30) days following delivery of such notice; or any
change, without Executive's written consent, to Executive's title or Executive's
reporting structure causing Executive to no longer report to the CEO of the
Company, after written notice delivered to the Company of such change and the
Company's failure to cure such change, if curable, within thirty (30) days
following delivery of such notice;

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

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

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

            (e)   any failure by the Company to obtain the written assumption of
this Agreement by any successor to the Company.

      4.4   PERMANENT DISABILITY. For purposes of this Agreement, "Permanent
Disability" shall mean any medically determinable physical or mental impairment
that renders Executive unable to perform effectively his duties under this
Agreement for a continuous period of not less than twelve (12) months.

                                        9
<PAGE>

      4.5   CHANGE IN CONTROL.

            (a)   Should there occur a Change in Control (as defined below) and
if within ninety (90) days prior to, or thirteen (13) months following, the
Change in Control either (i) Executive is terminated without Cause or (ii)
Executive resigns his employment as a result of an event constituting a
Constructive Termination, then, in exchange for signing the Transition
Agreement, Executive shall be entitled to all of the benefits set forth therein,
except that Section 4(b) of the Transition Agreement will be replaced by the
following provision: "all outstanding stock options granted and restricted stock
issued by the Company to the Executive prior to the Change in Control (as
defined in Section 4.5 of Executive's Employment Agreement) shall have their
vesting fully accelerated so as to be 100% vested as of the Effective Date of
this Agreement. This acceleration will have no effect on any other provisions of
the plans governing the stock options and restricted stock."

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

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

                  (ii)  except pursuant to the exception applicable to clause
                        (iii) below, a change in the composition of the Board
                        occurring within a two-year period, as a result of which
                        fewer than a majority of the directors are Incumbent
                        Directors "Incumbent Directors" means directors who
                        either (i) are directors of the Company as of the
                        Effective Date, or (ii) are elected, or

                                       10
<PAGE>

                        nominated for election, to the Board with the
                        affirmative votes of at least a majority of the
                        Incumbent Directors at the time of such election or
                        nomination, but will not include an individual whose
                        election or nomination is in connection with an actual
                        or threatened proxy contest relating to the election of
                        directors to the Board);

                  (iii) the consummation of a merger or consolidation of the
                        Company with any other corporation, other than a merger
                        or consolidation in which the holders of the Company's
                        outstanding voting securities immediately prior to such
                        merger or consolidation receive, in exchange for their
                        voting securities of the Company in consummation of such
                        merger or consolidation, securities possessing at least
                        fifty percent (50%) of the total voting power
                        represented by the outstanding voting securities of the
                        surviving entity (or parent thereof) immediately after
                        such merger or consolidation; or

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

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

                                       11
<PAGE>

5.    EXCISE TAX.

      In the event that any benefits payable to Executive pursuant to the
Transition Agreement ("Termination Benefits") (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any comparable successor provisions, and (ii)
but for this Section 5 would be subject to the excise tax imposed by Section
4999 of the Code, or any comparable successor provisions (the "Excise Tax"),
then Executive's Termination Benefits hereunder shall be either (a) provided to
Executive in full, or (b) provided to Executive as to such lesser extent which
would result in no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, when taking into account applicable federal,
state, local and foreign income and employment taxes, the Excise Tax, any other
applicable taxes, and the tax equalization described in paragraph 3.2(h),
results in the receipt by Executive, on an after-tax basis, of the greatest
amount of benefits, notwithstanding that all or some portion of such benefits
may be taxable under the Excise Tax. Unless the Company and Executive otherwise
agree in writing, any determination required under this Section 5 shall be made
in writing in good faith by a nationally recognized accounting firm selected by
the Company (the "Accountants"). In the event of a reduction of benefits
hereunder, Executive shall be given the choice of which benefits to reduce. If
Executive does not provide written identification to the Company of which
benefits he chooses to reduce within ten (10) days after written notice of the
Accountants' determination, and Executive has not disputed the Accountants'
determination, then the Company shall select the benefits to be reduced. For
purposes of making the calculations required by this Section 5, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of the Code, and other applicable legal authority. The Company and
Executive shall furnish to the Accountants such information and documents as the
Accountants may reasonably

                                       12
<PAGE>

request in order to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5.

      If, notwithstanding any reduction described in this Section 5, the IRS
determines that Executive is liable for the Excise Tax as a result of the
receipt of any Termination Benefits, then Executive shall be obligated to pay
back to the Company, within thirty (30) days after a final IRS determination or
in the event that Executive challenges the final IRS determination, a final
judicial determination, a portion of the Termination Benefits equal to the
"Repayment Amount." The Repayment Amount shall be the smallest such amount, if
any, as shall be required to be paid to the Company so that Executive's net
after-tax proceeds with respect to the Termination Benefits (after taking into
account the payment of the Excise Tax and all other applicable taxes imposed on
such benefits) shall be maximized. The Repayment Amount shall be zero if a
Repayment Amount of more than zero would not result in Executive's net after-tax
proceeds with respect to the Termination Benefits being maximized. If the Excise
Tax is not eliminated pursuant to this paragraph, Executive shall pay the Excise
Tax.

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

                                       13
<PAGE>

6.    DISPUTE RESOLUTION.

      (a)   Each of the parties expressly agrees that, to the extent permitted
by applicable law and to the extent that the enforceability of this Agreement is
not thereby impaired, any and all disputes, controversies or claims between
Executive and the Company arising under this Agreement (as opposed to the
Transition Agreement), except those arising under Section 6(d) hereof or under
the Proprietary Information Agreement (as defined in Section 8 hereof), shall be
determined exclusively by final and binding arbitration before a single
arbitrator in accordance with the JAMS Arbitration Rules and Procedures, or
successor rules then in effect, and that judgment upon the award of the
arbitrator may be rendered in any court of competent jurisdiction. This
includes, without limitation, any and all disputes, controversies, and/or claims
arising out of or concerning Executive's employment by the Company or the
termination of his employment or this Agreement, and includes, without
limitation, claims by Executive against directors, officers or employees of the
Company, whether arising under theories of liability or damages based on
contract, tort or statute, to the full extent permitted by law. As a material
part of this agreement to arbitrate claims, the parties expressly waive all
rights to a jury trial in court on all statutory or other claims. This Section 6
does not purport to limit either party's ability to recover any remedies
provided for by statute, including attorneys' fees.

      (b)   The arbitration shall be held in the San Jose, California
metropolitan area, and shall be administered by JAMS or, in the event JAMS does
not then conduct arbitration proceedings, a similarly reputable arbitration
administrator. Under such proceeding, the parties shall select a mutually
acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except
as provided herein, the Federal Arbitration Act shall govern the interpretation
and enforcement of such arbitration proceeding. The arbitrator shall apply the
substantive law (and the law of remedies, if applicable) of the State of
California, or federal law, if California law is preempted, and the arbitrator
is

                                       14
<PAGE>

without jurisdiction to apply any different substantive law. The parties agree
that they will be allowed to engage in adequate discovery, the scope of which
will be determined by the arbitrator, consistent with the nature of the claims
in dispute. The arbitrator shall have the authority to entertain a motion to
dismiss and/or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil Procedure. The
arbitrator shall render an award that shall include a written statement of
opinion setting forth the arbitrator's findings of fact and conclusions of law.
Judgment upon the award may be entered in any court having jurisdiction thereof.
The parties intend this arbitration provision to be valid, enforceable,
irrevocable and construed as broadly as possible.

      (c)   The Company shall be responsible for payment of the arbitrator's
fees as well as all administrative fees associated with the arbitration. The
parties shall be responsible for their own attorneys' fees and costs (including
expert fees and costs), except that if any party prevails on a statutory claim
that entitles the prevailing party to a reasonable attorneys' fee (with or
without expert fees) as part of the costs, the arbitrator may award reasonable
attorneys' fees (with or without expert fees) to the prevailing party in accord
with such statute.

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

                                       15
<PAGE>

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

      Following his termination of full-time employment for any reason (other
than death), Executive shall cooperate with the Company in all matters relating
to the winding up of his pending work on behalf of the Company and the orderly
transfer of any such pending work to other employees of the Company as may be
designated by the Company. Such cooperation shall be provided by Executive at
mutually-convenient times. Executive also agrees to participate as a witness in
any litigation or regulatory proceeding to which the Company is a party at the
request of the Company upon delivery to Executive of reasonable advance notice.
With respect to the cooperation/participation described in the preceding
sentences, the Company will reimburse Executive for all reasonable expenses
incurred by Executive in the course of such cooperation/participation.
Furthermore, Executive agrees to return to the Company all property of the
Company, including all hard and soft copies of records, documents, materials and
files relating to confidential, proprietary or sensitive company information in
his possession or control, as well as all other company-owned property in his
possession or control, at the time of the termination of his full-time
employment, except to the extent that retention of any of such property is
necessary or desirable or convenient in order to permit Executive to satisfy his
obligations under this Section 7 or under the Transition Agreement, after which
time Executive shall promptly return all such retained company property.

8.    PROPRIETARY INFORMATION AGREEMENT.

      Executive has executed and delivered to the Company an Employee
Proprietary Information and Inventions Agreement, in the form attached hereto as
Exhibit C (the "Proprietary Information Agreement").

                                       16
<PAGE>

9.    GENERAL.

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

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

      9.3   NOTICES. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be considered
effective either (a) upon personal service or (b) upon delivery by facsimile and
depositing such notice in the U.S. Mail, postage prepaid, return receipt
requested and, if addressed to the Company, in care of the General Counsel at
the Company's principal corporate address, and, if addressed to Executive, at
his most recent address shown on the Company's corporate records or at any other
address which Executive may specify in any appropriate notice to the Company, or
(c) upon only depositing such notice in the U.S. Mail as described in clause (b)
of this paragraph.

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

                                       17
<PAGE>

      9.5   ENTIRE AGREEMENT. The parties hereto acknowledge that each has read
this Agreement, understands it, and agrees to be bound by its terms. The parties
further agree that this Agreement, the exhibits to this Agreement, the
Residential Lease, any existing stock option agreements between the parties, and
the documents, plans and policies referred to in this Agreement (which are
hereby incorporated herein by reference) constitute the complete and exclusive
statement of the agreement between the parties and supersedes all proposals
(oral or written), understandings, agreements (including, but not limited to,
the Executive Retention Agreement signed by Executive on or about August 7,
2000), representations, conditions, covenants, and all other communications
between the parties relating to the subject matter hereof; provided, however,
that the Employee Invention and Confidential Information Agreement signed by
Executive on or about November 13,1995 and Executive's agreement, made prior to
the Effective Date of this Agreement, to abide by the Company's policies,
including but not limited to the Company's Employee Handbook, Sexual Harassment
Policy and Code of Business Conduct, remain in full force and effect and govern
Executive's conduct from the date of execution of such agreements until the
Effective Date of this Agreement.

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

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

                                       18
<PAGE>

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

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

      9.10  DEPARTMENT OF HOMELAND SECURITY VERIFICATION

REQUIREMENT. If Executive has not already done so, he will timely file all
documents required by the Department of Homeland Security to verify his identity
and his lawful employment in the United States. Notwithstanding any other
provision of this Agreement, if Executive fails to meet any such requirements
promptly after receiving a written request from the Company to do so, his
employment will terminate immediately upon notice from the Company and he will
not be entitled to any compensation from the Company of any type, other than
that compensation earned through his date of termination. The preceding sentence
shall not apply to any failure by Executive that results from circumstances
entirely outside Executive's control, including, but not limited to, any delay
in the issuance of immigration or other necessary paperwork to Executive by any
government agency.

                                       19
<PAGE>

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

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

                                       20
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Agreement on this 26th
day of May, 2004.

CADENCE DESIGN SYSTEMS, INC.                    EXECUTIVE

By: /s/  R.L. Smith McKeithen                   /s/ Kevin Bushby
    ---------------------------------           --------------------------------
         R.L. Smith McKeithen                       Kevin Bushby

Title: Sr. VP & General Counsel

                                       21
<PAGE>

                                    EXHIBIT A

                           INDEMNIFICATION AGREEMENT

<PAGE>

                               INDEMNITY AGREEMENT

      This Indemnity Agreement, dated as of May 14, 2004, is made by and between
Cadence Design Systems, Inc., a Delaware corporation (the "Company"), and Kevin
Bushby, the Executive Vice President, Worldwide Field Operations of the Company
(the "Indemnitee").

                                    RECITALS

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

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

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

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

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

<PAGE>

defense, which may discourage such a director or officer from serving in that
position;

      F.    Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
individuals to serve as officers and directors of the Company and its
subsidiaries and to encourage such individuals to take the business risks
necessary for the success of the Company and its subsidiaries, it is necessary
for the Company to contractually indemnify its officers and directors and the
officers and directors of its subsidiaries in connection with claims against
such persons in connection with their service, and has further concluded that
the failure to provide such contractual indemnification could result in great
harm to the Company and its subsidiaries and the Company's shareholders;

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

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

                                    AGREEMENT

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

      1.    DEFINITIONS.

            (a)   COVERED PERSON. For purposes of this Agreement, a "covered
person" shall include the Indemnitee and any heir, executor, administrator or
other legal representative of the Indemnitee following his death or incapacity.

            (b)   EXPENSES. For purposes of this Agreement, "expenses" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Section 145 or otherwise.

                                       2
<PAGE>

            (c)   PROCEEDING. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever, and including any of the foregoing commenced by or on behalf of the
Company, derivatively or otherwise.

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

      2.    AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue
to serve the Company and/or its subsidiaries in his present capacity, so long as
he is duly appointed or elected or until such time as he tenders his resignation
in writing, provided, however, that nothing contained in this Agreement is
intended to create any right to continued employment by Indemnitee.

      3.    MAINTENANCE OF LIABILITY INSURANCE.

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

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

      4.    MANDATORY INDEMNIFICATION.

            (a)   RIGHT TO INDEMNIFICATION. In the event a covered person was or
is made a party or is threatened to be made a party to or is involved in any
proceeding, by reason of the fact that the Indemnitee is or was a director,
officer or employee of the Company (including any subsidiary or affiliate
thereof or any constituent corporation or any of the foregoing absorbed in any
merger) or is or was serving at the request of the Company (including such
subsidiary, affiliate or constituent corporation) as a director, officer or
employee

                                       3
<PAGE>

of another corporation, or of a partnership, joint venture, trust or other
entity, including service with respect to employee benefit plans, such person
shall be indemnified and held harmless by the Company to the fullest extent
permitted by applicable law, against all expenses, liability and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
and other taxes and penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
indemnification shall continue after the Indemnitee has ceased to serve in such
capacity and shall inure to the benefit of his heirs, executors and
administrators; provided, however, that except for a proceeding pursuant to
Section 7, the Company shall indemnify any such person in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Company.

            (b)   EXCEPTION FOR AMOUNTS COVERED BY INSURANCE. Notwithstanding
the foregoing, the Company shall not be obligated to indemnify a covered person
for expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) which have been paid directly to such person by D&O insurance.

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

      5.    MANDATORY ADVANCEMENT OF EXPENSES. The Company shall pay all
expenses incurred by a covered person, or in defending any such proceeding as
they are incurred in advance of its final disposition; provided, however, that
if the Delaware General Corporations Law then so requires, the payment of such
expenses incurred in advance of the final disposition of such proceeding shall
be made only upon delivery to the Company of an undertaking, by or on behalf of
such covered person, to repay all amounts so advanced if it should be determined
ultimately that such person is not entitled to the payment of such expenses by
the Company.

      6.    NOTICE AND OTHER INDEMNIFICATION PROCEDURES.

            (a)   Promptly after receipt by a covered person of notice of the
commencement of or the threat of commencement of any proceeding, such

                                       4
<PAGE>

person shall, if such person believes that indemnification with respect thereto
may be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

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

            (c)   In the event the Company shall be obligated to advance the
expenses for any proceeding against the covered person, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by the covered person (such approval not to be unreasonably
withheld), upon the delivery to the covered person of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the covered person and the retention of such counsel by the Company, the Company
will not be liable to the covered person under this Agreement for any fees of
counsel subsequently incurred by the covered person with respect to the same
proceeding, provided that (i) the covered person shall have the right to employ
separate counsel in any such proceeding at the covered person's expense; and
(ii) if (A) the employment of counsel by the covered person has been previously
authorized by the Company, (B) the covered person shall have reasonably
concluded that there may be a conflict of interest between the Company the
covered person in the conduct of any such defense of (C) the Company shall not,
in fact, have employed counsel to assume the defense of such proceeding, the
fees and expenses of the covered person's counsel shall be at the expense of the
Company.

      7.    RIGHT OF INDEMNITEE TO BRING SUIT. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Company within
sixty (60) days after a written claim has been received by the Company, except
in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the covered person may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in a suit brought
by the Company to recover and advancement of expenses pursuant to the terms of
an undertaking, the covered person shall be entitled to be paid also the expense
of prosecuting or defending such suit. In (i) any suit brought by a covered
person to enforce a right to indemnification hereunder (but not in a suit
brought by a covered person to enforce a right to an advancement of expenses) it
shall be a defense that indemnification is not permitted by applicable law, and

                                       5
<PAGE>

(ii) in any suit by the Company to recover an advancement of expenses pursuant
to the terms hereof, the Company shall be entitled to recover such expenses upon
a final adjudication that indemnification is not permitted by applicable law.
Neither the failure of the Company (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the covered
person is proper in the circumstances, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel or its
stockholders) that indemnification is not proper, shall create a presumption
that the covered person is not entitled to indemnification or, in the case of
such a suit brought by a covered person, be a defense to such suit. In any suit
brought by a covered person to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Company to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving that
the covered person is not entitled to be indemnified, or to such advancement of
expenses, shall be on the Company.

      8.    LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any subsidiary against the Indemnitee, his spouse, heirs, estate, executors
or administrators after the expiration of one year from the act or omission of
the Indemnitee upon which such proceeding is based; however, in a case where the
Indemnitee fraudulently conceals the facts underlying such cause of action, no
proceeding shall be brought and no cause of action shall be asserted after the
expiration of one year from the earlier of (i) the date the Company or any
subsidiary of the Company discovers such facts, or (ii) the date the Company of
any subsidiary of the Company could have discovered such facts by the exercise
of reasonable diligence. Any claim or cause of action of the Company or any
subsidiary of the Company, including claims predicated upon the negligent act or
omission of the Indemnitee, shall be extinguished and deemed released unless
asserted by filing of a legal action within such period. This Section 8 shall
not apply to any cause of action which has accrued on the date hereof and of
which the Indemnitee is aware on the date hereof, but as to which the Company
has no actual knowledge apart from the Indemnitee's knowledge.

      9.    NON-EXCLUSIVITY. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee or any covered person may have under any
provision of law, the Company's Certificate of Incorporation or Bylaws, the vote
of the Company's shareholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an officer, director or employee of the
Company, and the Indemnitee's right hereunder shall continue after the

                                       6
<PAGE>

Indemnitee has ceased to so act and shall inure to the benefit of any heir,
executor, administrator or other legal representative of the Indemnitee.

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

      11.   SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to Section 10
hereof.

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

      13.   SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.

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

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

      16.   CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of

                                       7
<PAGE>


Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.

      17.   GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.

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

                                            CADENCE DESIGN SYSTEMS, INC.

                                            By: /s/ R.L. Smith Mckeithen
                                                ------------------------------
                                            Its:    Sr. V.P. and General Counsel

                                            Address: 2655 Seely Avenue, Bldg. 5
                                                     San Jose, CA 95134

                                            INDEMNITEE

                                            By: /s/ R. Kevin Bushby
                                                ------------------------------

                                            Address:

DOCUMENT 3

                                       8
<PAGE>

                                    EXHIBIT B

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

<PAGE>

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

      This Executive Transition and Release Agreement (this "Agreement") is
entered into between Kevin Busbhy ("Executive") and Cadence Design Systems, Inc.
("Cadence" or the "Company").

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

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

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

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

            c.    One year from the Transition Commencement Date.

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

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

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

<PAGE>

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

            c.    During the Transition Period, Executive will be prohibited, to
the full extent allowed by applicable law, and except with the written advance
approval of Cadence's CEO (or his successor(s)), from voluntarily or
involuntarily, for any reason whatsoever, directly or indirectly, individually
or on behalf of persons or entities not now parties to this Agreement: (i)
encouraging, inducing, attempting to induce, soliciting or attempting to solicit
for employment, contractor or consulting opportunities anyone who is employed at
that time, or was employed during the previous one year, by Cadence or any
Cadence affiliate; (ii) interfering or attempting to interfere with the
relationship or prospective relationship of Cadence or any Cadence affiliate
with any former, present or future client, customer, joint venture partner, or
financial backer of Cadence or any Cadence affiliate; or (iii) soliciting,
diverting or accepting business, in any line or area of business engaged in by
Cadence or any Cadence affiliate, from any former or present client, customer or
joint venture partner of Cadence or any Cadence affiliate (other than on behalf
of Cadence), except that Executive may solicit or accept business, in a line of
business engaged in by Cadence or a Cadence affiliate, from a former or present
client, if and only if Executive had previously provided consulting services in
such line of business, to such client, prior to ever being employed by Cadence,
but in no event may Executive violate paragraph 3(b) hereof. The restrictions
contained in subparagraph (i) of this paragraph shall also be in effect for a
period of one year following the Termination Date. This paragraph 3(c) does not
alter any of the obligations the Executive may have under the Employee
Proprietary Information Agreement, dated as of May 14, 2004.

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

                                       2
<PAGE>

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

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

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

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

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

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

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

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

                                       3
<PAGE>

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

            a.    a lump-sum payment of one year's base salary at Executive's
                  highest annual base salary rate in effect during Executive's
                  employment as Executive Vice President, Worldwide Field
                  Operations, less applicable tax deductions and withholdings.
                  Provided, however, should this payment be made in fiscal 2005,
                  then it shall be increased by 10%.

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

            a.    a lump-sum payment of one year's target bonus at Executive's
                  highest target bonus rate in effect during Executive's
                  employment as Executive Vice President, Worldwide Field
                  Operations, less applicable tax deductions and withholdings.
                  Provided, however, should this payment be made in fiscal 2005,
                  then it shall be increased by 10%.

      7.    GENERAL RELEASE OF CLAIMS.

            a.    Executive hereby irrevocably, fully and finally releases
Cadence, its parent, subsidiaries, affiliates, directors, officers, agents and
employees ("Releasees") from all causes of action, claims, suits, demands or
other obligations or liabilities, whether known or unknown, suspected or
unsuspected, that Executive ever had or now has as of the time that Executive
signs this Agreement which relate to his hiring, his employment with the
Company, the termination of his employment with the Company and claims asserted
in shareholder derivative actions or shareholder class actions against the
Company and its officers and Board of Directors, to the extent those derivative
or class actions relate to the period during Executive's employment with the
Company. The claims released include, but are not limited to, any claims arising
from or related to Executive's employment with Cadence, such as claims arising
under (as amended) Title VII of the Civil Rights Act of 1964, the Civil Rights
Act of 1991, the Age Discrimination in Employment Act of 1974, the Americans
with Disabilities Act, the Equal Pay Act, the Fair Labor Standards Act, the
California Fair Employment and Housing Act, the California Labor Code, the
Employee Retirement Income and Security

                                       4
<PAGE>

Act of 1974 (except for any vested right Executive has to benefits under an
ERISA plan), the state and federal Worker Adjustment and Retraining Notification
Act, and the California Business and Professions Code; any other local, state,
federal, or foreign law governing employment; and the common law of contract and
tort. In no event, however, shall any claims, causes of action, suits, demands
or other obligations or liabilities be released pursuant to the foregoing if and
to the extent they relate to:

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

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

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

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

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

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

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

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

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

      8.    REVIEW OF AGREEMENT; REVOCATION OF ACCEPTANCE. Executive has been
given at least 21 days in which to review and consider this Agreement, although
Executive is free to accept this Agreement anytime within that 21-day period.
Executive is advised to consult with an attorney about the Agreement. If
Executive accepts this Agreement, Executive will have an additional 7 days from
the date that Executive signs

                                       5
<PAGE>

this Agreement to revoke that acceptance, which Executive may effect by means of
a written notice sent to the CEO or General Counsel. If this 7-day period
expires without a timely revocation, this Agreement will become final and
effective on the eighth day following the date of Executive's signature, which
eighth day will be the "Effective Date" of this Agreement.

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

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

      11.   INTEGRATED AGREEMENT. This Agreement is intended by the parties to
be a complete and final expression of their rights and duties respecting the
subject matter of this Agreement. Except as expressly provided herein, nothing
in this Agreement is intended to negate Executive's agreement to abide by
Cadence's policies while serving as a Cadence employee, including but not
limited to Cadence's Employee Handbook, Sexual Harassment Policy and Code of
Business Conduct, or Executive's continuing obligations under Executive's
Employee Proprietary Information and Inventions Agreement, or any other
agreement governing the disclosure and/or use of proprietary

                                       6
<PAGE>

information, which Executive signed while working with Cadence or its
predecessors; nor to waive any of Executive's obligations under state and
federal trade secret laws.

      12.   FULL SATISFACTION OF COMPENSATION OBLIGATIONS; ADEQUATE
CONSIDERATION. Executive agrees that the payments and benefits described herein,
together with any payments or benefits to which Executive is or may become
entitled to pursuant to the provisions of the Employment Agreement that survive
the termination of Executive's full-time employment pursuant to Section 9.9 of
the Employment Agreement, are in full satisfaction of all obligations of Cadence
to Executive arising out of or in connection with Executive's employment through
the Transition Termination Date, including, without limitation, all
compensation, salary, bonuses, reimbursement of expenses, and benefits.

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

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

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

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

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

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

                                       7
<PAGE>

                             EXECUTION OF AGREEMENT

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

Dated: ____________________________.          Dated: _____________________.

Kevin Bushby                                  CADENCE DESIGN SYSTEMS, INC.

____________________________________          By: ______________________________
                                                          <<HRVP Name>>
                                                          <<HRVP Title 1>>

                                       8
<PAGE>

                                  ATTACHMENT 1

                                RELEASE OF CLAIMS

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

                  i.    any amounts or benefits to which I am or become entitled
to pursuant to the provisions of this Agreement or pursuant to the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of my full-time employment;

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

                  iii.  claims related to my COBRA rights; and

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

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

<PAGE>

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

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

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

Dated: _______________________________.       __________________________________
                                                           Print Name

                                              __________________________________
                                                           Sign Name

                                       10
<PAGE>

                                  ATTACHMENT 2

                                RELEASE OF CLAIMS

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

                  i.    any amounts or benefits to which I am or become entitled
to pursuant to the provisions of this Agreement or pursuant to the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of my full-time employment;

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

                  iii.  claims related to my COBRA rights; and

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

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

<PAGE>

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

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

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

Dated: _____________________________.             ______________________________
                                                            Print Name

                                                  ______________________________
                                                            Sign Name

                                       12
<PAGE>

                                    EXHIBIT C

           EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.81
<SEQUENCE>9
<FILENAME>f01031exv10w81.txt
<DESCRIPTION>EXHIBIT 10.81
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.81

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

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

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

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

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

1.    TERM AND DUTIES.

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

      1.2   SERVICES.

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

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

<PAGE>

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

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

2.    COMPENSATION.

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

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

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

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<PAGE>

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

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

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

3.    EXPENSES AND BENEFITS.

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

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<PAGE>

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

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

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

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

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

4.    TERMINATION OF EMPLOYMENT.

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

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<PAGE>

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

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

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

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<PAGE>

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

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

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

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

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

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

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<PAGE>

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

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

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

      4.5   CHANGE IN CONTROL.

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

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<PAGE>

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

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

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

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

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

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<PAGE>

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

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

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

5.    EXCISE TAX.

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

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<PAGE>

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

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

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<PAGE>

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

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

6.    DISPUTE RESOLUTION.

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

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<PAGE>

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

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

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

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<PAGE>

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

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

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

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

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<PAGE>

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

8.    PROPRIETARY INFORMATION AGREEMENT.

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

9.    GENERAL.

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

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

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

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<PAGE>

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

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

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

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

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<PAGE>

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

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

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

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

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<PAGE>

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

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

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

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<PAGE>

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

 CADENCE DESIGN SYSTEMS, INC.                EXECUTIVE

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

Title: Chairman of the Board of Directors

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<PAGE>

                                    EXHIBIT A

                               INDEMNITY AGREEMENT

<PAGE>

                               INDEMNITY AGREEMENT

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

                                    RECITALS

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

                                    AGREEMENT

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

      1.    Definitions.

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

                                        2
<PAGE>

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

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

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

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

      3.    Maintenance of Liability Insurance.

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

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

                                        3
<PAGE>

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

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

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

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

                                        4
<PAGE>

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

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

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

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

      7.    Notice and Other Indemnification Procedures.

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

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

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

                                        5
<PAGE>

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

      8.    Determination of Right to Indemnification.

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

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

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

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

                  (2)   The stockholders of the Company;

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

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

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

                                        6
<PAGE>

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

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

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

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

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

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

                                        7
<PAGE>

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

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

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

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

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

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

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

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

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

                                        8
<PAGE>

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

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

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

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

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

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

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

                                        9
<PAGE>

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

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

                                             INDEMNITEE:

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

                                    Address: 2655 Seely Road
                                             San Jose, CA 95134

                                       10
<PAGE>

                                    EXHIBIT B

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

<PAGE>

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

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

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

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

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

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

            c.    One year from the Transition Commencement Date.

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

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

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

<PAGE>

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

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

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

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

                                        2
<PAGE>

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

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

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

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

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

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

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

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

                                        3
<PAGE>

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

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

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

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

      7.    GENERAL RELEASE OF CLAIMS.

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

                                        4
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                        5
<PAGE>

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

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

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

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

                                        6
<PAGE>

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

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

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

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

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

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

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

                                        7
<PAGE>

                             EXECUTION OF AGREEMENT

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

Dated: ___________________________.        Dated: _____________________________.

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

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

                                        8
<PAGE>

                                  ATTACHMENT 1

                                RELEASE OF CLAIMS

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

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

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

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

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

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

<PAGE>

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

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

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

Dated: ____________________________.         __________________________________
                                                         Print Name

                                             __________________________________
                                                         Sign Name

                                       10
<PAGE>

                                  ATTACHMENT 2

                                RELEASE OF CLAIMS

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

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

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

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

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

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

<PAGE>

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

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

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

Dated: ____________________________.         __________________________________
                                                        Print Name

                                             __________________________________
                                                        Sign Name

                                       12
<PAGE>

                                    EXHIBIT C

            EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.01
<SEQUENCE>10
<FILENAME>f01031exv31w01.txt
<DESCRIPTION>EXHIBIT 31.01
<TEXT>
<PAGE>

                                                                   EXHIBIT 31.01

                                 CERTIFICATIONS

I, Michael J. Fister, certify that:

      1.    I have reviewed this Quarterly Report on Form 10-Q of Cadence Design
            Systems, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            (a) Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

            (b) Evaluated the effectiveness of the registrant's disclosure
            controls and procedures and presented in this report our conclusions
            about the effectiveness of the disclosure controls and procedures,
            as of the end of the period covered by this report based on such
            evaluation; and

            (c) Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a) All significant deficiencies and material weaknesses in the
            design or operation of internal control over financial reporting
            which are reasonably likely to adversely affect the registrant's
            ability to record, process, summarize and report financial
            information; and

            (b) Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: August 10, 2004

By: /s/ Michael J. Fister
    -------------------------------------
    Michael J. Fister
    President and Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.02
<SEQUENCE>11
<FILENAME>f01031exv31w02.txt
<DESCRIPTION>EXHIBIT 31.02
<TEXT>
<PAGE>

                                                                   EXHIBIT 31.02

                                 CERTIFICATIONS

I, William Porter, certify that:

      1.    I have reviewed this Quarterly Report on Form 10-Q of Cadence Design
            Systems, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            (a) Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

            (b) Evaluated the effectiveness of the registrant's disclosure
            controls and procedures and presented in this report our conclusions
            about the effectiveness of the disclosure controls and procedures,
            as of the end of the period covered by this report based on such
            evaluation; and

            (c) Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a) All significant deficiencies and material weaknesses in the
            design or operation of internal control over financial reporting
            which are reasonably likely to adversely affect the registrant's
            ability to record, process, summarize and report financial
            information; and

            (b) Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: August 10, 2004

By: /s/ William Porter
    -------------------------------------------------
    William Porter
    Senior Vice President and Chief Financial Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.01
<SEQUENCE>12
<FILENAME>f01031exv32w01.txt
<DESCRIPTION>EXHIBIT 32.01
<TEXT>
<PAGE>

                                                                   EXHIBIT 32.01

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report on Form 10-Q for the fiscal
quarter ended July 3, 2004 of Cadence Design Systems, Inc. (the "Company") as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Michael J. Fister, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

      1.    The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      2.    The information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

                                         /s/ Michael J. Fister
                                         ---------------------------------------
                                         Michael J. Fister
                                         President and Chief Executive Officer
                                         Date: August 10, 2004

A signed original of this written statement required by Section 906 has been
provided to Cadence Design Systems, Inc. and will be retained by Cadence and
furnished to the Securities and Exchange Commission or its staff upon request.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.02
<SEQUENCE>13
<FILENAME>f01031exv32w02.txt
<DESCRIPTION>EXHIBIT 32.02
<TEXT>
<PAGE>

                                                                   EXHIBIT 32.02

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report on Form 10-Q for the fiscal
quarter ended July 3, 2004 of Cadence Design Systems, Inc. (the "Company") as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, William Porter, Senior Vice President and Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      1.    The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      2.    The information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

                               /s/ William Porter
                               -------------------------------------------------
                               William Porter
                               Senior Vice President and Chief Financial Officer
                               Date: August 10, 2004

A signed original of this written statement required by Section 906 has been
provided to Cadence Design Systems, Inc. and will be retained by Cadence and
furnished to the Securities and Exchange Commission or its staff upon request.

</TEXT>
</DOCUMENT>
</SUBMISSION>
