10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________ 

FORM 10-Q

_____________________________________  

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 000-15867

_____________________________________ 

CADENCE DESIGN SYSTEMS, INC.

(Exact Name of Registrant as Specified in Its Charter)

_____________________________________ 

Delaware	77-0148231
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
2655 Seely Avenue, Building 5, San Jose, California	95134
(Address of Principal Executive Offices)	(Zip Code)

(408) 943-1234

Registrant’s Telephone Number, including Area Code

_____________________________________ 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

On March 30, 2013, 282,995,052 shares of the registrant’s common stock, $0.01 par value, were outstanding.

CADENCE DESIGN SYSTEMS, INC.

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets: March 30, 2013 and December 29, 2012	1
	Condensed Consolidated Income Statements: Three Months Ended March 30, 2013 and March 31, 2012	2
	Condensed Consolidated Statements of Comprehensive Income: Three Months Ended March 30, 2013 and March 31, 2012	3
	Condensed Consolidated Statements of Cash Flows: Three Months Ended March 30, 2013 and March 31, 2012	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	49
	Signatures	50

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	March 30, 2013			December 29, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	810,152		$	726,357
Short-term investments	100,992			100,704
Receivables, net of allowances of $0 and $85, respectively	75,253			97,821
Inventories	37,016			36,163
2015 notes hedges	315,895			303,154
Prepaid expenses and other	122,604			127,036
Total current assets	1,461,912			1,391,235
Property, plant and equipment, net of accumulated depreciation of $626,732 and $635,450, respectively	237,455			244,439
Goodwill	232,608			233,266
Acquired intangibles, net of accumulated amortization of $104,822 and $104,351, respectively	177,891			184,938
Long-term receivables	3,734			7,559
Other assets	209,663			225,566
Total assets	$	2,323,263		$	2,287,003
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible notes	$	452,571		$	447,011
2015 notes embedded conversion derivative	315,895			303,154
Accounts payable and accrued liabilities	156,606			171,318
Current portion of deferred revenue	285,553			295,787
Total current liabilities	1,210,625			1,217,270
Long-term liabilities:
Long-term portion of deferred revenue	41,432			50,529
Other long-term liabilities	51,533			104,033
Total long-term liabilities	92,965			154,562
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock and capital in excess of par value	1,727,901			1,721,556
Treasury stock, at cost	(175,110		)	(200,786		)
Accumulated deficit	(570,940		)	(649,549		)
Accumulated other comprehensive income	37,822			43,950
Total stockholders’ equity	1,019,673			915,171
Total liabilities and stockholders’ equity	$	2,323,263		$	2,287,003

See notes to condensed consolidated financial statements.

1

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	March 30, 2013			March 31, 2012
Revenue:
Product and maintenance	$	328,271		$	286,288
Service	25,995			29,542
Total revenue	354,266			315,830
Costs and expenses:
Cost of product and maintenance	29,847			27,212
Cost of service	18,344			19,374
Marketing and sales	90,402			83,795
Research and development	124,084			108,594
General and administrative	29,810			27,770
Amortization of acquired intangibles	3,791			3,786
Restructuring and other charges (credits)	(148		)	(51		)
Total costs and expenses	296,130			270,480
Income from operations	58,136			45,350
Interest expense	(9,262		)	(8,537		)
Other income, net	2,175			2,434
Income before provision (benefit) for income taxes	51,049			39,247
Provision (benefit) for income taxes	(27,560		)	8,143
Net income	$	78,609		$	31,104
Net income per share – basic	$	0.29		$	0.12
Net income per share – diluted	$	0.27		$	0.11
Weighted average common shares outstanding – basic	274,936			267,940
Weighted average common shares outstanding – diluted	292,151			277,733

See notes to condensed consolidated financial statements.

2

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended
	March 30, 2013			March 31, 2012
Net income	$	78,609		$	31,104
Other comprehensive loss, net of tax effects:
Foreign currency translation loss	(6,162		)	(2,466		)
Changes in unrealized holding gains or losses on available-for-sale securities, net of reclassification adjustment for realized gains and losses	(284		)	(4		)
Changes in defined benefit plan liabilities	318			(29		)
Total other comprehensive loss, net of tax effects	(6,128		)	(2,499		)
Comprehensive income	$	72,481		$	28,605

See notes to condensed consolidated financial statements.

3

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 30, 2013			March 31, 2012
Cash and cash equivalents at beginning of period	$	726,357		$	601,602
Cash flows from operating activities:
Net income	78,609			31,104
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	21,682			21,939
Amortization of debt discount and fees	6,281			5,734
Stock-based compensation	13,810			11,525
Gain on investments, net	(1,006		)	(1,949		)
Deferred income taxes	8,695			223
Provisions (recoveries) for losses (gains) on receivables, net	(85		)	—
Other non-cash items	(922		)	746
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	23,652			60,172
Inventories	(979		)	(154		)
Prepaid expenses and other	(1,099		)	(5,545		)
Other assets	4,148			(577		)
Accounts payable and accrued liabilities	(11,003		)	(19,582		)
Deferred revenue	(16,648		)	(39,315		)
Other long-term liabilities	(49,799		)	(3,612		)
Net cash provided by operating activities	75,336			60,709
Cash flows from investing activities:
Purchases of available-for-sale securities	(24,282		)	—
Proceeds from the sale of available-for-sale securities	14,985			—
Proceeds from the maturity of available-for-sale securities	8,700			—
Proceeds from the sale of long-term investments	6,102			44
Purchases of property, plant and equipment	(6,569		)	(8,201		)
Investment in venture capital partnerships and equity investments	—			(250		)
Cash paid in business combinations and asset acquisitions, net of cash acquired	(757		)	(1,041		)
Net cash used for investing activities	(1,821		)	(9,448		)
Cash flows from financing activities:
Principal payments on receivable financing	(2,526		)	—
Payment of acquisition-related contingent consideration	(582		)	(39		)
Tax effect related to employee stock transactions allocated to equity	5,276			2,842
Proceeds from issuance of common stock	21,801			12,761
Stock received for payment of employee taxes on vesting of restricted stock	(8,775		)	(6,173		)
Net cash provided by financing activities	15,194			9,391
Effect of exchange rate changes on cash and cash equivalents	(4,914		)	(2,567		)
Increase in cash and cash equivalents	83,795			58,085
Cash and cash equivalents at end of period	$	810,152		$	659,687
Supplemental cash flow information:
Interest paid	$	183		$	—
Income taxes paid (refunded), including foreign withholding tax	$	(21	)	$	4,699
Non-cash investing and financing activities:
Available-for-sale securities received from customer	$	209		$	15
Receivables related to sales of available-for-sale securities	$	—		$	122

See notes to condensed consolidated financial statements.

4

CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Cadence Design Systems, Inc., or Cadence, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission, or the SEC. 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 on Form 10-Q comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for a Quarterly Report on Form 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’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012. In the condensed consolidated income statements for the three months ended March 30, 2013, Cadence combined product and maintenance revenue because product and maintenance revenue is generally recognized from agreements that require customers to purchase both the product and associated maintenance in a bundled offering. Cadence reclassified prior period product and maintenance revenue balances to conform to the current period presentation. Certain other prior period balances have also been reclassified to conform to current period presentation.

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q 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 of operations, cash flows and financial position for the periods and dates presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year.

Preparation of the condensed consolidated financial statements in conformity with United States 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2. DEBT

Cadence’s outstanding debt as of March 30, 2013 and December 29, 2012 was as follows:

	March 30, 2013							December 29, 2012
	(In thousands)
	Principal		Unamortized Discount			Carrying Value		Principal		Unamortized Discount			Carrying Value
2015 Notes	$	350,000	$	(37,271	)	$	312,729	$	350,000	$	(41,181	)	$	308,819
2013 Notes	144,461		(4,797		)	139,664		144,461		(6,447		)	138,014
2023 Notes	178		—			178		178		—			178
Revolving line of credit	—		—			—		—		—			—
Total outstanding debt	$	494,639	$	(42,068	)	$	452,571	$	494,639	$	(47,628	)	$	447,011

2015 Notes

In June 2010, Cadence issued $350.0 million principal amount of 2.625% Cash Convertible Senior Notes Due 2015, or the 2015 Notes. At maturity, the holders of the 2015 Notes will be entitled to receive the principal amount of the 2015 Notes plus accrued interest. The 2015 Notes are convertible into cash prior to maturity upon the occurrence of certain conditions described in the table below. To the extent that the 2015 Notes are convertible prior to maturity and a holder of the 2015 Notes elects to convert its notes prior to maturity, that note holder will be entitled to receive cash equal to the principal amount of the notes plus any additional conversion value as described in the table below under the heading "Conversion feature."

5

Cadence entered into hedge transactions, or the 2015 Notes Hedges, in connection with the issuance of the 2015 Notes. The purpose of the 2015 Notes Hedges was to limit Cadence’s exposure to the additional cash payments above the principal amount of the 2015 Notes that may be due to the holders. As a result of the 2015 Notes Hedges, Cadence’s maximum expected cash exposure upon conversion of the 2015 Notes is the $350.0 million principal balance of the notes. In June 2010, Cadence also sold warrants in separate transactions, or the 2015 Warrants. As a result of the 2015 Warrants, Cadence will experience dilution to its diluted earnings per share if its average closing stock price exceeds $10.78 for any fiscal quarter. To the extent that Cadence’s stock price exceeds $10.78 at expiration of the 2015 Warrants, Cadence will issue shares to net settle the 2015 Warrants.

A summary of key terms of the 2015 Notes is as follows:

	2015 Notes
	(In thousands, except percentages and per share amounts)
Outstanding principal maturity value – at March 30, 2013	$350,000
Contractual interest rate	2.625%
Contractual maturity date	June 1, 2015
Initial conversion rate	132.5205 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $7.55 per share of Cadence common stock.
Conversion feature (in addition to principal amount payable in cash)	Cash to the extent Cadence’s stock price exceeds approximately $7.55 per share, calculated based on the applicable conversion rate multiplied by the volume weighted average price of Cadence common stock over a specified period.
Early conversion conditions (or the Early Conversion Conditions)	• Closing stock price greater than $9.81 for at least 20 of the last 30 trading days in a fiscal quarter (convertible only for subsequent quarter); • Specified corporate transactions; or • Note trading price falls below a calculated minimum.
Conversion immediately preceding maturity	From March 1, 2015 until the second trading day immediately preceding the maturity date, holders may convert their 2015 Notes at any time into cash as described above under “Conversion feature.”
Redemption at Cadence’s option prior to maturity	None.
Fundamental change put right	Upon certain fundamental corporate changes prior to maturity, the 2015 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest.
Make-whole premium	Upon certain fundamental changes prior to maturity, if Cadence’s stock price were between $6.16 and $40.00 per share at that time, the 2015 Note holders would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”
Financial covenants	None.

Impact of Early Conversion Conditions on Financial Statements

The 2015 Notes are convertible into cash from March 31, 2013 through June 29, 2013 because Cadence’s closing stock price exceeded $9.81 for at least 20 days in the 30-day period prior to March 30, 2013. Accordingly, the net balance of the 2015 Notes of $312.7 million is classified as a current liability on Cadence’s condensed consolidated balance sheet as of March 30, 2013. The classification of the 2015 Notes as current or long-term on the condensed consolidated balance sheet is evaluated at each balance sheet date and may change from time to time depending on whether Cadence’s closing stock price has exceeded $9.81 during the periods specified in the table above under “Early conversion conditions.”

6

If one of the 2015 Notes Early Conversion Conditions is met in any future fiscal quarter, Cadence will classify its net liability under the 2015 Notes as a current liability on the condensed consolidated balance sheet as of the end of that fiscal quarter. If none of the 2015 Notes Early Conversion Conditions have been met in a future fiscal quarter prior to the one-year period immediately preceding the maturity date, Cadence will classify its net liability under the 2015 Notes as a long-term liability on the condensed consolidated balance sheet as of the end of that fiscal quarter. If the note holders elect to convert their 2015 Notes prior to maturity, any unamortized discount and transaction fees will be expensed at the time of conversion. If the entire outstanding principal amount had been converted on March 30, 2013 Cadence would have recorded an expense of $42.4 million associated with the conversion, comprised of $37.3 million of unamortized debt discount and $5.1 million of unamortized transaction fees.

As of March 30, 2013, the if-converted value of the 2015 Notes to the note holders of approximately $646.1 million exceeded the principal amount of $350.0 million. The fair value of the 2015 Notes was $657.8 million as of March 30, 2013 and $640.1 million as of December 29, 2012. The 2015 Notes currently trade at a premium to the if-converted value of the notes. As of March 30, 2013, none of the note holders had elected to convert their 2015 Notes.

2015 Notes Embedded Conversion Derivative

The conversion feature of the 2015 Notes, or the 2015 Notes Embedded Conversion Derivative, requires bifurcation from the 2015 Notes and is accounted for as a derivative liability. The fair value of the 2015 Notes Embedded Conversion Derivative at the time of issuance of the 2015 Notes was $76.6 million and was recorded as original debt discount for purposes of accounting for the debt component of the 2015 Notes. This discount is amortized as interest expense using the effective interest method over the term of the 2015 Notes. The 2015 Notes Embedded Conversion Derivative is carried on the condensed consolidated balance sheet at its estimated fair value. The fair value was $315.9 million as of March 30, 2013 and $303.2 million as of December 29, 2012.

2015 Notes Hedges

The 2015 Notes Hedges expire on June 1, 2015 and must be settled in cash. The aggregate cost of the 2015 Notes Hedges was $76.6 million. The 2015 Notes Hedges are accounted for as derivative assets and are carried on the condensed consolidated balance sheet at their estimated fair value. The 2015 Note Hedges fair value was $315.9 million as of March 30, 2013 and $303.2 million as of December 29, 2012. The 2015 Notes Embedded Conversion Derivative liability and the 2015 Notes Hedges asset are adjusted to fair value each reporting period and unrealized gains and losses are reflected in the condensed consolidated income statements. The 2015 Notes Embedded Conversion Derivative and the 2015 Notes Hedges are designed to have similar fair values. Accordingly, the changes in the fair values of these instruments offset during the three months ended March 30, 2013 and March 31, 2012 and did not have a net impact on the condensed consolidated income statements for the respective periods.

The classification of the 2015 Notes Embedded Conversion Derivative liability and the 2015 Notes Hedges asset as current or long-term on the condensed consolidated balance sheet corresponds with the classification of the 2015 Notes, is evaluated at each balance sheet date and may change from time to time depending on whether the closing stock price Early Conversion Condition is met for a particular quarter.

2015 Warrants

In June 2010, Cadence sold the 2015 Warrants in separate transactions for the purchase of up to approximately 46.4 million shares of Cadence’s common stock at a strike price of $10.78 per share, for total proceeds of $37.5 million, which was recorded as an increase in stockholders’ equity. The 2015 Warrants expire on various dates from September 2015 through December 2015 and must be settled in net shares of Cadence’s common stock. Therefore, upon expiration of the 2015 Warrants, Cadence will issue shares of common stock to the purchasers of the 2015 Warrants that represent the value by which the price of the common stock exceeds the strike price stipulated within the particular warrant agreement.

7

The effective interest rate and components of interest expense of the 2015 Notes for the three months ended March 30, 2013 and March 31, 2012 were as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands, except percentages)
Effective interest rate	8.1		%	8.1		%
Contractual interest expense	$	2,289		$	2,289
Amortization of debt discount	$	3,910		$	3,592

2013 Notes and 2011 Notes

In December 2006, Cadence issued $250.0 million principal amount of 1.500% Convertible Senior Notes Due December 15, 2013, or the 2013 Notes. At the same time, Cadence issued$250.0 million principal amount of 1.375% Convertible Senior Notes Due December 15, 2011, or the 2011 Notes. During 2010, Cadence repurchased a portion of the 2011 Notes and the 2013 Notes. The 2011 Notes matured on December 15, 2011, at which time Cadence paid the remaining balance on the 2011 Notes in full. As of March 30, 2013, the remaining principal maturity value of the 2013 Notes was $144.5 million.

At maturity, the holders of the 2013 Notes will be entitled to receive the principal amount of the 2013 Notes plus accrued interest. The 2013 Notes are convertible into a combination of cash and shares of Cadence common stock upon the occurrence of certain conditions described in the table below. To the extent that the 2013 Notes are convertible prior to maturity and a holder of the 2013 Notes elects to convert its notes prior to maturity, that note holder will be entitled to receive cash for the principal amount of the notes plus shares for any additional conversion value as described in the table below under the heading “Conversion feature.” As of March 30, 2013, the 2013 Notes were not convertible.

Cadence entered into hedge transactions, or the 2013 Notes Hedges and the 2011 Notes Hedges, in connection with the issuance of the 2013 Notes and the 2011 Notes. The 2011 Notes Hedges expired unexercised on December 15, 2011. Pursuant to the 2013 Notes Hedges, Cadence has the option to receive the amount of shares that may be owed to the 2013 Notes holders. The purpose of the 2013 Notes Hedges was to limit Cadence’s exposure to the dilution that may result from the issuance of shares upon conversion of the notes. In December 2006, Cadence also sold warrants in separate transactions, or the 2013 Warrants and the 2011 Warrants. As a result of the 2013 Warrants, Cadence will experience dilution to its diluted earnings per share to the extent its average closing stock price exceeds $31.50 for any fiscal quarter. If Cadence’s stock price is above $31.50 at the expiration of the 2013 Warrants, Cadence will issue shares to settle the 2013 Warrants.

8

A summary of key terms of the 2013 Notes is as follows:

	2013 Notes
	(In thousands, except percentages and per share amounts)
Principal maturity value – at issuance	$250,000
Outstanding principal maturity value – at March 30, 2013	$144,461
Contractual interest rate	1.500%
Contractual maturity date	December 15, 2013
Equity component - included in common stock - at March 30, 2013 and December 29, 2012	$63,027
Initial conversion rate	47.2813 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $21.15 per share of Cadence common stock.
Conversion feature (in addition to principal amount payable in cash)	Shares to the extent Cadence’s stock price exceeds $21.15 per share, calculated based on the applicable conversion rate multiplied by the volume weighted average price of Cadence common stock over a specified period.
Early conversion conditions (or the Early Conversion Conditions)	•  Closing stock price greater than $27.50 for at least 20 of the last 30 trading days in a calendar quarter (convertible only for subsequent quarter); •  Specified corporate transactions; or •  Note trading price falls below calculated minimum.
Conversion immediately preceding maturity	From November 1, 2013, and until the trading day immediately preceding the maturity date, holders may convert their 2013 Notes at any time into cash and Cadence shares as described above under “Conversion feature.”
Redemption at Cadence’s option prior to maturity	None.
Fundamental change put right	Upon a fundamental change prior to maturity, the 2013 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest.
Make-whole premium	Upon certain fundamental changes, prior to maturity, if Cadence’s stock price were between $18.00 and $60.00 per share at that time, the 2013 Note holders would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”
Financial covenants	None.

Impact of Early Conversion Conditions on Financial Statements

As of March 30, 2013, none of the 2013 Notes Early Conversion Conditions had been met. The 2013 Notes mature on December 15, 2013 and the liability component of the 2013 Notes is classified as a current liability as of March 30, 2013.

As of March 30, 2013, the if-converted value of the 2013 Notes to the note holders did not exceed the principal amount of the 2013 Notes. The total fair value of the 2013 Notes, including the equity component, was $145.0 million as of March 30, 2013 and was $144.1 million as of December 29, 2012.

2013 and 2011 Notes Hedges

The 2011 Notes Hedges expired unexercised on December 15, 2011. The 2013 Notes Hedges expire on December 15, 2013, and must be settled in net shares of Cadence common stock. Therefore, upon expiration of the 2013 Notes Hedges, the counterparties will deliver shares of common stock to Cadence that represent the value, if any, by which the price of the common stock exceeds the price stipulated within the particular hedge agreement. The aggregate cost of the hedges entered into in connection with the 2011 Notes Hedges (which had similar conversion features as the 2013 Notes) and 2013 Notes Hedges was $119.8 million and

9

was recorded as a reduction to stockholders’ equity. In connection with the purchase of a portion of the 2013 Notes and 2011 Notes during fiscal 2010, Cadence also sold a portion of the 2013 Notes Hedges and the 2011 Notes Hedges representing options to purchase approximately 9.7 million shares of Cadence’s common stock for proceeds of $0.4 million. The estimated fair value of the remaining 2013 Notes Hedges was $0.3 million as of March 30, 2013 and $0.7 million as of December 29, 2012. Subsequent changes in the fair value of the 2013 Notes Hedges will not be recognized in the condensed consolidated financial statements as long as the instruments remain classified as equity.

2013 and 2011 Warrants

In December 2006, Cadence sold warrants in separate transactions, which consisted of the 2013 Warrants and the 2011 Warrants, for the purchase of up to 23.6 million shares of Cadence’s common stock at a strike price of $31.50 per share for proceeds of $39.4 million, which was recorded as an increase in stockholders’ equity. In connection with the purchase of some of the 2013 Notes and the 2011 Notes during fiscal 2010, Cadence also purchased some of the 2013 Warrants and the 2011 Warrants, reducing the number of shares of Cadence common stock subject to purchase rights by 9.7 million shares at a cost of $0.1 million. The 2011 Warrants expired on various dates from February 2012 through April 2012, reducing the number of shares of Cadence common stock subject to purchase rights by 7.1 million shares. The 2013 Warrants will expire on various dates from February 2014 through April 2014. The 2013 Warrants must be settled in net shares of Cadence’s common stock. Therefore, upon expiration, Cadence will issue shares of common stock to the purchasers of the warrants that represent the value, if any, by which the price of the common stock exceeds the strike price stipulated within the particular warrant agreement.

The effective interest rate and components of interest expense of the 2013 Notes for the three months ended March 30, 2013, and of the 2013 Notes and 2011 Notes for the three months ended March 31, 2012, were as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands, except percentages)
Effective interest rate	6.4		%	6.4		%
Contractual interest expense	$	540		$	540
Amortization of debt discount	$	1,651		$	1,539

Zero Coupon Zero Yield Senior Convertible Notes Due 2023

In August 2003, Cadence issued $420.0 million principal amount of its Zero Coupon Zero Yield Senior Convertible Notes Due 2023, or the 2023 Notes. As of March 30, 2013 and December 29, 2012, the remaining balance and the total fair value of the 2023 Notes was $0.2 million.

Credit Facility

In December 2012, Cadence entered into a five-year senior secured revolving credit facility with a group of lenders led by Bank of America, N.A., as administrative agent. The credit facility provides for borrowings up to $250.0 million, with the right to request increased capacity up to an additional $150.0 million upon the receipt of lender commitments, for total maximum borrowings of $400.0 million.

Any outstanding loans drawn under the credit facility are due at maturity in December 2017. Outstanding amounts may be paid at any time prior to maturity. The facility is secured by certain accounts receivable and certain equity interests in Cadence’s subsidiaries.

Interest accrues based on Cadence’s consolidated leverage ratio. Borrowings may be made at LIBOR plus a margin between 1.25% and 2.00% per annum or at the base rate plus a margin between 0.25% and 1.00% per annum, where in each case the margin is determined by reference to a specified leverage ratio. Interest is payable quarterly. A commitment fee ranging from 0.20% to 0.35% is assessed on the daily average undrawn portion of revolving commitments.

The credit facility contains customary negative covenants that, among other things, restrict Cadence’s ability to incur additional indebtedness, grant liens and make certain investments, make acquisitions, dispose of certain assets and make certain restricted payments, including dividends. In addition, the credit facility contains financial covenants that require Cadence to maintain a leverage ratio not to exceed 3 to 1, and a minimum interest coverage ratio of 3 to 1.

Cadence had no outstanding balance on the credit facility and was in compliance with all financial covenants as of March 30, 2013 and December 29, 2012. After quarter-end on April 23, 2013, Cadence borrowed $100.0 million on the line of credit for general working capital purposes.

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NOTE 3. ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

During the first fiscal quarter of 2013, Cadence signed definitive agreements to purchase two different companies. Neither acquisition closed during the quarter due to waiting periods for regulatory approvals.

Cosmic Circuits Private Limited

On February 7, 2013, Cadence entered into an agreement to acquire Cosmic Circuits Private Limited, or Cosmic, a privately held provider of intellectual property used in system-on-chip design and verification based in Bangalore, India, for aggregate consideration of approximately $61.2 million in cash. Lip-Bu Tan, Cadence’s president, chief executive officer and director, is also a member of the board of directors of Cosmic. In addition, a trust for the benefit of the children of Mr. Tan owns approximately 8.5% of Cosmic, and Mr. Tan and his wife serve as co-trustees of the trust. Prior to and during the negotiations of the transaction, Mr. Tan recused himself from the discussions and negotiations between and at Cadence and Cosmic, including any discussions and negotiations related to the consideration provided to Cosmic. A financial advisor provided a fairness opinion to Cadence in connection with the transaction, and the Board of Directors of Cadence reviewed the transaction and concluded that it was in the best interests of Cadence to proceed with such transaction. The completion of the transaction is subject to certain conditions, including regulatory approval.

Tensilica, Inc.

On March 11, 2013, Cadence entered into an agreement to acquire Tensilica, Inc., or Tensilica, a provider of configurable dataplane processing units. On April 22, 2013, after quarter-end, Cadence completed the acquisition of Tensilica. The cash outlay at closing, after taking into account adjustments for certain costs and an estimated $25.0 million of cash held by Tensilica at closing, was approximately $326.4 million. In addition, Cadence assumed certain unvested Tensilica options. Of the net $326.4 million, $5.8 million is conditioned upon certain Tensilica shareholders remaining employees of Cadence over designated retention periods. Cadence will also make payments to certain employees that will be conditioned upon continued employment and certain performance metrics over a three-year period. Cadence is in the process of determining the fair value of the net assets acquired and will include Tensilica’s results of operations in its financial statements with effect from the purchase date.

Acquisition-related Contingent Consideration

One of the fiscal 2011 acquisitions includes contingent consideration payments based on certain future financial measures associated with the acquired technology. This contingent consideration arrangement requires payments of up to $5.0 million if these measures are met during the three-year period subsequent to October 1, 2011. The fair value of the contingent consideration arrangement recorded on the date of the acquisition was $3.5 million. The fair value of the contingent consideration as of March 30, 2013 was $3.5 million.

Cadence may be obligated to make cash payments in connection with its business combinations and asset acquisitions, subject to the satisfaction of certain financial measures. If performance is such that these payments are fully achieved, Cadence may be obligated to pay up to an aggregate of $14.4 million over the next 37 months. Of the $14.4 million, up to $9.0 million would be recorded as operating expenses in the condensed consolidated income statements.

NOTE 4. GOODWILL AND ACQUIRED INTANGIBLES

Goodwill

The changes in the carrying amount of goodwill during the three months ended March 30, 2013 were as follows:

	Gross Carrying Amount
	(In thousands)
Balance as of December 29, 2012	$	233,266
Effect of foreign currency translation	(658		)
Balance as of March 30, 2013	$	232,608

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Acquired Intangibles, Net

Acquired intangibles with definite lives as of March 30, 2013 were as follows, excluding intangibles that were fully amortized as of December 29, 2012:

	Gross Carrying Amount		Accumulated Amortization			Acquired Intangibles, Net
	(In thousands)
Existing technology	$	112,697	$	(33,595	)	$	79,102
Agreements and relationships	133,397		(39,965		)	93,432
Distribution rights	30,100		(29,348		)	752
Tradenames, trademarks and patents	6,519		(1,914		)	4,605
Total acquired intangibles	$	282,713	$	(104,822	)	$	177,891

Acquired intangibles with definite lives as of December 29, 2012 were as follows, excluding intangibles that were fully amortized as of December 31, 2011:

	Gross Carrying Amount		Accumulated Amortization			Acquired Intangibles, Net
	(In thousands)
Existing technology	$	112,940	$	(30,171	)	$	82,769
Agreements and relationships	133,764		(37,769		)	95,995
Distribution rights	30,100		(28,595		)	1,505
Tradenames, trademarks and patents	12,485		(7,816		)	4,669
Total acquired intangibles	$	289,289	$	(104,351	)	$	184,938

Amortization expense from existing technology intangible assets and maintenance agreement intangible assets is included in cost of product and maintenance. Amortization of acquired intangibles for the three months ended March 30, 2013 and March 31, 2012 was as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Cost of product and maintenance	$	3,807	$	2,899
Amortization of acquired intangibles	3,791		3,786
Total amortization of acquired intangibles	$	7,598	$	6,685

Estimated amortization expense for the following five fiscal years and thereafter is as follows:

	(In thousands)
2013 – remaining period	$	20,395
2014	25,404
2015	25,057
2016	24,348
2017	23,260
Thereafter	59,427
Total estimated amortization expense	$	177,891

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NOTE 5. RECEIVABLES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS

Cadence’s current and long-term receivables balances as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Accounts receivable	$	41,269	$	67,259
Installment contract receivables, short-term	33,984		30,647
Long-term receivables	3,734		7,559
Total receivables	$	78,987	$	105,465
Less allowance for doubtful accounts	—		(85		)
Total receivables, net	$	78,987	$	105,380

Cadence’s customers are primarily concentrated within the semiconductor, electronics systems and consumer electronics industries. As of March 30, 2013, one customer accounted for approximately 11% of Cadence’s total receivables. As of December 29, 2012, no single customer accounted for 10% of Cadence’s total receivables. As of March 30, 2013, approximately 53% of Cadence’s total receivables were attributable to the ten customers with the largest balances of total receivables. As of December 29, 2012, approximately 47% of Cadence’s total receivables were attributable to the ten customers with the largest balances of total receivables.

NOTE 6. FAIR VALUE

Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Cadence’s market assumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1 – Quoted prices for identical instruments in active markets;

• Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires Cadence to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. Cadence recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the three months ended March 30, 2013.

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On a quarterly basis, Cadence measures at fair value certain financial assets and liabilities. The fair value of financial assets and liabilities was determined using the following levels of inputs as of March 30, 2013 and December 29, 2012:

	Fair Value Measurements as of March 30, 2013:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	659,218	$	659,218	$	—	$	—
Short-term investments:
Corporate debt securities	34,453		—		34,453		—
Bank certificates of deposit	24,827		—		24,827		—
United States Treasury securities	21,225		21,225		—		—
United States government agency securities	14,246		14,246		—		—
Commercial paper	4,290		—		4,290		—
Marketable equity securities	1,951		1,951		—		—
Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC	19,302		19,302		—		—
2015 Notes Hedges	315,895		—		315,895		—
Total Assets	$	1,095,407	$	715,942	$	379,465	$	—
	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Acquisition-related contingent consideration	$	3,579	$	—	$	—	$	3,579
2015 Notes Embedded Conversion Derivative	315,895		—		315,895		—
Foreign currency exchange contracts	$	477	$	—	$	477	$	—
Total Liabilities	$	319,951	$	—	$	316,372	$	3,579
	Fair Value Measurements as of December 29, 2012:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	566,334	$	566,334	$	—	$	—
Short-term investments:
Corporate debt securities	31,359		—		31,359		—
Bank certificates of deposit	27,826		—		27,826		—
United States Treasury securities	23,239		23,239		—		—
United States government agency securities	10,258		10,258		—		—
Commercial paper	5,783		—		5,783		—
Marketable equity securities	2,239		2,239		—		—
Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC	24,329		24,329		—		—
2015 Notes Hedges	303,154		—		303,154		—
Foreign currency exchange contracts	1,737		—		1,737		—
Total Assets	$	996,258	$	626,399	$	369,859	$	—

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	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Acquisition-related contingent consideration	$	4,218	$	—	$	—	$	4,218
2015 Notes Embedded Conversion Derivative	303,154		—		303,154		—
Total Liabilities	$	307,372	$	—	$	303,154	$	4,218

Level 1 Measurements

Cadence’s cash equivalents held in money market funds, available-for-sale United States Treasury securities, United States government agency securities, marketable equity securities and the trading securities held in Cadence’s NQDC trust are measured at fair value using level 1 inputs.

Level 2 Measurements

The 2015 Notes Hedges and the 2015 Notes Embedded Conversion Derivative are measured at fair value using level 1 and level 2 inputs. These instruments are not actively traded and are valued using an option pricing model that uses observable market data for all inputs, such as implied volatility of Cadence’s common stock, risk-free interest rate and other factors.

Cadence’s available-for-sale corporate debt securities, bank certificates of deposit and commercial paper are measured at fair value using level 2 inputs. Cadence obtains the fair values of its level 2 available-for-sale securities from a professional pricing service and validates the fair values by assessing the pricing methods and inputs and by comparing the fair values to another independent source.

The fair values of Cadence’s 2013 Notes and 2015 Notes, which differ from their carrying values, are influenced by interest rates and Cadence’s stock price and stock price volatility and are determined by prices for the 2013 Notes and 2015 Notes observed in market trading, which are level 2 inputs.

Cadence’s foreign currency exchange contracts are measured at fair value using observable foreign currency exchange rates.

Level 3 Measurements

The liabilities included in level 3 represent the fair value of contingent consideration associated with certain of Cadence’s 2011 and 2010 acquisitions. Cadence makes estimates regarding the fair value of contingent consideration liabilities on the acquisition date and at the end of each reporting period until the contingency is resolved. The fair value of these arrangements is determined by calculating the net present value of the expected payments using significant inputs that are not observable in the market, including revenue projections and discount rates consistent with the level of risk of achievement. The fair value of these contingent consideration arrangements is affected most significantly by the changes in the revenue projections, but is also impacted by the discount rate used to adjust the outcomes to their present values. If the revenue projections increase or decrease, the fair value of the contingent consideration will increase or decrease accordingly, in amounts that will vary based on the timing of the projected revenues, the timing of the expected payments and the discount rate used to calculate the present value of the expected payments. Cadence used discount rates ranging from 11% to 16% to value its contingent consideration liabilities as of March 30, 2013 and December 29, 2012. Cadence believes that its estimates and assumptions are reasonable, but significant judgment is involved.

Changes in the fair value of contingent consideration liabilities subsequent to the acquisition are recorded in general and administrative expense in the condensed consolidated income statements.

The following table summarizes the level 3 activity for the three months ended March 30, 2013:

	(In thousands)
Balance as of December 29, 2012	$	4,218
Payments	(740		)
Adjustments	101
Balance as of March 30, 2013	$	3,579

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NOTE 7. CASH, CASH EQUIVALENTS AND INVESTMENTS

Cadence’s cash, cash equivalents and short-term investments at fair value as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cash and cash equivalents	$	810,152	$	726,357
Short-term investments	100,992		100,704
Cash, cash equivalents and short-term investments	$	911,144	$	827,061

Cash and Cash Equivalents

Cadence considers all highly liquid investments with original maturities of three months or less on the date of purchase to be cash equivalents. The amortized cost of Cadence’s cash equivalents approximates fair value. The following table summarizes Cadence’s cash and cash equivalents at fair value as of March 30, 2013 and December 29, 2012:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cash and interest bearing deposits	$	150,934	$	160,023
Money market funds	659,218		566,334
Total cash and cash equivalents	$	810,152	$	726,357

Short-Term Investments

The following tables summarize Cadence’s short-term investments as of March 30, 2013 and December 29, 2012:

	As of March 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Corporate debt securities	$	34,409	$	51	$	(7	)	$	34,453
Bank certificates of deposit	24,800		27		—			24,827
United States Treasury securities	21,198		27		—			21,225
United States government agency securities	14,231		15		—			14,246
Commercial paper	4,283		7		—			4,290
Marketable debt securities	98,921		127		(7		)	99,041
Marketable equity securities	1,817		134		—			1,951
Total short-term investments	$	100,738	$	261	$	(7	)	$	100,992

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	As of December 29, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Corporate debt securities	$	31,313	$	57	$	(11	)	$	31,359
Bank certificates of deposit	27,805		21		—			27,826
United States Treasury securities	23,213		26		—			23,239
United States government agency securities	10,245		13		—			10,258
Commercial paper	5,777		6		—			5,783
Marketable debt securities	98,353		123		(11		)	98,465
Marketable equity securities	1,817		422		—			2,239
Total short-term investments	$	100,170	$	545	$	(11	)	$	100,704

As of March 30, 2013, any securities held by Cadence with an unrealized loss had been held for less than six months.

The amortized cost and estimated fair value of marketable debt securities included in short-term investments as of March 30, 2013, by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

	Amortized Cost		Fair Value
	(In thousands)
Due in less than one year	$	34,718	$	34,777
Due in one to three years	64,203		64,264
Total marketable debt securities included in short-term investments	$	98,921	$	99,041

Non-Marketable Investments

Cadence’s non-marketable investments generally consist of voting preferred stock or convertible debt of privately held companies and are included in other assets on Cadence’s condensed consolidated balance sheets. If Cadence determines that it has the ability to exercise significant influence over the issuer, which may include considering whether the investments are in-substance common stock, the investment is accounted for using the equity method.

Cadence’s non-marketable investments as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cost method	$	3,038	$	3,038
Equity method	3,932		4,249
Total non-marketable investments	$	6,970	$	7,287

Net realized gains on the sale of non-marketable investments during the three months ended March 30, 2013 and March 31, 2012 were as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Gains on sale of non-marketable investments	$	1,190	$	—

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NOTE 8. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income during the period by the weighted average number of shares of common stock outstanding during that period, less unvested restricted stock awards. Diluted net income per share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock method of accounting.

The calculations for basic and diluted net income per share for the three months ended March 30, 2013 and March 31, 2012 are as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands, except per share amounts)
Net income	$	78,609	$	31,104
Weighted average common shares used to calculate basic net income per share	274,936		267,940
2023 Notes	11		11
2015 Warrants	10,668		2,523
Share-based awards	6,536		7,259
Weighted average common shares used to calculate diluted net income per share	292,151		277,733
Net income per share - basic	$	0.29	$	0.12
Net income per share - diluted	$	0.27	$	0.11

The following table presents shares of Cadence’s common stock outstanding for the three months ended March 30, 2013, and March 31, 2012, that were excluded from the computation of diluted net income per share because the effect of including these shares in the computation of diluted net income per share would have been anti-dilutive:

	Three Months Ended
	March 30, 2013	March 31, 2012
	(In thousands)
2011 Warrants and 2013 Warrants	6,830	7,815
Options to purchase shares of common stock	6,754	14,070
Non-vested shares of restricted stock	—	33
Total potential common shares excluded	13,584	21,918

NOTE 9. OTHER COMPREHENSIVE INCOME

Cadence’s other comprehensive income is comprised of foreign currency translation gains and losses, changes in defined benefit plan liabilities, and changes in unrealized holding gains and losses on available-for-sale securities net of reclassifications for realized gains and losses as presented in Cadence’s condensed consolidated statements of comprehensive income.

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Accumulated other comprehensive income was comprised of the following as of March 30, 2013, and December 29, 2012:

	As of
	March 30, 2013			December 29, 2012
	(In thousands)
Foreign currency translation gain	$	42,491		$	48,653
Changes in defined benefit plan liabilities	(4,911		)	(5,229		)
Unrealized holding gains on available-for-sale securities	242			526
Total accumulated other comprehensive income	$	37,822		$	43,950

For the three months ended March 30, 2013 and March 31, 2012 there were no significant amounts reclassified from accumulated other comprehensive income to net income.

NOTE 10. CONTINGENCIES

Legal Proceedings

From time to time, Cadence is involved in various disputes and litigation that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, indemnification obligations, mergers and acquisitions, licensing, contracts, distribution arrangements and employee relations matters. At least quarterly, 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 or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on Cadence’s judgments using 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.

Other Contingencies

Cadence provides its customers with a warranty on sales of hardware products, generally for a 90-day period. Cadence did not incur any significant costs related to warranty obligations during the three months ended March 30, 2013 or March 31, 2012.

Cadence’s product license and services agreements typically include a limited indemnification provision for claims from third parties relating to Cadence’s intellectual property. If the potential loss from any indemnification claim is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. The indemnification is generally limited to the amount paid by the customer. Cadence did not incur any significant losses from indemnification claims during the three months ended March 30, 2013 or March 31, 2012.

NOTE 11. OTHER INCOME, NET

Cadence’s other income, net for the three months ended March 30, 2013 and March 31, 2012 was as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands)
Interest income	$	425		$	337
Gains (losses) on sale of marketable debt and equity securities, net	(25		)	117
Gains on sale of non-marketable equity investments	1,190			—
Gains on securities in Cadence’s NQDC	152			1,798
Gains on foreign exchange	764			100
Other income (expense), net	(331		)	82
Total other income, net	$	2,175		$	2,434

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NOTE 12. SEGMENT REPORTING

Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. Cadence’s chief operating decision maker is its President and Chief Executive Officer, or CEO, who reviews Cadence’s consolidated results as one reportable segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geographic region.

Outside the United States, Cadence markets and supports its products and services primarily through its subsidiaries. Revenue is attributed to geography based upon the country in which the product is used or services are delivered. Long-lived assets are attributed to geography based on the country where the assets are located.

The following table presents a summary of revenue by geography for the three months ended March 30, 2013 and March 31, 2012:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Americas:
United States	$	149,171	$	130,455
Other Americas	4,615		8,124
Total Americas	153,786		138,579
Europe, Middle East and Africa	78,920		59,709
Japan	53,474		56,219
Asia	68,086		61,323
Total	$	354,266	$	315,830

The following table presents a summary of long-lived assets by geography as of March 30, 2013 and December 29, 2012:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Americas:
United States	$	209,006	$	214,711
Other Americas	216		185
Total Americas	209,222		214,896
Europe, Middle East and Africa	4,994		5,410
Japan	979		1,649
Asia	22,260		22,484
Total	$	237,455	$	244,439

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q, or this Quarterly Report, and in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 29, 2012. Certain of these statements, including, but not limited to, 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 “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “will” and “would,” 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 “Risk Factors,” “Results of Operations,” “Disclosures About Market Risk,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, and the risks discussed in our other Securities Exchange Commission, or SEC, filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.

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.

Overview

We develop solutions that our customers use to design increasingly complex integrated circuits, or ICs, and electronic devices. Our solutions are designed to help our customers reduce the time to bring an IC or electronic device to market and to reduce their design and development costs. Our offerings include software, two categories of intellectual property, or IP (commonly referred to as verification IP, or VIP, and Design IP), and hardware technology. We provide maintenance for our product offerings and provide engineering services related to methodology, education and hosted design solutions, which help our customers manage and accelerate their electronics product development processes.

Substantially all of our business is generated from semiconductor and electronics systems manufacturers and designers and the renewal of many of our customer contracts is dependent upon their commencement of new design projects. As a result, our business is significantly influenced by our customers’ business outlook and investment in the introduction of new products and the improvement of existing products.

The markets our customers serve are sensitive to product price and the time it takes to bring the products to market. In order to be competitive and profitable in these markets, our customers demand high levels of productivity from their design teams, better predictability in shorter development schedules, high quality products and lower development costs. Semiconductor and electronics systems companies are responding to these challenges and users’ demand for increased functionality and smaller devices by combining subsystems - such as radio frequency, or RF, wireless communication, signal processing, microprocessors and memory controllers - onto a single silicon chip, creating a system-on-chip, or SoC, or combining multiple chips into a single chip package in a format referred to as system-in-package, or SiP. The trend toward subsystem integration has required these chip makers to find solutions to challenges previously addressed by system companies, such as verifying system-level functionality and hardware-software interoperability.

Our offerings address many of the challenges associated with developing unique silicon circuitry, integrating that circuitry with design IP developed by us or third parties to create SoCs, and combining ICs and SoCs with software to create electronic systems. Our strategy is to provide our customers with the ability to address the broad range of issues that arise at the silicon, SoC, and system levels.

Significant issues that our customers face in creating their products include optimizing energy consumption, manufacturing microscopic circuitry, verifying device functionality, and achieving technical performance targets, all while meeting aggressive time-to-market and cost requirements. Providers of electronic design automation, or EDA, solutions must deliver products that address these technical challenges while improving the productivity, predictability, reliability and profitability of the design processes and products of their customers.

Our products are engineered to improve our customers’ design productivity and design quality by providing a comprehensive set of EDA solutions and a differentiated portfolio of Design IP and VIP. Product revenue includes fees from licenses to use our software and IP, and from sales and leases of our hardware products. See "Product Arrangements" below for a discussion of our license types.

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We combine our products and technologies into categories related to major design activities:

• Functional Verification, Hardware and IP;

• Custom IC Design;

• Digital IC Design;

• System Interconnect Design; and

• Design for Manufacturing, or DFM.

The major Cadence^® design platforms are branded as Incisive^® functional verification, Virtuoso^® custom IC design, Encounter^® digital IC design and Allegro^® system interconnect design. Our functional verification offerings include VIP products and are supplemented by our Design IP offerings and our hardware offerings. In addition, we augment these platform product offerings with a set of DFM products that service both the digital and custom IC design flows.

The products and technologies included in these categories are combined with ready-to-use packages of technologies assembled from our broad portfolio of IP and other associated components that provide comprehensive solutions for low power, mixed signal and designs at smaller geometries referred to as advanced process nodes, as well as popular designs based on design IP owned and licensed by other companies such as ARM Holdings plc. These solutions are marketed to users who specialize in areas such as system design and verification, functional verification, logic design, digital implementation, custom IC design and printed circuit board, or PCB, and IC package and SiP design. During the first quarter of fiscal 2013, we announced that we had signed definitive agreements to purchase Tensilica and Cosmic to add to our IP offerings. The addition of these technologies will enable us to offer broader IP solutions to customers.

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 further below under the heading "Results of Operations" and "Liquidity and Capital Resources."

Critical Accounting Estimates

In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, 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 be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. For further information about our critical accounting estimates, see the discussion in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

Results of Operations

Financial results for the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, reflect the following:

• An increase in our product and maintenance revenue, primarily because of increased business levels and increased revenue recognized from bookings in prior periods;

• An increase in employee-related costs, primarily consisting of costs related to hiring additional employees subsequent to March 31, 2012 and incremental costs related to employees added from our acquisition of Sigrity, Inc., or Sigrity, during fiscal 2012;

• An increase in variable compensation due to increased revenue, bookings and operating performance; and

• An income tax benefit in the three months ended March 30, 2013, primarily resulting from the release of uncertain tax benefits recorded in a past business combination.

Revenue

We primarily generate revenue from licensing our EDA software and IP, selling or leasing our hardware technology, providing maintenance for our software, IP and hardware and providing engineering services.

The timing of our product revenue is significantly affected by the mix of hardware and software products in the bookings executed in any given period and whether the revenue for such bookings is recognized over multiple periods or up-front, upon completion of delivery.

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We seek to achieve a consistent mix of bookings with approximately 90% of the aggregate value of our bookings of a type for which the revenue is recurring, or ratable, in nature, and the remainder of the resulting revenue recognized up-front, upon completion of delivery. Our ability to achieve this bookings mix in any single fiscal quarter may be impacted by hardware sales, because product revenue for hardware sales is generally recognized up-front in the quarter in which delivery is completed.

Greater than 90% of the aggregate value of our bookings during the three months ended March 30, 2013 and March 31, 2012 was of a type for which the revenue is recurring, or ratable, in nature.

For an additional description of the impact of hardware sales on the anticipated mix of bookings, our other license types and the timing of revenue recognition for license transactions, see the discussion under the heading “Critical Accounting Estimates – Revenue Recognition” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended December 29, 2012.

Revenue by Period

In the condensed consolidated income statements for the three months ended March 30, 2013, we combined product and maintenance revenue because product and maintenance revenue is generally recognized from agreements that require customers to purchase both the product and associated maintenance in a bundled offering. We reclassified prior period product and maintenance revenue balances to conform to the current year presentation.

The following table shows our revenue for the three months ended March 30, 2013 and March 31, 2012 and the change in revenue between periods:

	Three Months Ended				Change
	March 30, 2013		March 31, 2012		Amount			Percentage
	(In millions, except percentages)
Product and maintenance	$	328.3	$	286.3	$	42.0		15	%
Services	26.0		29.5		(3.5		)	(12	)%
Total revenue	$	354.3	$	315.8	$	38.5		12	%

Product and maintenance revenue increased during the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, primarily because of increased business levels and increased revenue recognized from bookings in prior periods. Services revenue decreased during the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, because of the redeployment of certain of our design services engineers to internal research and development projects. We expect services revenue to decrease during the remainder of fiscal 2013, as compared to the same periods in fiscal 2012, as we expect these design services engineers to continue to work on internal research and development projects, primarily related to our Design IP activities.

No one customer accounted for 10% or more of total revenue during the three months ended March 30, 2013 or March 31, 2012.

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Revenue by Product Group

The following table shows the percentage of product and related maintenance revenue contributed by each of our five product groups, and services and other for the past five consecutive quarters:

	Three Months Ended
	March 30, 2013		December 29, 2012		September 29, 2012		June 30, 2012		March 31, 2012
Functional Verification, Hardware and IP	26	%	30	%	30	%	33	%	30	%
Digital IC Design	25	%	23	%	23	%	22	%	23	%
Custom IC Design	25	%	24	%	24	%	22	%	23	%
System Interconnect Design	10	%	9	%	9	%	8	%	8	%
Design for Manufacturing	7	%	6	%	6	%	6	%	7	%
Services and other	7	%	8	%	8	%	9	%	9	%
Total	100	%	100	%	100	%	100	%	100	%

As described in Note 2 in the notes to consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012, certain of our licensing arrangements allow customers the ability to remix among software products. Additionally, we have arrangements with customers that include a combination of our products, with the actual product selection and number of licensed users to be determined at a later date. For these arrangements, we estimate the allocation of the revenue to product groups based upon the expected usage of our products. The actual usage of our products by these customers may differ and, if that proves to be the case, the revenue allocation in the table above would differ.

The changes in the percentage of revenue contributed by the Functional Verification, Hardware and IP product group for the quarters presented are primarily related to changes in revenue related to our hardware products.

Revenue by Geography

	Three Months Ended				Change
	March 30, 2013		March 31, 2012		Amount			Percentage
	(In millions, except percentages)
United States	$	149.2	$	130.5	$	18.7		14	%
Other Americas	4.6		8.1		(3.5		)	(43	)%
Europe, Middle East and Africa	78.9		59.7		19.2			32	%
Japan	53.5		56.2		(2.7		)	(5	)%
Asia	68.1		61.3		6.8			11	%
Total revenue	$	354.3	$	315.8	$	38.5		12	%

Most of our revenue is transacted in the United States dollar. However, certain revenue transactions are denominated in foreign currencies, primarily the Japanese yen, and we recognize reduced revenue from those contracts in periods when the Japanese yen weakens in value against the United States dollar and additional revenue from those contracts in periods when the Japanese yen strengthens against the United States dollar. For an additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see the discussion under the heading “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”

Revenue for Japan decreased during the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, due to the devaluation of the Japanese yen and the economic climate facing our customers in Japan. We expect revenue for Japan to continue to decrease during the remainder of fiscal 2013, as compared to the same period in 2012, because of expected further devaluation of the Japanese yen.

For the primary factors contributing to our increase in revenue in other geographies, see the general description under “Revenue by Period,” above.

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Revenue by Geography as a Percent of Total Revenue

	Three Months Ended
	March 30, 2013		March 31, 2012
United States	42	%	41	%
Other Americas	2	%	3	%
Europe, Middle East and Africa	22	%	19	%
Japan	15	%	18	%
Asia	19	%	19	%
Total	100	%	100	%

Cost of Revenue

	Three Months Ended				Change
	March 30, 2013		March 31, 2012		Amount			Percentage
	(In millions, except percentages)
Product and maintenance	$	29.8	$	27.2	$	2.6		10	%
Services	18.3		19.4		(1.1		)	(6	)%

The following table shows cost of revenue as a percentage of related revenue for the three months ended March 30, 2013 and March 31, 2012:

	Three Months Ended
	March 30, 2013		March 31, 2012
Product and maintenance	9	%	10	%
Services	71	%	66	%

Cost of Product and Maintenance

Cost of product and maintenance includes costs associated with the sale and lease of our hardware and licensing of our software and IP products, employee salary, benefits and other employee-related costs, cost of our customer support services, amortization of acquired intangibles, as well as the costs of technical documentation and royalties payable to third-party vendors. Costs associated with our hardware products include materials, assembly and overhead. These additional hardware manufacturing costs make our cost of hardware product higher, as a percentage of revenue, than our cost of software and IP products.

A summary of cost of product and maintenance is as follows:

	Three Months Ended				Change
	March 30, 2013		March 31, 2012		Amount		Percentage
	(In millions, except percentages)
Product and maintenance-related costs	$	26.0	24.3		$	1.7	7	%
Amortization of acquired intangibles	3.8		2.9		0.9		31	%
Total cost of product and maintenance	$	29.8	$	27.2	$	2.6	10	%

Cost of product and maintenance depends primarily upon the mix of hardware and software product sales in any given period, employee salary, benefits and other employee-related costs, and also depend upon the timing and extent to which we acquire intangible assets, acquire or license third-parties’ intellectual property or technology and sell our products that include such acquired or licensed intellectual property or technology.

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Cost of Services

Cost of services primarily includes employee salary, benefits and other employee-related costs, costs to maintain the infrastructure necessary to manage a services organization, and provisions for contract losses, if any. Certain of our design services engineers have been redeployed to internal research and development projects or to assist with pre-sales activities, resulting in lower cost of services expense. We expect to continue to utilize certain design services engineers on internal projects and pre-sales activities.

Operating Expenses

Our operating expenses include marketing and sales, research and development and general and administrative expenses. Factors that may cause our operating expenses to fluctuate include changes in the number of employees due to hiring, acquisitions, foreign exchange rates and the impact of our variable compensation programs, which are driven by overall operating results.

Our employee salary and other compensation-related costs increased during the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, primarily due to hiring additional employees for our research and development activities, the addition of employees through our fiscal 2012 acquisition of Sigrity, and higher variable compensation as a result of improved business performance.

Many of our operating expenses are denominated in various foreign currencies. We recognize lower expenses in periods when the United States dollar strengthens in value against other currencies and we recognize higher expenses when the United States dollar weakens against other currencies. For an additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see the discussion under the heading “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”

We expect our operating expenses to increase during the remainder of fiscal 2013, as compared to the same period in fiscal 2012, due to the addition of employees through the acquisitions of Tensilica and Cosmic and expected hiring of research and development personnel.

Our operating expenses for the three months ended March 30, 2013 and March 31, 2012 were as follows:

	Three Months Ended				Change
	March 30, 2013		March 31, 2012		Amount		Percentage
	(In millions, except percentages)
Marketing and sales	$	90.4	$	83.8	$	6.6	8	%
Research and development	124.1		108.6		15.5		14	%
General and administrative	29.8		27.8		2.0		7	%
Operating expenses	$	244.3	$	220.2	$	24.1	11	%

Our operating expenses, as a percentage of total revenue, for the three months ended March 30, 2013 and March 31, 2012 were as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
Marketing and sales	26	%	27	%
Research and development	35	%	34	%
General and administrative	8	%	9	%
Operating expenses	69	%	70	%

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Marketing and Sales

The changes in marketing and sales expense for the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, were due to the following:

	Change
	(In millions)
Salary, benefits and other employee-related costs	$	6.2
Other individually insignificant items	0.4
	$	6.6

Research and Development

The changes in research and development expense for the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, were due to the following:

	Change
	(In millions)
Salary, benefits and other employee-related costs	$	10.8
Professional engineering services	2.0
Stock-based compensation	1.5
Other individually insignificant items	1.2
	$	15.5

The increase in salary, benefits and other employee-related costs during the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, is primarily due to hiring additional employees for our research and development activities, the addition of employees through our fiscal 2012 acquisition of Sigrity and increased costs associated with design services engineers utilized for internal research and development projects.

We expect research and development expense to increase for the remainder of fiscal 2013, as compared to the same period in fiscal 2012, due to the acquisitions of Tensilica and Cosmic and higher salary, benefits and other employee-related costs from an expected increase in hiring.

General and Administrative

The changes in general and administrative expense for the three months ended March 30, 2013, as compared to the three months ended March 31, 2012 were due to the following:

	Change
	(In millions)
Professional services	2.1
Other individually insignificant items	(0.1		)
	$	2.0

The increase in professional services costs during the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, is primarily due to services rendered in connection with the acquisitions of Tensilica and Cosmic.

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Amortization of Acquired Intangibles

	Three Months Ended				Change
	March 30, 2013		March 31, 2012		Amount		Percentage
	(In millions, except percentages)
Amortization of acquired intangibles	$	3.8	$	3.8	$	—	—	%

We expect amortization of acquired intangibles to increase during the remainder of fiscal 2013, as compared to the same period in fiscal 2012, due to the amortization of intangible assets that we expect to be recorded in connection with the acquisitions of Tensilica and Cosmic.

Interest Expense

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In millions)
Contractual interest expense:
2013 Notes	0.5		0.5
2015 Notes	2.3		2.3
Amortization of debt discount:
2013 Notes	1.7		1.5
2015 Notes	3.9		3.6
Amortization of deferred financing costs:
2013 Notes	0.1		0.1
2015 Notes	0.5		0.5
Other	0.3		—
Total interest expense	$	9.3	$	8.5

Income Taxes

During the three months ended March 30, 2013, uncertain tax benefits recorded in a previous business combination were released, resulting in a reduction of uncertain tax benefits of $12.0 million, interest (net of tax benefit) of $13.4 million and penalties of $8.3 million for a total tax benefit of $33.7 million. In addition, the American Tax Relief Act of 2012, enacted in January 2013, retroactively extended the United States federal research tax credit from January 1, 2012 through December 31, 2013.

The following table presents the provision for income taxes and the effective tax rate for the three months ended March 30, 2013 and March 31, 2012:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In millions, except percentages)
Provision (benefit) for income taxes	$	(27.6	)	$	8.1
Effective tax rate	(54.0		)%	20.8		%

Our benefit for income taxes for the three months ended March 30, 2013 primarily consisted of the following:

• Tax benefit of $33.7 million related to the release of the uncertain tax position described above; and

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• A period-specific tax benefit for the retroactively extended fiscal 2012 federal research tax credit in the amount of $5.9 million, offset by:

• Federal, state and foreign tax expense on anticipated fiscal 2013 income.

Our tax expense for the three months ended March 31, 2012 primarily consisted of the following:

•Tax expense related to certain of our foreign subsidiaries;

•Interest expense on unrecognized tax positions; and

•Excess tax benefits from stock-based compensation that were allocated to equity.

For further discussion regarding our income taxes, see Note 6 in the notes to consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

Liquidity and Capital Resources

	As of
	March 30, 2013		December 29, 2012		Change
	(In millions)
Cash, cash equivalents and short-term investments	$	911.2	$	827.1	$	84.1
Net working capital	$	251.3	$	174.0	$	77.3

Cash, Cash Equivalents and Short-term Investments

As of March 30, 2013, our principal sources of liquidity consisted of $911.2 million of cash, cash equivalents and short-term investments, as compared to $827.1 million as of December 29, 2012.

During the second quarter of fiscal 2012, we began to maintain an investment portfolio of approximately $100 million in marketable debt securities, including corporate debt securities, United States Treasury securities, United States government agency securities, bank certificates of deposit and commercial paper. Our investments in marketable debt securities are classified as available-for-sale and are included in short-term investments as of March 30, 2013. Our investments are made in accordance with our cash investment policy, which governs the amounts and types of investments we hold in our portfolio. Our investment portfolio could be affected by various risks and uncertainties including credit risk, interest rate risk and general market risk, as outlined in Part II, Item 1A, “Risk Factors.”

Our primary source of cash, cash equivalents and short-term investments during the three months ended March 30, 2013 was customer payments for products, maintenance and services. We also received cash from stock purchases under our ESPP and from the exercise of stock options.

Our primary use of cash, cash equivalents and short-term investments during the three months ended March 30, 2013 was payments relating to salaries, benefits, other employee-related costs and other operating expenses.

Approximately 55% of our cash, cash equivalents and short-term investments were held by our foreign subsidiaries as of March 30, 2013. Our intent is to permanently reinvest our earnings from certain foreign operations. We do not anticipate we will need to repatriate dividends from foreign operations that are permanently reinvested in order to fund our domestic operations. In the event that dividends from foreign operations that are currently permanently reinvested are needed to fund United States liquidity, we could be required to accrue and pay additional taxes in order to repatriate these funds.

During fiscal 2012, we entered into a $250 million five-year senior secured revolving credit facility. Borrowings under the credit facility may be used to finance working capital, capital expenditures, acquisitions and other business purposes. Any outstanding loans drawn under the credit facility are payable on or before December 12, 2017. The credit facility contains customary negative covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make certain investments, dispose of certain assets and make certain payments. In addition, the credit facility contains certain financial covenants that require us to maintain a leverage ratio of not greater than 3 to 1, subject to certain exceptions, and requires that we maintain an interest coverage ratio of at least 3 to 1. As of March 30, 2013, we were in compliance with the financial covenants. For an additional description of this revolving credit facility, see Note 2 in the notes to condensed consolidated financial statements. After quarter-end on April 23, 2013, we borrowed $100 million on our line of credit for general working capital purposes.

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On April 22, 2013, after quarter-end, we completed our acquisition of Tensilica. In connection with our acquisition of Tensilica, we utilized our United States cash for cash consideration paid at closing. Additionally, we have signed a definitive agreement to purchase Cosmic. We expect that the majority of the purchase price of Cosmic will be paid using cash held in our foreign subsidiaries. We expect that current cash, cash equivalents and short-term investment balances, cash flows that are generated from operations and additional cash available under our revolving credit facility will be sufficient to meet our domestic and international working capital needs, and other capital and liquidity requirements, including acquisitions, for at least the next 12 months.

Net Working Capital

Net working capital increased by $77.3 million as of March 30, 2013, as compared to December 29, 2012, due to the following:

	Change
	(In millions)
Increase in cash and cash equivalents	$	83.8
Decrease in accounts payable and accrued liabilities	14.7
Decrease in current portion of deferred revenue	10.2
Decrease in prepaid expenses and other	(4.4		)
Increase in convertible notes	(5.6		)
Decrease in receivables, net	(22.6		)
Other individually insignificant items	1.2
	$	77.3

Cash Flows from Operating Activities

	Three Months Ended				Change
	March 30, 2013		March 31, 2012		(In millions)
Cash provided by operating activities	$	75.3	$	60.7	$	14.6

Cash flows from operating activities increased $14.6 million during the three months ended March 30, 2013, as compared to March 31, 2012, due to the following:

	Change
	(In millions)
Net income, net of non-cash related gains and losses	$	57.7
Changes in operating assets and liabilities, net of effect of acquired businesses	(43.1		)
	$	14.6

Cash flows from operating activities include net income, adjusted for certain non-cash items as well as changes in the balances of certain assets and liabilities. Our cash flows from operating activities are significantly influenced by business levels and the payment terms set forth in our license agreements.

We expect that cash flows from operating activities will fluctuate in future periods due to a number of factors, including our operating results and the timing of our billings, collections and tax payments.

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Cash Flows from Investing Activities

	Three Months Ended				Change
	March 30, 2013		March 31, 2012		(In millions)
Cash used for investing activities	(1.8	)	(9.4	)	7.6

The changes in net cash used for investing activities for the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, were due to the following:

	Change
	(In millions)
Proceeds from the sale of available-for-sale securities	$	15.0
Purchases of available-for-sale securities	(24.3		)
Proceeds from the maturity of available-for-sale securities	8.7
Proceeds from the sale of long-term investments	6.1
Purchases of property, plant and equipment	1.6
Other individually insignificant items	0.5
	$	7.6

The proceeds from, and purchases of, available-for-sale securities is primarily related to normal purchases, sales and maturities of the debt securities included in our $100 million investment portfolio.

In connection with our business combinations and asset acquisitions completed before March 30, 2013, we may be obligated to make payments based on, or subject to the satisfaction of, certain performance metrics. If performance is such that these payments are fully achieved, we would be obligated to pay up to an aggregate of $14.4 million in cash during the next 37 months.

During fiscal 2013, we expect to use cash for our acquisitions of Tensilica and Cosmic. We also expect to continue our investing activities, including purchasing property, plant and equipment, purchasing intangible assets, purchasing software licenses, business combinations, and making long-term equity investments.

Cash Flows from Financing Activities

	Three Months Ended		Change
	March 30, 2013	March 31, 2012	(In millions)
Cash provided by financing activities	15.2	9.4	5.8

The changes in net cash provided by financing activities for the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, were due to the following:

	Change
	(In millions)
Proceeds from the issuance of common stock	$	9.0
Tax effect related to employee stock transactions allocated to equity	2.4
Principal payments on receivable financing	(2.5		)
Stock received for payment of employee taxes on vesting of restricted stock	(2.6		)
Other individually insignificant items	(0.5		)
	$	5.8

The increase in proceeds from the issuance of common stock during the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, resulted from an increase in the exercise of stock options.

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Other Factors Affecting Liquidity and Capital Resources

As of March 30, 2013, we had convertible notes outstanding with a net liability value of $452.4 million and that mature between December 15, 2013, and June 1, 2015. The principal maturity value of these convertible notes is $494.5 million. The total cash or stock payable upon the early conversion of these notes, as determined by the indenture of each security, will be their principal amount plus any additional conversion value that would be due upon conversion.

In the case of our 2015 Notes, we will owe additional cash to the note holders upon early conversion if our stock price exceeds $7.55 per share. We entered into hedges with counterparties to limit our exposure to the additional cash payments above the principal amount of the 2015 Notes that may be due to the holders upon conversion. In separate transactions, we sold warrants, or the 2015 Warrants, with a strike price of $10.78 per share. Although our incremental cash payout exposure above the conversion price is limited by the hedges to the $350.0 million outstanding principal value of the 2015 Notes, we will experience dilution to our stock and to our diluted earnings per share from the outstanding 2015 Warrants to the extent our average closing stock price exceeds $10.78 in any fiscal quarter until the 2015 Notes are converted and the 2015 Warrants are settled.

Additionally, holders may convert their 2015 Notes into cash during any quarter following a quarter in which our stock price closes above $9.81 for at least 20 of the last 30 trading days. The 2015 Notes are convertible into cash from March 31, 2013 through June 29, 2013 because our closing stock price exceeded $9.81 for at least 20 of the last 30 trading days prior to March 30, 2013. Accordingly, the net balance of the 2015 Notes of $312.7 million is classified as a current liability on our condensed consolidated balance sheet as of March 30, 2013. While holders of the 2015 Notes would have the right to convert their notes if early conversion conditions are met, we do not expect holders of the 2015 Notes to convert their notes under such circumstances because the economic value to the holders of the notes has exceeded and likely will continue to exceed the cash received upon conversion. If the holders of our 2015 Notes elect to convert their notes into cash, we would be required to make cash payments of up to $350 million prior to the maturity of the 2015 Notes. In connection with the 2015 Notes, we entered into the 2015 Notes Hedges and sold warrants to limit our exposure to the additional cash payments above the $350 million principal balance in the event of a cash conversion of the 2015 Notes. The 2015 Notes currently trade at a premium to their if-converted value, and we do not anticipate a conversion of the 2015 Notes by the note holders between March 31, 2013 and June 29, 2013. However, if the holders of the 2015 Notes elect to convert their notes between March 31, 2013 and June 29, 2013, we expect to have sufficient cash, cash equivalents, short-term investments and access to our revolving credit facility to fund any payment resulting from a conversion.

In the case of our 2013 Notes, we may owe shares of our common stock to the note holders upon conversion if our stock price exceeds $21.15 per share. We entered into hedges with counterparties to limit our exposure to the dilution that may result from the issuance of shares upon conversion of the 2013 Notes. In separate transactions, we sold warrants with a strike price of $31.50 per share. We will experience dilution to our stock and to diluted earnings per share from the outstanding warrants to the extent our stock price exceeds $31.50.

We expect to have sufficient cash, cash equivalents, short-term investments and access to our credit facility to fund the maturity of the 2013 Notes in December 2013. The 2013 Notes could become convertible prior to their maturity if certain conversion conditions are met. However, we do not currently expect that any of the conversion conditions will be met prior to the maturity of the 2013 Notes. We also believe that we will have sufficient cash in future periods as well as access to our revolving credit facility to service the maturities of our 2015 Notes, but future changes in our cash position, cash flows from operating activities, cash flows from investing activities, cash flows from financing activities, as well as general business levels and changes in our access to financing may impact our ability to settle the principal amount payable to the holders of the 2013 Notes and 2015 Notes when they mature or convert.

For an additional description of the 2015 Notes and 2013 Notes, the conversion terms thereof and the hedge and warrants transactions, see Note 2 in the notes to condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

A material portion of our revenue, expenses and business activity are transacted in the United States dollar. However, certain of our operations include transactions in foreign currencies that can affect our results of operations. In certain countries where we invoice customers in the local currency, Japan in particular, our revenues benefit from a weaker dollar and are adversely affected by a stronger dollar. The opposite impact occurs in countries where we record expenses in local currencies. In those cases, our operating expenses benefit from a stronger dollar and are adversely affected by a weaker dollar. The fluctuations in our operating expenses outside the United States resulting from volatility in the United States dollar against certain foreign currencies are not generally moderated by corresponding fluctuations in our revenues, except for our operations in Japan because we receive some cash payments and make expense payments in Japanese yen.

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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 assets decrease in value or underlying liabilities increase in value due to changes in foreign exchange rates. Conversely, a foreign currency forward exchange contract decreases in value when underlying assets increase in value or underlying liabilities decrease in value due to changes in foreign exchange rates. These forward contracts are not designated as accounting hedges, so the unrealized gains and losses are recognized in other income, net, in advance of the actual foreign currency cash flows with the fair value of these forward contracts being recorded as accrued liabilities or other current assets.

We do not use forward contracts for trading purposes. Our forward contracts generally have maturities of 90 days or less. We enter into currency forward exchange contracts based on estimated future asset and liability exposures, and the effectiveness of our hedging program depends on our ability to estimate these future asset and liability exposures. 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 actual underlying asset and liability exposures.

The following table provides information about our forward foreign currency contracts as of March 30, 2013. The information is provided in United States 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 United States dollar, which in some cases may not be the market convention for quoting a particular currency. All of these forward contracts mature before or during May 2013.

	Notional Principal			Weighted Average Contract Rate
	(In millions)
Forward Contracts:
European Union euro	$	48.1		0.77
India rupee	23.4			54.60
Israeli shekel	12.7			3.68
Japanese yen	12.3			94.64
Chinese renminbi	12.1			6.27
Canadian dollar	9.0			1.03
Other	13.5			N/A
Total	$	131.1
Estimated fair value	$	(0.5	)

While we actively monitor 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.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our portfolio of marketable debt securities, our portfolio of cash and cash equivalents and outstanding balances drawn on our credit facility, if any.

We are exposed to interest rate fluctuations in many of the world’s leading industrialized countries, but the fair value of our marketable debt securities and our interest income and expense is most sensitive to fluctuations in the general level of United States interest rates. In this regard, changes in United States interest rates affect the interest earned on our marketable debt securities and cash and cash equivalents, any unrealized and realized gains or losses on our marketable debt securities and the costs associated with foreign currency hedges. Pursuant to our investment policy, we limit the amount of our credit exposure to any one issuer, other than in securities issued by the United States Treasury and United States government agencies.

Our short-term investments as of March 30, 2013 include $99.0 million of marketable debt securities that may decline in value if market interest rates rise. Such variability in market interest rates may result in a negative impact on the results of our investment activities. As of March 30, 2013, an increase in the market rates of interest of 1% would result in a decrease in the fair values of our marketable debt securities by approximately $0.8 million.

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All highly liquid securities with a maturity of three months or less at the date of purchase are considered to be cash equivalents. Securities with maturities greater than three months are classified as available-for-sale and are considered to be short-term investments. The carrying value of our interest-bearing instruments approximated fair value as of March 30, 2013.

Interest rates under our revolving credit facility are variable, so interest expense for periods when the credit facility is utilized could be adversely affected by changes in interest rates. Interest rates under our revolving credit facility can fluctuate based on changes in market interest rates and in an interest rate margin that varies based on our consolidated leverage ratio. As of March 30, 2013, we had no outstanding balance on the credit facility. For an additional description of this revolving credit facility see Note 2 in the notes to condensed consolidated financial statements.

Equity Price Risk

Convertible Notes

Our 2015 Notes and 2013 Notes include conversion and settlement provisions that are based on the price of our common stock at conversion or at maturity of the notes. In addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on the price of our common stock. The amount of cash we may be required to pay, or the number of shares we may be required to provide to note holders at conversion or maturity of these notes, is determined by the price of our common stock. The amount of cash or number of shares that we may receive from hedge counterparties in connection with the related hedges and the number of shares that we may be required to provide warrant counterparties in connection with the related warrants are also determined by the price of our common stock.

Upon the expiration of our 2015 Warrants, Cadence will issue shares of common stock to the purchasers of the warrants to the extent our stock price exceeds the warrant strike price of $10.78 at that time. The following table shows the number of shares that Cadence would issue to 2015 Warrant counterparties at expiration of the warrants, assuming various Cadence closing stock prices on the dates of warrant expiration:

	Shares
	(In millions)
$11.00	0.9
$12.00	4.7
$13.00	7.9
$14.00	10.7
$15.00	13.0
$16.00	15.1
$17.00	17.0
$18.00	18.6
$19.00	20.1
$20.00	21.4

Prior to the expiration of the 2015 Warrants, for purposes of calculating diluted earnings per share, our diluted weighted-average shares outstanding will increase when our average closing stock price for a quarter exceeds $10.78.

For an additional description of our 2015 Notes and 2013 Notes, see Note 2 in our notes to condensed consolidated financial statements and “Liquidity and Capital Resources – Other Factors Affecting Liquidity and Capital Resources,” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Equity Investments

We have a portfolio of equity investments that includes marketable equity securities and non-marketable investments. Our equity investments are made primarily in connection with our strategic investment program. Under our strategic investment program, from time to time, we make cash investments in companies with technologies that are potentially strategically important to us. See Note 7 in the notes to condensed consolidated financial statements, and Note 9 in the notes to consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012, for an additional description of these investments. Our non-marketable investments had a carrying value of $7.0 million as of March 30, 2013, and $7.3 million as of December 29, 2012.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 30, 2013.

The evaluation of our disclosure controls and procedures included a review of our processes and the effect on the information generated for use in this Quarterly Report on Form 10-Q. In the course of this evaluation, we sought to identify any material weaknesses in our disclosure controls and procedures, to determine whether we had identified any acts of fraud involving personnel who have a significant role in our disclosure controls and procedures, and to confirm that any necessary corrective action, including process improvements, was taken. This type of evaluation is done every fiscal quarter so that our conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC. The overall goals of these evaluation activities are to monitor our disclosure controls and procedures and to make modifications as necessary. We intend to maintain these disclosure controls and procedures, modifying them as circumstances warrant.

Based on their evaluation as of March 30, 2013, our CEO and CFO have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended March 30, 2013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. Internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal control are met. Further, the design of internal control must reflect the fact that there are resource constraints, and the benefits of the control must be considered relative to their costs. While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of their effectiveness, 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, within Cadence, have been detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various disputes and litigation that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, indemnification obligations, mergers and acquisitions, licensing, contracts, distribution arrangements and employee relations matters. At least quarterly, we review the status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount or the range of loss can be estimated, we accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on our judgments using 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 our estimates.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.

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Risks Related to Our Business

Uncertainty in the global economy in general, and any potential downturn in the semiconductor and electronics industries in particular, may negatively impact our business and reduce our bookings levels and revenue.

Purchases of our products and services are dependent upon the commencement of new design projects by IC manufacturers and electronics systems companies. The IC and electronics systems industries are cyclical and are 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.

For example, the IC and electronics systems industries experienced a significant downturn in 2009. The IC and electronic systems industries have also experienced significant downturns in connection with, or in anticipation of, maturing product cycles of both these industries’ and their customers’ products. This economic downturn in the industries we serve contributed to the reduction in our revenue in 2009, as compared to prior years. Although the semiconductor industry experienced growth in 2010, semiconductor industry revenues for 2011 remained at levels similar to 2010 and early reports indicate that semiconductor industry revenue during 2012 was slightly lower than 2011. Spending on EDA products and services grew moderately during fiscal 2012. While spending on EDA products and services has grown in recent years, the outlook for the semiconductor industry for 2013 is uncertain and may result in a decrease in spending on EDA products and services.

While we cannot predict global economic conditions, uncertainty about future economic conditions and future decline in consumer spending could negatively impact our customers’ businesses, reducing the number of new chip designs, their overall research and development spending, including their spending on EDA products and services, and as a result decrease demand for our products. Decreased bookings for our products and services, customer bankruptcies, or consolidation among our customers could also adversely affect our ability to grow our business. Our future business and financial results are subject to considerable uncertainty that could impact our stock price. If economic conditions deteriorate in the future, or, in particular, if semiconductor industry revenues do not grow, our future revenues and financial results could be adversely affected. However, if economic conditions improve for our customers, the positive impact on our revenues and financial results may be deferred due to cautious customer research and development spending and our ratable license mix.

Our failure to respond quickly to technological developments or customers’ increasing technological requirements could make our products uncompetitive and obsolete.

The industries in which we compete experience rapid technology developments, changes in industry standards and customer requirements and frequent new product introductions and improvements. Currently, the industries we serve are experiencing the following trends:

• Changes in the design and manufacturing of ICs, including migration to advanced process nodes and the introduction of three dimensional transistors, such as fin-based, multigate transistors, or FinFETs, present major challenges to the semiconductor industry, particularly in IC design, design automation, design of manufacturing equipment, and the manufacturing process itself. With migration to advanced process nodes, the industry must adapt to more complex physics and manufacturing challenges such as the need to draw features on silicon that are many times smaller than the wavelength of light used to draw the features via lithography. Models of each component’s electrical properties and behavior also become more complex as do requisite analysis, design, verification and manufacturing capabilities. Novel design tools and methodologies must be invented and enhanced quickly to remain competitive in the design of electronics in the smallest nanometer ranges.

• The challenges of advanced node design are leading some customers to work with more mature, less risky manufacturing processes that may reduce their need to upgrade or enhance their EDA products and design flows.

• The ability to design SoCs increases the complexity of managing a design that, at the lowest level, is represented by billions of shapes on fabrication masks. 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.

• With the availability of seemingly endless gate capacity, there is an increase in design reuse, or the combining of off-the-shelf design IP with custom logic to create ICs or SoCs. The unavailability of a broad range of high-quality design IP (including our own) that can be reliably incorporated into a customer’s design with our software products and services could lead to reduced demand for our products and services.

• Increased technological capability of the Field-Programmable Gate Array, or FPGA, which is a programmable logic chip, creates an alternative to IC implementation for some electronics companies. This could reduce demand for our IC implementation products and services.

• A growing number of low-cost engineering services businesses could reduce the need for some IC companies to invest in EDA products.

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• Adoption of cloud computing technologies with accompanying new business models for an increasing number of software categories, including EDA.

If we are unable to respond quickly and successfully to these trends, we may lose our competitive position, and our products or technologies may become obsolete. To compete successfully, we must develop, acquire or license new products and improve our existing products and processes on a schedule that keeps pace with technological developments and the requirements for products addressing a broad spectrum of designers and designer expertise in our industries. Our hardware platforms must be enhanced periodically to reduce the likelihood that a competitor surpasses the capabilities we offer. We must also be able to support a range of changing computer software, hardware platforms and customer preferences. A rapid transition to different business models associated with cloud computing technologies could result in reduced revenue. We cannot guarantee that we will be successful in keeping pace with all, or any, of the customer trends.

Warrant transactions associated with our convertible notes will, in certain circumstances, dilute the ownership interests of existing stockholders.

At the time of issuance of our convertible notes due in 2015, we entered into separate warrant transactions for the purchase of up to approximately 46.4 million shares of our common stock at a strike price of $10.78 per share. At the time of issuance of our convertible notes due 2013, we also entered into separate warrant transactions, and warrants are currently outstanding to purchase approximately 6.8 million shares of our common stock at a strike price of $31.50 per share. These warrants will be settled in net shares. Therefore, upon expiration of the warrants, we will issue shares of our common stock to the purchasers of the warrants that represent the value by which the price of our common stock exceeds the strike price stipulated within the particular warrant agreement. If our stock price is above the warrants’ strike price upon expiration of the warrants, the warrants will dilute the ownership interest of our existing stockholders. The warrants will also dilute our diluted earnings per share in periods when our average closing stock price exceeds the strike price of the particular warrant. Any sales in the public market of common stock issuable upon net settlement at expiration of the warrants could adversely affect then current market prices of our common stock. Additional risk factors related to our indebtedness are described below under "Risks Related to Our Securities and Indebtedness."

We have acquired and expect to acquire other companies and businesses and may not realize the expected benefits of these acquisitions.

We have acquired and expect to acquire other companies and businesses in the future. While we expect to carefully analyze each potential acquisition before committing to the transaction, we may not consummate any particular transaction, but may nonetheless incur significant costs, or if a transaction is consummated, we may not be able to integrate and manage acquired products and businesses effectively or to integrate and retain key personnel from the acquired companies or businesses. In addition, acquisitions involve a number of risks. If any of the following acquisition-related risks occur, our business, operating results or financial condition could be seriously harmed:

• The failure to realize anticipated benefits such as cost savings and revenue enhancements;

• The failure to retain key employees of the acquired business;

• Difficulties in combining previously separate businesses into a single unit;

• The substantial diversion of management’s attention from day-to-day business when evaluating and negotiating these transactions and integrating an acquired business;

• The discovery, after completion of the acquisition, of unanticipated liabilities assumed from the acquired business or of assets acquired, such that we cannot realize the anticipated value of the acquisition;

• Difficulties related to integrating the products of an acquired business in, for example, distribution, engineering, licensing models and customer support areas;

• Unanticipated costs;

• Customer dissatisfaction with existing license agreements with us, possibly dissuading them from licensing or buying products acquired by us after the effective date of the license; and

• The failure to understand and compete effectively in markets where we have limited experience.

In a number of our completed acquisitions, we have agreed to make future payments, either in the form of employee bonuses or contingent purchase price payments based on the performance of the acquired businesses or the employees who joined us with the acquired businesses. We may continue to use contingent purchase price payments in connection with acquisitions in the future. The performance goals pursuant to which these future payments may be made generally relate to achievement by the acquired business, or by the employees who joined us with the acquired business of certain specified bookings, revenue, run rate, 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 full or partial payment of the purchase price for the acquired business, grants of incentive stock or options 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. These arrangements may impact our liquidity, financial position and results of operations.

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The specific performance goal levels and amounts and timing of employee bonuses or contingent purchase price payments vary with each acquisition. While we expect to derive value from an acquisition in excess of such contingent payment obligations, our strategy may change and we may be required to make certain contingent payments without deriving the anticipated value.

Our stock price has been subject to significant fluctuations and may continue to be subject to fluctuations.

The market price of our common stock has experienced significant fluctuations and may fluctuate or decline in the future, and as a result you could lose the value of your investment. The market price of our common stock may be affected by a number of factors, including, but not limited to:

• Announcements of our quarterly operating results and revenue and earnings forecasts that fail to meet or are inconsistent with earlier projections or the expectations of our securities analysts or investors;

• Changes in our forecasted bookings, revenue or earnings estimates;

• Market conditions in the IC, electronics systems and semiconductor industries;

• Announcements of a restructuring plan;

• Changes in management;

• A gain or loss of a significant customer or market segment share;

• Material litigation; and

• Announcements of new products or acquisitions of new technologies by us, our competitors or our customers.

In addition, equity markets in general, and the equities of technology companies in particular, have experienced extreme price and volume fluctuations. Such price and volume fluctuations may adversely affect the market price of our common stock for reasons unrelated to our business or operating results.

We have experienced varied operating results, and our operating results for any particular fiscal period are affected by the timing of revenue recognition, particularly for our hardware products.

We have recorded net losses in the past and may record net losses in the future. Various factors affect our operating results, and some of them are not within our control. Our operating results for any period are affected by the timing of revenue recognition, particularly for our hardware products.

A substantial portion of the product revenue related to our hardware business is recognized upon delivery. Revenue related to our hardware business is inherently difficult to predict, because sales of our hardware products depend on the commencement of new projects for the design and development of complex ICs and systems by our customers and our customers’ willingness to expend capital to deploy our hardware in those projects. Therefore, our hardware sales may be delayed or may decrease if our customers delay or cancel projects because their capital spending is constrained. Moreover, the verification hardware market is highly competitive, and our customers may choose to purchase a competitor’s verification hardware product based on cost, performance or other factors. These factors may result in lower hardware revenue, which would have an adverse effect on our business, results of operations or cash flows. Additionally, our forecasted revenue results are based, in part, on our expectations of hardware to be delivered in a particular quarter. Since revenue related to our hardware business is generally recognized upon delivery, changes in hardware bookings or deliveries relative to expectations will have a more immediate impact on our revenue than do changes in software or services bookings, for which revenue is generally recognized over time.

Our software license mix is such that a substantial proportion of licenses require ratable revenue recognition, and we expect the license mix, combined with the modest growth in spending by our customers in the semiconductor sector, may make it difficult for us to rapidly increase our revenue in future fiscal periods. The timing of our revenue recognition may be deferred until payments become due and payable from customers with nonlinear payment terms or as cash is collected from customers with low credit ratings.

We plan our operating expenses based on forecasted revenue, expected business needs and other factors. These expenses and the effect of long-term commitments are relatively fixed in the short term. Bookings and the related revenue are harder to forecast in a difficult economic environment. If the macroeconomic environment weakens, and we experience a shortfall in bookings, our operating results could differ from our expectations because we may not be able to quickly reduce our expenses in response to short-term business changes.

The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results of operations (see "Critical Accounting Estimates" under Part I, Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations"). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that may lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.

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Historical results of operations should not be viewed as reliable indicators of our future performance. If our revenue, operating results or business outlook for future periods fall short of the levels expected by us, securities analysts or investors, the trading price of our common stock could decline.

We depend on sole suppliers for certain hardware components, making us vulnerable to supply disruption and price fluctuation.

We depend on sole suppliers for certain hardware components. Our reliance on sole suppliers could result in product delivery problems and reduced control over product pricing and quality. Though we prefer to have multiple sources to procure certain key components, in some cases it is not practical or feasible to do so. We may suffer a disruption in the supply of certain hardware components if we are unable to purchase sufficient components on a timely basis or at all for any reason. Any supply disruption could delay our production process and prevent us from delivering completed hardware products to customers or from supplying new evaluation units to customers, which could have a negative impact on our revenue and operating results.

The effect of foreign exchange rate fluctuations may adversely impact our revenue, expenses, cash flows and financial condition.

We have significant operations outside the United States. Our revenue from international operations as a percentage of total revenue was approximately 58% during the three months ended March 30, 2013, and 59% during the three months ended March 31, 2012. 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. The volatility of foreign currencies in certain countries where we conduct business, most notably the Japanese yen, European Union euro, British pound and Indian rupee have had and may in the future have an effect on our revenue or operating results.

Fluctuations in the rate of exchange between the United States dollar, or US dollar, and the currencies of other countries where we conduct business could seriously affect our business, operating results or financial condition. For example, when a foreign currency declines in value relative to the US dollar, it takes more of the foreign currency to purchase the same amount of US dollars than before the change. If we price our products and services in the foreign currency, we receive fewer US dollars than we did before the change. If we price our products and services in US dollars, the decrease in value of the local currency results 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. On the other hand, when a foreign currency increases in value relative to the US dollar, it takes more US dollars to purchase the same amount of the foreign currency. As we use the foreign currency to fund payroll costs and other operating expenses in our international operations, this results in an increase in operating expenses. Our attempts to reduce the effect of foreign currency fluctuations may be unsuccessful, and significant exchange rate movements may hurt our results of operations as expressed in US dollars.

Litigation could adversely affect our financial condition or operations.

We currently are, and in the future may be, involved in various disputes and litigation that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, including customer indemnification, mergers and acquisitions, licensing, contracts, distribution arrangements and employee relations matters. For information regarding the litigation matters in which we are currently engaged, please refer to the discussion under Item 1, "Legal Proceedings" and Note 10 in our notes to condensed consolidated financial statements. We cannot provide any assurances that the final outcome of these lawsuits or any other proceedings that may arise in the future will not have a material adverse effect on our business, operating results, financial condition or cash flows. Litigation can be time consuming and expensive and could divert management’s time and attention from our business, which could have a material adverse effect on our revenues and operating results.

Our future revenue is dependent in part upon our installed customer base continuing to license or buy additional products and purchase additional services.

Our installed customer base has traditionally generated additional new license, service and maintenance revenues. In future periods, customers may not necessarily license or buy additional products or contract for additional services or maintenance. Our customers, many of which are large semiconductor and systems companies, often have significant bargaining power in negotiations with us. Mergers or acquisitions of our customers can reduce the total level of purchases of our software and services, and in some cases, increase customers’ bargaining power in negotiations with their suppliers, including us.

The competition in our industries is substantial, and we may not be able to continue to successfully compete in our industries.

The EDA industry and the commercial electronics engineering services industry are highly competitive. If we fail to compete successfully in these industries, it could seriously harm our business, operating results or financial condition. To compete in these

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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 may not be able to compete successfully in these industries. Factors that could affect our ability to succeed include:

• The development by others of competitive EDA products or platforms and engineering services, possibly resulting in a shift of customer preferences away from our products and services and significantly decreased revenue;

• Decisions by electronics manufacturers to perform engineering services internally, rather than purchase these services from outside vendors due to budget constraints or excess engineering capacity;

• The challenges of developing (or acquiring externally developed) technology solutions, including hardware offerings, that are adequate and competitive in meeting the rapidly evolving requirements of next-generation design challenges;

• The significant number of current and potential competitors in the EDA industry and the low cost of entry;

• Intense competition to attract acquisition targets, possibly making it more difficult for us to acquire companies or technologies at an acceptable price, or at all;

• The combination of two or more of our EDA competitors or collaboration among many EDA companies to deliver more comprehensive offerings than they could individually; and

• Aggressive pricing competition by some of our competitors may cause us to lose our competitive position, which could result in lower revenues or profitability and could adversely impact our ability to realize the revenue and profitability forecasts for our software or hardware systems products.

We compete in EDA most frequently with Synopsys, Inc. and Mentor Graphics Corporation, but also with numerous other EDA providers (such as Ansys, Inc., Atrenta, Inc., ATopTech, Inc., Berkeley Design Automation, Inc. and Zuken Ltd. and many others offering "point solutions"), with manufacturers of electronic devices that have developed, acquired or have the capability to develop their own EDA products, and with numerous electronics design and consulting companies. In the area of Design IP, we compete with Synopsys and numerous smaller IP companies. During fiscal 2012, Synopsys acquired Magma Design Automation, Inc., EVE SA and Springsoft, Inc. We expect that Synopsys’ integration of these companies into its product offerings will result in increased competitive pressures that could harm our business, results of operations or cash flows.

We may need to change our pricing models to compete successfully. Competitive pressures could constrain the prices we can charge for our products, which could have an adverse effect on our results of operations.

The highly competitive markets in which we do business can put pressure on us to reduce the prices of our products. If our competitors offer deep discounts on certain products in an effort to recapture or gain market share or to sell other software or hardware products, we may then need to lower our prices or offer other favorable terms to compete successfully. Any such changes would be likely to reduce our profit margins and could adversely affect our operating results. Any substantial 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 effect on our results of operations.

Risks associated with our international operations could seriously harm our financial condition.

A significant amount of our revenue is derived from our international operations, and we have offices throughout the world, including key research and development facilities outside of the United States. Our international operations may be subject to a number of risks, including:

• The adoption or expansion of government trade restrictions, including tariffs and other trade barriers;

• Limitations on repatriation of earnings;

• Limitations on the conversion of foreign currencies;

• Reduced protection of intellectual property rights in some countries;

• Performance of national economies;

• Longer collection periods for receivables and greater difficulty in collecting accounts receivable;

• Difficulties in managing foreign operations;

• Political and economic instability;

• Unexpected changes in regulatory requirements;

• Inability to continue to offer competitive compensation in certain growing regions; and

• United States’ and other governments’ licensing requirements for exports, which may lengthen the sales cycle or restrict or prohibit the sale or licensing of certain products.

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Some of our international research and development and other facilities 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 because damage to or disruptions at our international research and development facilities could have a more significant adverse effect on our ability to develop new or improve existing products than other businesses that may only have sales offices or other less critical operations abroad. We are not insured for losses or interruptions caused by acts of war. Furthermore, our operations are dependent upon the connectivity of our operations throughout the world. Activities that interfere with our international connectivity, such as cyber hacking, the introduction of a virus into our computer systems or natural disasters near any of our international locations, could significantly interfere with our business operations.

In addition, internal controls, policies and procedures and employee training and compliance programs that we have implemented to deter prohibited practices may not prevent our employees, contractors or agents from violating or circumventing our policies and the laws and regulations applicable to our worldwide operations.

We depend upon our management team and key employees, and our failure to attract, train, motivate and retain management and key employees may make us less competitive in our industries and therefore harm our results of operations.

Our business depends upon the continued services, efforts and abilities of our senior management and other key employees. Competition for highly skilled executive officers and 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 in other locations where we maintain facilities. We may also experience increased compensation costs that are not offset by either improved productivity or higher sales. We may not be successful in recruiting new personnel and in retaining and motivating existing personnel. From time to time, there may be changes in our management team resulting from the hiring and departure of executive officers, and as a result, we may experience disruption to our business that may harm our operating results and our relationships with our employees, customers and suppliers may be adversely affected. 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 and increase compensation expense, and pay significant base salaries and cash bonuses, which could harm our operating results. The high cost of training new employees, not fully utilizing these employees, or losing trained employees to competing employers could also reduce our operating margins and harm our business or operating results.

In addition, applicable rules and regulations require stockholder approval for new equity compensation plans and significant amendments to existing equity compensation plans (including increases in shares available for issuance under such plans), and prohibit publicly-traded companies from giving a proxy to vote on equity compensation plans unless the beneficial owner of the shares has given voting instructions. These rules and 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.

We may not receive significant revenue from our current research and development efforts for several years, if at all.

Developing EDA products and IP and integrating acquired technology into existing platforms is expensive, and these investments often require a long time to generate returns. Our strategy involves significant investments in 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 and improve our competitive position. However, we cannot ensure that we will receive significant, if any, revenue from these investments.

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.

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 rights in technology and products. Despite the precautions we may take to protect our intellectual property, third parties have tried in the past, and may try in the future, to challenge, invalidate or circumvent these safeguards. Our patents or other intellectual property rights may not provide us with sufficient competitive advantages. Patents may not be issued on any of our pending applications and our issued patents may not 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. The protection of our intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights, or deter or prevent third parties from infringing or misappropriating our proprietary rights.

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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 engineering services business holds licenses to certain software and other intellectual property owned by third parties, including that of our competitors. Our failure to obtain software, other intellectual property licenses or other intellectual property rights that are necessary or helpful for our business on favorable terms, or our need to engage in litigation over these licenses or rights, could seriously harm our business, operating results or financial condition.

We could suffer serious harm to our business because of the infringement of our intellectual property rights by third parties or because of our infringement of the intellectual property rights of third parties.

There are numerous EDA, VIP and design IP product-related patents. New patents are being issued at a rapid rate and are owned by EDA companies as well as entities and individuals outside the EDA industry, including parties whose income is primarily derived from infringement-related litigation. 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 compelled to respond to or prosecute intellectual property infringement claims to protect our rights or defend a customer’s rights.

Intellectual property infringement claims, including contractual defense reimbursement obligations related to third-party claims against our customers, 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 or financial condition. The risk of infringement and related indemnification claims associated with design IP products that are incorporated into a customer product broadly used by consumers, may be higher than the risk associated with our software products. 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 compelled to enter into a license agreement with unfavorable terms could seriously harm our business, operating results or financial condition. Any potential intellectual property litigation could compel us to do one or more of the following:

• Pay damages (including the potential for treble damages), license fees or royalties (including royalties for past periods) to the party claiming infringement;

• Stop licensing products or providing services that use the challenged intellectual property;

• 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; or

• Redesign the challenged technology, which could be time consuming and costly, or not be accomplished.

If we were compelled to take any of these actions, our business or operating results may suffer.

Our operating results and revenue could be adversely affected by customer payment delays, customer bankruptcies and defaults or modifications of licenses.

Occasionally, our customers file for bankruptcy or request to modify license terms. If our customers experience adversity in their business, they may delay or default on their payment obligations to us, file for bankruptcy or modify or cancel plans to license our products. For instance, if our customers are not successful in generating sufficient cash or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us, although these obligations are generally not cancelable. Our customers’ inability to fulfill payment obligations, in turn, may adversely affect our revenue and cash flow. Additionally, our customers may seek to renegotiate pre-existing contractual commitments. Payment defaults by our customers or significant reductions in existing contractual commitments could have a material adverse effect on our financial condition and operating results. Because of the relatively high levels of volatility that continue to drive significant fluctuations in asset prices, as well as concern regarding high levels of leverage in sovereign and corporate debt, the capital and credit markets are volatile and unpredictable. If we were to seek funding from the capital or credit markets in response to any material level of customer defaults, we may not be able to secure funding on terms acceptable to us, or at all, which may have a material negative effect on our business.

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If our security measures are breached, and an unauthorized party obtains access to customer data or our proprietary business information, our information systems may be perceived as being unsecure, which could harm our business and reputation.

Our products and services involve the storage and transmission of our proprietary information and that of our customers. We have offices throughout the world, including key research and development facilities outside of the United States. Our operations are dependent upon the connectivity of our operations throughout the world. Despite our security measures, our information technology and infrastructure may be vulnerable to cyber attacks or breached due to an employee error or other disruption that could result in unauthorized disclosure of sensitive information and could significantly interfere with our business operations. Breaches of our security measures could expose us to a risk of loss or misuse of this information, litigation and potential liability. Because techniques used to obtain unauthorized access or to sabotage information systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. In addition, if we select a vendor that uses cyber storage of information as part of their service or product offerings, despite our attempts to validate the security of such services, our proprietary information may be misappropriated by third parties. In the event of an actual or perceived breach of our security, or the security of one of our vendors, the market perception of the effectiveness of our security measures could be harmed and we could suffer damage to our reputation or our business, or lose existing customers and lose our ability to obtain new customers.

The long sales cycle of our products and services may cause our operating results to fluctuate unexpectedly.

Generally, we have a long sales cycle that can extend up to six months or longer. The complexity and expense associated with our products and services generally require 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.

In addition, sales of our products and services have been and may in the future be delayed if customers delay approval or commencement of projects because of:

• The timing of customers’ competitive evaluation processes; or

• Customers’ budgetary constraints and budget cycles.

Long 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.

Our reported financial results may be adversely affected by changes in United States generally accepted accounting principles, and we may incur significant costs to adjust our accounting systems and processes to comply with significant changes.

United States generally accepted accounting principles are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. During fiscal 2010, the FASB issued exposure drafts of proposed accounting principles related to revenue recognition and leases which could change the way we account for certain of our transactions. The FASB issued a revised exposure draft of proposed accounting principles related to revenue recognition during fiscal 2011 and has continued to discuss these and other proposed accounting principles during the first quarter of fiscal 2013. A change in these or other principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC is considering a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by United States issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.

In addition, we may need to significantly change our accounting systems and processes if we are required to adopt the proposed changes in accounting principles noted above. The cost of these changes may negatively impact our results of operations during the periods of transition.

We have substantial cash requirements in the United States, but a significant portion of our cash is held and generated outside of the United States, and if our cash available in the United States and the cash available under our revolving credit facility is insufficient to meet our operating expenses and debt repayment obligations in the United States, then we may be required to raise cash in ways that could negatively affect our financial condition, results of operations and the market price of our common stock.

We have significant operations outside the United States. As of March 30, 2013, approximately 55% of our cash, cash equivalents and short-term investments balance was held by subsidiaries outside the United States, with the remainder of the

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balance held by us or our subsidiaries in the United States. We believe that the combination of our existing United States cash, cash equivalents and short-term investments balances, future United States operating cash flows and cash available under our revolving credit facility are sufficient to meet our ongoing United States operating expenses and debt repayment obligations. However, if these sources of cash were insufficient to meet our future funding obligations in the United States, we could be required to seek other available funding sources, which could negatively impact our results of operations, financial position and the market price of our common stock.

The investment of our cash, cash equivalents and investments in money market funds and marketable debt securities are subject to risks which may cause losses and affect the liquidity of these investments.

Our investments include various money market funds and marketable debt securities, such as corporate debt securities, United States Treasury securities, United States government agency securities, bank certificates of deposit and commercial paper. Weakened financial markets have at times adversely impacted the general credit, liquidity, market prices and interest rates for these and other types of debt securities. Additionally, changes in monetary policy by the Federal Open Market Committee and concerns about the rising United States government debt level may cause a decrease in the purchasing power of the United States dollar and adversely affect our investment portfolio. The financial market and monetary risks associated with our investment portfolio may have a material adverse effect on our financial condition, liquidity, results of operations or cash flows.

Our operating results could be adversely affected as a result of changes in our effective tax rates or by material differences between our forecasted annual effective tax rates and actual tax rates.

Our future effective tax rates could be adversely affected by the following:

• Changes in tax laws or the interpretation of such tax laws, including potential United States and international tax reforms;

• Earnings being lower than anticipated in countries where we are taxed at lower rates as compared to the United States federal and state statutory tax rates;

• An increase in expenses not deductible for tax purposes, including certain stock-based compensation and impairment of goodwill;

• Changes in the valuation allowance against our deferred tax assets;

• Changes in judgment from the evaluation of new information that results in a recognition, derecognition or change in measurement of a tax position taken in a prior period;

• Increases to interest or penalty expenses classified in the financial statements as income taxes;

• New accounting standards or interpretations of such standards;

• A change in our decision to indefinitely reinvest foreign earnings outside the United States; or

• Results of tax examinations by the Internal Revenue Service, or IRS, and state and foreign tax authorities.

Any significant change in our future effective tax rates could adversely impact our results of operations for future periods.

Forecasts of our annual effective tax rate are complex and subject to uncertainty because our income tax position for each year combines the effects of estimating our annual income or loss, the mix of profits and 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, the impact of various accounting rules and results of tax audits. Forecasts of our annual effective tax rate do not include the anticipation of future tax law changes. If there were a material difference between forecasted and actual tax rates then it could have a material impact on our results of operations.

The IRS and other tax authorities regularly examine our tax returns, and the outcome of current and future tax examinations may have a material adverse effect on our results of operations and cash flows.

The IRS and other tax authorities regularly examine our income tax returns. The calculation of our provision (benefit) for income taxes requires us to use significant judgment and involves dealing with uncertainties in the application of complex tax laws and regulations. In determining the adequacy of our provision (benefit) for income taxes, we regularly assess the potential settlement outcomes resulting from income tax examinations. However, the final outcome of tax examinations, including the total amount payable or the timing of any such payments upon resolution of these issues, cannot be estimated with certainty. In addition, we cannot be certain that such amount will not be materially different from the amount that 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 our results of operations, financial position or cash flows in the applicable period or periods.

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Our restructuring plans may not result in the benefits we have anticipated, possibly having a negative effect on our future operating results.

In recent fiscal years, we have initiated restructuring plans in an effort to decrease costs by reducing our workforce and by consolidating facilities. The only remaining activities in our restructuring plans relate to facilities vacated as part of these plans. Our restructuring plans may also subject us to litigation risks and expenses. In addition, our restructuring plans may have other consequences, such as attrition beyond our planned reduction in workforce, a negative effect on employee morale or our ability to attract highly skilled employees. Our competitors may also seek to gain a competitive advantage over us. The restructuring plans could also cause our remaining employees to leave or result in reduced productivity by our employees, and, in turn, this may affect our revenue and other operating results in the future.

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.

We must comply with regulations of the United States and of certain other countries in shipping our software products and transferring our technology outside the United States and to foreign nationals. Any significant future difficulty in complying could harm our business, operating results or financial condition.

Errors or defects in our products and services could expose us to liability and harm our reputation.

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:

• Loss of customers;

• Loss of market share;

• Failure to attract new customers or achieve market acceptance;

• Diversion of development resources to resolve the problem;

• Loss of or delay in revenue;

• Increased service costs; and

• Liability for damages.

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.

When companies in our industry lose employees to competitors, they 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 away from our operations.

Anti-takeover defenses in our certificate of incorporation and bylaws 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.

Our certificate of incorporation and bylaws 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:

• 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.

• Section 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.

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 allow our Board of Directors to resist, delay or prevent an acquisition of our company, even if a proposed transaction were favored by a majority of our independent stockholders.

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Our business is subject to the risk of earthquakes and other natural disasters.

Our corporate headquarters, including certain of our research and development operations and certain of our distribution facilities, is located in the Silicon Valley area of Northern California, a region known to experience seismic activity. If significant seismic activity were to occur, our operations may be interrupted, which could adversely impact our business and results of operations.

Our other offices in the United States and in other countries around the world may be adversely impacted by natural disasters. If a natural disaster occurs at or near any of our offices, our operations may be interrupted, which could adversely impact our business and results of operations. If a natural disaster impacts a significant number of our customers, our business and results of operations could be adversely impacted.

Risks Related to Our Securities and Indebtedness

Our debt obligations expose us to risks that could adversely affect our business, operating results or financial condition, and could prevent us from fulfilling our obligations under such indebtedness.

We have a substantial level of debt, and, as of March 30, 2013, we have the ability to borrow an additional $250 million under a credit facility. As of March 30, 2013, we had outstanding indebtedness with a principal balance of $494.7 million as follows:

• $350.0 million related to our 2.625% cash convertible senior notes due 2015, or the 2015 Notes;

• $144.5 million related to our 1.500% convertible senior notes due December 15, 2013, or the 2013 Notes; and

• $0.2 million related to our zero coupon zero yield senior convertible notes due 2023.

The level of our current or future indebtedness, among other things, could:

• Make it difficult for us to satisfy our payment obligations on our debt as described above;

• Make us more vulnerable in the event of a downturn in our business;

• Reduce funds available for use in our operations or for developments or acquisitions of new technologies;

• 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;

• Impose additional operating or financial covenants on us;

• Limit our flexibility in planning for or reacting to changes in our business; or

• Place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have greater access to capital resources.

We have entered into a $250 million five-year senior secured revolving credit facility. As of March 30, 2013, we did not have any borrowings outstanding under the credit facility. After quarter-end on April 2013, we borrowed $100 million on our credit facility, and we may draw down further on the facility in the future to finance working capital, capital expenditures, mergers and acquisitions and other business purposes, which would increase our indebtedness. Any outstanding loans drawn under this agreement are payable on or before December 12, 2017. We have the option to increase the maximum borrowings on our credit facility up to an additional $150 million if our lenders approve our request. The credit facility contains customary negative covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens and make certain investments, complete acquisitions, dispose of certain assets and make certain payments, including dividends. In addition, the credit facility contains certain financial covenants that require us to maintain a leverage ratio of not greater than 3 to 1, subject to certain exceptions, and requires that we maintain an interest coverage ratio of at least 3 to 1. These financial covenants could limit our flexibility in conducting our business, and any borrowings outstanding under the credit facility could be accelerated if we fail to comply with these covenants.

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, 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 any other indebtedness as well. Additionally, in the event of a default, certain assets that secure the borrowings could be seized by our lenders, which could adversely impact our ability to operate.

Any default under our indebtedness could have a material adverse effect on our business, operating results and financial condition. In addition, a material default on our indebtedness could suspend our eligibility to register securities using certain registration statement forms under SEC guidelines that permit incorporation by reference of substantial information regarding us, potentially hindering our ability to raise capital through the issuance of our securities and increasing our costs of registration.

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Conversion of our 2013 Notes and 2015 Notes prior to the scheduled maturities of the notes may adversely affect our liquidity and financial condition.

Holders of our 2013 Notes and 2015 Notes may convert their notes into cash prior to the scheduled maturities if any of the conversion conditions for those notes are met. The 2015 Notes are convertible into cash only and the 2013 Notes are convertible into a combination of cash and shares of our common stock.

In order for the 2015 Notes to be convertible into cash in a particular fiscal quarter, a conversion condition must be met during the preceding fiscal quarter. During the three months ended March 30, 2013 our closing stock price exceeded $9.81 for at least 20 of the last 30 trading days prior to March 30, 2013. As a result, the 2015 Notes are convertible into cash from March 30, 2013 through June 29, 2013 and we have classified our 2015 Notes as a current liability on our consolidated balance sheet as of March 30, 2013. The 2013 Notes are not currently convertible.

So long as the 2015 Notes are outstanding, we will assess whether this conversion condition has been met at the end of each fiscal quarter. If a conversion condition is met in any future fiscal quarter, we would classify our 2015 Notes as a current liability on our consolidated balance sheet as of the end of that fiscal quarter.

If one or more of the 2013 or 2015 Note holders elect to convert their notes at a time when the conversion conditions have been met, we would be required to settle the converted principal and, in the case of the 2015 Notes, the conversion value, through payment of cash, which could adversely affect our liquidity and financial condition.

At the option of the holders of the 2013 Notes and the 2015 Notes, under certain circumstances we may be required to repurchase the 2013 Notes or the 2015 Notes in cash.

Under the terms of the 2013 Notes and the 2015 Notes, we may be required to repurchase the 2013 Notes and the 2015 Notes following a "fundamental change" in our corporate ownership or structure, such as a change of control in which substantially all of the consideration does not consist of publicly traded securities, prior to maturity of the 2013 Notes and the 2015 Notes. The repurchase price for the 2013 Notes and the 2015 Notes in the event of a fundamental change must be paid solely in cash. This repayment obligation may have the effect of discouraging, delaying or preventing a takeover of our company. Payment of the notes prior to their scheduled maturities could have a significant negative impact on our cash and liquidity and could impact our ability to invest financial resources in other strategic initiatives.

Hedge and warrant transactions entered into in connection with the issuance of the 2013 Notes and the 2015 Notes may affect the value of our common stock.

We entered into hedge transactions with various financial institutions, at the time of issuance of the 2013 Notes and the 2015 Notes, with the objective of limiting the potential dilutive effect of issuing our common stock upon conversion of the 2013 Notes and our exposure to the additional cash payments above the principal amount upon conversion of the 2015 Notes. We also entered into separate warrant transactions with the same financial institutions. In connection with our hedge and warrant transactions associated with the 2013 Notes and the 2015 Notes, these financial institutions purchased our common stock in secondary market transactions and entered into various over-the-counter derivative transactions with respect to our common stock. These entities or their affiliates are likely to modify their hedge positions from time to time prior to conversion or maturity of the 2013 Notes and the 2015 Notes by purchasing and selling shares of our common stock, other of our securities or other instruments they may wish to use in connection with such hedging. Any of these transactions and activities could adversely affect the value of our common stock and, as a result, the number of shares and the value of the common stock that the 2013 Note holders will receive upon conversion of the 2013 Notes and the amount of cash that 2015 Notes holders will receive upon conversion of the 2015 Notes.

We are subject to the risk that the hedge participants fail to fulfill their obligations under the 2013 Notes hedge transactions and the 2015 Notes hedge transactions.

If any of the participants in the hedge transactions is unwilling or unable to perform its obligations for any reason, we would not be able to receive the benefit of such transaction. We cannot provide any assurances as to the financial stability or viability of any of the participants in the hedge transactions. Our 2015 Notes were convertible as of March 30, 2013. The convertible note hedge transactions in connection with the 2015 Notes, or the 2015 Notes Hedges, are intended to reduce our exposure above the $350.0 million principal balance in the event of a cash conversion of the 2015 Notes. If the hedge participants fail to meet their obligations for any reason, it could have a material adverse effect on our liquidity and financial condition.

Rating agencies may provide unsolicited ratings on the 2013 Notes and the 2015 Notes that could reduce the market value or liquidity of our 2013 Notes, 2015 Notes or our common stock.

We have not requested a rating of the 2013 Notes or the 2015 Notes from any rating agency, and we do not anticipate that the 2013 Notes or the 2015 Notes will be rated. However, if one or more rating agencies independently elects to rate the 2013

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Notes or the 2015 Notes and assigns the 2013 Notes or the 2015 Notes a rating lower than the rating expected by investors, or reduces such rating in the future, the market price or liquidity of the 2013 Notes or the 2015 Notes, as the case may be, and our common stock could be harmed. Should a decline occur in the market price of the 2013 Notes or the 2015 Notes, as compared to the price of our common stock, the decline may trigger the right of the holders of the 2013 Notes or the 2015 Notes to convert such notes into cash and shares of our common stock, as applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2008, our Board of Directors authorized a program to repurchase shares of our common stock in the open market with a value of up to $500 million in the aggregate. In August 2008, our Board of Directors authorized another program to repurchase shares of our common stock in the open market with a value of up to an additional $500 million in the aggregate. As described in Note 2 in the notes to condensed consolidated financial statements, our revolving credit facility restricts certain payments, including share repurchases. We did not repurchase shares under these repurchase programs during the three months ended March 30, 2013, and $814.4 million remains under our repurchase authorization as of March 30, 2013.

The following table presents repurchases and shares surrendered by employees to satisfy income tax withholding obligations during the three months ended March 30, 2013:

Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares  Purchased as Part of Publicly Announced Plan or Program	Maximum Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plan or Program (1) (In millions)
December 30, 2012 – February 2, 2013	31,481	$	13.72	—	$	814.4
February 3, 2013 – March 2, 2013	459,531	$	14.27	—	$	814.4
March 3, 2013 – March 30, 2013	54,157	$	13.73	—	$	814.4
Total	545,169	$	14.18	—

 ______________________________

(1) Shares purchased that were not part of our publicly announced repurchase programs represent employee surrender of shares of restricted stock to satisfy employee income tax withholding obligations due upon vesting, and do not reduce the dollar value that may yet be purchased under our publicly announced repurchase programs.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On April 23, 2013, we borrowed $100 million on our five-year senior secured revolving credit facility. For additional descriptions of our credit facility, see Note 2 in the notes to condensed consolidated financial statements under Part I, Item 1, and "Liquidity and Capital Resources - Cash, Cash Equivalents and Short-term Investments" under Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations,” which are incorporated by reference into this Part II, Item 5.

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Item 6. Exhibits

(a) The following exhibits are filed herewith:

		Incorporated by Reference
Exhibit Number	Exhibit Title	Form	File No.	Exhibit No.	Filing Date	Provided Herewith
2.01	Agreement and Plan of Merger, dated as of March 11, 2013, among the Registrant, Tundra Holdings, Inc., Tundra Subsidiary Corporation, Tensilica, Inc. and Shareholder Representative Services LLC, as Stockholder Agent.					X
10.01	Employment Agreement, effective as of March 28, 2013, between Registrant and Martin N. Lund.					X
31.01	Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.					X
31.02	Certification of the Registrant’s Chief Financial Officer, Geoffrey G. Ribar, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.					X
32.01	Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.02	Certification of the Registrant’s Chief Financial Officer, Geoffrey G. Ribar, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	XBRL Instance Document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					X

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SIGNATURES

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.

		CADENCE DESIGN SYSTEMS, INC. (Registrant)
DATE:	April 25, 2013	By:	/s/ Lip-Bu Tan
		Lip-Bu Tan
		President, Chief Executive Officer and Director
DATE:	April 25, 2013	By:	/s/ Geoffrey G. Ribar
		Geoffrey G. Ribar
		Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

		Incorporated by Reference
Exhibit Number	Exhibit Title	Form	File No.	Exhibit No.	Filing Date	Provided Herewith
2.01	Agreement and Plan of Merger, dated as of March 11, 2013, by and among the Registrant, Tundra Holdings, Inc., Tundra Subsidiary Corporation, Tensilica, Inc. and Shareholder Representative Services LLC, solely as Stockholder Agent.					X
10.01	Employment Agreement, effective as of March 28, 2013, between the Registrant and Martin N. Lund.					X
31.01	Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.					X
31.02	Certification of the Registrant’s Chief Financial Officer, Geoffrey G. Ribar, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.					X
32.01	Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.02	Certification of the Registrant’s Chief Financial Officer, Geoffrey G. Ribar, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	XBRL Instance Document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					X

51

EX-2.01

Exhibit 2.01

AGREEMENT AND PLAN OF MERGER

DATED AS OF MARCH 11, 2013

BY AND AMONG

CADENCE DESIGN SYSTEMS, INC.,

TUNDRA HOLDINGS, INC.,

TUNDRA SUBSIDIARY CORPORATION,

TENSILICA, INC.

AND

SHAREHOLDER REPRESENTATIVE SERVICES LLC,
SOLELY AS STOCKHOLDER AGENT

TABLE OF CONTENTS

			Page
Article 1. THE MERGER			2
	Section 1.1	The Merger	2
	Section 1.2	Effective Time	2
	Section 1.3	Closing of the Merger	2
	Section 1.4	Effects of the Merger	2
	Section 1.5	Certificate of Incorporation and Bylaws	2
	Section 1.6	Directors	2
	Section 1.7	Officers	3
	Section 1.8	Conversion of Shares	3
	Section 1.9	Dissenters’ Rights	8
	Section 1.10	Exchange of Certificates	9
	Section 1.11	Stock Options, Restricted Shares and Warrants	11
	Section 1.12	Post-Closing Adjustment	12
Article 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY			14
	Section 2.1	Organization and Qualification; Subsidiaries	14
	Section 2.2	Capitalization of the Company and its Subsidiaries	16
	Section 2.3	Authority Relative to this Agreement; Recommendation	18
	Section 2.4	Financial Statements	19
	Section 2.5	Information Supplied	21
	Section 2.6	Consents and Approvals; Notices; No Violations	21
	Section 2.7	No Default	22
	Section 2.8	No Undisclosed Liabilities; Absence of Changes	22
	Section 2.9	Litigation	24
	Section 2.10	Compliance with Applicable Law	24
	Section 2.11	Employee Benefit Plans; Labor Matters	25
	Section 2.12	Environmental Laws and Regulations	29
	Section 2.13	Taxes	29
	Section 2.14	Intellectual Property	36
	Section 2.15	Material Contracts	46
	Section 2.16	Title to Properties; Absence of Liens and Encumbrances	48
	Section 2.17	Insurance	49
	Section 2.18	Certain Business Practices	50
	Section 2.19	Warranties	50
	Section 2.20	Suppliers and Customers	51
	Section 2.21	Brokers	51
	Section 2.22	Interested Party Transactions	51

i

	Section 2.23	Dissenters’ Rights	51
	Section 2.24	Company Transaction Expenses	51
	Section 2.25	Bank Accounts	52
	Section 2.26	Documents	52
	Section 2.27	Conflict Minerals	52
Article 3. REPRESENTATIONS AND WARRANTIES OF PARENT, HOLDINGS AND ACQUISITION SUB			52
	Section 3.1	Organization	52
	Section 3.2	Authority Relative to this Agreement	52
	Section 3.3	Consents and Approvals; No Violations	53
	Section 3.4	Brokers	53
	Section 3.5	Financing	54
Article 4. COVENANTS			54
	Section 4.1	Conduct of Business of the Company	54
	Section 4.2	Information Statement	57
	Section 4.3	Other Potential Acquirors	58
	Section 4.4	Approval of Stockholders	59
	Section 4.5	Access to Information	59
	Section 4.6	Certain Filings; Reasonable Best Efforts	60
	Section 4.7	Company Employees	61
	Section 4.8	Public Announcements	61
	Section 4.9	Notification of Certain Matters	61
	Section 4.10	Additions to and Modification of the Company Disclosure Schedule	62
	Section 4.11	Benefit Arrangements	62
	Section 4.12	Termination of 401(k) Plan	62
	Section 4.13	Termination of Company Investors’ Rights and Co-Sale Agreements	63
	Section 4.14	Invention Assignment Agreement	63
	Section 4.15	280G Approval	63
	Section 4.16	Waiver of Company Stock Option and Restricted Company Share Acceleration; Notices	63
	Section 4.17	Warrants	64
	Section 4.18	Certain Tax Matters	64
	Section 4.19	Reporting Requirements Cooperation	65
	Section 4.20	Employee Indebtedness	65
	Section 4.21	Datasite DVD-ROMs	66
	Section 4.22	Consideration Spreadsheets; Company Transaction Expenses	66
	Section 4.23	Maintenance of Company’s Indemnification Obligations	68
	Section 4.24	Form S-8	69
	Section 4.25	Conflict Waiver	69

ii

Article 5. CONDITIONS TO CONSUMMATION OF THE MERGER			69
	Section 5.1	Conditions to Each Party’s Obligations to Effect the Merger	69
	Section 5.2	Conditions to the Obligations of the Company	70
	Section 5.3	Conditions to the Obligations of Parent, Holdings and Acquisition Sub	70
Article 6. TERMINATION			74
	Section 6.1	Termination	74
	Section 6.2	Effect of Termination	75
	Section 6.3	Fees and Expenses	75
Article 7. INDEMNIFICATION; ESCROW			75
	Section 7.1	General Survival	75
	Section 7.2	Indemnification Generally	76
	Section 7.3	Escrow Arrangements	79
	Section 7.4	Stockholder Agent	79
	Section 7.5	Third-Party Claims	81
	Section 7.6	Limits on Recovery	83
Article 8. MISCELLANEOUS			84
	Section 8.1	Entire Agreement	84
	Section 8.2	Validity	84
	Section 8.3	Notices	84
	Section 8.4	Governing Law; Waiver of Jury Trial	86
	Section 8.5	Descriptive Headings; Section References	86
	Section 8.6	Parties in Interest	86
	Section 8.7	Certain Definitions	87
	Section 8.8	Personal Liability	88
	Section 8.9	Specific Performance	89
	Section 8.10	Counterparts	89
	Section 8.11	Amendment	89
	Section 8.12	Tax Withholding	89
	Section 8.13	Fees and Expenses	89
	Section 8.14	No Presumption Against Drafting Party	89

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TABLE OF EXHIBITS AND SCHEDULES

Exhibit A            Form of Non-Competition Agreement

Exhibit B            Form of Certificate of Merger

Exhibit C            Form of FIRPTA Certificate

Exhibit D            Form of Escrow Agreement

Schedule I            Non-Competition Agreement Parties

Schedule II            Key Employees

Schedule 4.6(a)(x)        Consents

Schedule 4.6(a)(y)        Other Actions

Schedule 5.3(e)        Required Actions

Schedule 5.3(f)        Employees

Schedule 7.2(a)(vii)        Certain Specified Matters

Schedule 8.7(h)        Knowledge Employees

TABLE OF DEFINED TERMS
Term	Page	Term	Page
280G Approval	63	Closing Company Debt	13
5% Stockholder	58	Closing Company Transaction Expenses	13
Acquisition Sub	1	Closing Consideration Spreadsheet	66
Action	24	Closing Date	2
affiliate	87	Closing Date Merger Consideration	4
Agent Losses	80	Closing Working Capital	13
Agreement	1	Code	17
Anti-Corruption Laws	50	Company	1
Applicable Accounting Principles	12	Company Balance Sheet	20
Base Cash Amount	3	Company Balance Sheet Date	20
Base Common Amount	4	Company Board	19
Base Common Per Share Amount	4	Company Common Stock	3
Base Merger Consideration	4	Company Debt	4
Business	36	Company Disclosure Schedule	14
Business Day	87	Company Group	33
capital stock	87	Company IP Cores	36
Capitalization Schedule	16	Company IPR	36
Cash Consideration Recipients	5	Company Licensed IPR	36
Certificate	3	Company Permits	24
Certificate of Incorporation	2	Company Plans	4
Certificate of Merger	2	Company Preferred Stock	3
CGCL	8	Company Registered IPR	38
Claim	47	Company Representative	50
Closing	2	Company Securities	16
Closing Balance Sheet	13	Company Software	36

iv

Company Stock Options	4	GAAP	20
Company Transaction Expenses	4	Governmental Entity	21
Company Warrant	12	Hazardous Substance	29
Confidentiality Agreement	60	Holdings	1
Conflict Minerals	52	HSR Act	21
Contaminant	44	Inbound License Agreement	36
Contingent Worker	28	include, including	87
Contract	46	Indemnification Claim	78
control, controlling, controlled by, under common control with	87	Indemnifying Party	77
Copyrights	37	Information Statement	57
D&O Tail Policy	68	Insurance Policies	49
Datasite	87	Intellectual Property Rights or IPR	36
DGCL	1	Interested Party	51
Disabling Code	44	Invention Assignment Agreements	63
Dissenting Shares	8	IP Core	37
Dissenting Stockholder	8	IRS	25
Distribution	5	ISO	17
Due Date	87	Key Employee Conditions	63
Effective Time	2	Key Employees	1
Employee Indebtedness	66	knowledge, known	87
Employee Plans	25	Laws	25
Employment Letters	1	Lease Documents	49
Environmental Laws	29	Letter of Transmittal	9
ERISA	25	Lien	88
ERISA Affiliate	25	Losses	77
Escrow Agent	79	made available	14
Escrow Agreement	79	Majority Escrow Holders	81
Escrow Amount	5	Mask Works	37
Escrow Fund	79	Material Adverse Effect on Parent	53
Escrow Holders	5	Material Adverse Effect on the Company	15
Escrow Period	76	Material Contract, Material Contracts	46
Estimated Company Debt	12	Merger	2
Estimated Company Transaction Expenses	68	Multiemployer Plan	27
Estimated Working Capital	12	Multiple Employer Plan	27
Exchange Ratio	5	Net Adjustment Amount	13
Excluded Key Employee	71	New Hire	61
FCPA	50	Non-Competition Agreement Parties	1
Final Closing Statement	13	Non-Competition Agreements	1
Final Date	74	Notice of Disagreement	13
Financial Statements	19	Open Source License	37
Firm	69	Open Source Software	37
Fully Diluted Common Share Number	5	Option Shares	5

v

Optionholder	88	Standard Commercial Software	38
Ordinary Course of Business	88	Standards Body	44
Ordinary Losses	83	Stockholder	88
Other Accelerating Employees	64	Stockholder Agent	1
Outbound License Agreement	37	Stockholder Agent Confidentiality Agreement	60
Parent	1	Stockholder Approval	19
Parent Common Stock	5	Straddle Period	30
Parent Indemnitees	77	subsidiary, subsidiaries	88
Patents	37	Survival Period	76
person	88	Surviving Corporation	2
Pre-Closing Tax Period	30	Systems	44
Pre-Closing Taxes	30	Target Working Capital	6
Preliminary Closing Balance Sheet	12	Tax Claim	32
Preliminary Closing Statement	12	Tax Law	31
Preliminary Consideration Spreadsheet	66	Tax Period	31
Product Offerings	38	Tax Return	31
Products	38	Tax, Taxes	30
Property Taxes	30	Terminated Employee	61
Recovery Percentage	8	Third Party	38, 59
Requisite Approval	19	Third Party Acquisition	59
Reserve Amount	6	Third Party Claim	81
Reserve Fund	79	Threshold	78
Restricted Company Share	88	Total Merger Consideration	6
Schedule of Company Transaction Expenses	68	Trade Secrets	37
SEC	21	Trademarks	36
Securities Act	16	Transaction Agreements	88
Series A Preferred Stock	3	Transaction Expenses Payoff Instructions	68
Series B Preferred Stock	3	Transactions	1
Series C Preferred Stock	3	Unvested Employee Company Option Value	6
Series D Preferred Stock	3	Unvested Employee Company Options	11
Series D1 Preferred Stock	3	Unvested Non-Employee Company Options	12
Series E Preferred Stock	3	Updated Capitalization Schedule	72
Series E1 Preferred Stock	3	Updated Disclosure Schedule	62
Series E2 Preferred Stock	3	Vested Company Option	11
Series E3 Preferred Stock	3	Vested Optionholder	9
Shares	6	Working Capital	6
Snapshot Date	66	Working Capital Adjustment Amount	6
Software	38
Special Claims	76
Special IP Claims	76
Special IP Losses	78
Special Losses	78

vi

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of March 11, 2013, is by and among Cadence Design Systems, Inc., a Delaware corporation (“Parent”), Tundra Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Holdings”), Tundra Subsidiary Corporation, a Delaware corporation and a wholly owned subsidiary of Holdings (“Acquisition Sub”), Tensilica, Inc., a Delaware corporation (the “Company”), and, solely with respect to Section 4.8, Section 4.18, Article 7 and Article 8, Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the agent for the Escrow Holders (the “Stockholder Agent”).

WHEREAS, the Boards of Directors of the Company and Acquisition Sub have each (i) determined that the Merger in accordance with this Agreement and the Delaware General Corporation Law (the “DGCL”) is advisable and fair, and in the best interests of their respective stockholders, and (ii) approved the Merger upon the terms and subject to the conditions set forth in this Agreement;

WHEREAS, upon consummation of the Merger, Acquisition Sub will cease to exist, and the Company shall survive and will become a wholly-owned subsidiary of Holdings;

WHEREAS, certain Stockholders of the Company set forth on Schedule I (the “Non-Competition Agreement Parties”) will, on the date hereof, enter into non-competition and non-solicitation agreements (collectively, the “Non-Competition Agreements”) in substantially the form attached hereto as Exhibit A, effective upon consummation of the Merger, as an inducement to Parent, Holdings and Acquisition Sub to enter into this Agreement and the other Transaction Agreements and to consummate the transactions contemplated hereby and thereby (the “Transactions”); and

WHEREAS, certain employees of the Company set forth on Schedule II (the “Key Employees”) will, on the date hereof, each enter into an Offer Letter, a Holdback and Re-Vesting Agreement, and a Benefits Waiver (collectively, the “Employment Letters”), in each case, effective upon consummation of the Merger, as an inducement to Parent, Holdings and Acquisition Sub to enter into this Agreement and the other Transaction Agreements and to consummate the Transactions.

NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the Company, Parent, Holdings, Acquisition Sub and the Stockholder Agent hereby agree as follows:

1

ARTICLE 1

THE MERGER

Section 1.1The Merger. At the Effective Time and upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL, Acquisition Sub shall be merged with and into the Company (the “Merger”). Following the Merger, the Company shall continue as the surviving corporation (the “Surviving Corporation”) and the separate corporate existence of Acquisition Sub shall cease. Holdings, as the sole stockholder of Acquisition Sub, hereby approves the Merger and this Agreement.

Section 1.2Effective Time. Subject to the terms and conditions set forth in this Agreement, on the Closing Date, a Certificate of Merger substantially in the form of Exhibit B (the “Certificate of Merger”) shall be duly executed by the Company and thereafter filed with the Secretary of State of the State of Delaware. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or at such other time as the parties shall agree and as shall be specified in the Certificate of Merger (the time the Merger becomes effective being referred to herein as the “Effective Time”).

Section 1.3Closing of the Merger. The closing of the Transactions (the “Closing”) will take place at a time and on a date (the “Closing Date”) to be specified by the parties, which date shall be no later than the fifth Business Day after satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Article 5 (other than those conditions that, by their terms, are to be satisfied or waived at, or within five Business Days prior to, the Closing), at the offices of Gibson, Dunn & Crutcher LLP, 1881 Page Mill Road, Palo Alto, CA 94304, unless another time, date or place is agreed to by the parties hereto.

Section 1.4Effects of the Merger. The Merger shall have the effects set forth in the relevant provisions of the DGCL. Without limiting the generality of the foregoing and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Acquisition Sub shall vest in the Surviving Corporation, and all debts, liabilities and obligations of the Company and Acquisition Sub shall become the debts, liabilities and obligations of the Surviving Corporation.

Section 1.5Certificate of Incorporation and Bylaws. The Certificate of Incorporation of the Company as in effect immediately prior to the Effective Time (the “Certificate of Incorporation”), shall at the Effective Time, without further action, be amended as set forth in Exhibit B to the Certificate of Merger, until further amended in accordance with applicable law. At the Effective Time, the Bylaws of Acquisition Sub in effect at the Effective Time shall, without further action, be the Bylaws of the Surviving Corporation except that all references to Acquisition Sub in the Bylaws of Acquisition Sub shall be deemed amended to refer to the Company. Thereafter, the Bylaws of the Surviving Corporation may be amended in accordance with applicable law.

Section 1.6Directors. Immediately after the Effective Time, the directors of Acquisition Sub at the Effective Time shall become the directors of the Surviving Corporation, each to hold

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office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation until the earlier of such director’s resignation, removal or otherwise ceasing to be a director, or until such director’s successor is duly elected or appointed and qualified.

Section 1.7Officers. Immediately after the Effective Time, the officers of Acquisition Sub at the Effective Time shall become the officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation until the earlier of such officer’s resignation, removal or otherwise ceasing to be an officer, or until such officer’s successor is duly elected or appointed and qualified.

Section 1.8Conversion of Shares.

(a)Conversion at Effective Time. At the Effective Time, by virtue of the Merger (and without any action on the part of Parent, Holdings, Acquisition Sub, the Company or the Stockholders), subject to this Section 1.8 and Section 1.9, each share of (i) Series E1 Preferred Stock, $0.001 par value, of the Company (“Series E1 Preferred Stock”), (ii) Series E2 Preferred Stock, $0.001 par value, of the Company (“Series E2 Preferred Stock”), (iii) Series E3 Preferred Stock, $0.001 par value, of the Company (“Series E3 Preferred Stock” and, collectively with the Series E1 Preferred Stock and Series E2 Preferred Stock, the “Series E Preferred Stock”), (iv) Series A Preferred Stock, $0.001 par value, of the Company (“Series A Preferred Stock”), (v) Series B Preferred Stock, $0.001 par value, of the Company (“Series B Preferred Stock”), (vi) Series C Preferred Stock, $0.001 par value, of the Company (“Series C Preferred Stock”), (vii) Series D Preferred Stock, $0.001 par value, of the Company (“Series D Preferred Stock”), (viii) Series D1 Preferred Stock, $0.001 par value, of the Company (“Series D1 Preferred Stock” and, together with the Series E Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series D1 Preferred Stock, the “Company Preferred Stock”) and (ix) Common Stock, $0.001 par value per share, of the Company (“Company Common Stock”), in each case issued and outstanding at the Effective Time (excluding any Dissenting Shares or any shares of Company Common Stock held in the treasury of the Company), (A) shall be converted into the right to receive the portion of the Total Merger Consideration, if any, to which such share is entitled under and in accordance with the rights and privileges set forth in the Certificate of Incorporation and under this Agreement, including under this Section 1.8, which shall be set forth on the Closing Consideration Spreadsheet, and (B) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist. Each certificate previously evidencing any such Shares (a “Certificate”) shall thereafter represent only the right to receive the portion of the Total Merger Consideration, if any, to which such Share is entitled under and in accordance with this Agreement, and the holders of Certificates shall cease to have any rights with respect to the Shares previously represented thereby, except as otherwise provided herein or by applicable law.

(b)Certain Definitions. For purposes of this Agreement:

(i)“Base Cash Amount” means (A) Base Merger Consideration, minus (B) the aggregate exercise price of all Vested Company Options outstanding immediately prior to the Effective Time and cancelled pursuant to Section 1.11(a), minus (C) the Unvested Employee Company Option Value.

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(ii)“Base Common Amount” means the amount of Base Merger Consideration, if any, remaining after payment of all liquidation preferences payable on account of Company Preferred Stock pursuant to this Section 1.8.

(iii)“Base Common Per Share Amount” means the Base Common Amount divided by the Fully Diluted Common Share Number.

(iv)“Base Merger Consideration” means the amount equal to (A) $380,000,000, minus (B) the Estimated Company Transaction Expenses, minus (C) the Working Capital Adjustment Amount, if any, minus (D) the aggregate exercise price of any Company Warrants and Company Stock Options (or portion thereof) exercised (or deemed exercised) after the date of this Agreement and prior to the Effective Time on a “net exercise basis” or “cashless basis” (for the avoidance of doubt, such exercise or deemed exercise shall not include any Company Warrants or Company Stock Options that are cancelled pursuant to their terms or Section 1.11, other than in connection with an exercise and without consideration), and minus (E) the amount of Estimated Company Debt.

(v)“Closing Date Merger Consideration” means the amount equal to (A) the Base Merger Consideration, minus (B) the Escrow Amount, minus (C) the Reserve Amount.

(vi)“Company Debt” means (A) indebtedness of the Company or its subsidiaries for borrowed money, including all obligations evidenced by notes, bonds, debentures or other similar interests, and any other long term debt of the Company, (B) all liabilities and amounts owed by the Company or its subsidiaries in respect of the acceleration, termination, cancellation or prepayment of indebtedness for borrowed money, (C) the amount capitalized under GAAP as liabilities as lessee under capitalized leases, (D) any liability for the deferred and unpaid purchase price of property, assets or services, but excluding current trade accounts payable and other accrued current liabilities arising in the Ordinary Course of Business, (E) all amounts drawn under surety bonds, letters of credit or similar obligations, (F) any debt, notes or other instruments of the Company or its subsidiaries that is or are convertible, exercisable or exchangeable for capital stock or voting securities of the Company or its subsidiaries and (G) any accrued and unpaid interest on the foregoing items.

(vii)“Company Plans” means the Company’s 1998 Incentive Stock Plan and 2007 Stock Incentive Plan.

(viii)“Company Stock Options” means all options (whether vested or unvested) or other rights to purchase or acquire shares of the Company Common Stock granted under the Company Plans.

(ix)“Company Transaction Expenses” means all actual and/or estimated expenses (including legal fees, investment bankers’ or other advisors’ fees, accounting fees, Stockholder Agent fees, due diligence management or datasite fees, out of the Ordinary Course of Business matters, out of the Ordinary Course of Business employee and consultant compensations expenses and employee and director and officer insurance “tail” premiums (to the extent such director and officer insurance “tail” premium exceeds $100,000) incurred prior to or as a result of

4

the Closing and paid, or to be paid, by the Company or any of its subsidiaries (including expenses of the Stockholders, Escrow Holders, Optionholders or holders of any other Company Securities that are paid or to be paid by, or are or become obligations of, the Company or any of its subsidiaries) in connection with this Agreement and the other Transaction Agreements and the Transactions. Company Transaction Expenses shall also include (A) the other categories of expenses listed on the Schedule of Company Transaction Expenses, whether or not of a nature specifically described above, and (B) 50% of the employer payroll-related Taxes payable with respect to payments made to employees or former employees of the Company in consideration for Vested Company Options or Shares pursuant to this Agreement. Company Transaction Expenses shall exclude any severance payments to Terminated Employees described in Section 2.11(e)(i) of the Company Disclosure Schedule, subject to Parent’s approval of such amounts, which approval shall not be unreasonably withheld or delayed.

(x)“Distribution” means each of (A) the payment of the Closing Date Merger Consideration in accordance with Section 1.10 and (B) any releases from the Escrow Fund or Reserve Fund in accordance with Article 7.

(xi)“Escrow Amount” means the amount that is equal to (A) 12.5% multiplied by (B) the Base Cash Amount.

(xii)“Escrow Holders” or “Cash Consideration Recipients” mean (A) the holders of Shares outstanding immediately prior to the Effective Time (including the holders of Company Warrants or Company Stock Options that are exercised (or deemed exercised or converted, including on a “net exercise basis” or “cashless basis”, pursuant to the terms of this Agreement) prior to the Effective Time) and (B) the holders of Vested Company Options that are outstanding immediately prior to the Effective Time and cancelled pursuant to Section 1.11(a).

(xiii)“Exchange Ratio” is equal to the quotient of (A) the Base Common Per Share Amount as of the Closing Date divided by (B) the volume-weighted average of the closing prices on the NASDAQ Global Select Market of a share of Parent Common Stock during the 10 trading days ending on the date that is three trading days prior to the Closing Date.

(xiv)“Fully Diluted Common Share Number” means a number equal to the sum of (A) the number of shares of Company Common Stock outstanding immediately prior to the Effective Time (including any shares of Company Common Stock issued (1) upon the conversion (or deemed conversion pursuant to the terms of this Agreement) of Company Preferred Stock or (2) upon the exercise (or deemed exercise or conversion, including on a “net exercise basis” or “cashless basis”, pursuant to the terms of this Agreement) of any Company Warrants or Unvested Non-Employee Company Options, in each case prior to the Effective Time) plus (B) the number of Option Shares determined as of immediately prior to the Effective Time.

(xv)“Option Shares” means those shares of Company Common Stock that would be issued upon the exercise in full for cash (non-net exercise) of all Vested Company Options and Unvested Employee Company Options.

(xvi)“Parent Common Stock”means the common stock of Parent.

5

(xvii)“Reserve Amount”means $100,000.

(xviii)“Shares” means all shares of Company Preferred Stock and Company Common Stock (excluding any shares of Company Common Stock held in the treasury of the Company, but including, for the avoidance of doubt, Restricted Company Shares and any shares of Company Common Stock issued upon the conversion of Company Preferred Stock or upon the exercise (or deemed exercise or conversion, including on a “net exercise basis” or “cashless basis”, pursuant to the terms of this Agreement) of any Company Warrants or Company Stock Options prior to the Effective Time).

(xix)“Target Working Capital” is equal to $7,300,000.

(xx)“Total Merger Consideration” means the Closing Date Merger Consideration, plus the portion of the Escrow Amount and Reserve Amount, if any, released to the Escrow Holders in accordance with Article 7.

(xxi)“Unvested Employee Company Option Value” means (A) the total number of shares of Company Common Stock that would be issued upon the exercise in full for cash (non-net exercise) of all Unvested Employee Company Options that are outstanding immediately prior to the Effective Time multiplied by (B) the Base Common Per Share Amount.

(xxii)“Working Capital” means (A) the aggregate consolidated current assets of the Company (excluding (1) the aggregate amount of cash received by the Company with respect to the exercise of any Company Warrants or Company Stock Options exercised on or after the date hereof and prior to the Effective Time and (2) any tax benefits attributable to items of expense resulting from compensatory payments or other amounts treated as compensation (including payments with respect to Company Stock Options, payments with respect to any Shares for which withholding is required, or amounts treated as compensation by reason of a “disqualifying disposition” of Shares acquired upon the exercise of ISOs) in connection with this Agreement or other expenses arising from this Agreement), minus (B) the aggregate consolidated current liabilities of the Company (without duplication or double counting of any Company Transaction Expenses or Company Debt, and excluding (x) any severance payments to Terminated Employees that are described in Section 2.11(e)(i) of the Company Disclosure Schedule, subject to Parent’s approval of such amounts, which approval shall not be unreasonably withheld or delayed and (y) the 50% of employer payroll-related Taxes payable with respect to payments made to employees or former employees of the Company in consideration for Vested Company Options or Shares pursuant to this Agreement that is not included in Company Transaction Expenses), each as of the open of business on the Closing Date.

(xxiii)“Working Capital Adjustment Amount” means the amount (in no event less than zero) equal to (x) Target Working Capital minus (y) the Estimated Working Capital.

For purposes of this Agreement, unless otherwise expressly provided by this Agreement, (i) actual payment amounts to any Cash Consideration Recipient will be rounded down to the nearest whole cent, (ii) exercise prices adjusted by the application of the Exchange Ratio will be rounded up to the nearest whole cent, (iii) share amounts calculated by the application of the Exchange Ratio will

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be rounded down to the nearest whole share and (iv) Recovery Percentage, Exchange Ratio, and any other defined term that is the product of a calculation (other than those terms set forth or contemplated by the foregoing clauses (i) through (iii)) will be rounded to 10 decimals.

(c)Total Merger Consideration. Notwithstanding anything to the contrary in this Agreement, in no event shall Parent, Holdings, the Surviving Corporation or any affiliate of Parent, Holdings or the Surviving Corporation be obligated, pursuant to this Agreement, the other Transaction Agreements or otherwise in connection with the Merger or the Transactions, to pay, directly or indirectly (including through the assumption of Unvested Employee Company Options and the release of the Escrow Amount and Reserve Amount), to the Cash Consideration Recipients, the holders of the Unvested Employee Company Options and the holders of any and all other equity interests in or of the Company (including the Company Warrants, Unvested Non-Employee Company Options, any Dissenting Shares, and any other Company Securities) in respect of such equity interests, in the aggregate, more than the Total Merger Consideration. Any payments or other consideration that would otherwise be owed to such persons in their capacity as Cash Consideration Recipients, the Unvested Employee Company Options or holders of other equity interests of the Company as a result of the Transactions that would cause the aggregate payments to such persons to be in excess of the Total Merger Consideration (and subject to Section 1.8(e) and Article 7) shall be deemed to be a Company Transaction Expense.

(d)Subject to Section 1.10 and Article 7, Distributions pursuant to this Agreement shall be allocated among and paid to the Cash Consideration Recipients in accordance with this Section 1.8(d) and as set forth in the Closing Consideration Spreadsheet and this Agreement.

(i)On the Closing Date:

(A)Each share of Company Preferred Stock outstanding immediately prior to the Effective Time (excluding shares of Company Preferred Stock that are converted prior to the Effective Time) shall receive an amount per share equal to (1) the amount of the applicable Liquidation Preference of such share of Company Preferred Stock, as set forth in the Company’s Certificate of Incorporation, multiplied by (2) 0.875.

(B)Each share of Company Common Stock outstanding immediately prior to the Effective Time (including shares of Company Common Stock issued upon (1) the conversion of shares of Company Preferred Stock that are converted (or deemed converted pursuant to the terms of this Agreement) into Company Common Stock prior to the Effective Time or (2) the exercise of Company Warrants or Company Stock Options that are exercised (or deemed exercised or converted, including on a “net exercise basis” or “cashless basis”, pursuant to the terms of this Agreement) prior to the Effective Time) shall receive an amount per share equal to (x) the Base Common Per Share Amount multiplied by (y) 0.875.

(C)Each Option Share that would be issued upon the exercise in full for cash (non-net exercise) of any Vested Company Option that is outstanding immediately prior to the Effective Time and cancelled pursuant to Section 1.11(a) shall, in accordance with Section 1.11(a), receive an amount per share equal to (1) the excess, if any, of (a) the Base Common

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Per Share Amount minus (b) the applicable per share exercise price for such Option Share, multiplied by (2) 0.875.

(ii)Upon any release of the Escrow Fund or Reserve Amount to the Escrow Holders, each Escrow Holder shall receive an amount equal to (A) the amount of such Distribution multiplied by (B) such Escrow Holder’s Recovery Percentage.

(e)Escrow. No later than two Business Days after the Closing Date, Parent, on behalf of the Surviving Corporation, will transfer to, and deposit with, the Escrow Agent an amount equal to the Escrow Amount plus the Reserve Amount. Such Escrow Amount shall become part of the Escrow Fund established pursuant to Article 7 and such Reserve Amount shall become part of the Reserve Fund established pursuant to Article 7. The portion of the Escrow Amount and the portion of the Reserve Amount withheld with respect to each Escrow Holder will be in proportion to the amount of the Base Cash Amount payable to such Escrow Holder pursuant to Section 1.8(a) and/or Section 1.11(a) compared to the amount of the Base Cash Amount payable to all Escrow Holders. Such amount and such Escrow Holder’s allocated percentage of the Escrow Fund and the Reserve Fund (such percentage, an Escrow Holder’s “Recovery Percentage”) will be set forth on the Closing Consideration Spreadsheet. For the sake of clarity, the amount actually deposited into the Reserve Fund in respect of each Escrow Holder shall be determined without regard to withholding Taxes applicable to such amounts, and any such withholding Taxes applicable to amounts deposited into the Reserve Fund shall reduce other amounts payable to such Escrow Holder. Thus, for example, if $100 would be deposited into the Reserve Fund on behalf of an Escrow Holder (prior to any withholding Tax) and Taxes in the amount of $25 are required to be withheld with respect to such $100 deposit, $100 shall be deposited into the Reserve Fund with respect to such Escrow Holder and other payments to such Escrow Holder in connection with the Closing (determined after all required Tax withholding) shall be reduced by such $25.

(f)Acquisition Sub Shares. At the Effective Time, each outstanding share of common stock, no par value, of Acquisition Sub shall be converted into one share of common stock, no par value, of the Surviving Corporation.

(g)Treasury Shares. Each Share held in the treasury of the Company or owned, directly or indirectly, by the Company, or any of the Company’s wholly-owned subsidiaries, prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

Section 1.9Dissenters’ Rights. Shares that have not been voted for approval of this Agreement or consented thereto in writing and with respect to which a demand for payment and appraisal have been properly made in accordance with Section 262 of the DGCL or Chapter 13 of the General Corporation Law of the State of California (the “CGCL”) (such Shares, “Dissenting Shares”), will not be converted into the right to receive that portion of the Total Merger Consideration otherwise payable with respect to such Dissenting Shares after the Effective Time pursuant to Section 1.8, but will instead be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the laws of the State of Delaware or the State of California, as the case may be. If a holder of Dissenting Shares (a “Dissenting Stockholder”) withdraws such holder’s demand for such payment and appraisal or

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becomes ineligible for such payment and appraisal, then, as of the Effective Time or the occurrence of such event of withdrawal or ineligibility, whichever last occurs, such holder’s Dissenting Shares will cease to be Dissenting Shares and will be converted into the right to receive, and will be exchangeable for, that portion of the Total Merger Consideration into which such Dissenting Shares would have been converted pursuant to Section 1.8. Each Dissenting Stockholder who, pursuant to Section 262 of the DGCL or Chapter 13 of the CGCL, becomes entitled to payment of the value of the Dissenting Shares will receive payment therefor (but only after the value therefor has been agreed upon or finally determined pursuant to such provisions). The Company shall give Parent (a) prompt notice of any demands received by the Company for appraisal and/or payment of fair value for Shares, attempted written withdrawals of such demands, and any other instruments served pursuant to the DGCL or the CGCL and received by the Company relating to stockholders’ rights to appraisal with respect to the Merger and (b) the opportunity to direct all negotiations and proceedings with respect to any exercise of such appraisal rights under the DGCL or the CGCL. The Company shall not, and shall cause each of its subsidiaries, affiliates and Company Representatives not to, except with the prior written consent of Parent or as may be required by such applicable law, make any payment with respect to, or settle or offer to settle, any such demands.

Section 1.10Exchange of Certificates.

(a)Payment Procedures. The Escrow Agent shall act as payment agent in connection with the Merger. As promptly as practicable after the Effective Time, and no later than two Business Days after the Closing Date, Parent, on behalf of the Surviving Corporation, will transfer to, and deposit with, the Escrow Agent an amount in cash equal to the Base Cash Amount minus the Escrow Amount and the Reserve Amount in accordance with Section 1.8(e); provided, that in the case of payments to employees or former employees of the Company for which Tax withholding is required, such payments may be made through the Company’s or Parent’s payroll processing service or system.

(b)Letter of Transmittal. As soon as reasonably practicable after the Effective Time (and in any event within five Business Days thereafter), the Escrow Agent shall mail to (x) each holder of record of a Certificate(s) and whose Shares were converted into the right to receive a portion of the Total Merger Consideration pursuant to Section 1.8(a) and (y) each holder of record of a Vested Company Option whose Option Shares were converted into the right to receive a portion of the Total Merger Consideration pursuant to Section 1.11(a) (“Vested Optionholder”): (i) a letter of transmittal (which shall specify that, in the case of Certificates, delivery shall be effected and risk of loss and title to the Certificates shall pass only upon receipt of the Certificates by the Escrow Agent) (a “Letter of Transmittal”); and (ii) instructions for use in effecting the surrender of Certificates and the Vested Company Options in exchange for a portion, if any, of the Total Merger Consideration to which the Shares, represented by such Certificate, or Vested Company Options are entitled under and in accordance with this Agreement. Upon surrender to the Escrow Agent of a Certificate for cancellation together with such Letter of Transmittal duly completed and executed, the holder of such Certificate shall be entitled to receive in exchange therefor an amount of cash determined in accordance with Section 1.8 with respect to the number of Shares represented by such Certificate (less any applicable withholding Taxes) and the Certificate so surrendered shall forthwith be cancelled. Upon delivery to the Escrow Agent of a Letter of Transmittal duly executed,

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the holder of a Vested Company Option shall be entitled to receive in exchange therefor an amount of cash determined in accordance with Section 1.8 and Section 1.11(a) with respect to such Vested Company Option (less any applicable withholding Taxes) and the Vested Company Option shall forthwith be cancelled in exchange for such cash. As soon as reasonably practicable following delivery of a duly completed and executed Letter of Transmittal as described above, and, in the case of Stockholders, a Certificate, the Escrow Agent shall remit, or cause to be remitted, payment, if any, due to such Stockholder or Vested Optionholder in accordance with the remittance instructions provided in the Letter of Transmittal. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, cash, if any, may be paid to a transferee if the Certificate representing such Shares is presented to the Escrow Agent accompanied by all documents required to evidence and affect such transfer. Until surrendered as contemplated by this Section 1.10, each Certificate or Vested Company Option shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender a portion of the Total Merger Consideration, if any, as contemplated by Section 1.8, Section 1.11 and this Section 1.10. Notwithstanding the foregoing, Parent, Holdings and the Surviving Corporation shall be entitled, but not obligated, to offset any outstanding amounts due and payable (including all principal, accrued but unpaid interest, and other amounts) under any promissory note or other instrument evidencing indebtedness of a Stockholder or Vested Optionholder owed to the Company, Holdings or Parent, or any of their respective affiliates or subsidiaries, including any Employee Indebtedness to be repaid pursuant to Section 4.20, prior to distributing any portion of the Total Merger Consideration to such Stockholder or Vested Optionholder (including the offset of any such outstanding amounts against the Total Merger Consideration with respect to the exercise price of any Company Stock Options).

(c)Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, the Escrow Agent shall issue in exchange therefor, upon the delivery of an affidavit (in a form satisfactory to the Escrow Agent and Parent) of that fact by the record holder thereof, cash as may be required, if any, pursuant to this Agreement; provided,however, that the Escrow Agent or Parent may require the delivery of a suitable bond or indemnity.

(d)No Further Registration. The portion of the Total Merger Consideration paid upon the surrender of Shares or Vested Company Options in accordance with the terms hereof shall be deemed to have been paid in full satisfaction of all rights pertaining to such Shares or Vested Company Options, subject to Article 7. From and after the Effective Time, there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares, Company Stock Options or Company Warrants that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates or Company Stock Options or Company Warrants are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged for the applicable portion of the Total Merger Consideration, if any, as provided in this Article 1.

(e)Escheat. None of Parent, Holdings or the Surviving Corporation shall be liable to any holder of Shares, Company Warrants or Company Stock Options for cash constituting a portion of the Total Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

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Section 1.11Stock Options, Restricted Shares and Warrants.

(a)Stock Options.

(i)At the Effective Time, each Company Stock Option, to the extent vested immediately prior to the Effective Time, that is not exercised prior to the Effective Time (a “Vested Company Option”), if any, shall be cancelled and terminated and shall not be assumed or substituted by Parent, Holdings or the Surviving Corporation. Instead, at and after the Effective Time, each such Vested Company Option shall represent, for each Option Share underlying such Vested Company Option, a right to receive a cash amount equal to the excess, if any, of the Base Common Per Share Amount less the applicable per share exercise price for such Option Share, subject to Section 1.8(e), Section 1.10 and the Escrow Fund, Reserve Fund and indemnity provisions in Article 7. Prior to the Closing, the Company shall have taken all actions, if any, necessary to cause the cancellation and termination of such Vested Company Options and the treatment of such Vested Company Options in the manner described in this Section 1.11(a)(i), including providing any required notice to holders of such Vested Company Options pursuant to the documents governing such Company Stock Options.

(ii)At the Effective Time, each Company Stock Option, to the extent unvested immediately prior to the Effective Time, that is held by an employee of the Company continuing employment with Parent immediately after the Effective Time (“Unvested Employee Company Options”) shall be assumed by Parent, subject to this Section 1.11(a)(ii), together with the terms of the relevant stock option plan and the agreement evidencing the grant thereunder of such assumed Unvested Employee Company Option. At and after the Effective Time, each Unvested Employee Company Option assumed by Parent pursuant to this Section 1.11(a)(ii) shall continue to have, and be subject to, the same terms and conditions set forth in the relevant stock option plan and the agreement evidencing the grant thereof immediately prior to the Effective Time, including provisions with respect to vesting, except that: (A) such Unvested Employee Company Option will be exercisable for that number of whole shares of Parent Common Stock, equal to the product (rounded down to the nearest whole share) of (1) the number of shares of Company Common Stock that were issuable upon exercise of such option immediately prior to the Effective Time multiplied by (2) the Exchange Ratio; and (B) the per share exercise price of each such Unvested Employee Company Option shall be adjusted by dividing (1) the per share exercise price of each such option immediately prior to the Effective Time by (2) the Exchange Ratio, and rounding up to the nearest cent. The terms of each Unvested Employee Company Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, stock dividend, recapitalization or other similar transaction with respect to Parent Common Stock after the Effective Time. Prior to the Closing, the Company shall have taken all actions, if any, necessary to cause the treatment of such Unvested Employee Company Options in the manner described in this Section 1.11(a)(ii), including providing any required notice to holders of such Unvested Employee Company Options pursuant to the documents governing such Company Stock Options.

(iii)At the Effective Time, each Company Stock Option, to the extent unvested immediately prior to the Effective Time, that is held by a person other than an employee of the Company continuing employment with Parent immediately after the Effective Time

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(“Unvested Non-Employee Company Options”), and that has not been exercised prior to the Effective Time, shall be cancelled and terminated and shall not be assumed or substituted by Parent, Holdings or the Surviving Corporation. Prior to the Closing, the Company shall have taken all actions, if any, necessary to cause the cancellation and termination of such Unvested Non-Employee Company Options and the treatment of such Unvested Non-Employee Company Options in the manner described in this Section 1.11(a)(iii), including providing any required notice to holders of such Unvested Non-Employee Company Options pursuant to the documents governing such Company Stock Options.

(b)Warrants. At the Effective Time, each warrant to purchase shares of capital stock of the Company outstanding immediately prior to the Effective Time that has not been exercised prior to the Effective Time (each, a “Company Warrant”), if any, shall be cancelled and terminated and shall not be assumed or substituted by Parent, Holdings or the Surviving Corporation. Prior to the Closing, the Company shall have taken all actions, if any, necessary to cause the cancellation and termination of such Company Warrants and the treatment of such Company Warrants in the manner described in this Section 1.11(b), including providing any required notice to or obtaining a waiver of such notice from the holders of the Company Warrants pursuant to the documents governing such Company Warrants.

Section 1.12Post-Closing Adjustment.

(a)At least three Business Days prior to the anticipated Closing Date, the Company shall prepare, or cause to be prepared, and deliver to Parent a written statement (the “Preliminary Closing Statement”) that shall include and set forth (i) an estimated consolidated balance sheet of the Company as of the Closing Date (the “Preliminary Closing Balance Sheet”), and (ii) a good-faith estimate of (A) Working Capital based on the Preliminary Closing Balance Sheet (the “Estimated Working Capital”), and (B) Company Debt (the “Estimated Company Debt”) (with each of Estimated Working Capital and Estimated Company Debt determined as of the Closing Date and without giving effect to the transactions contemplated herein). Estimated Working Capital and Estimated Company Debt shall be calculated in accordance with GAAP applied on a basis consistent with the preparation of the Company Balance Sheet (provided that in the event of a conflict between GAAP and consistent application thereof, GAAP shall prevail) (the “Applicable Accounting Principles”). All calculations of Estimated Working Capital and Estimated Company Debt shall be accompanied by a certificate of the CEO and the Chief Financial Officer of the Company certifying that such estimates have been calculated in good faith in accordance with this Agreement. All such estimates shall be subject to the Parent’s approval, which shall not be unreasonably withheld or delayed, and shall control solely for purposes of determining the amounts payable at the Closing pursuant to Section 1.8 and shall not limit or otherwise affect the Parent’s remedies under this Agreement or otherwise, or constitute an acknowledgement by the Parent of the accuracy of the amounts reflected thereof. For purposes of determining the amounts payable on the Closing Date, the Working Capital Adjustment Amount shall be based on Estimated Working Capital, and Company Debt shall be based on Estimated Company Debt, each determined in accordance with this Section 1.12(a).

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(b)Within 90 days after the Closing Date, the Surviving Corporation shall prepare and deliver to the Stockholder Agent (on behalf of the Stockholders) a written statement (the “Final Closing Statement”) that shall include and set forth (i) a consolidated balance sheet of the Company as of the Closing Date (the “Closing Balance Sheet”), (ii) a calculation of the actual (A) Working Capital (the “Closing Working Capital”), (B) Company Debt (the “Closing Company Debt”), and (C) Company Transaction Expenses (the “Closing Company Transaction Expenses”) (with each of Closing Working Capital, Closing Company Debt and Closing Company Transaction Expenses determined as of the Closing Date and, except for Closing Company Transaction Expenses, without giving effect to the transactions contemplated herein). Closing Working Capital and Closing Company Debt shall be calculated in accordance with the Applicable Accounting Principles.

(c)The Final Closing Statement shall become final and binding on the 30th day following delivery thereof, unless prior to the end of such period, the Stockholder Agent delivers to the Parent written notice of its disagreement (a “Notice of Disagreement”) specifying the nature and amount of any dispute as to the Closing Working Capital, Closing Company Debt, and/or Closing Company Transaction Expenses, as set forth in the Final Closing Statement. The Stockholder Agent shall be deemed to have agreed with all items and amounts of Closing Working Capital, Closing Company Debt, and/or Closing Company Transaction Expenses unless referenced in a timely Notice of Disagreement. Any Notice of Disagreement may reference only disagreements based on mathematical errors or based on amounts of the Closing Working Capital, Closing Company Debt, and/or Closing Company Transaction Expenses as reflected on the Final Closing Statement not being calculated in accordance with the Applicable Accounting Principles.

(d)During the 15-day period following delivery of a Notice of Disagreement by the Stockholder Agent to the Parent, the parties in good faith shall seek to resolve in writing any differences that they may have with respect to the computation of the Closing Working Capital, Closing Company Debt, and/or Closing Company Transaction Expenses as specified therein. Any disputed items resolved in writing between the Stockholder Agent and the Parent within such 15-day period shall be final and binding with respect to such items, and if the Stockholder Agent and the Parent agree in writing on the resolution of each disputed item specified by the Stockholder Agent in the Notice of Disagreement and the amount of the Closing Working Capital, Closing Company Debt, and/or Closing Company Transaction Expenses, the amounts so determined shall be final and binding on the parties for all purposes hereunder.

(e)“Net Adjustment Amount” means an aggregate amount (in no event less than zero) equal to:

(i)if the Closing Working Capital as finally determined pursuant to this Section 1.12 is less than each of the Estimated Working Capital and the Target Working Capital, the amount equal to (x) the lesser of the Estimated Working Capital and the Target Working Capital minus (y) the Closing Working Capital, plus

(ii)an aggregate amount (in no event less than zero) equal to (A) the Closing Company Debt minus the Estimated Company Debt, plus (B) the Closing Company Transaction Expenses minus the Estimated Company Transaction Expenses, minus (C) if both the Closing Working Capital and Target Working Capital are, as finally determined pursuant to this

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Section 1.12, greater than the Estimated Working Capital, the amount equal to (x) the lesser of the Closing Working Capital and the Target Working Capital minus (y) Estimated Working Capital.

(f)If the Net Adjustment Amount is a positive amount then such amount shall be deemed a Special Loss, and Parent shall deliver written notice to the Escrow Agent and the Stockholder Agent specifying a Special Loss for such Net Adjustment Amount and the Escrow Agent shall pay such Special Loss out of the Escrow Fund to Holdings in accordance with the terms of the Escrow Agreement and neither the Stockholder Agent nor any Stockholder, Escrow Holder, Optionholder or holder of any other Company Securities shall be entitled to object to such claim against the Escrow Fund.

ARTICLE 2.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

In order to induce to Parent, Holdings and Acquisition Sub to enter into this Agreement and to consummate the Transactions, the Company hereby represents and warrants to each of Parent, Holdings and Acquisition Sub, as of the date hereof and as of the Closing Date (as though made as of the Closing Date), subject solely to the exceptions set forth in the Disclosure Schedule (the “Company Disclosure Schedule”) delivered on the date hereof by the Company to Parent (which exceptions shall specifically identify the Section, subsection, paragraph or clause of a single Section or subsection hereof, as applicable, to which such exception relates and be limited in their effect to such identified Sections, subsections, paragraphs or clauses); provided, however, that to the extent it is readily apparent on the face of such exception that any such exception would qualify any other Section, subsection, paragraph or clause of a representation or warranty herein (other than Section 2.13), such exception shall be deemed disclosed and incorporated into such other Section, subsection, paragraph or clause of the Company Disclosure Schedule applicable to such Section, subsection, paragraph or clause, that:

Section 2.1Organization and Qualification; Subsidiaries.

(a)Organization. The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each subsidiary of the Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Company and its subsidiaries has made available on the Datasite (“made available”) to Parent accurate and complete copies of its Certificate of Incorporation and Bylaws (or similar governing documents), as currently in full force and effect. The Company is not in violation of any of the provisions of its Certificate of Incorporation, Bylaws or similar governing documents. The transfer books and minute books of the Company that have been made available for inspection by the Parent prior to the date hereof are true and complete.

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(b)Qualifications. Each of the Company and its subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not, individually or in the aggregate, have a Material Adverse Effect on the Company or any such subsidiary. For purposes hereof, the term “Material Adverse Effect on the Company” means any circumstance involving, change in, or effect on (or any circumstance, change or effect that would be reasonably likely to have a change in or effect on) the Company or any of its subsidiaries, taken as a whole, (i) that is, or is reasonably likely to be, materially adverse to the operations, assets, liabilities (including contingent liabilities), results of operations or the condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, excluding from the foregoing the effect, if any, of (A) changes in general economic conditions or changes generally affecting the industry in which the Company or any of its subsidiaries operate that do not disproportionally affect the Company or any of its subsidiaries, taken as a whole, as compared to the Company’s and its subsidiaries’ competitors, (B) changes resulting from or caused by acts of terrorism or war (whether or not declared) or natural disasters occurring after the date hereof, (C) after the date of this Agreement, changes in applicable law or any applicable accounting regulations or principles, including changes in GAAP, that do not disproportionally affect the Company or any of its subsidiaries, taken as a whole, as compared to the Company’s and its subsidiaries’ competitors, (D) changes that arise out of, result from or relate to the Merger or the announcement or consummation thereof, or a disruption in supplier, distributor, landlord or partner relationships as a result of the announcement or pendency of the Merger, but only in each case to the extent demonstrated by the Company to have been caused by such announcement or pendency, (E) any failure by the Company to meet any projections or forecasts for any period ending on or after the Balance Sheet Date (for the avoidance of doubt, this clause (E) shall not preclude Parent from asserting that the underlying reason or cause of any such failure is a Material Adverse Effect on the Company),and (F) any action or inaction expressly requested of the Company and its subsidiaries in writing by Parent or expressly required pursuant to this Agreement or (ii) that would reasonably be expected to prevent or materially delay or impair the ability of the Company or any of its subsidiaries to consummate the Transactions.

(c)Subsidiaries. Section 2.1(c) of the Company Disclosure Schedule sets forth the name of each subsidiary of the Company and, with respect to each such subsidiary, the jurisdiction in which it is incorporated or organized, the jurisdictions, if any, in which it is qualified to do business as of the date hereof, the number of shares of its authorized capital stock, the number and class of shares thereof duly issued and outstanding, the names of all stockholders or other equity owners and the number of shares of stock owned by each stockholder or the amount of equity owned by each equity owner. The Company has never owned or held any capital stock or other ownership interest in any person or any subsidiary other than those subsidiaries listed in Section 2.1(c) of the Company Disclosure Schedule. None of the subsidiaries of the Company is in violation of any of the provisions of its Certificate of Incorporation, Bylaws or similar governing documents. The transfer books, minute books and statutory books of the subsidiaries of the Company (i) that have been made available for inspection by the Parent prior to the date hereof are true and complete and (ii) have been maintained in accordance with applicable Law.

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Section 2.2Capitalization of the Company and its Subsidiaries.

(a)Generally.

(i)The authorized capital stock of the Company consists of 50,000,000 shares of Company Common Stock, 3,250,003 shares of Series A Preferred Stock, 4,968,915 shares of Series B Preferred Stock, 3,580,962 shares of Series C Preferred Stock, 2,262,181 shares of Series D Preferred Stock, 337,758 shares of Series D1 Preferred Stock, 3,448,268 shares of Series E1 Preferred Stock, 3,629,166 shares of Series E2 Preferred Stock, and 400,000 shares of Series E3 Preferred Stock. There are 12,548,207 shares of Company Common Stock, 3,250,003 shares of Series A Preferred Stock, 4,944,369 shares of Series B Preferred Stock, 3,569,780 shares of Series C Preferred Stock, 2,262,181 shares of Series D Preferred Stock, 337,758 shares of Series D1 Preferred Stock, 3,390,693 shares of Series E1 Preferred Stock, 3,629,166 shares of Series E2 Preferred Stock and 400,000 shares of Series E3 Preferred Stock, issued and outstanding. There are Company Warrants to purchase 24,546 shares of Series B Preferred Stock, Company Warrants to purchase shares 11,182 of Series C Preferred Stock and Company Warrants to purchase 57,575 shares of Series E1 Preferred Stock. There are 11,918,542 shares of Common Stock that are issuable upon or otherwise deliverable in connection with the exercise of Company Stock Options, but which are not issued or outstanding. Except as set forth above, there are not outstanding any (W) shares of capital stock or other voting securities of the Company, (X) securities of the Company or any of its subsidiaries convertible into, or exchangeable or exercisable for, shares of capital stock or voting securities of the Company (including any convertible notes or other convertible debt instruments), (Y) options, warrants or other rights to acquire from the Company or any of its subsidiaries, and no obligations of the Company or any of its subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable or exercisable for capital stock or voting securities of the Company, or (Z) equity equivalent interests in the ownership or earnings of the Company or any of its subsidiaries or other similar rights. All of such outstanding Shares, Company Warrants and Company Stock Options and any and all other equity interests in or of the Company (including those described in clauses (W) through (Z) above) (collectively, the “Company Securities”) were issued in compliance with the Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws. All of the outstanding Shares have been, and the Shares issuable upon exercise of the Company Warrants when issued in accordance with the terms of such Company Warrants and the shares of Company Common Stock issuable upon exercise of the Company Stock Options when issued in accordance with the Company Plans will be, validly issued and fully paid, nonassessable and free of preemptive rights. There are no outstanding promissory notes evidencing Company Debt or any other indebtedness of the Company or any of its subsidiaries or outstanding promissory notes evidencing indebtedness owed to the Company or any of its subsidiaries. Section 2.2(a)(i) of the Company Disclosure Schedule sets forth a true and complete list as of the date hereof (the “Capitalization Schedule”) of:

(A)the names and holdings of all holders of outstanding Company Securities;

(B)with respect to each Company Stock Option and Restricted Company Share, (1) an indication of whether (and what portion of) such Company Stock Option

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or Restricted Company Share is vested or unvested, (2) the vesting schedule of such Company Stock Option or Restricted Company Share that is subject to vesting, and (3) an indication of whether such Company Security has any rights to acceleration of vesting in connection with or as a result of the execution and delivery of this Agreement or the other Transaction Agreements or the consummation of the Transactions;

(C)the exercise price per share of each Company Stock Option and Company Warrant; and

(D)the term of each such Company Stock Option, whether such Company Stock Option is a nonqualified stock option or an incentive stock option (an “ISO”), each within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), any restrictions on exercise or sale of the Shares underlying such Company Stock Option, and any expiration dates thereof.

(ii)Except as set forth on Section 2.2(a)(ii) of the Company Disclosure Schedule, all of the outstanding capital stock of each of the Company’s subsidiaries is owned by the Company, directly or indirectly, free and clear of any Lien or any other limitation or restriction (including any restriction on the right to vote or sell as may be provided by applicable law). There are no securities of the Company or any of its subsidiaries convertible into, or exchangeable or exercisable for, (A) any capital stock or other ownership or voting interests in or any other securities of any subsidiary of the Company or (B) any options or other rights to acquire from the Company or any of its subsidiaries any such capital stock or other ownership interest, and there exists no other Contract, understanding, arrangement or obligation (whether or not contingent) providing for the issuance or sale, directly or indirectly, of any such capital stock. No shares of capital stock or other equity or ownership interests of the Company or any of its subsidiaries have been issued in violation of any rights, agreements, arrangements or commitments under any provision of applicable Law, the Certificate of Incorporation or Bylaws or similar governing documents of the Company or any of its subsidiaries or any Contract to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound.

(iii)There are no outstanding rights or obligations to which the Company or any of its subsidiaries is a party or by which it is bound, obligating the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any Company Securities or any securities issued by any such subsidiary. Each Share that was issued subject to forfeiture, right of repurchase by the Company or other restriction is fully vested and there are no such restrictions outstanding with respect to such Shares. Except as set forth on Section 2.2(a)(iii) of the Company Disclosure Schedule, there are no stockholder agreements, voting trusts or other arrangements or understandings to which the Company or any of its subsidiaries is a party or by which it is bound, and to its knowledge there are no other agreements, voting trusts or other arrangements or understandings, relating to the voting or registration of any shares of capital stock or other voting securities of the Company or any of its subsidiaries or, except as set forth on the Capitalization Schedule, to the issuance of capital stock, options, warrants or any other rights to any person, including any sales representatives, consultants, contractors, employees, stockholders or distributors of the Company’s or any of its

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subsidiaries’ products. No Shares are owned, directly or indirectly, by the Company or any of its subsidiaries.

(b)Equity Interests. Except as set forth on Section 2.2(b) of the Company Disclosure Schedule, the Company and its subsidiaries do not directly or indirectly own any equity, partnership, membership or similar interest in, or any interest convertible into, exercisable for the purchase of or exchangeable for any such equity, partnership, membership or similar interest, and the Company and its subsidiaries are not under any current or prospective obligation to form or participate in, provide funds to, make any loan or capital contribution to, or other investment in, or assume any liability or obligation of, any other person. Neither the Company nor any of its subsidiaries is liable for any “earn-out” or similar payment under any merger agreement, asset purchase agreement, stock purchase agreement or other similar agreement for the acquisition of assets (including IPR), businesses or equity, partnership, membership or similar interests, or any interest convertible into, exercisable for the purchase of or exchangeable for any such equity, partnership, membership or similar interest, in any person, and there are no such “earn-out” or similar payment obligations under any existing Contract to which the Company or any subsidiary is a party that is capable of maturing or otherwise becoming payable on or after the date hereof.

(c)Grant of Company Stock Options and Shares. Except as set forth on Section 2.2(c) of the Company Disclosure Schedule, since January 11, 2013, none of the Company or any of its subsidiaries has granted or issued to any employee of, or consultant to, the Company or any of its subsidiaries, or to any other person, any Company Stock Option or Shares. The issuances of Shares set forth on Section 2.2(c) of the Company Disclosure Schedule were (i) in connection with the exercise of Company Stock Options (A) by current or former employees or consultants of the Company or its subsidiaries in the ordinary course, (B) by former employees or consultants of the Company or its subsidiaries following termination of such employee or consultant or (C) in anticipation of a pending expiration of such exercised Company Stock Option, and (ii) issued in the Ordinary Course of Business.

(d)Consideration Spreadsheets. The information contained in the Preliminary Consideration Spreadsheet is true and correct as of the date hereof (giving effect to an estimated Closing Date as set forth in the Preliminary Consideration Spreadsheet) and the allocation of the Base Merger Consideration set forth in the Preliminary Consideration Spreadsheet is consistent with the organizational documents of the Company, this Agreement and any applicable Contract. The information contained in the Closing Consideration Spreadsheet will be true and correct as of the Closing Date and the allocation of the Merger Consideration set forth in the Closing Consideration Spreadsheet will be consistent with the organizational documents of the Company, this Agreement and any applicable Contract.

Section 2.3Authority Relative to this Agreement; Recommendation.

(a)The Company has all necessary corporate power and authority to execute and deliver this Agreement, and each of the Company and its subsidiaries has all necessary corporate power and authority to execute and deliver the other Transaction Agreements to which it is a party, to perform its obligations under this Agreement and the other Transaction Agreements and to consummate the Transactions.

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(b)The Board of Directors of the Company (the “Company Board”), at a meeting duly called and held at which all directors of the Company were present, duly and unanimously adopted resolutions (i) determining that the terms of this Agreement, the other Transaction Agreements and the Transactions are fair to and in the best interests of the Stockholders, (ii) approving and declaring advisable this Agreement and the Transactions, including the Merger and the appointment of Shareholder Representative Services LLC as the Stockholder Agent, (iii) directing that this Agreement be submitted to the Stockholders for Stockholder Approval and (iv) resolving to recommend that the Stockholders vote in favor of the adoption and approval of this Agreement and the Transactions, which resolutions have not been subsequently rescinded, modified or withdrawn in any way.

(c)“Requisite Approval” means the approval and adoption of this Agreement and the other Transaction Agreements and the consummation of the Transactions (but specifically excluding the 280G Approval) by (i) the holders of a majority of the outstanding Company Common Stock and Company Preferred Stock voting together as a single class and on an as-converted basis, and (ii) the holders of the outstanding Company Preferred Stock voting together as a single class and on an as-converted basis.

(d)“Stockholder Approval” means (i) the Requisite Approval and (ii) the approval and adoption of this Agreement and the other Transaction Agreements and the consummation of the Transactions (but specifically excluding the 280G Approval) by the holders of the outstanding Company Common Stock, voting together as a class.

(e)Other than (i) as set forth in Sections 2.3(a) and 2.3(b) and (ii) the Requisite Approval, no other corporate proceedings on the part of the Company or any of its subsidiaries are necessary to authorize and adopt this Agreement or the other Transaction Agreements or to consummate the Transactions. This Agreement and the other Transaction Agreements have been duly and validly executed and delivered by the Company and each subsidiary of the Company that is a party thereto and constitute, assuming the due authorization, execution and delivery hereof and thereof by Parent, Holdings and Acquisition Sub (to the extent a party to such agreement), valid, legal and binding agreements of the Company and each such subsidiary, enforceable against the Company and each such subsidiary in accordance with their terms, subject to any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights generally or to general principles of equity.

Section 2.4Financial Statements.

(a)The Company has made available to Parent copies of consolidated financial statements consisting of (i) an unaudited balance sheet of the Company and its subsidiaries at December 31, 2012 and the related statements of income and cash flow for the year ended December 31, 2012, (ii) an audited balance sheet of the Company and its subsidiaries at December 31, 2011 and the related statements of income and cash flow for the fiscal year then ended and (iii) an audited balance sheet of the Company and its subsidiaries at December 31, 2010 and the related statements of income and cash flow for the fiscal year then ended. The various financial statements described above are collectively referred to herein as the “Financial Statements”.

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(b)The balance sheet of the Company and its subsidiaries at December 31, 2012 is referred to herein as the “Company Balance Sheet” and the date thereof is referred to herein as the “Company Balance Sheet Date”.

(c)Except as set forth on Section 2.4(c) of the Company Disclosure Schedule, the statements of income and cash flow included in the Financial Statements include all adjustments necessary for a fair presentation in all material respects. Each of the Financial Statements and the Preliminary Closing Statement: (i) are correct and complete in all material respects and have been prepared in accordance with the books and records of the Company and its subsidiaries, (ii) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) consistently applied and maintained throughout the periods indicated, and (iii) fairly present in all material respects the financial condition, results of operations and cash flows of the Company and its subsidiaries at their respective dates and the results of its operations for the periods covered thereby (except that the unaudited financial statements do not contain all required footnotes). None of the Financial Statements or the Preliminary Closing Statement contains, as of the date hereof, any untrue statement of a material fact or has omitted to state a material fact required to be stated or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(d)All outstanding accounts receivable of the Company and its subsidiaries arose in the Ordinary Course of Business, are bona fide and valid obligations, are carried at values determined in accordance with GAAP consistently applied and are collectible in their full amount in accordance with their payment terms, except to the extent that a reserve has been taken with respect to such account receivable on the Company Balance Sheet or on the final Closing Balance Sheet. Except as set forth on Section 2.4(d) of the Company Disclosure Schedule, subject to such reserves, each outstanding account receivable is or will be collected in full, without any set-off, within 75 days after the day on which it first becomes due and payable. No person has given the Company or any of its subsidiaries notice of any disputes regarding, and, no person has any Lien on, any of such outstanding accounts receivable and no agreement for material deduction, set-off or discount has been made with respect to any of such accounts receivable, and no request for any deduction or discount on any outstanding account receivable has been made, nor in each case, to the Company’s knowledge, is there any reasonable basis therefor. None of the Company or any of its subsidiaries has entered into any agreement or arrangement to factor, or be paid by a Third Party in respect of, any portion of the accounts receivable of the Company and its subsidiaries.

(e)Except as set forth on Section 2.4(e) of the Company Disclosure Schedule, the books of account and financial records of the Company and its subsidiaries are true and correct in all material respects and have been prepared and are maintained in accordance with GAAP.

(f)The financial projections relating to the Company delivered to Parent constitute the Company’s good faith and reasonable estimate of the information purported to be shown therein.

(g)The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to

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permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (v) the Company’s and its subsidiaries’ material obligations are satisfied in a timely manner and as required under the terms of any Contract.

(h)Except as otherwise disclosed in the Financial Statements or as required by GAAP, the Company and its subsidiaries have not made any material change in any method of accounting, accounting practice or policy or any internal control over financial reporting.

(i)There has been no incidence of fraud since inception of the Company that involves any current or former directors, officers or employees of the Company or any of its subsidiaries.

(j)Section 2.4(j) of the Company Disclosure Schedule lists, and the Company has made available to Parent copies of the documentation creating or governing, all securitization transactions and “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the United States Securities and Exchange Commission (the “SEC”)) effected by the Company or any of its subsidiaries since their respective inceptions.

(k)Section 2.4(k) of the Company Disclosure Schedule lists all indebtedness owed to the Company or any of its subsidiaries by any employee or Stockholder of the Company or any of its subsidiaries.

Section 2.5Information Supplied. None of the information included in the Information Statement, at the date delivered to the Stockholders, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Company makes no representation or warranty regarding the accuracy or completeness of any information about Parent, Holdings or Acquisition Sub contained in the Information Statement provided by Parent, Holdings or Acquisition Sub expressly for inclusion. The Information Statement, insofar as it relates to a solicitation of written consents from the Stockholders for adoption and approval of this Agreement, the other Transaction Agreements, or the Transactions, including the Merger, complies in all material respects with the provisions of the DGCL and CGCL.

Section 2.6Consents and Approvals; Notices; No Violations.

(a)Except as set forth on Section 2.6(a) of the Company Disclosure Schedule and for filings, permits, authorizations, consents and approvals as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and similar merger notification laws or regulations of foreign Governmental Entities and the filing and recordation of the Certificate of Merger as required by the DGCL, no filing with or notice to, and no permit, authorization, consent or approval of, any United States or foreign court or tribunal, governmental or regulatory body, or administrative agency or authority (each, a “Governmental Entity”) is necessary for the execution and delivery by the Company and each of its subsidiaries of this

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Agreement and each other Transaction Agreement to which it is a party or the consummation by the Company and its subsidiaries of the Transactions.

(b)Neither the execution, delivery and performance of this Agreement and the other Transaction Agreements by the Company and its subsidiaries nor the consummation by the Company and its subsidiaries of the Transactions will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws (or similar governing documents) of the Company or any of its subsidiaries, (ii) except as set forth on Section 2.6(b)(ii) of the Company Disclosure Schedule, result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration or Lien) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to the Company or any of its subsidiaries or any of their respective properties or assets, except, in the case of the foregoing clause (ii) or (iii), for violations, breaches or defaults that would not, individually or in the aggregate, result in any loss, expense, charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $25,000.

(c)No “business combination,” “fair price,” “moratorium,” “control share acquisition” or other similar anti-takeover statute or regulation (including Section 203 of the DGCL) or any anti-takeover provision in the Company’s Certificate of Incorporation or Bylaws is, or at the Effective Time will be, applicable to the Company, any Shares, this Agreement, the Merger or any of the other Transactions.

Section 2.7No Default. Neither the Company nor any of its subsidiaries is in breach, default or violation (and no event has occurred that with notice or the lapse of time or both would constitute a breach, default or violation) of any term, condition or provision of (i) its Certificate of Incorporation or Bylaws (or, in the case of the Company’s subsidiaries, similar governing documents), (ii) any note, warrant, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of its subsidiaries is now a party or by which it or any of its properties or assets may be bound, or (iii) any order, writ, injunction or decree of any Governmental Entity applicable to the Company or any of its subsidiaries or any of their respective properties or assets, except, in the case of foregoing clause (ii) or (iii), for violations, breaches or defaults that would not, individually or in the aggregate, result in any loss, expense, charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $50,000.

Section 2.8No Undisclosed Liabilities; Absence of Changes. Neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, whether known or unknown and whether or not required by GAAP to be reflected on a consolidated balance sheet of the Company and its subsidiaries (including the notes thereto), other than (i) liabilities and obligations (A) reflected on the Company Balance Sheet (including the notes thereto), (B) incurred in connection with the preparation, execution, delivery

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and performance of this Agreement and the other Transaction Agreements, or (C) incurred in the Ordinary Course of Business after the Company Balance Sheet Date that are not, individually or in the aggregate, material to the Company and its subsidiaries, taken as a whole, including those set forth on Section 2.8(I) of the Company Disclosure Schedule, (ii) accounts payable that have been incurred by the Company in the Ordinary Course of Business after the Company Balance Sheet Date that are not in the aggregate material to the Company and its subsidiaries, taken as a whole, including those set forth on Section 2.8(I) of the Company Disclosure Schedule, (iii) accrued salaries that have been incurred by the Company in the Ordinary Course of Business since the end of the most recent pay period, and (iv) accrued commissions that have been incurred by the Company in the Ordinary Course of Business after the Company Balance Sheet Date, to the extent set forth on Section 2.8(I) of the Company Disclosure Schedule. Without limiting the generality of the foregoing, except as set forth in Section 2.8 of the Company Disclosure Schedule, during the period between the Company Balance Sheet Date and the date hereof, each of the Company and its subsidiaries has conducted its business in all material respects in the Ordinary Course of Business, and there has not been any:

(a)Material Adverse Effect on the Company;

(b)damage, destruction or other casualty loss with respect to any asset or property owned, leased or otherwise used by the Company or any of its subsidiaries having a book value or fair market value exceeding $50,000, whether or not covered by insurance;

(c)declaration, setting aside or payment of any dividend, profit sharing distribution or other distribution in respect of the capital stock of the Company or any of its subsidiaries or any repurchase, redemption or other acquisition by the Company or any of its subsidiaries of any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company or any of its subsidiaries;

(d)except as provided in Section 1.2, amendment of any material term of any outstanding security of the Company or any of its subsidiaries;

(e)incurrence, assumption or guarantee by the Company or any of its subsidiaries of any indebtedness for borrowed money other than in the Ordinary Course of Business and in amounts and on terms consistent with past practices;

(f)creation or assumption by the Company or any of its subsidiaries of any Lien on any asset having a book value or fair market value exceeding $50,000;

(g)loan, advance or capital contribution made by the Company or any of its subsidiaries to any person other than (i) loans or advances to employees in connection with business-related travel and (ii) loans, advances or capital contributions to, or investments in, wholly-owned subsidiaries of the Company, and in each of cases (i) and (ii), made in the Ordinary Course of Business;

(h)transaction or commitment made, or any contract or agreement entered into, by the Company or any of its subsidiaries relating to its assets or business (including the acquisition

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or disposition of any assets) or any relinquishment by the Company or any of its subsidiaries of any contract, agreement or other right, in either case, having a stated contract amount or otherwise potentially involving Company or subsidiary obligations or entitlements with a value exceeding $50,000;

(i)change by the Company or any of its subsidiaries in any of its accounting principles, practices or methods; or

(j)increase in the compensation or benefits (including the acceleration of vesting thereof) payable or that could become payable by the Company or any of its subsidiaries to (i) officers, directors or engineers of the Company or any of its subsidiaries or (ii) any other employee of, or consultant to, the Company or any of its subsidiaries whose annual cash compensation is $100,000 or more.

Section 2.9Litigation. Except as set forth in Section 2.9(a) of the Company Disclosure Schedule, there are no suits, claims, actions, inquiries, proceedings, audits or investigations before any Governmental Entity (an “Action”) pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries or any of its or its subsidiaries’ properties or assets. Neither the Company nor any of its subsidiaries is subject to any outstanding order, writ, injunction or decree of any Governmental Entity that would reasonably be expected to result, individually or in the aggregate, in any loss, expense, charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $25,000. There is no outstanding order, writ, judgment, injunction, decree, determination or award of any Governmental Entity relating to the Company, any of its subsidiaries, any of their respective properties or assets, or the Transactions or, to the knowledge of the Company, pending or threatened investigation by, any Governmental Entity relating to the Company, any of its subsidiaries, any of their respective properties or assets, any of their respective officers or directors, or the Transactions. Except as set forth in Section 2.9(b) of the Company Disclosure Schedule, there is no Action by the Company or any of its subsidiaries pending, or which the Company or any of its subsidiaries has commenced preparations to initiate, against any other person.

Section 2.10Compliance with Applicable Law.

(a)Each of the Company and its subsidiaries currently holds, and has held at all times, all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary for the lawful conduct of its business (collectively, the “Company Permits”), except for failures to hold such permits, licenses, variances, exemptions, orders and approvals that would not, individually or in the aggregate, result in any charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $25,000. Each of the Company and its subsidiaries is in compliance, and has been in compliance at all times, with the terms of the Company Permits held by it or to which it is subject, except where the failure so to comply would not, individually or in the aggregate, result in any charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $25,000. No suspension, cancellation, modification, revocation or nonrenewal of any Company Permit is pending or, to the knowledge of the Company, threatened. No Company Permit is held

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in the name of any employee, officer, director, stockholder, agent or otherwise on behalf of the Company or any of its subsidiaries.

(b)The business of the Company and each of its subsidiaries is being conducted, and has at all times been conducted, in compliance with all applicable statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or order of the United States or any foreign country, or any political subdivision thereof, or of any Governmental Entity (“Laws”) except for violations or possible violations of any Laws that do not and will not result, individually or in the aggregate, in any charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $25,000. None of the Company, any of its subsidiaries or any of its or their executive officers has received during the past five years, nor is there any known basis for, any notice, order, complaint or other communication from any Governmental Entity or any other person that the Company or any of its subsidiaries is not in compliance in any material respect with any Law applicable to it.

Section 2.11Employee Benefit Plans; Labor Matters.

(a)Section 2.11(a) of the Company Disclosure Schedule lists as of the date hereof all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, health, life, or disability insurance, dependent care, severance and other similar fringe or employee benefit plans, programs or arrangements and any current or former employment or executive compensation or severance agreements, written or otherwise, that are sponsored, maintained or contributed to or required to be contributed to or for which the Company or any subsidiary of the Company could have any liability (contingent or otherwise) for the benefit of or relating to any employee or former employee of the Company or any subsidiary of the Company, any trade or business (whether or not incorporated) that is a member of a controlled group including the Company or any of its subsidiaries or that is under common control with the Company or any of its subsidiaries within the meaning of Section 414 of the Code (an “ERISA Affiliate”), as well as each plan with respect to which the Company or any of its subsidiaries or an ERISA Affiliate could incur liability under Section 4069 (if such plan has been or were terminated) or Section 4212(c) of ERISA (together the “Employee Plans”). The Company has made available to Parent a copy of each Employee Plan and, where applicable, (i) the two most recent annual reports on Form 5500 (including schedules) filed with the Internal Revenue Service (the “IRS”) for each Employee Plan where such report is required, (ii) except as set forth on Section 2.11(a)(ii) of the Company Disclosure Schedule, the documents and instruments governing each such Employee Plan and related funding arrangement including participant agreements, (iii) the most recent summary plan description and any summaries of material modifications for each such Employee Plan, and (iv) the most recent favorable IRS determination letter for each Employee Plan that is intended to be qualified pursuant to Section 401(a) of the Code.

(b)Except as set forth on Section 2.11(b) of the Company Disclosure Schedule, no Employee Plan is subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code, and neither the Company, nor any subsidiary of the Company, nor any ERISA Affiliate has incurred any liability (contingent or otherwise) with respect to any such Employee Plan or any other

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plan or arrangement subject to Title IV of ERISA. Each Employee Plan complies in all material respects with its terms and complies in form and in operation in all material respects with applicable law (including ERISA and the Code), and there has been no violation of any reporting or disclosure requirement imposed by ERISA or the Code. Each Employee Plan intended to be qualified under Section 401(a) of the Code is so qualified (or is a prototype plan which has received a favorable opinion letter) and has been determined to be so qualified by the IRS, and since the date of each most recent determination (if applicable), there has been no event, condition or circumstance that has adversely affected or is reasonably likely to adversely affect such qualified status. No Employee Plan is maintained outside of the United States for the benefit of employees employed outside of the United States.

(c)No fiduciary or party in interest of any Employee Plan has participated in, engaged in or been a party to any transaction that is prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA, respectively, with respect to which the Company or its subsidiaries could have any liability. With respect to any Employee Plan, (i) neither the Company, nor any subsidiary of the Company, nor any of its ERISA Affiliates has had asserted against it any claim for Taxes under Chapter 43 of Subtitle D of the Code and Section 5000 of the Code, or for penalties under ERISA Section 502(c), 502(i) or 502(l), nor, to the knowledge of the Company, is there a reasonable basis for any such claim, and (ii) no officer, director or employee of the Company or any of its subsidiaries has committed a breach of any fiduciary responsibility or obligation imposed by Title I of ERISA. Other than routine claims for benefits, there is no claim or proceeding (including any audit or investigation) pending or, to the knowledge of the Company, threatened, involving any Employee Plan by any person, or by the IRS, the United States Department of Labor or any other Governmental Entity against such Employee Plan or the Company or any of its subsidiaries or any ERISA Affiliate; and no fact or circumstance exists that would make such a claim or proceeding likely to occur.

(d)Section 2.11(d) of the Company Disclosure Schedule sets forth a list as of the date hereof of all (i) employment agreements with employees of the Company or any subsidiary of the Company, (ii) agreements with consultants who are individuals obligating the Company or any of its subsidiaries to make annual cash payments in an amount exceeding $50,000 and any agreements pursuant to which any employee of the Company or any of its subsidiaries provides or has provided in the past consulting or similar services to a Third Party during the course of employment and with the prior written consent of the Company, (iii) severance agreements or other agreements, arrangements or policies that contain post-employment liabilities or obligations, programs and policies of the Company or any of its subsidiaries with or relating to its respective employees, except such programs and policies required to be maintained by law, and (iv) plans, programs, agreements and other arrangements of the Company or any of its subsidiaries with or relating to its respective employees that contain change in control provisions whether or not listed in other parts of the Company Disclosure Schedule. The Company has made available to Parent copies of all such agreements, plans, programs and other arrangements.

(e)The consummation of the Transactions will not, either alone or in combination with another event, (i) except as set forth in Section 2.11(e)(i) of the Company Disclosure Schedule, entitle any current or former employee, consultant or officer of the Company

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or any subsidiary to severance pay, unemployment compensation or any other payment, (ii) except as set forth in Section 2.11(e)(ii) of the Company Disclosure Schedule, accelerate the time of payment, vesting or funding, or increase the amount of compensation due any such employee, consultant or officer, except as expressly provided in this Agreement or (iii) except as set forth in Section 2.11(e)(iii) of the Company Disclosure Schedule, cause or result in a limitation on the right of the Company and its subsidiaries to amend, merge, terminate or receive a reversion of assets from any Employee Plan or related trust.

(f)All premiums or other payments that are due have been paid with respect to each such Employee Plan that is an employee welfare benefit plan. No Employee Plan that is a welfare benefit plan within the meaning of Section 3(1) of ERISA provides health or welfare benefits (whether or not insured) to current or former employees or directors of the Company or any of its subsidiaries or its ERISA Affiliates beyond their retirement or other termination of service, other than pursuant to Section 4980B of the Code or similar state laws, the full cost of which is borne by the current or former employee or director. The Company, its subsidiaries and its ERISA Affiliates have complied in all material respects with the provisions of Part 6 of Title I of ERISA and Sections 4980B, 9801, 9802, 9811 and 9812 of the Code.

(g)There are no controversies relating to any Employee Plan or other labor matters pending or, to the knowledge of the Company, threatened between the Company or any subsidiary of the Company and any of their respective employees. Neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company or any subsidiary of the Company, and neither the Company nor any of its subsidiaries knows of any activities or proceedings of any labor union to organize any such employees. No strikes, work stoppage, material grievance, claim of unfair labor practice, or dispute against the Company or any of its subsidiaries has occurred, is pending or, to the knowledge of the Company, threatened, and to the knowledge of the Company there is no basis for any of the foregoing.

(h)Neither the Company nor any of its subsidiaries nor any of its ERISA Affiliates sponsors or has ever sponsored, maintained, contributed to, or incurred an obligation to contribute to any Multiemployer Plan or to a Multiple Employer Plan, nor is it reasonably likely that there could be any liability to a Multiemployer Plan or Multiple Employer Plan pursuant to Title IV of ERISA. For these purposes, “Multiemployer Plan” means a multiemployer plan, as defined in Sections 3(37) and 4001(a)(3) of ERISA, and “Multiple Employer Plan” means any Employee Benefit Plan sponsored by more than one employer, within the meaning of Section 4063 or 4064 of ERISA or Section 413(c) of the Code.

(i)In accordance with applicable law, each Employee Plan can be amended or terminated by the Company or a subsidiary of the Company at any time, without consent from any other person and without liability other than for benefits accrued as of the date of such amendment or termination (other than charges incurred as a result of such termination). Except as set forth in Section 2.11(i) of the Company Disclosure Schedule, the Company and its subsidiaries and their respective ERISA Affiliates have made full and timely payment of all amounts required to be

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contributed or paid as expenses or accrued such payments in accordance with normal procedures under the terms of each Employee Plan and applicable law.

(j)To the knowledge of the Company, no employee, or group of employees, of the Company or any of its subsidiaries has any plans to terminate employment with the Company or any of its subsidiaries. Each of the Company and its subsidiaries has complied in all material respects with all laws relating to the employment of labor, including provisions thereof relating to wages, hours, equal opportunity and collective bargaining, and does not have any material employee relations problems. All employees classified as exempt from the overtime provisions of state and federal law have been properly classified, as have all individuals classified as independent contractors. There are no wage and hour, wrongful termination or employment discrimination claims, complaints or charges pending against the Company or any of its subsidiaries, and to the knowledge of the Company, there is no reasonable basis for any claim, complaint or charge against the Company or any of its subsidiaries by any employee or former employee of the Company or any of its subsidiaries who was terminated prior to the Effective Time and from whom the Company or such subsidiary did not obtain a release of claims that was effective and not subject to revocation at the Effective Time.

(k)Section 2.11(k) of the Company Disclosure Schedule sets forth a list of all salaries, commissions, bonuses, and vacation pay for all services performed by employees of the Company or any of its subsidiaries accrued as of February 28, 2013, and each of the Company and its subsidiaries has paid in full to, or accrued for the benefit of, all employees and consultants, all such payments and compensation, in accordance with applicable Law and the terms of the Employee Plans, through the date hereof.

(l)Neither the Company nor any of its subsidiaries has had or will have any liability as of the Effective Time to any employee or to any organization or any other person as a result of the termination of any employee leasing arrangement.

(m)No “leased employee,” as that term is defined in Section 414(n) of the Code or any other person who is not classified as a common law employee of the Company or any of its subsidiaries, performs services for the Company or any of its subsidiaries or any ERISA Affiliate. No person who has been classified by the Company or any of its subsidiaries as an independent contractor or in any other non-employee classification (each a “Contingent Worker”) is eligible to participate in, nor does such person participate in, any Employee Plan subject to ERISA or any plan described in Section 423 of the Code and no retroactive participation in any Employee Plan would result due to reclassification of a Contingent Worker as a common law employee of the Company or any subsidiary of the Company. The exclusion of any Contingent Worker from any Employee Plan does not cause any Employee Plan which is intended to be qualified under Code Section 401(a) to lose such qualification, nor does the exclusion of any Contingent Worker violate the terms of any Employee Plan.

(n)Each Employee Plan that constitutes in any part a nonqualified deferred compensation plan within the meaning of Section 409A of the Code has been operated and maintained in operational and documentary compliance with Section 409A of the Code and all IRS guidance promulgated thereunder.

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Section 2.12Environmental Laws and Regulations.

(a)Each of the Company and its subsidiaries has been in compliance with all applicable United States federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) (collectively, “Environmental Laws”), except for non-compliances that, individually or in the aggregate, would not result in any loss, expense, charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $25,000.

(b)To the Company’s knowledge, there are no circumstances or conditions involving the Company or any of its subsidiaries that could reasonably be expected to result in any claim, liability, investigation, cost or restriction on the ownership, use or transfer of any real property of which the Company or any of its subsidiaries is or was the owner or operator pursuant to any Environmental Law.

(c)There has been no disposal, release or threatened release of any substance, material or waste that is listed, classified or regulated in any concentration pursuant to any Environmental Law or which may be the subject of regulatory action by any Governmental Entity pursuant to any Environmental Law (a “Hazardous Substance”) on, under, in, from or about any property currently or formerly owned or operated by the Company or any of its subsidiaries, or otherwise related to the operations of the Company or any of its subsidiaries, that has resulted or may result in any loss, expense, charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $25,000.

(d)Neither the Company nor any of its subsidiaries has received any notice, demand, letter, claim or request for information alleging violation by, or liability of, the Company or any of its subsidiaries under any Environmental Law, and there are no proceedings, actions, orders, decrees, injunctions or other written claims or, to the knowledge of the Company, any threatened actions or claims, relating to or otherwise alleging liability under any Environmental Law.

(e)Neither the Company nor any of its subsidiaries has entered into or agreed to, and is not subject to, any consent decree, order or settlement or other agreement in any judicial, administrative, arbitral or other similar forum relating to its compliance with or liability under any Environmental Law.

(f)Neither the Company nor any of its subsidiaries has assumed or is required to make any expenditures, individually or in the aggregate, exceeding $25,000 pursuant to or to comply with any Environmental Law, nor is there any reasonable basis on which any Governmental Entity or other person could take any action that would require any such expenditure.

Section 2.13Taxes.

(a)Definitions. For purposes of this Agreement:

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(i)“Pre-Closing Tax Period” means any Tax Period ending on or before the Closing Date and the portion of any Straddle Period ending on the Closing Date.

(ii)“Pre-Closing Taxes” means, without duplication, all Taxes for which the Company or any of its subsidiaries are or could be liable (A) with respect to any Pre-Closing Tax Period; (B) as a result of being a member of an affiliated, consolidated, combined, unitary or similar group prior to the Closing; (C) as a transferee or successor, by contract or pursuant to any law, rule or regulation, which Taxes relate to an event or transaction occurring prior to the Closing; or (D) arising out of or resulting from this Agreement, in each case together with any interest, penalties and additions to Tax with respect to any of the foregoing and any Losses incurred in connection with any of the foregoing. In the case of any Straddle Period: (x) any Property Taxes for the Pre-Closing Tax Period shall be equal to the amount of such Property Taxes for such entire Straddle Period multiplied by a fraction, the numerator of which is the number of days during the Straddle Period that are in the Pre-Closing Tax Period and the denominator of which is the number of days in the Straddle Period; and (y) all other Taxes for the Pre-Closing Tax Period shall be determined based on an actual closing of the books used to calculate such Taxes as if such tax period ended as of the close of business on the Closing Date (and for such purpose, the Tax Period of any partnership or other pass-through entity in which the Company holds a beneficial interest shall be deemed to terminate at such time). In the case of clause (y), exemptions, allowances or deductions that are calculated on an annual basis (including depreciation and amortization deductions computed as if the Closing Date was the last day of the Straddle Period) shall be allocated between the portion of the Straddle Period ending on the Closing Date and the portion of the Straddle Period thereafter in proportion to the number of days in each such portion. Pre-Closing Taxes shall be computed without regard to any tax benefits attributable to items of expense resulting from compensatory payments or other amounts treated as compensation (including payments with respect to Company Stock Options, payments with respect to any Shares for which withholding is required, or amounts treated as compensation by reason of a “disqualifying disposition” of Shares acquired upon the exercise of ISOs, and payments of bonuses or severance) in connection with this Agreement or other expenses arising from this Agreement. Notwithstanding anything to the contrary set forth above, Pre-Closing Taxes shall not be deemed to include the employer payroll-related Taxes payable with respect to payments made to employees or former employees of the Company in consideration for Vested Company Option or Shares pursuant to this Agreement; it being agreed that 50% of such employer payroll-related Taxes shall be included in Company Transaction Expenses.

(iii)“Property Taxes” means real, personal and intangible property Taxes.

(iv)“Straddle Period” means a Tax Period including and ending after the Closing Date.

(v)“Tax” (including “Taxes”) means (A) all federal, state, local, foreign and other net income, gross income, gross receipts, net worth, sales, use, ad valorem, transfer, franchise, profits, transaction, title, capital, paid-up capital, registration, license, escheat, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, business and occupation, premium, property, real property, personal property, intangibles, inventory and merchandise, business privilege, federal highway use, commercial rent, production, windfall profits,

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alternative or add-on minimum, estimated, gains, social security, welfare, value added, environmental, workers’ compensation, customs, duties or other taxes, fees, levies, tariffs, imposts, assessments or charges of any kind whatsoever, (B) any interest, penalties, fines, additions to tax or additional amounts imposed by any Governmental Entity in connection with (1) any item described in clause (A) or (2) the failure to comply with any requirement imposed with respect to any Tax Returns, (C) any liability for payment of amounts described in clause (A) or (B) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise through operation of law, and (D) any liability for the payment of amounts described in the foregoing clause (A), (B) or (C) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other person.

(vi)“Tax Law” means any domestic or foreign, federal, state or local statute, law, ordinance, rule, code, regulation, order, writ, injunction, judgment, decree or other requirement of any Governmental Entity relating to Taxes.

(vii)“Tax Period” means any period prescribed by any Governmental Entity for which a Tax Return is required to be filed or a Tax is required to be paid.

(viii)“Tax Return” means any return, declaration, report, statement, information statement, election, notification or other written information or document filed or required to be filed with, or submitted to, a Governmental Entity with respect to Taxes, including any claims for refunds of Taxes and any schedules, attachments, amendments or supplements of any of the foregoing.

(b)(i)    Each of the Company and its subsidiaries has timely filed on or before the applicable Due Date with the appropriate Governmental Entity all Tax Returns it is required to have filed. All Tax Returns filed by the Company and its subsidiaries have been properly completed in compliance with applicable legal requirements and are true, correct and complete, and no such Tax Return contains, or was required to contain (in order to avoid a penalty, and determined without regard to the effect of post-filing disclosure), a disclosure statement under Section 6662 of the Code (or any predecessor provision or comparable provision of state, local or foreign Tax Law).

(ii)Each of the Company and its subsidiaries has timely paid all Taxes that have become due or payable (whether or not shown on a Tax Return) and has adequately reserved in the Financial Statements in accordance with GAAP for all Taxes (whether or not shown on any Tax Return) that have accrued but are not yet due or payable as of the dates thereof. The Company and its subsidiaries have no liability for Taxes (contingent or otherwise) other than (A) Taxes incurred since the Company Balance Sheet Date that are reflected as a liability in the balance sheet included in the Financial Statements as of December 31, 2012 or (B) Taxes incurred after December 31, 2012 to the extent incurred in the Ordinary Course of Business in an amount consistent with amounts paid in comparable prior periods, adjusted only to reflect Ordinary Course of Business changes in the operations of the Company and its subsidiaries.

(iii)Neither the Company nor any of its subsidiaries has nexus for any Tax purpose in any jurisdiction other than jurisdictions for which all required Tax Returns have

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been duly filed, and no claim has been made by a Governmental Entity in a jurisdiction where the Company or any of its subsidiaries does not file Tax Returns that the Company or any of such subsidiaries is or may be subject to taxation by that jurisdiction.

(iv)Section 2.13(b)(iv) of the Company Disclosure Schedule sets forth (A) a list of all U.S. federal and material state and local income Tax Returns, and all material foreign Tax Returns, filed by or on behalf of the Company or any of its subsidiaries with any jurisdiction for which the applicable statute of limitations on assessment and collection has not expired and (B) a list of all jurisdictions in which the Company or its subsidiaries will be required to file any Tax Return (and the type of Tax Return) following the Closing with respect to any Tax Period ending on or prior to the Closing or any Straddle Period. The Company has previously delivered or made available to Parent true, correct and complete copies of (1) all Tax Returns filed by or on behalf of the Company or any of its subsidiaries for which the applicable statute of limitations has not expired, (2) all audit reports, letter rulings, technical advice memoranda and similar documents issued by a Governmental Entity relating to Taxes with respect to the Company or its subsidiaries and (3) all statements of deficiencies assessed against or agreed to by the Company or its subsidiaries. No election has been made with respect to Taxes of the Company or any of its subsidiaries that is not reflected in a Tax Return previously delivered or made available to Parent.

(v)(A) There is no current, pending or, to the knowledge of the Company, threatened claim, demand, cause of action, suit, arbitration, inquiry, hearing, investigation, request for information or filings, audit, examination, disputes, proposed adjustment or proceeding (whether administrative, regulatory or otherwise, or whether oral or in writing) by any Governmental Entity with respect to Taxes relating to the Company or its subsidiaries (“Tax Claim”), (B) the Company has no knowledge that any Tax Claim is being contemplated by any Governmental Entity and (C) there are no matters under discussion between the Company or any of its subsidiaries, on the one hand, and any Governmental Entity, on the other hand, with respect to the liability of the Company or any of its subsidiaries with respect to Taxes. All deficiencies claimed, proposed or asserted or assessments made against the Company or any of its subsidiaries as a result of any Tax Claim have been fully paid or withdrawn and no rationale underlying a claim for Taxes has been asserted previously by any Governmental Entity that reasonably could be expected to be asserted in any other period.

(vi)Neither the Company nor any of its subsidiaries is or has been a party to or bound by any Tax indemnity agreement, Tax sharing agreement, Tax allocation agreement or similar contract, and neither the Company nor any of its subsidiaries is or has been a party to or bound by any offer in compromise, closing agreement, gain recognition agreement or other agreement with any Governmental Entity with respect to Taxes. No Tax ruling or Tax holiday or other Tax reduction or benefit has been applied for or received by the Company or any of its subsidiaries.

(vii)Neither the Company nor any of its subsidiaries has engaged in a transaction that constitutes a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(1) (or any analogous provision of state, foreign or local Tax Law).

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(viii)Neither the Company nor any of its subsidiaries is or has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii).

(ix)Neither the Company nor any of its subsidiaries (A) has been a member of any affiliated group that filed, or was required to file, a consolidated federal income Tax Return or a member of a combined, consolidated, unitary or similar group for state, local or foreign Tax purposes (other than any such group of which the Company was or is the common parent (a “Company Group”)) or (B) has, or will have, any liability for the Taxes of any other person (other than another member of a Company Group) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Tax Law), as a transferee or successor, by Contract, operation of law or otherwise.

(x)Neither the Company nor any of its subsidiaries will be required to (or has received any notice in writing of a proposal requiring it to) include any item of income in, or exclude any item of deduction from, taxable income for any Tax Period (or portion thereof) ending after the Close as a result of any transaction that occurred prior to the Closing Date (other than such amounts that are consistent with similar items previously reported in Tax Returns provided to Parent prior to the date hereof, adjusted solely for ordinary course changes in business operations), including (A) pursuant to Sections 481(a) or 263A of the Code (or any comparable provision of state, local or foreign Tax Law) by reason of a change in accounting method initiated by the Company or any of its subsidiaries, any transaction or event or otherwise, (B) any disposition of property in a transaction being accounted for under the installment method pursuant to Section 453 of the Code (or similar provisions of applicable Tax Law), (C) any prepaid amount received, (D) any election made or contemplated to be made on any Tax Return, including an election under Section 108(i) of the Code (or similar provisions of applicable Tax Law) or (E) any agreement with a taxing authority (including a closing agreement pursuant to Section 7121 of the Code (or similar provisions of applicable Tax Law)). Each of the Company and its subsidiaries uses the accrual method of accounting for federal income tax purposes.

(xi)None of the assets of the Company or any of its United States subsidiaries (A) is “tax-exempt use property” within the meaning of Section 168(h) of the Code, (B) is property which is required to be treated as being owned by any other person pursuant to the so-called “safe harbor lease” provisions of former Section 168(f)(8) of the Code or pursuant to any other provision of Tax Law, (C) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code or (D) is required to be or is being depreciated pursuant to the alternative depreciation system under Section 168(g)(2) of the Code.

(xii)Section 2.13(b)(xii) of the Company Disclosure Schedule sets forth, with respect to the Company and each of its subsidiaries, whether it is engaged in business, has a permanent establishment (as defined in an applicable tax treaty between the United States and such other jurisdiction) or is otherwise subject to Tax in a jurisdiction other than the United States, and identifies such jurisdiction with respect to each such entity.

(xiii)Neither the Company nor any of its subsidiaries is subject to or has filed any waiver or extension of the statute of limitations applicable to any Tax Return or the

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assessment or collection of any Tax. There are no powers of attorney in effect with respect to Taxes of the Company or any of its subsidiaries.

(xiv)Neither the Company nor any of its subsidiaries is a party to any agreement, Contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in connection with the Transactions (either alone or in combination with any other events), in the payment of any “parachute payments” within the meaning of Section 280G of the Code. There is no agreement, plan or other arrangement to which the Company or any subsidiary of the Company is a party or by which any of them is otherwise bound to compensate any person in respect of taxes or other penalties pursuant to Section 409A or 4999 of the Code.

(xv)Each of the Company and its subsidiaries has complied with all applicable Tax Laws in all material respects.

(xvi)All Taxes that the Company and its subsidiaries have been required to withhold or to collect for payment have been duly withheld and collected, and, to the extent required, have been timely paid to the appropriate Governmental Entity in compliance with all applicable legal requirements. Each of the Company and its subsidiaries has properly requested, received and retained all necessary exemption certificates and other documentation supporting any claimed exemption or waiver of Taxes on sales or other transactions as to which such entity otherwise would have been obligated to collect or withhold Taxes. The Company and its subsidiaries have complied with all information reporting and record keeping requirements under all applicable law, including retention and maintenance of required records with respect thereto, and all records kept by the Company and its subsidiaries in compliance with such law are available for inspection at the premises of the Company.

(xvii)There are no Liens for Taxes on any assets of the Company or any of its subsidiaries.

(xviii)Neither the Company nor any of its subsidiaries has distributed stock to another person, or has had its stock distributed to another person, in a transaction that purported or intended to be governed in whole or in part by Section 355 or 361 of the Code. Neither the Company nor any of its subsidiaries has in effect an election under former Section 341(f) of the Code.

(xix)Each Company Stock Option exercised (or that will be exercised) prior to the Closing Date and treated by the Company as an “incentive stock option” as such term is defined in Section 422 of the Code, qualified at all times for such treatment and was (or will be) held at the time of exercise by a person whose exercise of such Company Stock Option was (or will be) governed by Section 421(a) of the Code (determined without regard to Section 422(a)(1) of the Code). Valid elections under Section 83(b) of the Code are in effect with respect to each Share that was issued subject to forfeiture, a right of repurchase by the Company or other restriction.

(xx)Neither the Company nor any of its subsidiaries is a party to any joint venture, partnership or other arrangement or Contract that could be treated as a partnership for any applicable income Tax purposes. Section 2.13(b)(xx) of the Company Disclosure Schedule sets

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forth all elections pursuant to Treasury Regulation Section 301.7701-3 that have been made by the Company or any subsidiaries of the Company and by business entities in which the Company or any of its subsidiaries owns an equity interest. Neither the Company nor any of its subsidiaries has ever been an “S corporation” as that term is defined in the Code.

(xxi)Neither the Company nor any of its subsidiaries has (A) ever operated a barter exchange within the meaning of Section 6045(c)(1)(B) of the Code (or similar provisions of state, local or foreign Tax Law), (B) been a personal holding company under Section 542 of the Code, (C) been a shareholder of a “passive foreign investment company” within the meaning of Section 1297 of the Code or (D) participated in an international boycott within the meaning of Section 999 of the Code.

(xxii)No subsidiary of the Company is or was treated as a “surrogate foreign corporation” within the meaning of Section 7874(a)(2)(B) of the Code or as a domestic corporation by reason of Section 7874(b) of the Code. No subsidiary of the Company that was formed in a jurisdiction outside of the United States (A) has or has had any nexus with the United States, a trade or business or permanent establishment within the United States or any other connection with the United States that has subjected or could reasonably be expected to have subjected it to United States federal, state or local Tax or (B) is otherwise subject to Tax in the United States.

(xxiii)The Company and its subsidiaries have complied with all transfer pricing rules and regulations, and all documentation required by all relevant transfer pricing laws have been timely prepared and are being properly maintained. All charges for goods or services sold or provided between the Company and its subsidiaries, or between the Company’s subsidiaries, were sold or provided at arm’s-length prices in accordance with applicable transfer pricing or similar rules and regulations and are not subject to adjustment.

(xxiv)Neither the Company nor any of its subsidiaries has any items of income which could constitute subpart F income within the meaning of Section 952 of the Code. No subsidiary of the Company that is or was treated as a “controlled foreign corporation” as defined in Section 957 of the Code holds or held assets that constitute “United States property” within the meaning of Section 956 of the Code.

(c)Each Employee Plan that is a nonqualified deferred compensation plan (as defined under Section 409A of the Code) satisfies the applicable requirements of Sections 409A(a)(2), (3), and (4) of the Code, and has, since January 1, 2008, been operated in good-faith compliance with Sections 409A(a)(2), (3), and (4) of the Code. Each Company Stock Option has and has always had an exercise price that was equal to or greater than the fair market value of the underlying equity as of the date such Company Stock Option was granted, as determined for purposes of Section 409A of the Code.

(d)Neither the Company nor any subsidiary of the Company is liable or has any obligation, in any jurisdiction, for any Taxes of any current or former employee or consultant, or any former subsidiary, of the Company or any subsidiary of the Company.

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Section 2.14Intellectual Property.

(a)Certain Definitions. For purposes of this Agreement:

(i)“Business” means any and all of the business, operations and activities of the Company and its subsidiaries as previously or currently conducted and as currently proposed to be conducted by the Company and its subsidiaries, including those relating to the manufacture, use, sale, license, distribution, development, testing, marketing, support, maintenance and other exploitation of the Products and those relating to any business plans, development plans, project plans or product road maps of the Company and its subsidiaries;

(ii)“Company IPR” means any and all IPR (A) that the Company or any of its subsidiaries purport to own or has held itself out as owning; (B) for which any application, certificate, registration or grant has been made or issued in the name of the Company or any subsidiary; (C) for which the Company or any subsidiary has obtained or recorded, or has the right to obtain or record, any assignment, grant or conveyance of any ownership rights to the Company or any subsidiary; (D) that was authored, conceived, developed, created, invented or reduced to practice by any employee in the course or scope of employment by the Company or any subsidiary; (E) that was authored, conceived, developed, created, invented or reduced to practice by any independent contractor of the Company or any subsidiary in the course of performing services for the Company or any subsidiary other than any Company Licensed IPR; or (F) that materially relates to the Business and was authored, conceived, developed, created, invented or reduced to practice by any person involved in the formation of the Company or any subsidiary or other person involved in the development of any IPR, products or plans for the Business, other than Company Licensed IPR;

(iii)“Company IP Cores” means all of the IP Cores used in connection with the Business;

(iv)“Company Licensed IPR” means any and all IPR that is licensed to the Company or any subsidiary of the Company pursuant to an Inbound License Agreement;

(v)“Company Software” means all of the Software used or exploited by the Company or any subsidiary of the Company in connection with the Business, other than Software licensed to the Company or any subsidiary of the Company under the Inbound License Agreements;

(vi)“Inbound License Agreement” means any agreement granting to the Company or any of its subsidiaries any license, covenant not to sue or other right under or with respect to any IPR or Software that is currently in effect;

(vii)“Intellectual Property Rights” or “IPR” means any and all rights throughout the world in, arising from or associated with any of the following, whether protected, created or arising under the laws of the United States or any other jurisdiction: (A) trade names, trademarks and service marks (registered and unregistered), domain names and other Internet addresses or identifiers, trade dress and similar rights and applications (including intent to use applications) to register any of the foregoing (collectively, “Trademarks”); (B) all classes or types

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of patents, including utility patents, utility models, design patents, provisional patents, invention certificates, and other government grants for the protection of inventions and all reexaminations, reissues, extensions, renewals, applications and rights to file applications for any of the foregoing (collectively, “Patents”); (C) copyrights, design rights, other rights in works of authorship and registrations and applications for any of the foregoing (collectively, “Copyrights”); (D) trade secrets and all other know-how, inventions, discoveries, improvements, concepts, ideas, methods, processes, designs, schematics, drawings, formulae, technical data, specifications, research and development information, technology, algorithms, models, methodologies, databases, designs and other information that derive economic value (actual or potential) from not being generally known to the public (but excluding any Copyrights or Patents for any of the foregoing covered under clause (B) or (C) above) (collectively, “Trade Secrets”); (E) mask work and similar rights protecting integrated circuit or chip topographies or designs (collectively, “Mask Works”); (F) all rights in databases and data collections (including knowledge databases and customer information); (G) moral rights, publicity rights and any other proprietary, intellectual, industrial property or information rights of any kind not otherwise covered under clauses (A) through (F) above; and (H) all goodwill associated with any of the foregoing;

(viii)“IP Core” means a product in electronic format that represents an integrated circuit function that can be instantiated in an integrated circuit design, including the circuits and modules of such integrated circuit design(s) and associated firmware, application programming interfaces, Software drivers, application-specific Software and all register transfer language (RTL), verilog and other source materials to instantiate, modify, support and maintain any of the foregoing. An IP Core may be a soft core, synthesizable using conventional design tools, or a hard core, in a non-synthesizable format suitable only for implementation in a specific manufacturing process;

(ix)“Open Source License” means any license whose terms require the distribution of source code in connection with the distribution of the Software to which such license applies or that prohibit the licensee from charging a fee or otherwise limit the licensee’s freedom of action with regard to seeking compensation in connection with sublicensing or distributing the Software to which such license applies (whether in source code or executable code form), including the Artistic License, the Mozilla Public License, the GPL or the LGPL or any license that applies to “open source”, “freeware”, “shareware” or other freely available public Software;

(x)“Open Source Software” means any “open source”, “freeware”, “shareware” or other freely available public Software, including any Software that is licensed under the Artistic License, the Mozilla Public License, the GPL, the LGPL or any other Open Source License;

(xi)“Outbound License Agreement” means any agreement granting to any Third Party any license, covenant not to sue or other right under or with respect to any Company IPR or under which the Company or any subsidiary of the Company grants, purports to grant or has any obligation to grant any license, covenant not to sue or other right under or with respect to any IPR or Software;

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(xii)“Products” means: (A) any and all IP Cores, Software, product and service offerings of the Company and any of its subsidiaries, including those under development and any other subject matter that embodies or is protected by Company IPR that is licensed or otherwise made available to a customer of the Company or any of its subsidiaries; (B) all documentation associated with any of the foregoing; (C) all versions of any of the foregoing, including prior releases, alpha and beta test versions, new versions or portions thereof currently under development; and (D) all designs, packaging, displays, and training materials associated with any of the foregoing. Clauses (A), (B) and (C) are collectively referred to as “Product Offerings”;

(xiii)“Software” means (A) computer software and code, including any and all software implementations of algorithms, models and methodologies, assemblers, scripts, macros, applets, compilers, source code and executable code; development tools, design tools and user interfaces, in any form or format, however fixed; (B) databases and compilations, including any and all data (including image and sound data), integrated circuit designs, databases, cells and libraries and collections of data, whether machine readable or otherwise; (C) descriptions, flowcharts and other work product used to design, plan, organize and develop any of the foregoing; and (D) all documentation, including user manuals and training materials, relating to any of the foregoing;

(xiv)“Standard Commercial Software” means generally available standard commercial software applications used generally in the Company’s or any of its subsidiaries’ internal business operations pursuant to “shrink wrap or “click through” licenses on terms that have not been negotiated, in each case, for aggregate fees no greater than $10,000; and

(xv)“Third Party” means, solely for purposes of this Section 2.14, any person other than the Company and any subsidiary of the Company.

(b)Scheduled Intellectual Property Rights.

(i)Company Registered IPR. Section 2.14(b)(i) of the Company Disclosure Schedule sets forth an accurate and complete list of any and all of the following Company IPR or IPR exclusively licensed to the Company or any of its subsidiaries: (A) Patents and Patent applications (including provisional applications); (B) registered Trademarks and applications for registration of Trademarks, including intent-to-use applications and other registrations or applications related to Trademarks; (C) registered Copyrights and applications for registration of Copyrights; (D) registered Mask Works and applications for registration of Mask Works; and (E) other Company IPR that is or was subject to any United States, international or foreign application, registration, certificate, filing, grant or other document issued, filed with or recorded by any Governmental Entity (collectively, (A) through (E), “Company Registered IPR”). For each item of Company Registered IPR, Section 2.14(b)(i) of the Company Disclosure Schedule sets forth (1) the title, application serial number, registration number, filing date, issue date (if issued) and other appropriate identifying information; (2) current status of such Company Registered IPR; and (3) an accurate and complete description of any and all ownership or exclusive license rights of the Company or any of its subsidiaries or any Third Party with respect to such Company Registered IPR, including joint ownership rights and rights of enforcement.

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(ii)Inbound License Agreements. Section 2.14(b)(ii) of the Company Disclosure Schedule sets forth an accurate and complete list of any and all Inbound License Agreements, other than (A) licenses for Standard Commercial Software or (B) licenses where the total amount payable thereunder does not exceed $10,000. For each Inbound License Agreement listed, Section 2.14(b)(ii) of the Company Disclosure Schedule sets forth the title, parties and effective date of such Inbound License Agreement and any amendment thereof.

(iii)Products. Section 2.14(b)(iii) of the Company Disclosure Schedule sets forth an accurate and complete list of all current Product Offerings of the Company and its subsidiaries. For each Product Offering, Section 2.14(b)(iii) of the Company Disclosure Schedule sets forth a complete and accurate list of (A) any export licenses, export classification numbers, permits, certifications or other approvals of any Governmental Entity, university or industry testing lab or certification authority with respect to such Product Offerings; (B) any Company Licensed IPR used in such Product Offerings; and (C) operating system environments and hardware platforms supported by such Product Offerings.

(iv)Other Company IPR. Section 2.14(b)(iv) of the Company Disclosure Schedule sets forth an accurate and complete list identifying all invention disclosures that constitute Company IPR and are not the subject of any Company Registered IPR listed pursuant to Section 2.14(b)(i).

(v)Outbound License Agreements. Section 2.14(b)(v) of the Company Disclosure Schedule sets forth a complete and accurate list of all Outbound License Agreements, excluding non-exclusive licenses granted by the Company or any of its subsidiaries to customers that have purchased or licensed Products for which all of the following are true: (A) the total license and service fees payable to the Company or any of its subsidiaries with respect to such Outbound License Agreement since January 1, 2008 did not exceed $400,000; (B) the total license and service fees payable to the Company or any of its subsidiaries with respect to such Outbound License Agreement since January 1, 2012 did not exceed $75,000; and (C) the total royalty fees payable to the Company or any of its subsidiaries with respect to such Outbound License Agreement since January 1, 2008 did not exceed $400,000. For each Outbound License Agreement listed, Section 2.14(b)(v) of the Company Disclosure Schedule sets forth the title, parties and effective date of such Outbound License Agreement, a complete and accurate copy of which has been made available to Parent. The Third Parties that are counterparties to the Contracts set forth in Section 2.14(b)(v) of the Company Disclosure Schedule contributed (1) license and service revenue that represents at least (x) 85% of the total revenue of the Company and its subsidiaries since January 1, 2012 and (y) 90% of the total revenue of the Company and its subsidiaries for the first quarter of 2013 and (2) royalty revenue that represents at least 90% of the total royalty revenue of the Company and its subsidiaries for the period January 1, 2008 through December 31, 2012. Each Third Party to which the Company or any subsidiary of the Company has distributed, licensed or otherwise made available any Product or Software has executed and delivered to the Company or a subsidiary of the Company a written license agreement or, in the case of any Product or Software made available solely in object code form, is legally bound by a “click-through agreement” setting forth the terms and conditions applicable to such Third Party’s use of such Product or Software.

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(c)Intellectual Property Rights.

(i)Ownership. The Company (or a subsidiary of the Company) owns exclusively all right, title and interest in and to all of the Company IPR free and clear of any and all Liens, and all such Company IPR is fully transferable, alienable and licensable by the Company (or such subsidiary) and shall be fully transferable, alienable and licensable by the Surviving Corporation on and immediately after the Closing, and by Parent, Holdings or any affiliate of Parent or Holdings on and after any subsequent merger of the Surviving Corporation into Parent, Holdings or any affiliate of Parent or Holdings. Upon the Closing, the Surviving Corporation shall succeed to all of the Company IPR and, except as a result of any agreements or obligations of Parent existing immediately prior to the Closing, all of such rights shall be exercisable by the Surviving Corporation, and by Parent, Holdings or any affiliate of Parent or Holdings on and after any subsequent merger of the Surviving Corporation into Parent, Holdings or any affiliate of Parent or Holdings, to the same extent as by the Company (or a subsidiary of the Company) prior to the Closing. The Company and its subsidiaries have not transferred ownership of, or granted any exclusive license with respect to, any Company IPR or IPR that was, at the time of transfer, owned by the Company or a subsidiary of the Company. No loss or expiration of any material Company IPR is pending or reasonably foreseeable or, to the knowledge of the Company, threatened. Section 2.14(c)(i) of the Company Disclosure Schedule sets forth, for all Company IPR for which ownership rights were acquired by the Company or any subsidiary of the Company from a Third Party (other than any consultant or contractor engaged by the Company or any subsidiary of the Company), (A) a description of such Company IPR, (B) the identity of the Third Party from which such Company IPR was acquired and (C) the name and date of the agreement under which such Company IPR was acquired.

(ii)Company Licensed IPR. All of the Company’s and its subsidiaries’ rights and licenses under the Inbound License Agreements are valid and the Company’s and its subsidiaries’ rights and licenses are enforceable and are free and clear of any and all Liens. Except as set forth on Section 2.14(c)(ii) of the Company Disclosure Schedule, the Company Licensed IPR shall be exercisable by the Surviving Corporation on and after the Closing, and by Parent, Holdings or any affiliate of Parent or Holdings on and after any subsequent merger of the Surviving Corporation into Parent, Holdings or any affiliate of Parent or Holdings, to the same extent as by the Company and its subsidiaries prior to the Closing. No loss or expiration of any material Intellectual Property Rights or Software licensed to the Company or its subsidiaries under any Inbound License Agreement is pending or reasonably foreseeable or, to the knowledge of the Company, threatened. No licensor or other Third Party under any Inbound License Agreement has any ownership or exclusive license rights in or with respect to any improvements, enhancements, modifications or derivative works made by or for the Company or any of its subsidiaries to the Intellectual Property Rights or Software licensed thereunder.

(iii)No Challenges to Ownership or Licenses. Neither the Company nor any of its subsidiaries has received any written notice or claim, or, in the past five years, any oral or other notice or claim (A) challenging the Company’s or any subsidiary of the Company’s ownership of the Company IPR (in whole or in part) or Company Software or asserting that any Third Party has any claim of legal or beneficial ownership with respect thereto; or (B) except as set forth on Section 2.14(c)(iii)(B) of the Company Disclosure Schedule, challenging any license,

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exclusivity or other rights of the Company or any subsidiary of the Company under any Inbound License Agreement, including any rights granted to Company or any subsidiary of the Company thereunder with respect to any Company Licensed IPR or Software. To the knowledge of the Company, there is no reasonable basis for any such challenge or claim that the Company or any subsidiary of the Company does not own the Company IPR or continue to hold and have the right to exercise any such license, exclusivity or other rights granted under any Inbound License Agreement.

(iv)Company Registered IPR.

(A)All Company Registered IPR has been: (1) registered or obtained in accordance with all applicable legal requirements, and is currently in full force and effect; or (2) in the case of patent applications and trademark registration applications, filed and is currently pending in accordance with all applicable legal requirements. The Company (or a subsidiary of the Company) is the exclusive owner and record holder of title of each item of Company Registered IPR by virtue of written assignments to the Company (or such subsidiary of the Company) that have been duly executed and properly and timely recorded with the applicable Governmental Entities. The Company (or such subsidiary of the Company) has timely paid all filing, examination, issuance, post registration and maintenance fees, annuities and the like associated with or required with respect to any of the Company Registered IPR.

(B)To the knowledge of the Company, all Patents, registered Trademarks, registered Copyrights and registered Mask Works included in the Company Registered IPR are valid and enforceable. Neither the Company nor any of its subsidiaries has received any notice or claim challenging or questioning the validity or enforceability or alleging the misuse of any of the Company Registered IPR. Neither the Company nor any of its subsidiaries has taken any action or failed to take any action, which action or failure reasonably could be expected to result in the unintentional abandonment, cancellation, forfeiture, relinquishment, invalidation or unenforceability of any of the Company Registered IPR. Neither the Company nor any subsidiary of the Company has committed any illegal tying, illegal term extension, misuse, other illegal anti-competition activities, laches, estoppel, waiver, inequitable conduct in violation of 35 C.F.R. 1.56 or other similar law, in each case, that, if litigated, may result in the unenforceability or invalidity of any Company Registered IPR. All Trademarks that are Company Registered IPR have been continuously used in the form appearing in, and in connection with, the goods and services listed in their respective registration certificates and applications thereof, respectively.

(C)Except as set forth on Section 2.14(c)(iv)(C) of the Company Disclosure Schedule, no Company Registered IPR has been or is now involved in any interference, reissue, reexamination, entitlement action, opposition, cancellation, litigation, arbitration or similar proceeding and, to the knowledge of the Company, no such action is or has been threatened with respect to any of the Company Registered IPR and, to the knowledge of the Company, there is no Third Party IPR that, if an appropriate proceeding were commenced, would be interfering with or render invalid or unenforceable any Company Registered IPR.

(D)There are no actions that must be taken within 120 days of the Closing Date, including the payment of any registration, maintenance or renewal fees or the

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filing of any responses to office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any Company Registered IPR. Neither the Company nor any of its subsidiaries has claimed any status in the application for or registration of Company Registered IPR, including “small business status,” that would not be applicable to the Company, its subsidiaries or to the Surviving Corporation on or after the Closing Date, or to Parent or Holdings.

(v)Actions to Protect Intellectual Property Rights. Each of the Company and its subsidiaries has taken reasonable steps to protect its rights in the Company IPR and the Company Licensed IPR and maintain the confidentiality of all information that constitutes or at any time constituted a Trade Secret of the Company or a subsidiary of the Company (other than information that lost its status as a Trade Secret through the issuance by the Company of, or publication of, Patents or applications therefor). Without limiting the foregoing, (A) all current and former employees, consultants and contractors of the Company or any subsidiary of the Company have executed and delivered written proprietary information, confidentiality and assignment agreements substantially in the Company’s standard form (which has previously been made available to Parent) and (B) all IPR created or developed by any such current and former employees, consultants and contractors in the course or scope of their employment or engagement by the Company or any subsidiary of the Company (including any inventions that are the subject of any Patents that are included in the Company Registered IPR) has been assigned to, and is vested exclusively in, the Company or a subsidiary of the Company pursuant to such written agreements.

(vi)No Infringement or Unauthorized Use by the Company. None of the Products, nor any other activities or operations of the Company or any subsidiary of the Company, have infringed upon, misappropriated, violated, diluted or constituted the unauthorized use of, or do infringe upon, misappropriate, violate, dilute or constitute the unauthorized use of, any Intellectual Property Rights of any Third Party. Neither the Company nor any of its subsidiaries has received any written notice or claim, or, in the past five years, any oral or other notice or claim asserting or suggesting that any such infringement, misappropriation, violation, dilution, unauthorized use is or may be occurring or has or may have occurred, including any notice requesting or suggesting that the Company or any of its subsidiaries consider entering into a license of a patent owned by a Third Party, nor, to the knowledge of the Company, is there any reasonable basis therefor.

(vii)No Infringement or Violations by Third Parties. To the knowledge of the Company, no Third Party is misappropriating, infringing, diluting, using without authorization or violating any Company IPR or any Company Licensed IPR exclusively licensed to the Company or any subsidiary of the Company.

(viii)IP Cores and Software.

(A)The Company IP Cores and Company Software were either: (1) developed by employees of the Company or its subsidiaries within the scope of their employment as their original work product who have expressly assigned all their rights to the Company or a subsidiary of the Company pursuant to written agreements; (2) developed by independent contractors who have expressly assigned all their rights to the Company or a subsidiary of the Company pursuant to written agreements; or (3) otherwise acquired by the Company or a subsidiary

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of the Company from a Third Party pursuant to a written agreement in which all of the ownership rights therein were expressly assigned to the Company or a subsidiary of the Company.

(B)None of the Company IP Cores or Company Software incorporates any Software, other technology or IPR of any university or academic institution.

(C)Copies of the Company Software have been provided to and retained by Third Parties solely under non-exclusive license terms, and the Company or one of its subsidiaries has retained title to and ownership of all copies, modifications and derivative works of the Company Software.

(D)Section 2.14(c)(viii)(D) of the Company Disclosure Schedule sets forth a true and complete list of all source code of any Company Software that has been licensed or otherwise provided to any Third Party, and includes a description of the agreements whereby such source code was licensed to such Third Parties. All source code of any Company Software has been and remains safeguarded and protected as Trade Secrets of the Company or its subsidiaries.

(ix)No Orders or Decrees. No Product, Company IPR or Company Licensed IPR is subject to any outstanding order, judgment, decree, or stipulation restricting the use thereof by the Company or any of its subsidiaries or, in the case of any Intellectual Property Rights or Products licensed to others, restricting the sale, transfer, assignment or licensing thereof by the Company or any of its subsidiaries to any person or entity.

(x)Open Source.

(A)Except as set forth on Section 2.14(c)(x)(A) of the Company Disclosure Schedule, none of the Product Offerings, in whole or in part, incorporates or is distributed with any Open Source Software.

(B)None of the Product Offerings, in whole or in part, statically links with any Open Source Software.

(C)Each of the Company and its subsidiaries has complied in all material respects with the terms of the Open Source Licenses applicable to any Open Source Software that the Company or any of its subsidiaries has used in its Business.

(D)None of the Product Offerings is required to be distributed in source code form, is subject to restrictions on charging a fee in connection with its distribution, or is required to be licensed under any Open Source License as a result of intermingling, integration, linking or use by the Company or its subsidiaries of proprietary code contained in the Product Offerings with any Open Source Software and/or the distribution thereof.

(xi)Performance of Products. Each of the Product Offerings of the Company or its subsidiaries performs in all material respects, free of significant bugs or programming errors, in compliance with the functions, performance and other requirements described in any warranty, published specifications or end user documentation or other information

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provided to customers of the Company or any subsidiary of the Company acquiring such Product Offerings.

(xii)Disabling Code and Contaminants. Except as described on Section 2.14(c)(xii) of the Company Disclosure Schedule, the Company Software is free of any disabling codes or instructions (a “Disabling Code”), and any virus or other intentionally created, undocumented contaminant (a “Contaminant”) that may, or may be used to, access, modify, delete, damage or disable any Systems or that may result in material damage thereto. Each of the Company and its subsidiaries has taken reasonable steps and implemented reasonable procedures to ensure that its internal computer systems used in connection with the Business (consisting of hardware, software, databases or embedded control systems, “Systems”) are free from Disabling Codes and Contaminants. To the knowledge of the Company, the Software licensed by the Company or any of its subsidiaries from Third Parties is free of any Disabling Codes or Contaminants that may, or may be used to, access, modify, delete, damage or disable any of the Systems or that might result in material damage thereto. Each of the Company and its subsidiaries has taken reasonable steps to safeguard their respective Systems and restrict unauthorized access thereto. To the knowledge of the Company, there have been no unauthorized intrusions or breaches of the security of any Systems.

(xiii)Standards Bodies and Obligations. Except as described in Section 2.14(c)(xiii)(A) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has contributed or licensed, or agreed to contribute or license, any Software or IPR to or through any standards body, standard setting organization, industry consortium, patent or licensing pool, Governmental Entity, or other industry group or consortium (each, a “Standards Body”). Except as described in Section 2.14(c)(xiii)(B) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is a member of any Standards Body or has participated in the development or approval of any standards or specifications proposed or established by any Standards Body. Neither the Company nor any subsidiary of the Company has agreed to dedicate any Software or IPR to the public, to make generally available any licenses to any Software or IPR, or to make any licenses available on a royalty free basis or on fair, reasonable or non-discriminatory terms in connection with any Standards Body or otherwise.

(xiv)Funding and Facilities. No funding or facilities of any Governmental Entity, or funding or facilities of a university, college, other educational or academic institution or research center, was used in the development of the Company Software or Company IPR. No current or former employee, consultant or independent contractor of the Company or any subsidiary of the Company, who was involved in, or who contributed to, the creation or development of any Company Software or Company IPR, has performed services for any Governmental Entity, a university, college, or other educational institution, or a research center, during a period of time during which such employee, consultant or independent contractor was also performing services for the Company or any subsidiary of the Company.

(xv)Restrictions on Employees. To the knowledge of the Company, no employee, consultant or independent contractor of the Company or any of its subsidiaries is obligated under any agreement, or subject to any judgment, decree or order of any court or administrative

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agency, or any other restriction, that would or may interfere with such employee, consultant or contractor carrying out his or her duties for the Company or any subsidiary of the Company or that would conflict with the conduct of the Business. To the knowledge of the Company, the Company and its subsidiaries are not utilizing, nor will it be necessary for the Company or any of its subsidiaries to utilize, any inventions of any employees, consultants or contractors of the Company or any subsidiary (or persons the Company currently intends to hire or engage) made, or any confidential information (including Trade Secrets) of any Third Party to which such employees, consultants or contractors were exposed, prior to their employment or engagement by the Company or any subsidiary of the Company.

(xvi)Payments to Third Parties. Except as expressly set forth in the Inbound License Agreements, neither the Company nor any subsidiary of the Company is, and the Surviving Corporation, and Parent, Holdings or any affiliate of Parent or Holdings after any subsequent merger of the Surviving Corporation into Parent, Holdings or any affiliate of Parent or Holdings, shall not be, required to make or accrue any royalty or other payment to any Third Party in connection with any of the Product Offerings.

(xvii)No Violations by the Company. None of the Products, nor any other activities or operations of the Business, constitute unfair competition or trade practices under the laws of any jurisdiction or violate any other applicable law. Neither the Company nor any subsidiary of the Company has received in the past five years any written or oral notice or claim to an officer of the Company asserting that any such unfair competition or trade practices are or may be occurring or have or may have occurred, and, to the knowledge of the Company, there is not any reasonable basis therefor.

(xviii)Export Compliance. Neither the Company nor any of its subsidiaries has exported or transmitted any Product, Software, IPR or other materials in connection with the Business or otherwise to any country or to any person to which such export or transmission is restricted by any applicable law, without first having obtained all necessary and appropriate United States and foreign government licenses or permits.

(xix)Springing Rights. Neither Parent, Holdings nor the Surviving Corporation nor any of their subsidiaries or affiliates will be obligated to grant to any Third Party any right to, or any right with respect to, any Intellectual Property Rights or Software owned by, or licensed to, Parent, Holdings or the Surviving Corporation or any of their subsidiaries or affiliates, as a result of this Agreement, the other Transaction Agreements or the consummation of the Transactions.

(xx)License-Back Rights. Except as set forth on Section 2.14(c)(xx) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has granted to a Third Party ownership rights to modifications of Company IPR without obtaining a license back to, or a covenant by such Third Party not to assert an infringement claim or similar challenge against the Company with respect to, such modifications.

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Section 2.15Material Contracts.

(a)Section 2.15(a) of the Company Disclosure Schedule sets forth a complete and accurate list of all written or oral contracts, agreements, options, leases, licenses, sales and purchase orders, warranties, guarantees, covenants, obligations, commitments and other instruments of any kind (each a “Contract”), to which the Company or any subsidiary of the Company is a party or to which the Company or any subsidiary of the Company is otherwise bound, as follows (each a “Material Contract” and, collectively with the Inbound License Agreements, the Outbound License Agreements and any Contract that would be responsive to Section 2.15(c), the “Material Contracts”):

(i)each Contract of the Company or a subsidiary of the Company pursuant to which the Company or a subsidiary of the Company (A) received (or was entitled to receive) in excess of $75,000 in the 12-month period ended December 31, 2012 or (B) paid (or was purportedly obligated to pay) in excess of $50,000 in the 12-month period ended December 31, 2012;

(ii)each Contract that requires payment by or to the Company or any of its subsidiaries after December 31, 2012 of more than $50,000;

(iii)each Contract (and the applicable provision therein) that contains any non-competition restrictions, including restrictions relating to the conduct of the business of the Company or any of its subsidiaries, the sale of the Company’s or any of its subsidiaries’ products or geographic restrictions, in any case that would, after the Effective Time, prohibit or restrict in any way Parent, Holdings or any of their subsidiaries or affiliates (including the Company or any of its subsidiaries) from conducting the business of the Company or any of its subsidiaries as presently conducted or that would require any consent or other action by any person in connection with the Transactions;

(iv)each Contract that will be subject to default, termination, repricing or other renegotiation, or cancellation because of, the Transactions;

(v)each Contract relating to the Company’s or any of its subsidiaries’ channel sales partners and distributors;

(vi)each Contract relating to indebtedness for borrowed money or the deferred purchase price of property (whether incurred, assumed, guaranteed or secured by any asset);

(vii)each partnership or joint venture agreement directly affecting the Company or any of its subsidiaries;

(viii)each Contract that requires the Company or any of its subsidiaries to grant “most favored customer” pricing to any other person;

(ix)each Contract that results in any person holding a power of attorney from the Company or any of its subsidiaries or that relates to the Company or any of its subsidiaries;

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(x)each Contract including any assignment of material Intellectual Property Rights in the last 12 months, other than employee invention assignment agreements;

(xi)each Contract limiting the Company’s or any of its subsidiaries’ rights to use or enforce Intellectual Property Rights owned by the Company or any of its subsidiaries, including covenants not to sue or co-existence agreements, but excluding any commercially reasonable provisions to the extent exclusively relating to alternative dispute resolution or forum; and

(xii)each other Contract that is material to the Company and its subsidiaries, taken as a whole, and is not otherwise disclosed in the Company Disclosure Schedule pursuant to any other section or subsection of this Article 2.

(b)Each Material Contract is a legal, valid and binding obligation of the Company or its subsidiary(ies) party thereto and, to the Company’s knowledge, each other person who is a party thereto, enforceable against the Company or such subsidiary and each such person in accordance with its terms, and neither the Company nor any of its subsidiaries nor, to the Company’s knowledge, any other party thereto is in material default thereunder. Each Material Contract will continue to be in full force and effect on identical terms immediately following the Closing Date. Except for those Material Contracts set forth on Section 2.14(b)(i) of the Company Disclosure Schedule, no Material Contract requires the consent of any person to prevent a breach of, a default under, or a termination, change in the terms or conditions or modification of, any Material Contract as a result of the consummation of the Transactions. None of the Company or any of its subsidiaries or, to the knowledge of the Company, any other party is in material breach or violation of, or (with or without notice or lapse of time or both) material default under, any Material Contract, nor has the Company or any of its subsidiaries received any claim, demand, action, cause of action, suit, dispute, proceeding, assessment, arbitration, audit, hearing, investigation or inquiry (a “Claim”) of any such breach, violation or default. To the knowledge of the Company, no event has occurred or circumstance exists which would result in a material breach or violation of, or a material default under, any Material Contract (in each case, with or without notice or lapse of time or both). No written notice of any Claim of default under any Material Contract has been given to the Company or any of its subsidiaries. No party to any Material Contract has delivered to the Company or any of its subsidiaries written notice, and no member of the Company’s senior management team has actual knowledge, that such party intends to terminate or amend the terms thereof or to refuse to renew any such Material Contract upon expiration of its term. The Company and its subsidiaries are not currently paying liquidated damages in lieu of performance under any Material Contract. The Company and its subsidiaries have not assigned, delegated or otherwise transferred to any person any of their rights, title or interest under any Material Contract. Neither the Company nor any of its subsidiaries is party to or is otherwise bound by any oral Material Contracts.

(c)Except as set forth in Section 2.15(c) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is a party to or is otherwise bound by:

(i)any fidelity or surety bond or completion bond;

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(ii)any Contract providing for liquidated damages upon failure of the Company or any of its subsidiaries to meet performance or quality milestones;

(iii)any lease of personal property having a value individually in excess of $50,000;

(iv)any Contract of indemnification with respect to any of the Product Offerings (other than an agreement substantially on the Company’s unmodified form of standard customer agreement, the forms of which have been made available to Parent);

(v)any Contract of warrant or guaranty with respect to any of the Product Offerings (other than an agreement substantially on the terms of the Company’s forms of standard customer agreement, the forms of which have been made available to Parent);

(vi)any Contract obligating any of the Company or its subsidiaries to pay capital expenditures in excess of $50,000 after January 1, 2012;

(vii)any Contract relating to the disposition or acquisition of assets, property or any interest in any business enterprise outside the Ordinary Course of Business of the Company and its subsidiaries;

(viii)any mortgage, indenture, loan or credit agreement, security agreement or other Contract or instrument relating to the borrowing of money or extension of credit;

(ix)any Contract for the purchase of raw materials or related services, including any construction contract, involving in excess of $50,000;

(x)any distribution, joint marketing or development agreement;

(xi)any development Contract with respect to any of the Product Offerings, involving in excess of $50,000;

(xii)any Contract, covenant, obligation or other instrument providing for the payment of any dividends, profit sharing distributions or other distributions by the Company or any of its subsidiaries;

(xiii)any Contract with any Governmental Entity; or

(xiv)any other Contract not disclosed in Section 2.15 of the Company Disclosure Schedule that involves $50,000 or more or is not cancelable without penalty upon notice of 30 days or less.

Section 2.16Title to Properties; Absence of Liens and Encumbrances.

(a)Neither the Company nor any of its subsidiaries owns any real property, or has ever owned any real property. Section 2.16(a) of the Company Disclosure Schedule sets forth a complete and accurate list of all real property currently leased or subleased by the Company or

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any of its subsidiaries including (i) the name of the lessor, (ii) the amount of any security deposit held by the lessor, (iii) the date and a brief description of the lease, (iv) the title of the lease, (v) any sublease or assignment of the lease, (vi) any guaranty given (including a letter of credit) or leasing commissions payable by the Company or any of its subsidiaries in connection therewith (collectively, the “Lease Documents”) and each amendment to any of the foregoing, and (vii) the name of the lessee. True, correct, and complete copies of all Lease Documents have been made available to Parent. All such current leases and subleases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases or subleases, any existing material default or event of default (or event which, with notice or lapse of time, or both, would constitute a default) by the Company or any of its subsidiaries or, to the knowledge of the Company, by the other party to such lease or sublease, or person in the chain of title to such leased premises.

(b)Each of the Company and its subsidiaries has good and valid title to, or, in the case of leased properties and assets, valid leasehold or subleasehold interests in, all of its properties and assets, tangible and intangible, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except for such imperfections of title, if any, that do not materially interfere with the present value of the subject property. For purposes of this Section 2.16 only, the terms “property” and “assets” do not include Intellectual Property Rights.

(c)All tangible assets owned or leased by the Company or its subsidiaries have been maintained in all material respects in accordance with generally accepted industry practice, are in all material respects in good operating condition and repair, ordinary wear and tear excepted, and are adequate for the uses to which they are being put.

Section 2.17Insurance. Section 2.17 of the Company Disclosure Schedule sets forth a complete and accurate list of all insurance Contracts entered into by the Company and any of its subsidiaries. Each of the Company and its subsidiaries maintains insurance policies against all risks of a character and in such amounts as are usually insured against by similarly situated companies in the same or similar businesses (collectively, the “Insurance Policies”). Each Insurance Policy is in full force and effect and is valid, outstanding and enforceable, and all premiums due thereon have been paid in full or, if such amounts are not yet due and payable, reserved by the Company or its applicable subsidiary in accordance with GAAP on the Company’s balance sheet at December 31, 2012. To the knowledge of the Company, there are no threatened cancellations, terminations, or reductions of coverage of, or material premium increases with respect to, any such Insurance Policy. None of the Insurance Policies will terminate or lapse (or be affected in any other materially adverse manner) by reason of the execution and delivery of this Agreement or consummation of any of the Transactions. Each of the Company and its subsidiaries has complied in all material respects with the provisions of each Insurance Policy under which it is the insured party. No insurer under any Insurance Policy has cancelled or generally disclaimed liability under any such policy or, to the knowledge of the Company, indicated any intent to do so or not to renew any such policy. Each claim of the Company or any of its subsidiaries under the Insurance Policies for amounts exceeding $50,000 have been filed in a timely fashion.

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Section 2.18Certain Business Practices.

(a)The Company, its subsidiaries and their respective directors, officers, consultants, agents and employees have at all times fully complied with, and are currently in full compliance with, the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), any similar applicable law of any non-U.S. jurisdiction, or any applicable law that prohibits providing a thing of value to improperly influence government officials (collectively, the “Anti-Corruption Laws”).

(b)Neither the Company nor any of its subsidiaries or affiliates, nor any of their respective directors, officers, other employees, agents, distributors, consultants, representatives or affiliates, or other persons acting on behalf of the Company or any of its subsidiaries or affiliates (each, a “Company Representative”), has taken any action, either directly or indirectly, that would result in a violation of the Anti-Corruption Laws, including making, offering, authorizing, or promising any payment, contribution, gift, entertainment, bribe, rebate, kickback, or any other thing of value, regardless of form or amount, to any (i) foreign or domestic government official or employee, (ii) employee of a foreign or domestic government-owned or government-controlled entity, (iii) foreign or domestic political party, political official, or candidate for political office, or (iv) any officer or employee of a public international organization, to obtain a competitive advantage, to receive favorable treatment in obtaining or retaining business, or to compensate for favorable treatment already secured.

(c)Each of the Company and each of its subsidiaries has at all times made and kept, and currently makes and keeps, books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the respective assets of the Company and each such subsidiary.

(d)Neither the Company nor any of its subsidiaries, nor, to the knowledge of the Company, any Company Representative, is, or has been, under administrative, civil, or criminal investigation, indictment, information, suspension, debarment, or audit (other than a routine contract audit) by any party, in connection with alleged or possible violations of the Anti-Corruption Laws or has received a whistleblower report of such alleged or possible violations. Neither the Company nor any of its subsidiaries, nor, to the knowledge of the Company, any Company Representative, has received notice from, or made a voluntary disclosure to, the U.S. Department of Justice or the U.S. Securities and Exchange Commission regarding alleged or possible violations of the Anti-Corruption Laws.

Section 2.19Warranties. Section 2.19 of the Company Disclosure Schedule sets forth complete and accurate summaries of the written warranties and guaranties by each of the Company and its subsidiaries utilized with respect to their respective products or services. There have not been any material deviations from such warranties and guaranties, and neither the Company nor any of its subsidiaries, nor any of their respective salespeople, employees, distributors and agents is authorized to undertake obligations to any customer or to other third parties in excess of such warranties or guaranties. Neither the Company nor any of its subsidiaries has made any oral warranty or guaranty that modifies or amends such written warranties or guarantees or any oral warranty or guaranty with respect to any of its products or services.

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Section 2.20Suppliers and Customers. Other than as set forth on Section 2.20 of the Company Disclosure Schedule, during the last 12 months, neither the Company nor any of its subsidiaries has received any notice of termination or written threat of termination from any current suppliers, distributors or customers of the Company or any subsidiary of the Company or any information that any such customer, distributor or supplier intends to materially decrease the amount of business that it does with the Company or any subsidiary of the Company.

Section 2.21Brokers. Other than as set forth in Section 2.21 of the Company Disclosure Schedule, no broker, finder, investment banker or any other person is entitled to any finder’s or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the Company or any of its subsidiaries.

Section 2.22Interested Party Transactions.

(a)Other than as set forth on Section 2.22(a) of the Company Disclosure Schedule, no Company Representative (each, an “Interested Party”), has, has had at any time during the past five years, or has a right to acquire or receive in the future, directly or indirectly, (i) an economic interest in any person which has furnished or sold, or furnishes or sells, services or products that the Company or a subsidiary of the Company furnishes or sells, or proposes to furnish or sell, (ii) an economic interest in any person that purchases from or sells or furnishes to, the Company or a subsidiary of the Company, any goods or services, (iii) a beneficial interest in any Contract included in Section 2.14 or 2.15 of the Company Disclosure Schedule, or (iv) any contractual or other arrangement with the Company or a subsidiary of the Company, other than such arrangements that (A) are (or were) directly related to such person’s employment and (B) were entered into in the Ordinary Course of Business; provided,however, that ownership of no more than 1% of the outstanding voting stock of a publicly traded corporation shall not be deemed an “economic interest in any person” for purposes of this Section 2.22.

(b)Without limiting Section 2.22(a) above, other than as set forth on Section 2.22(b) of the Company Disclosure Schedule, there are no outstanding notes payable to, accounts receivable from or advances by the Company or any subsidiary of the Company to, and neither the Company nor any of its subsidiaries is otherwise a debtor or creditor of, or has any liability or other obligation of any nature to, any Interested Party of the Company or a subsidiary of the Company.

Section 2.23Dissenters’ Rights. The Company has notified Parent of any Dissenting Stockholders and neither the Company nor any subsidiary, affiliate or Company Representative of the Company has negotiated with such Dissenting Stockholders or made any payment with respect to any such Dissenting Shares or settled or offered or agreed to settle any claims relating to Dissenting Shares.

Section 2.24Company Transaction Expenses. Section 2.24 of the Company Disclosure Schedule sets forth a complete and detailed listing and itemization, as of the date hereof, of (a) all Company Transaction Expenses that have been paid and (b) all estimated Company Transaction Expenses that remain unpaid. None of the legal fees incurred, or paid or to be paid by the Company or any of its subsidiaries or affiliates in connection with this Agreement or the other Transaction Agreements or the Transactions was the result of premium billing or otherwise a success fee. The

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Schedule of Company Transaction Expenses will set forth a complete and detailed listing and itemization, as of the Closing, of all actual Company Transaction Expenses.

Section 2.25Bank Accounts. Section 2.25 of the Company Disclosure Schedule provides the following information with respect to each account maintained by the Company or any of its subsidiaries at any bank or other financial institution: (a) the name of the bank or other financial institution at which such account is maintained; (b) the account number; (c) the type of account; and (d) the names of all persons who are authorized to sign checks or other documents with respect to such account.

Section 2.26Documents. Full and complete copies of all documents referred to on the Company Disclosure Schedule (including all amendments, exhibits, attachments, waivers and other changes to each such document) have been made available to Parent.

Section 2.27Conflict Minerals. No Conflict Minerals are necessary to the functionality or production of or are used in the production of any product of the Company or any product currently proposed to be manufactured by the Company or any subsidiary of the Company or on its behalf in the future. For the purposes hereof, “Conflict Minerals” means: (a) columbite−tantalite (coltan), cassiterite, gold, wolframite, or their derivatives, which originate in the Democratic Republic of the Congo or a country that shares an internationally recognized border with the Democratic Republic of the Congo; and (b) any other mineral or its derivatives, the exploitation and trade of which is determined by the Secretary of State of the United States to be financing conflict in the Democratic Republic of the Congo or a country that shares an internationally recognized border with the Democratic Republic of the Congo.

ARTICLE 3.REPRESENTATIONS AND WARRANTIES OF
PARENT, HOLDINGS AND ACQUISITION SUB

Parent, Holdings and Acquisition Sub hereby represent and warrant to the Company as follows:

Section 3.1Organization. Parent is duly organized, validly existing and in good standing under the laws of the State of Delaware. Holdings is duly organized, validly existing and in good standing under the laws of the State of Delaware. Acquisition Sub is duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Parent, Holdings and Acquisition Sub has all requisite power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted.

Section 3.2Authority Relative to this Agreement. Each of Parent, Holdings and Acquisition Sub has all necessary corporate power and authority to execute and deliver this Agreement and the other Transaction Agreements to which it is a party, to perform its obligations under this Agreement and the other Transaction Agreements to which it is a party and to consummate

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the Transactions. The execution and delivery of this Agreement and the other Transaction Agreements to which Acquisition Sub is a party and the consummation of the Transactions have been duly and validly authorized and adopted by the board of directors of Acquisition Sub and by Holdings as the sole stockholder of Acquisition Sub. This Agreement and the other Transaction Agreements to which Parent, Holdings or Acquisition Sub, as the case may be, is a party have been duly and validly executed and delivered by each of Parent, Holdings and Acquisition Sub, as the case may be, and constitute, assuming the due authorization, execution and delivery hereof and thereof by the Company and any subsidiary of the Company that is a party thereto, valid, legal and binding agreements of each of Parent, Holdings and Acquisition Sub, as the case may be, enforceable against each of Parent, Holdings and Acquisition Sub, as the case may be, in accordance with their terms, subject to any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights generally or to general principles of equity.

Section 3.3Consents and Approvals; No Violations. Except for the filing of the Certificate of Merger as required by the DGCL, no filing with or notice to, and no permit, authorization, consent or approval of any Governmental Entity is necessary for the execution and delivery by Parent, Holdings or Acquisition Sub of this Agreement or the other Transaction Agreements to which it is a party or the consummation by Parent, Holdings or Acquisition Sub of the Transactions, except where the failure to obtain any such permits, authorizations, consents or approvals or to make such filings or give any such notice would not, individually or in the aggregate, have a Material Adverse Effect on Parent. Neither the execution, delivery and performance by Parent, Holdings or Acquisition Sub of this Agreement or the other Transaction Agreements to which it is a party nor the consummation by Parent, Holdings or Acquisition Sub of the Transactions will (a) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws (or similar governing documents) of Parent, Holdings or Acquisition Sub, (b) result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration or Lien) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Parent, Holdings or Acquisition Sub or any of Parent’s other subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound, or (c) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to Parent, Holdings or Acquisition Sub or any of Parent’s other subsidiaries or any of their respective properties or assets except, in the case of the foregoing clause (b) or (c), for violations, breaches or defaults that would not, individually or in the aggregate, have a Material Adverse Effect on Parent. For purposes hereof, the term “Material Adverse Effect on Parent” means any circumstance involving, change in or effect on (or any such circumstance, change or effect involving a prospective change in or effect on) Parent or any of its subsidiaries that would reasonably be expected to prevent or materially delay Parent, Holdings and Acquisition Sub from consummating the Transactions.

Section 3.4Brokers. No broker, finder or investment banker is entitled to any finder’s or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of Parent, Holdings or Acquisition Sub for which the Company or any Stockholder would be liable.

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Section 3.5Financing. Parent will have available to it at the Effective Time, sufficient funds to pay in full all amounts payable to the Cash Consideration Recipients under Article 1.

ARTICLE 4.COVENANTS

Section 4.1Conduct of Business of the Company. Except as contemplated by this Agreement or as consented to by Parent, during the period from the date hereof to the Effective Time, the Company will, and will cause each of its subsidiaries to, conduct its operations in the Ordinary Course of Business and, to the extent consistent therewith, with no less diligence and effort than would be applied in the absence of this Agreement, seek to preserve intact its current business organizations, keep available the services of its current directors, officers, employees, consultants and independent contractors and preserve its relationships with customers, suppliers and others having business dealings with it with the intention that its goodwill and ongoing businesses shall be unimpaired at the Effective Time. Without limiting the generality of the foregoing, except as otherwise expressly provided in this Agreement, prior to the Effective Time, neither the Company nor any of its subsidiaries shall, without the prior consent (such consent not to be unreasonably withheld or delayed) of Parent:

(a)amend its Certificate of Incorporation or Bylaws (or, in the case of the Company’s subsidiaries, other similar governing documents);

(b)authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including any stock options or stock appreciation rights) or convertible or exchangeable securities, except for (i) the issuance and sale of Shares upon the exercise of Company Stock Options or Company Warrants outstanding on the date hereof or (ii) the grant of Company Stock Options in the Ordinary Course of Business to newly hired employees of the Company, each grant on terms and in amounts consistent with past grants to employees having the same (or reasonably similar) position as such newly hired employee, and pursuant to an option agreement in the form of option agreement that has been made available to Parent;

(c)split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend, profit sharing distribution or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, make any other actual, constructive or deemed distribution in respect of its capital stock or otherwise make or undertake to make any payments to Stockholders, Optionholders, holders of Company Warrants or holders of any other Company Security in their capacities as such, or redeem or otherwise acquire any of its outstanding securities (other than the repurchase of Restricted Company Shares and cancellation of Company Stock Options following termination of employment with or provision of services to the Company);

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(d)except for the Merger and the other Transactions, adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries, or otherwise alter the Company’s corporate structure or the corporate structure of any subsidiary or form any subsidiary;

(e)(i) incur, assume or forgive any long-term or short-term loan or issue any debt securities, except for borrowings under existing lines of credit in the Ordinary Course of Business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, except for the obligations of subsidiaries of the Company incurred in the Ordinary Course of Business; (iii) make any loans, advances or capital contributions to or investments in any other person (other than customary loans or advances to employees in each case in the Ordinary Course of Business); (iv) pledge or otherwise encumber shares of capital stock or other equity interest of the Company or any of its subsidiaries; or (v) mortgage or pledge any of its material assets or properties, tangible or intangible, or create or suffer to exist any material Lien thereupon;

(f)except as may be required by applicable law or in the case of compensation and grants for newly hired employees in the Ordinary Course of Business (provided that each such grant is on terms and in amounts consistent with past grants to employees having the same (or reasonably similar) position as such newly hired employee), enter into, adopt, amend or terminate any bonus, profit sharing, compensation, severance, termination, indemnification, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase agreement, pension, retirement, deferred compensation, employment, health, life, or disability insurance, dependent care, severance or other employee benefit plan, agreement, trust, fund or other arrangement for the benefit or welfare of any director, officer or employee in any manner, or increase in any manner the compensation or fringe benefits of any director, officer, employee or consultant or pay any benefit not required by any plan and arrangement as in effect on the date hereof (including the granting of stock appreciation rights or performance units) or fail to make full and timely payment of all amounts required to be contributed or paid as expenses under the terms of each Employee Plan and applicable law, other than the compensation adjustments detailed in Schedule 2.11(k) of the Company Disclosure Schedule;

(g)(i) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership, limited liability company, other business organization or division thereof; (ii) acquire, sell, lease, license or dispose of any assets or property in any single transaction or series of related transactions, other than in the Ordinary Course of Business; (iii) enter into any exclusive license, distribution, marketing, sales or other agreement; (iv) enter into a “development services” or other similar agreement, other than in the Ordinary Course of Business; (v) enter into any agreement with “most favored customer” pricing; (vi) acquire, sell, lease, license, transfer or otherwise dispose of any Intellectual Property Rights other than non-exclusive licenses or sales of its products in the Ordinary Course of Business; (vii) abandon or cease to prosecute any of the Intellectual Property Rights set forth on Section 2.14(b)(i) of the Company Disclosure Schedule or any other Intellectual Property Rights that are material to the conduct of the Business; (viii) enter into any Contract that would be material to the Company and its subsidiaries, taken as a whole (other than agreements for the license or sale of its products and services in the Ordinary Course

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of Business); (ix) amend, modify or waive any right under any Material Contract of the Company or any of its subsidiaries, or amend or modify, or assume any new, material obligation, in each case, other than in the Ordinary Course of Business; (x) modify its standard warranty terms for its products or services in any material manner or amend or modify any product or service warranties in effect as of the date hereof in any material manner that is adverse to the Company or any of its subsidiaries; or (xi) authorize any new capital expenditure or expenditures that exceed $100,000 individually or in the aggregate;

(h)except as may be required as a result of a change in applicable law or in GAAP, change any of the accounting principles, practices or methods used by it;

(i)revalue in any material respect any of its assets or properties, including writing down the value of inventory or writing off notes or accounts receivable, other than in the Ordinary Course of Business;

(j)(A) commence any litigation or binding dispute resolution process or (B) settle or compromise any pending or threatened Claim, other than settlements or compromises of Claims that (1) involve only money damages and (2) would not, individually or in the aggregate, result in any charge, assessment, levy, fine or other liability being imposed upon or incurred by the Company or any of its subsidiaries exceeding $25,000;

(k)commence any material software or hardware development project or terminate any material software or hardware development project that is currently ongoing, in either case except (i) pursuant to the terms of existing contracts with customers or (ii) with respect to customers that are not customers as of the date hereof, in the Ordinary Course of Business and pursuant to terms substantially consistent with the terms of existing contracts;

(l)other than with respect to non-employee directors of the Company as of the date hereof (solely in their capacity as directors), accelerate, or permit or otherwise enable the acceleration of, the vesting of any Company Warrant, Company Stock Option or Restricted Company Share in connection with, or as a result of the consummation of, this Agreement, the Merger, any of the Transactions, or otherwise;

(m)allow any Insurance Policy to be amended or terminated, or to expire, without replacing such policy with a policy providing at least equal coverage, insuring comparable risks and issued by an insurance company financially comparable to the prior insurance company;

(n)fail to file any Tax Returns by the Due Date thereof, fail to cause such Tax Returns when filed to be true, correct and complete in all respects, prepare or file any Tax Return of the Company or any of its subsidiaries in a manner inconsistent with past practices in preparing or filing similar Tax Returns in prior periods or, on any such Tax Return, take any position or adopt any method that is inconsistent with positions taken or methods used in preparing or filing similar Tax Returns in prior periods;

(o)fail to pay any Taxes or other material debts when due;

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(p)make, modify or rescind any election relating to Taxes of the Company or any of its subsidiaries (other than elections made in the Ordinary Course of Business), adopt or change any accounting method in respect of Taxes, commence any Tax Claim, settle or compromise any Tax liability of the Company or any of its subsidiaries or any Tax Claim, enter into any closing or other agreement with any Governmental Entity with respect to Taxes, enter into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or otherwise enter into a Contract with respect to Taxes;

(q)file or cause to be filed any amended Tax Return with respect to the Company or any of its subsidiaries, file or cause to be filed any claim for refund of Taxes paid by or on behalf of the Company or any of its subsidiaries, agree to an extension or waiver of a statute of limitations with respect to any claim, assessment or determination of Taxes or grant any power of attorney with respect to Taxes;

(r)enter into any distribution, sponsorship, advertising or other similar Contract that may not be cancelled without penalty by the Company or any of its subsidiaries upon notice of 30 days or less or which provides for payments by or to the Company or any of its subsidiaries in an amount in excess of $100,000 over the term of the agreement;

(s)(i) accelerate the collection of any accounts receivable; (ii) delay the payment of any account payable; or (iii) take any other action outside the Ordinary Course of Business or inconsistent with past practices with the intent of avoiding a reduction in the Total Merger Consideration pursuant to Section 1.12 (it being understood that any estimated Tax payments shall be made without taking into account the effect of the transactions described in this Agreement); or

(t)take or agree in writing or otherwise to take any of the actions described in Sections 4.1(a) through 4.1(s), nor take any action that would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect.

Section 4.2Information Statement. As soon as practicable (and in any event within 10 days) after the execution of this Agreement, the Company shall distribute to the Stockholders, in forms approved in advance by Parent, which approval shall not be unreasonably withheld or delayed, an information statement and other appropriate documents (such information statement and other documents, including any amendments or supplements thereto, in each case in the form or forms mailed or delivered to Stockholders, collectively, the “Information Statement”) in connection with the obtaining of: (a) written consents of the Stockholders in favor of the adoption and approval of this Agreement, the other Transaction Agreements and the Transactions; (b) waivers by the Stockholders of their dissenter’s rights in connection with the Merger; and (c) written consents of the Stockholders to approve or disapprove, under Section 280G(b)(5)(A)(ii) of the Code, any compensation, benefit or amounts that may be deemed to result in an “excess parachute payment” (within the meaning of Section 280G(c) of the Code) to each person who is a “disqualified individual” with respect to the Company, within the meaning of Section 280G(c) of the Code, such that such compensation, benefit or amounts will not be payable or otherwise inure to the benefit of such person in a manner that will result in such amount being treated as such an “excess parachute payment.” The Company shall use its best efforts to cause the Information Statement to comply in all material respects with applicable federal and state securities laws and other applicable legal

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requirements. Each of Parent and the Company agrees to, and the Company shall cause its subsidiaries to, provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Information Statement, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other’s counsel and auditors in the preparation of the Information Statement. Without limiting the generality of the foregoing, the Company agrees to, and the Company shall cause its subsidiaries to, provide promptly to Parent, and to include in the Information Statement, information concerning, and a reasonably detailed summary of, among other things, the terms of the Transactions, and the legal representation of the Company. The Company will promptly advise Parent and Parent will promptly advise the Company in writing if at any time prior to the Effective Time either the Company or Parent shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Information Statement in order to make the statements contained or incorporated by reference therein not misleading or comply with applicable law. The Information Statement shall: (i) contain the unanimous recommendation of the Company Board that the Stockholders adopt and approve this Agreement, the other Transaction Agreements and the Transactions and the conclusion of the Company Board that the terms and conditions of the Merger are fair, advisable and reasonable to, and in the best interests of, the Stockholders; (ii) notify the Stockholders of the receipt by the Company of the votes or written consents of holders of Shares sufficient to adopt and approve the matters specified in clause (i) above; and (iii) notify the Stockholders of their appraisal rights under Section 262 of the DGCL and Chapter 13 of the CGCL. Notwithstanding anything to the contrary contained herein, the Company shall not include in the Information Statement any information with respect to Parent or its subsidiaries, affiliates or associates, the form and content of which information shall not have been approved in writing by Parent prior to such inclusion. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Information Statement, the Company or Parent, as the case may be, will promptly inform the other of such occurrence and cooperate in preparing and mailing to Stockholders such amendment or supplement.

Section 4.3Other Potential Acquirors.

(a)The Company, its affiliates and their respective officers and other employees, directors, holders of more than 5% of the outstanding Company Common Stock or any series of Company Preferred Stock (each, a “5% Stockholder”), representatives and agents shall immediately cease any and all discussions or negotiations with any persons with respect to any Third Party Acquisition. Neither the Company nor any of its affiliates shall, nor shall the Company or any of its affiliates authorize or permit any of its officers, directors, employees, 5% Stockholders, representatives or agents to, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with or provide any non-public information to any person or group (other than Parent, Holdings and Acquisition Sub or any designees of Parent, Holdings and Acquisition Sub) concerning any Third Party Acquisition. The Company shall promptly, but in any event within 24 hours, notify Parent in writing in the event the Company, any of its affiliates, or any of their respective directors, officers, employees, 5% Stockholders, agents and representatives receives any written or oral proposal or inquiry concerning a Third Party Acquisition, including the terms and conditions thereof and the identity of the person or group submitting such proposal, and shall advise Parent from time to time of the status and any material developments concerning the

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same. The Company and its subsidiaries shall not, and shall cause their officers, directors, employees and 5% Stockholders not to release any person from, or waive any provision of, any confidentiality or standstill agreement to which the Company or any of its subsidiaries is a party. The Company Board shall not withdraw its recommendation of the Transactions or approve or recommend, or cause the Company or any of its subsidiaries to enter into any agreement with respect to, any Third Party Acquisition.

(b)For purposes of this Agreement, “Third Party Acquisition” means any of the following: (i) the acquisition of the Company by merger or otherwise by any person (which includes a “person” as such term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) other than Parent, Holdings, Acquisition Sub or any affiliate thereof (a “Third Party”); (ii) the acquisition by a Third Party of any assets of the Company and its subsidiaries, other than the sale of its products in the Ordinary Course of Business pursuant to the terms hereof; (iii) the acquisition by a Third Party of any equity interest in the Company or its subsidiaries other than (A) by an Optionholder pursuant to the exercise of any outstanding Company Stock Option, (B) by the holder of a Company Warrant pursuant to the exercise of any Company Warrant, or (C) by a Stockholder pursuant to the conversion of any Company Preferred Stock; (iv) the adoption by the Company of a plan of total or partial liquidation or the declaration or payment of an extraordinary dividend; (v) the repurchase by the Company or any of its subsidiaries of more than 10% of the outstanding Shares; and (vi) the acquisition by the Company or any of its subsidiaries by merger, purchase of stock or assets, joint venture or otherwise of a direct or indirect ownership interest or investment in any business whose annual revenues, net income or assets is equal to or greater than 10% of the annual revenues, net income or assets of the Company.

Section 4.4Approval of Stockholders. The Company shall take all actions necessary in accordance with the DGCL, CGCL and its Certificate of Incorporation and Bylaws to duly solicit the written consent from the Stockholders as promptly as practicable after the date hereof to adopt and approve this Agreement, the other Transaction Agreements and the Transactions. The Company will, through the Company Board, unanimously recommend to the Stockholders approval of such matters.

Section 4.5Access to Information.

(a)Between the date hereof and the Effective Time, the Company will permit Parent and its authorized representatives access to all employees, offices, warehouses and other facilities and to all books and records of the Company and its subsidiaries as Parent may reasonably request with due notice, and will cause its officers and those of its subsidiaries to furnish Parent with such financial and operating data and other information with respect to the business, properties and prospects of the Company and its subsidiaries as Parent may reasonably from time to time request.

(b)Between the date hereof and the Effective Time, the Company shall furnish to Parent (i) within 10 days of the date hereof, an unaudited balance sheet as of the end of each of the months ended January 31, 2013 and February 28, 2013, respectively, and the related statements of income, stockholders’ equity (deficit) and cash flows, (ii) within two Business Days following preparation thereof (and in any event within 10 Business Days after the end of each calendar month,

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commencing with March 31, 2013), an unaudited balance sheet as of the end of such month and the related statements of income, stockholders’ equity (deficit) and cash flows, and (iii) within two Business Days following preparation thereof (and in any event within 10 Business Days after the end of each fiscal quarter) an unaudited balance sheet as of the end of such quarter and the related statements of income, stockholders’ equity (deficit) and cash flows for the quarter then ended, all of such financial statements to be prepared in accordance with GAAP in conformity with the practices consistently applied by the Company with respect to such financial statements. All of the foregoing shall be in accordance with GAAP, and shall fairly present the financial position of the Company (taking into account the differences between the monthly and quarterly financial statements prepared by the Company in conformity with its past practices) as of the last day of the period then ended.

(c)Each of the parties hereto will hold, and will cause its agents, representatives, consultants and advisers to hold, in confidence all documents and information furnished to it by or on behalf of another party to this Agreement in connection with the Transactions pursuant to the terms of, as applicable (i) that certain Letter Agreement, dated April 27, 2012, between the Company and Parent (the “Confidentiality Agreement”) and (ii) that certain Nondisclosure Agreement, dated as of March 5, 2013 (the “Stockholder Agent Confidentiality Agreement”), by and between the Stockholder Agent and the Company.

Section 4.6Certain Filings; Reasonable Best Efforts.

(a)Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable best efforts to take or cause to be taken all action and to do or cause to be done all things reasonably necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Transactions, including all reasonable best efforts to do the following: (i) obtain consents of all third parties and Governmental Entities necessary, proper or advisable for the consummation of the Transactions, including under the HSR Act; (ii) contest any legal proceeding relating to the Merger; and (iii) execute any additional instruments necessary to consummate the Transactions. The Company further agrees to (x) use all reasonable best efforts to obtain consents of all third parties and Governmental Entities necessary, proper or advisable for the consummation of the Transactions under the Contracts set forth on Schedule 4.6(a)(x), and (y) take the other actions required with respect to the Contracts set forth on Schedule 4.6(a)(y). Subject to the terms and conditions of this Agreement, the Company, Parent, Holdings and Acquisition Sub agree to use all reasonable best efforts to cause the Effective Time to occur as soon as practicable after the Requisite Approval is obtained.

(b)Parent and the Company will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, letters, white papers, memoranda, briefs, arguments, opinions or proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to any other foreign, federal or state antitrust, competition, or fair trade law. In this regard, but without limitation, each party hereto shall promptly inform the other of any material communication between such party and the Federal Trade Commission, the Antitrust Division of the United States Department of Justice, or any other federal, foreign or state antitrust or competition Governmental Entity regarding the Transactions.

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(c)Notwithstanding anything to the contrary contained in Section 4.6(a) or elsewhere in this Agreement, none of Parent, Holdings or Acquisition Sub shall have any obligation under this Agreement to divest or agree to divest (or cause any of its subsidiaries or the Surviving Corporation to divest or agree to divest) any of its respective businesses, product lines or assets, or to take or agree to take (or cause any of its subsidiaries or the Surviving Corporation to take or agree to take) any other action or agree (or cause any of its subsidiaries or the Surviving Corporation) to agree to any limitation or restriction on any of its respective businesses, product lines or assets.

Section 4.7Company Employees.

(a)The Company agrees to encourage its and its subsidiaries’ employees (and prospective employees) to accept the offers of employment extended by Parent or any of its subsidiaries, and to encourage its and its subsidiaries’ employees (and prospective employees) to execute and deliver to Parent or such subsidiary of Parent its forms of nondisclosure agreement and proprietary information and invention assignment agreement. With respect to each employee (and prospective employee) of the Company or any of its subsidiaries who has been promised or offered, whether contingently or otherwise, a Company Stock Option or other equity interest in the Company (each, a “New Hire”), the Company shall deliver to each such New Hire a notice, in form and substance approved in advance by Parent, setting forth an explanation of the effect of the Transactions upon the option or other purchase right that has been promised or offered to such New Hire.

(b)The Company shall (or shall cause its applicable subsidiary to) terminate, prior to the Closing, the employment of each employee of the Company or its subsidiaries who, as of the Closing Date (i) has not executed an outstanding offer letter from Parent or its affiliate or has otherwise revoked acceptance of such offer letter, (ii) has not received an offer letter from Parent or its affiliate, or (iii) has received and executed an offer letter from Parent or its affiliate, but such offer letter has been rescinded by Parent, including due to a failure of such employee to satisfy any condition set forth in such offer letter (each of (i), (ii) or (iii), a “Terminated Employee”).

Section 4.8Public Announcements. The Company (prior to the Closing) and the Stockholder Agent shall not, and the Company (prior to the Closing) shall cause each of its subsidiaries and affiliates and the Company Representatives not to, issue any press release or otherwise make any public statements with respect to the Transactions, including the Merger, without the prior written consent of Parent, except as may be required by applicable law, in which case, the disclosing party shall provide Parent with reasonable advance notice prior to making any such disclosure, and shall consult with Parent regarding the form and content of such required disclosure. Notwithstanding anything in this Agreement or the Stockholder Agent Confidentiality Agreement to the contrary, following the Closing, the Stockholder Agent shall be permitted to disclose information as required by law or to employees, advisors or consultants of the Stockholder Agent and to the Escrow Holders, in each case who have a need to know such information, provided that such persons are bound by obligations of confidentiality to the Stockholder Agent of at least as high a standard as those imposed on the Stockholder Representative by this Agreement and the Stockholder Agent Confidentiality Agreement.

Section 4.9Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (a) the occurrence or nonoccurrence

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of any event the occurrence or nonoccurrence of which has caused or would be reasonably likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any respect at or prior to the Effective Time and (b) any failure of the Company, Parent, Holdings or Acquisition Sub, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided,however, that the delivery of any notice pursuant to this Section 4.9 shall not cure such breach or non-compliance or limit or otherwise affect the remedies available hereunder to the party receiving such notice.

Section 4.10Additions to and Modification of the Company Disclosure Schedule. Concurrently with the execution and delivery of this Agreement, the Company has delivered the Company Disclosure Schedule that includes all of the information required by the relevant provisions of this Agreement. The Company acknowledges and agrees that the Company Disclosure Schedule is the only operative document that modifies the representations and warranties identified therein regardless of any due diligence review undertaken by Parent. In addition, the Company shall deliver to Parent at least two Business Days prior to the Closing Date such additions to or modifications of any Sections, subsections, paragraphs or clauses of the Company Disclosure Schedule necessary to make the information set forth therein true, complete and accurate in all material respects as of immediately prior to the Effective Time (the “Updated Disclosure Schedule”); provided,however,that the information in such Updated Disclosure Schedule shall not be deemed to constitute an exception to any of its representations and warranties under Article 2, nor limit the rights and remedies of Parent, Holdings and Acquisition Sub under this Agreement for any breach by the Company of such representation and warranties.

Section 4.11Benefit Arrangements. To the extent permitted by applicable law and the terms of Parent’s benefit plans, the employees of the Company or any subsidiary of the Company employed by Parent or any of its subsidiaries after the Effective Time who are not on leave as of the Effective Time shall be entitled to non-equity employee benefits that are substantially similar, in the aggregate, to employee benefits that are available or subsequently become available to Parent’s similarly situated U.S.-based employees. For purposes of eligibility, applicability of minimum waiting periods for participation, vesting and seniority under Parent’s non-equity employee benefit plans, to the extent permitted by applicable law and the terms of such non-equity employee benefit plans, service with the Company prior to the Closing will be credited under such non-equity employee benefit plans, except where doing so would cause a duplication of benefits.

Section 4.12Termination of 401(k) Plan. The Company agrees to adopt resolutions to terminate its 401(k) plan immediately prior to the Closing, upon the request of Parent, in its sole and absolute discretion, and Parent’s providing the Company with written notice of such election at least five days before the Effective Time. In the event of such request, Parent shall receive from the Company evidence that the Company Board has adopted resolutions to terminate the 401(k) plan (the form and substance of which resolutions shall be subject to review and approval of Parent), effective as of the day immediately preceding the Closing Date. In the event of such request, the Company shall also adopt resolutions to amend its 401(k) plan immediately prior to the Closing to eliminate all forms of distribution upon termination of such plan other than lump sum distribution. In the event that the Company is required to terminate its 401(k) plan pursuant to this provision, at the Effective Time, each employee of the Company or its subsidiaries who will be continuing

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employment with Parent or its subsidiaries will be eligible to participate in the cash or deferred arrangement maintained by Parent that is intended to be qualified under Section 401(k) of the Code. Parent shall take all steps reasonably necessary to permit each such continuing employee who has received an eligible rollover distribution (as defined in Section 402(c)(4) of the Code) from the Company’s 401(k) plan to roll over such eligible distribution (including any outstanding participant loan) into an account under Parent’s 401(k) plan.

Section 4.13Termination of Company Investors’ Rights and Co-Sale Agreements. The Company shall take all steps as may be necessary to ensure the termination immediately prior to the Closing of any voting agreement or stockholders agreement among the Stockholders and/or holder of any other Company Securities, and all Company investor rights granted by the Company to its Stockholders and/or holder of any other Company Securities and in effect prior to the Closing, including rights of co-sale, voting, registration, first refusal, board observation or information or operational covenants.

Section 4.14Invention Assignment Agreement. The Company shall, and shall cause each of its subsidiaries to, obtain prior to Closing the following agreements (the “Invention Assignment Agreements”): (a) an invention assignment and disclosure agreement, either (x) in a form acceptable to Parent or (y) substantially in the Company’s standard form (which has previously been made available to Parent), with (i) each director, employee, independent contractor or consultant of the Company or any of its subsidiaries as of the date hereof or after, and (ii) with each former director, employee, independent contractor or consultant of the Company or any of its subsidiaries that is named as an inventor in any Company Patent or Patent application (including a provisional application) of, or exclusively licensed to, the Company or any of its subsidiaries, and (b) for each Patent application (including a provisional application) an assignment agreement, in a form acceptable to Parent, signed by each individual named as an inventor on such application for a Patent.

Section 4.15280G Approval. Notwithstanding anything to the contrary contained in this Agreement, the Company shall take all steps as may be necessary to ensure that (a) the receipt of any compensation, benefit or amounts that may be deemed to result in an “excess parachute payment” (within the meaning of Section 280G(c) of the Code) to each person who is a “disqualified individual” with respect to the Company, within the meaning of Section 280G(c) of the Code, shall be subject to stockholder approval in accordance with Section 280G(b)(5)(A)(ii) of the Code (“280G Approval”) and that (b) such compensation, benefit or amount shall not be payable or otherwise inure to the benefit of such person in a manner that will result in such amount being treated as such an “excess parachute payment.”

Section 4.16Waiver of Company Stock Option and Restricted Company Share Acceleration; Notices.

(a)The Company shall, and shall cause each of its subsidiaries to, take all steps as may be necessary to ensure that, prior to the Closing, (i) each Key Employee agrees to the following (the “Key Employee Conditions”): (A) subject to re-vesting his or her Company Stock Options and/or Shares, (B) waive any acceleration of vesting of any Company Stock Options and/or Shares in connection with or as a result of the execution and delivery of this Agreement or the

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other Transaction Agreements or the consummation of the Transactions, and (C) permit Parent to hold back a portion of the Base Merger Consideration that such Key Employee would otherwise become entitled at the Effective Time to receive, each in the manner set forth in such Key Employee’s Employment Letters and other respective agreements with Parent, and (ii) each employee of the Company or any subsidiary of the Company (other than the Key Employees) who receives an employment offer from Parent and who has rights to acceleration of vesting of any Company Stock Options and/or Shares in connection with or as a result of the execution and delivery of this Agreement or the other Transaction Agreements or the consummation of the Transactions (the “Other Accelerating Employees”), shall agree to waive any such rights to acceleration. In addition, the Company shall, and shall use its best efforts to cause each holder of Restricted Company Shares and/or Company Stock Options to, to the extent necessary, amend the Company Plans and any award agreements or other Contracts governing such Restricted Company Shares and/or Company Stock Options to permit treatment of them in the manner contemplated by Section 1.11.

(b)Prior to the Effective Time, the Company shall deliver to the holders of Company Stock Options and Restricted Company Shares notices setting forth a summary of such holders’ rights pursuant to any agreement(s) governing such Company Stock Options or other agreement(s) covering the Restricted Company Shares, and confirming that (i) to the extent such Company Stock Options and Restricted Company Shares will be assumed by Parent pursuant to the terms of this Agreement, the agreements evidencing the grants of such Company Stock Options or Restricted Company Shares, as the case may be, shall continue in effect on the same terms and conditions (subject to the adjustments provided in Section 1.11 after giving effect to the Merger) and (ii) to the extent such Company Stock Options and Restricted Company Shares will not be assumed by Parent pursuant to the terms of this Agreement, such Company Stock Options and Restricted Company Shares shall terminate at the Effective Time.

Section 4.17Warrants. The Company shall take all steps as may be necessary to ensure that prior to the Closing, all outstanding Company Warrants have been exercised or terminated and the Company shall, and shall use its best efforts to cause each holder of Company Warrants to, to the extent necessary or advisable, amend or obtain a waiver to any award agreements or other Contracts governing such Company Warrants to permit treatment of them in the manner contemplated by Section 1.11.

Section 4.18Certain Tax Matters.

(a)Tax Returns. Parent shall prepare or cause to be prepared (in a manner consistent with the Company’s past practice except as otherwise required by applicable Tax Law) all federal and California state income Tax Returns for any Pre-Closing Tax Period identified in Section 2.13(b)(iv)(B) of the Company Disclosure Schedule. Parent shall provide the Stockholder Agent with a draft of any such proposed Tax Return in a form ready for filing no less than 30 days prior to the due date of such Tax Return, including any extensions of time to file in effect. Parent shall consider in good faith any comments to any such Tax Return that the Stockholder Agent submits to Parent in writing no later than 15 days following Stockholder Agent’s receipt of such Tax Return.

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(b)Cooperation and Assistance. Parent and the Stockholder Agent shall provide each other with such cooperation and assistance as may be reasonably requested in connection with the preparation of any Tax Return, any audit or other examination by any Governmental Entity, or any judicial or administrative proceedings relating to liability for which the Company or any of its subsidiaries are liable, and until the seventh anniversary of the Closing Date, each will retain and provide the others with any records or information which may be necessary for such Tax Return, audit, examination, proceedings or determination. Parent and the Stockholder Agent further agree, upon reasonable request and at the sole cost of the requesting person, to (i) use their reasonable efforts to obtain any certificate or other document from any Governmental Entity or any other person with respect to Taxes and (ii) take any other actions reasonably requested, in each case, as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to Taxes arising out of this Agreement). Notwithstanding anything to the contrary herein, neither Parent nor any of its affiliates shall be required to provide any Tax information that it regards as privileged or confidential, except for Tax information required to be provided by Parent and Holdings pursuant to Section 7.5(d) and any other Tax information relating solely to the Company and material to the Stockholder Agent’s review of the Tax Returns provided to it pursuant to Section 4.18(a); provided, however, that in no event shall Parent or any of its affiliates be required to provide any Tax Return of Parent or any of its affiliates (including the Company, except for Tax Returns that are provided to Stockholder Agent pursuant to Section 4.18(a)).

(c)Parent’s Use. Nothing in this Agreement shall be construed to require Parent, Holdings or the Surviving Corporation to make any payment to the Stockholders, Optionholders, holders of Company Warrants or any other Company Securities or any other person for the use by Parent, Holdings or the Surviving Corporation of any Tax credit, Tax deduction, net operating loss or other Tax attribute of the Company or its subsidiaries.

(d)Transfer Taxes. In no event shall Parent, Holdings or the Surviving Corporation bear any Tax, including, but not limited to, share transfer Taxes and similar Taxes, imposed in connection with the receipt by any Stockholder, Optionholder, holder of Company Warrants or holder of any other Company Securities of any payments payable pursuant to this Agreement to which such Stockholder, Optionholder, holder of Company Warrants or other holder may be entitled.

Section 4.19Reporting Requirements Cooperation. If requested by Parent, the Company shall, and shall cause each of its subsidiaries to, assist in supporting and completing required audits and the preparation of any other necessary financial information, including pro forma financial information, and secure required consents from the Company’s independent auditor to satisfy Parent’s SEC reporting requirements.

Section 4.20Employee Indebtedness. The Company shall, and shall cause its subsidiaries to, cause all outstanding notes payable by, accounts receivable from, advances by the Company or any subsidiary of the Company to, or indebtedness owed to the Company or any subsidiary of the Company by, any current or former director, officer or employee (or any family member of a current or former director, officer or employee or any affiliate of a current or former director, officer, employee or family member) of the Company or any subsidiary of the Company (other than

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intercompany indebtedness) (“Employee Indebtedness”) to be paid or repaid, including any and all principal and accrued interest thereon, to the Company or its applicable subsidiary, as the case may be, prior to the Closing.

Section 4.21Datasite DVD-ROMs. Promptly following the date of this Agreement, the Company shall deliver to Parent one or more DVD-ROMs or other digital media evidencing the documents and other files that were available for review by Parent and its representatives as of the date of this Agreement (the “Snapshot Date”) in the Datasite, which shall indicate for each document the date that such document was uploaded to the Datasite. If any documents are added to the Datasite following the Snapshot Date, then, at least two days prior to the Closing Date, the Company shall deliver to Parent one or more DVD-ROMs or other digital media evidencing such documents and other files that were available for review by Parent and its representatives as of such date, which shall indicate for each document the date that such document was uploaded to the Datasite.

Section 4.22Consideration Spreadsheets; Company Transaction Expenses.

(a)The Company has prepared and delivered a spreadsheet (the “Preliminary Consideration Spreadsheet”) dated as of the date hereof and giving effect to an estimated Closing Date as set forth therein (but subject to the assumptions specifically set forth therein), setting forth the information described in Section 4.22(c).

(b)The Company shall prepare and deliver to Parent, no later than two Business Days before the Closing Date, a spreadsheet (the “Closing Consideration Spreadsheet”) in substantially the form of the Preliminary Consideration Spreadsheet and reasonably acceptable to Parent and the Escrow Agent, which spreadsheet shall be certified by the CEO and the Chief Financial Officer of the Company and dated as of the Closing Date, setting forth the information described in Section 4.22(c).

(c)Each of the Preliminary Consideration Spreadsheet and the Closing Consideration Spreadsheet shall set forth all of the following information (in addition to the other required data and information specified therein), as of (x) with respect to the Preliminary Consideration Spreadsheet, the estimated Closing Date set forth therein (assuming the conversion of certain shares of Company Preferred Stock and the exercise of certain Company Warrants prior to such estimated Closing Date, as set forth in the Preliminary Consideration Spreadsheet), and (y) with respect to the Closing Consideration Spreadsheet, the Closing Date and immediately prior to the Effective Time:

(i)the names of all the Stockholders, holders of Company Warrants and Optionholders and their respective addresses and, where available, taxpayer identification numbers;

(ii)the number and class or series of Shares held by, or subject to the Company Stock Options held by, such persons and, with respect to Shares, the respective certificate numbers, and, in the case of outstanding Company Stock Options, the respective instrument numbers and plan or agreement pursuant to which such options were granted;

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(iii)whether any of the shares of Company Preferred Stock have elected to convert into shares of Company Common Stock prior to the Effective Time and if so, the number of shares of Company Common Stock into which they convert;

(iv)whether the Company Warrants will be cancelled or exercised for Shares prior to the Effective Time and if so, the manner of exercise (cash or net) and the number and type of Shares issuable upon such exercise;

(v)the grant date and exercise price per share in effect for each Company Stock Option;

(vi)the vesting provisions, schedule and status with respect to each outstanding Company Stock Option;

(vii)the terms of the Company’s rights to repurchase such Restricted Shares (including the repurchase price payable per share under each Restricted Company Share);

(viii)the Tax status of each Company Stock Option under Section 422 of the Code;

(ix)whether each Company Stock Option is a Vested Company Option, an Unvested Employee Company Option or an Unvested Non-Employee Company Option;

(x) whether the Unvested Non-Employee Company Options will be cancelled or exercised for Shares prior to the Effective Time and, if so, the manner of exercise (cash or net) and the number of shares of Company Common Stock issuable upon such exercise;

(xi)the number of Dissenting Shares;

(xii)the calculation of the aggregate amount of the Base Merger Consideration, Base Cash Amount and the Closing Date Merger Consideration;

(xiii)the calculation of the Base Common Amount, Base Common Per Share Amount and Exchange Ratio;

(xiv)the amount of cash payable to each Stockholder in exchange for each Share held by such person and, if such Share is a Restricted Share, the amount of cash that will be Restricted Cash;

(xv)the amount of cash payable to each holder of a Vested Company Option in exchange for the Vested Company Options held by such person;

(xvi)the number of shares of Parent Common Stock to be subject to, and exercise price of, each Unvested Employee Company Option held by each holder of Unvested Employee Company Options and whether such Unvested Employee Company Option is an incentive stock option or non-qualified stock option under the Code;

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(xvii)the Escrow Amount, each Escrow Holder’s Recovery Percentage and the interest in dollar terms of each Escrow Holder in the Escrow Fund; and

(xviii)the Reserve Amount and the interest in dollar terms of each Escrow Holder in the Reserve Fund.

(d)The Company shall prepare and deliver to Parent, no later than two Business Days before the Closing Date, an updated schedule of all Company Transaction Expenses (the “Estimated Company Transaction Expenses”), including a copy of any invoices for such expenses requested by Parent and an indication of whether and to what extent each item of expense has been or will be paid prior to the Closing Date, which will be certified by the CEO and the Chief Financial Officer of the Company (the “Schedule of Company Transaction Expenses”). With respect to any Company Transaction Expenses that will not have been paid in full prior to the Closing Date, at least two Business Days prior to the Closing Date, the Company shall submit to Parent (i) reasonably satisfactory documentation setting forth an itemized list of all, and amounts of all, such Company Transaction Expenses, including (A) the identity of each payee, (B) dollar amounts owed, (C) wire transfer instructions and (D) any other information necessary to effect the final payment in full thereof, (ii) copies of final invoices from each such payee acknowledging the invoiced amounts as full and final payment for all services rendered to the Company or its subsidiaries (and as of the Effective Time, the Surviving Corporation) (clauses (i) and (ii), the “Transaction Expenses Payoff Instructions”), and (iii) an accurately completed W-9 or W-8BEN, as applicable, for each such payee. Upon the Closing, Parent shall pay, or shall cause to be paid, the Company Transaction Expenses that will not have been paid in full prior to the Closing Date, as indicated on the Transaction Expenses Payoff Instructions.

(e)The Company shall prepare (or cause the Company’s payroll service provider to prepare) and deliver to Parent, no later than two Business Days before the Closing Date, an estimate of the amount of cash required to be deducted and withheld for Taxes from each Stockholder and each holder of Vested Options.

Section 4.23Maintenance of Company’s Indemnification Obligations.

(a)Subject to the Company purchasing a tail policy with respect to the termination of its present directors and officers liability insurance policy (the “D&O Tail Policy”) prior to the Closing, for the six-year period following the Effective Time, Parent will cause the Surviving Corporation to fulfill and honor the obligations of the Company to its directors and officers pursuant to any indemnification provisions under the Company’s Certificate of Incorporation or Bylaws as in effect immediately prior to the Effective Time; provided that in no event shall Parent or the Surviving Corporation be obligated to indemnify such director or officer for any amounts payable by such person (i) pursuant to Article 7 hereof or (ii) as a result of any of the matters described in Section 7.2(a);provided, further, that any and all such obligations of Parent and the Surviving Corporation (A) shall expire after the six-year period following the Effective Time, except for the claims arising out of acts or omissions occurring at or prior to the Effective Time that are asserted after the Effective Time and prior to the sixth anniversary of the Effective Time, and have not yet been resolved, subject to the terms of the D&O Tail Policy, and (B) shall be limited to the coverage amount provided pursuant to the D&O Tail Policy.

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(b)In the event that, prior to Closing, the Company purchases a D&O Tail Policy and claims arising out of acts or omissions occurring at or prior to the Effective Time that are asserted after the Effective Time, Parent shall cause the Surviving Corporation to maintain the D&O Tail Policy until it expires in accordance with its terms; provided that none of Parent, Holdings or the Surviving Corporation shall be obligated hereunder to maintain any D&O Tail Policy to the extent any of them would be required to pay any amount therefor in excess of $100,000 (including the original purchase price therefor).

Section 4.24Form S-8. Parent shall file a Registration Statement on Form S-8 with the SEC covering the shares of Parent Common Stock issuable with respect to assumed Company Stock Options as promptly as practicable after the Effective Time (and in any event, Parent shall use its commercially reasonable efforts to complete such filing within 60 days thereafter) and will use all commercially reasonable efforts to maintain the effectiveness of such registration statement thereafter for so long as any of such Company Stock Options remain outstanding and until the shares issuable upon exercise thereof are sold by the optionee or are otherwise eligible for resale under Rule 144 promulgated under the Securities Act.

Section 4.25Conflict Waiver. Notwithstanding that the Company has been represented by Pillsbury Winthrop Shaw Pitman LLP (the “Firm”) in the preparation, negotiation and execution of this Agreement and the Escrow Agreement, the Company agrees that the Stockholder Agent, the Indemnifying Parties and/or their affiliates shall have the right, at their election, to retain the Firm to represent them in matters related to this Agreement and the Escrow Agreement, including in respect of any Indemnification Claims. The Company hereby acknowledges, on behalf of itself and its affiliates, that it has had an opportunity to ask for and has obtained information relevant to such representation, including disclosure of the reasonably foreseeable adverse consequences of such representation, and it hereby waives any conflict arising out of such future representation.

ARTICLE 5.

CONDITIONS TO CONSUMMATION OF THE MERGER

Section 5.1Conditions to Each Party’s Obligations to Effect the Merger. The respective obligations of each party hereto to effect the Merger are subject to the satisfaction at or prior to the Effective Time of each of the following conditions:

(a)The waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall have expired, and there shall not be pending or overtly threatened any action by a Governmental Entity to restrain or enjoin the Merger or any of the other Transactions pursuant to the HSR Act;

(b)No statute, rule, regulation, executive order, decree, ruling or injunction (other than as described in Section 5.1(a)) shall have been enacted, entered, promulgated or enforced by any Governmental Entity that prohibits, restrains, enjoins or restricts the consummation of the Merger; and

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(c)     Any notices to, approvals from or other requirements of any Governmental Entity necessary to consummate the Transactions and to operate the businesses of the Company and its subsidiaries after the Effective Time in all material respects as they were operated prior thereto (other than as described in Section 5.1(a)) shall have been given, obtained or complied with, as applicable.

Section 5.2Conditions to the Obligations of the Company. The obligation of the Company to effect the Merger is subject to the satisfaction at or prior to the Effective Time of each of the following conditions:

(a)The representations and warranties of Parent, Holdings and Acquisition Sub contained in this Agreement shall be true and correct both (i) at and as of the date hereof and (ii) at and as of the Closing Date with the same effect as if made on and as of the Closing Date (except in each case to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date), except as would not result in a Material Adverse Effect on Parent (not taking into account any limitation or qualification as to “materiality” (including the word “material” and “Material Adverse Effect on Parent”) or a dollar “threshold” set forth in such representations and warranties) and, at the Closing, Parent, Holdings and Acquisition Sub shall have delivered to the Company a certificate to the effect of the foregoing, executed by an executive officer of Parent, Holdings and Acquisition Sub;

(b)Each of the covenants and obligations of Parent, Holdings and Acquisition Sub to be performed at or before the Effective Time pursuant to this Agreement shall have been duly performed in all material respects at or before the Effective Time and, at the Closing, Parent, Holdings and Acquisition Sub shall have delivered to the Company a certificate to that effect, executed by an executive officer of Parent, Holdings and Acquisition Sub; and

(c)Each of Parent, Holdings and Acquisition Sub shall have executed and delivered to the Company each Transaction Agreement to which it is a party.

Section 5.3Conditions to the Obligations of Parent, Holdings and Acquisition Sub. The respective obligations of Parent, Holdings and Acquisition Sub to effect the Merger are subject to the satisfaction at or prior to the Effective Time of each of the following conditions:

(a)The representations and warranties of the Company contained in this Agreement shall be true and correct both (i) at and as of the date hereof and (ii) at and as of the Closing Date with the same effect as if made on and as of the Closing Date (except in each case to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date), except as would not result in a Material Adverse Effect on the Company (not taking into account any limitation or qualification as to “materiality” (including the word “material” and “Material Adverse Effect on the Company”) or a dollar “threshold” set forth in such representations and warranties, or any disclosure contained in the Updated Disclosure Schedule) and, at the Closing, the Company shall have delivered to Parent, Holdings and Acquisition Sub a certificate to the effect of the foregoing, executed by the CEO and the Chief Financial Officer of the Company;

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(b)Each of the covenants and obligations of the Company to be performed at or before the Effective Time pursuant to this Agreement shall have been duly performed in all material respects at or before the Effective Time and, at the Closing, the Company shall have delivered to Parent, Holdings and Acquisition Sub a certificate to that effect, executed by the CEO and the Chief Financial Officer of the Company;

(c)There shall not have occurred a Material Adverse Effect on the Company;

(d)The Company and each of its subsidiaries shall have executed and delivered to Parent each Transaction Agreement to which it is a party;

(d)The Company shall have taken each of the actions set forth on Schedule 5.3(e);

(f)Parent shall have received an executed offer letter (including Parent’s standard form of employee proprietary information and inventions agreement), effective as of the Closing Date, from (i) 100% of the Key Employees, and (ii) the number of employees of the Company and its subsidiaries set forth in Schedule 5.3(f), each of such employees shall remain an employee in good standing (which for these purposes means such employee is not subject to termination by the Company or any of its subsidiaries under its employment policies in effect on the date of this Agreement) and shall not have notified the Company, any subsidiary of the Company or Parent of such employee’s intention not to continue his or her employment with the Surviving Corporation or Parent after the Effective Time or contested the validity of any of such letters or agreements;

(g)Parent shall receive from the Company written evidence, in form and substance reasonably satisfactory to Parent, that the Company or its applicable subsidiary has terminated the employment of each Terminated Employee;

(h)No Key Employee shall have breached, threatened to breach or questioned the validity of their respective Employment Letters (any such Key Employee, an “Excluded Key Employee”);

(i)No Non-Competition Agreement Party listed on Schedule I shall have breached, threatened to breach or questioned the validity of their respective Non-Competition Agreement;

(j)The requisite Stockholders (and any other party to the agreements list below) and the Company shall have approved the termination of any stockholder, voting, registration or investor rights agreements of the Company, including those described in Section 4.13;

(k)All Liens on the assets of the Company and its subsidiaries shall have been terminated;

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(l)Parent shall have received written evidence reasonably satisfactory to Parent that each director and officer of the Company and any of its subsidiaries has resigned from all director or officer positions held by such person with respect to the Company or any such subsidiary;

(m)The Company shall have delivered to Parent a true and complete copy of the Closing Consideration Spreadsheet, as contemplated by Section 4.22(b) and the Company’s capitalization table at least three Business Days prior to the Closing Date, reflecting the number of Shares, Company Stock Options, Restricted Company Shares, Company Warrants and any other Company Securities, in each case outstanding as of the Effective Time (the “Updated Capitalization Schedule”). The Updated Capitalization Schedule shall include a true and complete list as of the Effective Time of all holders of outstanding Company Securities, an indication of whether Company Warrants, Company Stock Options or Restricted Company Shares are vested or unvested, the vesting schedule of each Company Stock Option and Restricted Company Share, the exercise price per share and whether such option is a nonqualified stock option or incentive stock option. The Closing Consideration Spreadsheet and the Updated Capitalization Schedule shall be certified by the Chief Financial Officer of the Company;

(n)At least three Business Days prior to the Closing Date, the Company shall have delivered to Parent the Schedule of Company Transaction Expenses, certified by the CEO of the Company, and the Transaction Expenses Payoff Instructions. Prior to the Closing, the Company shall have delivered to the Parent an invoice duly executed by each payee referred to in the Transaction Expenses Payoff Instructions in form and substance reasonably satisfactory to the Parent in which the payee shall agree that upon payment of the amounts specified in the Transaction Expenses Payoff Instructions, all obligations of the Company and its subsidiaries (and as of the Effective Time, the Surviving Corporation) to such payee to date shall be repaid, discharged and extinguished in full;

(o)At least two Business Days prior to the Closing Date, the Company shall have delivered to Parent the Preliminary Closing Statement, the Updated Disclosure Schedule, and the Datasite DVD-ROMs as required by Section 4.21;

(p)The Company and each holder of Company Warrants, Restricted Company Shares and/or Company Stock Options shall have, to the extent reasonably necessary or advisable, amended the Company Plans and any award agreements or other Contracts governing such Company Warrants, Restricted Company Shares and/or Company Stock Options to permit treatment of them in the manner contemplated by Section 1.11;

(q)Parent shall have received satisfactory evidence that the Company has given to holders of Company Securities such notice of the Merger and of the assumption, cancellation or repurchase, as the case may be, of the Company Stock Options, Company Warrants and Company Restricted Stock as of the Effective Time as contemplated by this Agreement and as is required by applicable law, the terms of the Company’s Certificate of Incorporation and Bylaws, the Company Plans, as the case may be, and the longest of the notice periods required by applicable law, the Certificate of Incorporation, Bylaws, or Company Plans shall have expired or been waived;

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(r)Not more than 2% of the shares of Company Common Stock or any series of Company Preferred Stock outstanding at the Effective Time shall be Dissenting Shares;

(s)The Company shall have delivered to Parent (i) a properly executed Foreign Investment and Real Property Tax of 1980 notification letter which states that the Shares and the Company Stock Options do not constitute “United States real property interests” under Section 897(c) of the Code for purposes of satisfying Parent’s obligations under Treasury Regulation Section 1.1445-2(c)(3) and (ii) a form of notice to the IRS prepared in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2), each in substantially the form attached hereto as Exhibit C;

(t)All Employee Indebtedness shall have been paid or repaid to the Company or its applicable subsidiary, as the case may be, in accordance with Section 4.20;

(u)All outstanding Company Warrants shall have been exercised or terminated;

(v)The Company shall have obtained the Stockholder Approval;

(w)The Company shall have delivered to Parent a certificate of the Company, dated as of the Closing Date and signed by the Company’s Secretary, certifying as to (i) the full force and effect of the certificate of incorporation and bylaws (or equivalent governing documents) of the Company attached to such certificates as exhibits, (ii) the accuracy and full force and effect of the Stockholder Approval, and (iii) the resolutions adopted by the Board of Directors of the Company regarding this Agreement and the Transactions and attached as one or more exhibits to such certificate;

(x)The Company shall have terminated, effective as of at least one day prior to the Closing Date, each Company 401(k) Plan and the Company shall have provided Parent with evidence reasonably satisfactory to Parent that (i) each Company 401(k) Plan has been terminated pursuant to resolutions of the Company Board effective not later than one day immediately preceding the Closing Date, (ii) the Company has adopted and executed an amendment sufficient to permit Parent to take such actions deemed necessary or advisable by Parent to ensure compliance with all applicable requirements of the Code, and (iii) the Company has an executed copy of a document permitting the addition of representatives of Parent as authorized signatories for the Company 401(k) Plan. The form and substance of such resolutions, amendment and document shall be subject to the prior review and reasonable approval of Parent, which shall not be unreasonably delayed;

(y)Parent shall have received from the Company, in form and substance reasonably satisfactory to Parent, (i) a long-form good standing certificate for the Company issued by the Secretary of State of the State of Delaware and (ii) a good standing certificate for the Company issued by the Secretary of State of the State of California, each dated within one Business Day prior to the Closing Date;

(z)Parent shall have received from the Company, in form and substance reasonably satisfactory to Parent, authorization to, following the Effective Time, transfer and control each of the bank accounts listed in Section 2.25 of the Company Disclosure Schedule; and

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(aa)No Action by or on behalf of a Third Party (as defined in Section 2.14) shall be pending or threatened before any Governmental Entity claiming infringement or misappropriation by the Company or any subsidiary of the Company of such Third Party’s Intellectual Property Rights that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect on the Company and its subsidiaries, taken as a whole.

ARTICLE 6.

TERMINATION

Section 6.1Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Closing whether before or after approval and adoption of this Agreement by the Stockholders:

(a)by mutual consent of Parent, Holdings, Acquisition Sub and the Company;

(b)by Parent, Holdings and Acquisition Sub or the Company if: (i) any court or Governmental Entity of competent jurisdiction shall have issued a final order, decree or ruling, or taken any other final action, restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action is or shall have become nonappealable; or (ii) the Merger has not been consummated on or before July 11, 2013, which date shall automatically be extended to September 11, 2013 if all of the conditions set forth in Article 5 (other than those conditions that by their nature are satisfied at Closing, and other than the condition set forth in Section 5.1(a)) have been satisfied by July 11, 2013 (such date, as the same may be extended, the “Final Date”); provided,however, that no party may terminate this Agreement pursuant to clause (ii) if such party’s failure to fulfill any of its obligations under this Agreement shall have been the reason that the Effective Time shall not have occurred on or before said date;

(c)by the Company if: (i) there shall have been a breach of any representation or warranty of Parent, Holdings or Acquisition Sub set forth in this Agreement or if any such representation or warranty of Parent, Holdings or Acquisition Sub shall have become untrue such that the condition set forth in Section 5.2(a) would be incapable of being satisfied by the Final Date; provided,that the Company has not breached any of its representations and warranties or obligations hereunder in any material respect; or (ii) there shall have been a breach by Parent, Holdings or Acquisition Sub of any of its covenants or agreements hereunder such that the condition set forth in Section 5.2(b) would be incapable of being satisfied by the Final Date, and Parent, Holdings or Acquisition Sub, as the case may be, has not cured such breach within 10 Business Days after notice by the Company thereof; provided, that the Company has not breached any of its representations and warranties or obligations hereunder in any material respect;

(d)by Parent, Holdings and Acquisition Sub if: (i) there shall have been a breach of any representation or warranty on the part of the Company set forth in this Agreement or if any such representation or warranty of the Company shall have become untrue such that the condition set forth in Section 5.3(a) would be incapable of being satisfied by the Final Date; provided,that

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none of Parent, Holdings or Acquisition Sub has breached any of its representations and warranties or obligations hereunder in any material respect; or (ii) there shall have been a breach by the Company of any of its covenants or agreements hereunder such that the condition set forth in Section 5.3(b) would be incapable of being satisfied by the Final Date, and the Company has not cured such breach within 10 Business Days after notice by Parent, Holdings or Acquisition Sub thereof; provided, that none of Parent, Holdings or Acquisition Sub has breached any of its representations and warranties or obligations hereunder in any material respect; or

(e)by Parent if the Company has not delivered the Requisite Approval to Parent within 24 hours after the execution and delivery of this Agreement.

Section 6.2Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become void and have no further effect without any liability on the part of any party hereto or any of its affiliates, directors, officers and stockholders other than pursuant to Sections 4.5(c) and 6.3 (and such provisions of Article 8 as would be relevant to effectuating such Sections). Nothing contained in this Section 6.2 shall relieve any party from liability for any breach of this Agreement prior to such termination. Notwithstanding anything to the contrary herein, the Confidentiality Agreement and the Stockholder Agent Confidentiality Agreement shall survive any termination of this Agreement.

Section 6.3Fees and Expenses.

(a)If this Agreement is terminated pursuant to Section 6.1(d)(ii), in addition to any other remedies that Parent, Holdings, Acquisition Sub or their affiliates may have as a result of such termination, the Company shall reimburse Parent, Holdings and Acquisition Sub for the costs, fees and expenses incurred by either of them, or on their behalf, in connection with this Agreement, the Merger and the consummation of all of the Transactions (including fees payable to professional advisors, investment bankers, accountants and counsel to any of the foregoing).

(b)If this Agreement is terminated pursuant to Section 6.1(c)(ii), in addition to any other remedies that the Company may have as a result of such termination, Parent shall reimburse the Company for the costs, fees and expenses incurred by it or on its behalf in connection with this Agreement, the Merger and the consummation of all of the Transactions (including fees and expenses payable to professional advisors, investment bankers, accountants and counsel to any of the foregoing).

ARTICLE 7.INDEMNIFICATION; ESCROW

Section 7.1General Survival. The parties agree that, regardless of any knowledge of or investigation made by Parent, Holdings or Acquisition Sub:

(a)the representations, warranties and covenants of the Company contained in this Agreement shall survive the execution and delivery of this Agreement for a period beginning

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on the date hereof and ending at 11:59 p.m., Pacific time, 18 months after the date on which the Effective Time occurs (the “Escrow Period”), except that:

(i)each of the following shall survive the execution and delivery of this Agreement indefinitely: (A) each of the representations and warranties of the Company contained in Section 2.1 (Organization and Qualification; Subsidiaries), Section 2.2 (Capitalization of the Company and its Subsidiaries), Section 2.3 (Authority Relative to this Agreement; Recommendation), Section 2.6 (Consents and Approvals; Notices; No Violations), Section 2.10 (Compliance with Applicable Law) (only insofar as it relates to Taxes), Section 2.13 (Taxes), Section 2.23 (Dissenters’ Rights), and Section 2.24 (Company Transaction Expenses); and (B) each of the covenants of the Company contained in Section 4.2 (Information Statement), Section 4.4 (Approval of Stockholders), Section 4.5(c) (Confidentiality), Section 4.6 (Certain Filings; Reasonable Best Efforts), Section 4.8 (Public Announcements), Section 4.12 (Termination of 401(k) Plan), Section 4.13 (Termination of Company Investors’ Rights and Co-Sale Agreements), Section 4.14 (Invention Assignment Agreement), Section 4.15 (280G Approval), Section 4.16(b) (Notices), Section 4.17 (Warrants), Section 4.18 (Certain Tax Matters), and Section 4.22 (Consideration Spreadsheets; Company Transaction Expenses); and

(ii)the representations and warranties of the Company contained in Section 2.14 (Intellectual Property) shall survive the execution and delivery of this Agreement for a period beginning on the date hereof and ending at 11:59 p.m., Pacific time, two years after the date on which the Effective Time occurs; the matters described in this Section 7.1(a)(ii) are referred to as the “Special IP Claims”;

(b)any claim resulting from, arising out of, or relating to, the matters set forth in Sections 7.2(a)(iii), 7.2(a)(iv), 7.2(a)(v) and 7.2(a)(vii) shall survive the execution and delivery of this Agreement indefinitely, and

(c)any claim resulting from, arising out of, or relating to, the matters set forth in Section 7.2(a)(vi) shall survive the execution and delivery of this Agreement for a period beginning on the date hereof and ending at 11:59 p.m., Pacific time, on the date that is 90 days following the last day of the longest applicable statute of limitations period for any third-party claim relating thereto.

Each period described in this Section 7.1, is referred to as an applicable “Survival Period”. The matters described in Section 7.1(a)(i) and (ii), and Section 7.1(b) and 7.1(c) are referred to as the “Special Claims”. The parties acknowledge that the time periods set forth in this Section for the assertion of claims and notices under this Agreement are the result of arms’ length negotiation among the parties and that they intend for the time periods to be enforced as agreed by the parties.  The parties further acknowledge that the time periods set forth in this Section may be shorter than otherwise provided by law.

Section 7.2Indemnification Generally.

(a)Subject to Section 7.1, from and after the Effective Time, Parent, Holdings and the Surviving Corporation, and their respective affiliates, officers, directors, stockholders,

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shareholders, representatives and agents (collectively, the “Parent Indemnitees”), shall be indemnified and held harmless by each Escrow Holder (each an “Indemnifying Party”) (severally in accordance with each such Indemnifying Party’s proportional share of the Total Merger Consideration payable in respect to all Indemnifying Parties and not jointly) from and against and in respect of any and all Losses resulting from, arising out of, relating to, imposed upon or incurred by Parent, Holdings, Acquisition Sub, the Surviving Corporation or any other Parent Indemnitee by reason of:

(i)any inaccuracy in or breach of any of the Company’s representations or warranties contained in this Agreement (including the Company Disclosure Schedule, the Updated Disclosure Schedule, other schedules and the Exhibits hereto, and any certificate furnished to Parent, Holdings, Acquisition Sub or any other Parent Indemnitee by or on behalf of the Company or any Indemnifying Party in connection with the Transactions, other than those described in Section 7.2(a)(iii)), disregarding, and without regard or giving effect to, any limitations or qualifications thereto, including materiality, Material Adverse Effect on the Company, dollar “thresholds” and knowledge;

(ii)any breach of or failure to perform or comply with any covenant, undertaking or other agreement by the Company contained in this Agreement (which breach or failure to perform or comply occurs prior to the Closing);

(iii)any misrepresentation or inaccuracy in the information contained in the Capitalization Schedule, the Updated Capitalization Schedule, the Preliminary Closing Spreadsheet, or the Closing Consideration Spreadsheet or in any certificate furnished to Parent, Holdings, Acquisition Sub or any other Parent Indemnitee by or on behalf of the Company or any Indemnifying Party in connection with any of the foregoing;

(iv)any Company Transaction Expense in excess of the amount of Estimated Company Transaction Expenses;

(v)payments to holders of Dissenting Shares to the extent such payments, in the aggregate, exceed the value of the amounts that otherwise would have been payable pursuant to Section 1.8 upon the exchange of such Dissenting Shares, plus the amount of expenses incurred by Parent, Holdings, Acquisition Sub, the Surviving Corporation or any other Parent Indemnitee in connection with any litigation, arbitration, mediation or settlement of such holders’ claims;

(vi)Pre-Closing Taxes (other than Taxes to the extent taken into account as a liability in the determination of Closing Working Capital as finally determined pursuant to Section 1.12); or

(vii)any of the matters set forth on Schedule 7.2(a)(vii).

For purposes of this Agreement, the term “Losses” means any and all deficiencies, judgments, settlements, demands, claims, suits, actions or causes of action, assessments, liabilities, losses, damages (whether direct, indirect, incidental or consequential), interest, diminution in value, Taxes, fines, penalties, costs, expenses (including reasonable legal, accounting and other costs and expenses

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of professionals) incurred in connection with investigating, defending, settling or satisfying any and all Claims, judgments or appeals, and in seeking indemnification therefor. For purposes of this Agreement, the term “Special Losses” means any and all Losses resulting from, arising out of, relating to, imposed upon or incurred by Parent, Holdings, Acquisition Sub, the Surviving Corporation or any other Parent Indemnitee by reason of, a Special Claim (for the avoidance of doubt, Special Losses include Special IP Losses). For purposes of this Agreement, the term “Special IP Losses” means any and all Losses resulting from, arising out of, relating to, imposed upon or incurred by Parent, Holdings, Acquisition Sub, the Surviving Corporation or any other Parent Indemnitee by reason of, a Special IP Claim. For purposes of calculating the amount of a particular Loss, such calculation will be made disregarding, and without giving effect to, (A) any materiality, knowledge, dollar threshold or Material Adverse Effect on the Company qualification or (B) any Updated Disclosure Schedule. No waiver of a closing condition by Parent, Holdings or Acquisition Sub shall limit their rights under this Article 7. In addition, any investigation conducted or knowledge acquired (or capable of being acquired) by or on behalf of Parent, Holdings or Acquisition Sub or any of their affiliates at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, shall not constitute a waiver or limitation of the right of any Parent Indemnitee to enforce any indemnification rights hereunder with respect to the accuracy or inaccuracy of or compliance with, any representation, warranty, covenant or obligation contained in this Agreement.

(b)Any claims for indemnification hereunder must be set forth in writing, contain a reasonably detailed description of the nature of and the events or circumstances underlying the claim for indemnification hereunder and be received by the Stockholder Agent no later than 10 Business Days following the expiration of the applicable Survival Period (an “Indemnification Claim”) for claims arising prior to such expiration of the Survival Period. No Parent Indemnitee shall be entitled to indemnification hereunder for any Losses arising from a breach of a representation or warranty of the Company until the aggregate amount of all Losses under all claims of all Parent Indemnitees, without duplication, for all such breaches shall exceed $2,000,000 (the “Threshold”), at which time all Losses incurred shall be subject to indemnification hereunder in full, including the amount of the Threshold; provided,however, that any Indemnification Claim for Special Losses shall be indemnifiable in full without regard to the Threshold and indemnification for any Special Loss shall count towards the Threshold.

(c)The obligations of the Indemnifying Parties under this Section 7.2 shall not be reduced, offset, eliminated or subject to contribution by reason of any action or inaction by the Company that contributed to any inaccuracy or breach giving rise to such obligation, it being understood that the Indemnifying Parties, and not the Company or the Surviving Corporation, shall have the sole obligation for the indemnity obligations under this Section 7.2.

(d)The determination of whether there has been a breach of a representation or warranty in Section 2.13 (Taxes), or other representation or warranty with respect to Taxes, and the extent of any Losses arising therefrom, shall be made without regard to any disclosures made in the Company Disclosure Schedule. No Losses shall be paid pursuant to Section 7.2(a)(vi) in respect of Pre-Closing Taxes to the extent such Pre-Closing Taxes were withheld pursuant to Section 1.10(b) or Section 8.12.

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(e)Each Indemnification Claim shall be made only in accordance with this Article 7 and the Escrow Agreement.

Section 7.3Escrow Arrangements. At the Effective Time, Parent, Holdings, the Company, the Stockholder Agent and the Escrow Agent shall enter into an escrow agreement, in substantially the form attached hereto as Exhibit D with such modifications and revisions as may be reasonably required by the Escrow Agent upon its review of such agreement following the date hereof (the “Escrow Agreement”), and Parent, on behalf of the Surviving Corporation, shall cause to be retained from the Total Merger Consideration and deposited with Wells Fargo Bank, N.A., or such other bank or trust company designated by Parent and reasonably acceptable to the Company, as escrow agent (the “Escrow Agent”), into such accounts with the Escrow Agent as is established by the Escrow Agreement the Escrow Amount (the “Escrow Fund”) and the Reserve Amount (the “Reserve Fund”), each of such Escrow Amount and such Reserve Amount to be held and released by the Escrow Agent pursuant to the terms of the Escrow Agreement and this Agreement. The Escrow Fund, together with all interest and other income thereon, shall be available to the Parent Indemnitees to satisfy their claims for indemnification by the Indemnifying Parties hereunder; provided, however, that the Surviving Corporation may not recover amounts from the Escrow Fund unless and until Indemnification Claim(s) identifying Losses in the aggregate exceeding the Threshold or not subject to the Threshold have been delivered to the Escrow Agent and the Stockholder Agent, as provided in the Escrow Agreement, and the conditions in the Escrow Agreement for the disbursement of such amounts from the Escrow Fund to the Surviving Corporation have been satisfied.

Section 7.4Stockholder Agent.

(a)For purposes of this Agreement, immediately and automatically upon Requisite Approval of this Agreement, and without any further action on the part of any Indemnifying Party, each Indemnifying Party shall be deemed to have consented to the appointment of Shareholder Representative Services LLC as his, her or its representative and the attorney-in-fact for and on behalf of each such Indemnifying Party, and the taking by the Stockholder Agent of any and all actions and the making of any decisions required or permitted to be taken by it under this Agreement and the Escrow Agreement, including the exercise of the power to (i) authorize delivery to Holdings of the Escrow Fund, or any portion thereof in satisfaction of Indemnification Claims; (ii) agree to, negotiate, enter into settlements and compromises of and comply with orders of courts and awards of arbitrators with respect to such Indemnification Claims; (iii) resolve any Indemnification Claims; and (iv) take all actions necessary in the judgment of the Stockholder Agent for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement and the Escrow Agreement.

(b)Accordingly, the Stockholder Agent shall have unlimited authority and power to act on behalf of each Indemnifying Party with respect to this Agreement and the Escrow Agreement and the disposition, settlement or other handling of all Indemnification Claims, or other rights or obligations arising from and taken pursuant to this Agreement and the Escrow Agreement. The Indemnifying Parties will be bound by all actions taken by the Stockholder Agent in connection with this Agreement and the Escrow Agreement, and Parent and Holdings shall be entitled to rely

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on any action or decision of the Stockholder Agent. Without limiting the generality of the foregoing, each decision, act, consent or instruction of the Stockholder Agent will constitute a decision of all of the Indemnifying Parties with respect to whom a portion of the Escrow Fund is held by the Escrow Agent and will be final, binding and conclusive upon each of such Indemnifying Parties, and Parent, Holdings and the Escrow Agent may rely upon any such decision, act, consent or instruction of the Stockholder Agent as being the decision, act, consent or instruction of each and every such Indemnifying Party. Each of Parent, Holdings and the Escrow Agent is hereby relieved from any liability to any person for any decision, act, consent or instruction of the Stockholder Agent and for any acts done by Parent, Holdings and the Escrow Agent in accordance with such decision, act, consent or instruction of the Stockholder Agent.

(c)The Stockholder Agent will incur no liability with respect to any action taken or suffered by it in reliance upon any notice, direction, instruction, consent, statement or other document believed by it to be genuine and to have been signed by the proper person (and shall have no responsibility to determine the authenticity thereof), nor for any other action or inaction, except its own willful misconduct or gross negligence. In all questions arising under this Agreement or the Escrow Agreement, the Stockholder Agent may rely on the advice of counsel, and the Stockholder Agent will not be liable to anyone for anything done, omitted or suffered in good faith by the Stockholder Agent based on such advice. The Stockholder Agent will not be required to take any action involving any expense unless the payment of such expense is made or provided for in a manner satisfactory to it. The Indemnifying Parties will indemnify, defend and hold harmless the Stockholder Agent from and against any and all loss, liability, damage, claim, penalty, fine, forfeiture, action, fee, cost and expense (including the fees and expenses of counsel and experts and their staffs and all expense of document location, duplication and shipment) (collectively, “Agent Losses”) arising out of or in connection with the Stockholder Agent’s execution and performance of this Agreement and the Escrow Agreement, in each case as such Agent Loss is suffered or incurred; provided, however, that in the event that any such Agent Loss is finally adjudicated to have been primarily caused by the gross negligence or willful misconduct of the Stockholder Agent, the Stockholder Agent will reimburse the Indemnifying Parties the amount of such indemnified Agent Loss attributable to such gross negligence or willful misconduct. If not paid directly to the Stockholder Agent by the Indemnifying Parties, any such Agent Losses may be recovered by the Stockholder Agent from (i) the funds in the Reserve Fund and (ii) subject to the satisfaction of all outstanding Indemnification Claims, the amounts in the Escrow Fund at such time as remaining amounts would otherwise be distributable to the Indemnifying Parties in accordance with the Escrow Agreement; provided, however, that while this Section allows the Stockholder Agent to be paid from the Reserve Fund and the Escrow Fund, this Section does not relieve the Indemnifying Parties from their obligation to promptly pay such Agent Losses as they are suffered or incurred, nor does it prevent the Stockholder Agent from seeking any remedies available to it at law or otherwise; provided, further, that in order to make a claim for any such recovery from the Escrow Fund, the Stockholder Agent shall deliver a written notice to Parent, Holdings, the Surviving Corporation and the Escrow Agent in accordance with the applicable provisions of the Escrow Agreement, and, if required by law or any of Parent, Holdings, the Surviving Corporation or the Escrow Agent, an accurately completed W-9 or W-8BEN for the applicable vendor retained by the Stockholder Agent and any other documents reasonably requested by Parent, Holdings, the Surviving Corporation or the Escrow Agent; provided, further, that the Stockholder Agent shall also provide to Parent,

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Holdings and the Surviving Corporation, with such written notice in connection with a claim for recovery from the Escrow Fund, an invoice showing the fees and expenses for the services performed.

(d)Subject to the terms of the Escrow Agreement, at any time, Escrow Holders having a majority of the Recovery Percentage (the “Majority Escrow Holders”) may, and if the Stockholder Agent resigns, ceases to perform its duties in connection herewith or dies, the Majority Escrow Holders shall, appoint a new Stockholder Agent by written consent by sending to Parent, Holdings, the Surviving Corporation and the Escrow Agent notice and a copy of the written consent appointing such new Stockholder Agent signed by the Majority Escrow Holders. Such appointment will be effective upon the later of the date indicated in the consent or the date such consent is received by Parent, Holdings, the Surviving Corporation and the Escrow Agent.

Section 7.5Third-Party Claims.

(a)If any Third Party provides written notice to Parent or any of its affiliates or any other Parent Indemnitee with respect to any written claim (hereinafter referred to as a “Third Party Claim”), which Parent believes in good faith, may give rise to an Indemnification Claim by Parent against the Escrow Fund, then Parent shall give notice to the Stockholder Agent within 30 days after Parent has received any such Third Party Claim setting forth such material information with respect to the Third Party Claim as is reasonably available to Parent; provided,however,that no delay or failure on the part of Parent in notifying the Stockholder Agent shall relieve the Stockholder Agent and the Indemnifying Parties from their obligations hereunder unless the Stockholder Agent and the Indemnifying Parties are thereby materially prejudiced (and then solely to the extent of such material prejudice).

(b)In case any Third Party Claim is asserted against Parent, Holdings or any of its affiliates or any other Parent Indemnitee, the Stockholder Agent may, if the Stockholder Agent so elects by written notice delivered to Parent within 14 days after receiving Parent’s notice of such claim, assume the defense thereof, at the sole expense of the Indemnifying Parties, independent of the then-remaining Escrow Fund, unless:

(i)Parent has reasonably determined that Losses which may be incurred as a result of the Third Party Claim may exceed, either individually or when aggregated with all other actual or anticipated Third Party Claims, the total dollar value of the Escrow Fund;

(ii)the Third Party Claim does not involve only money damages and could (A) involve an injunction or other equitable relief, (B) involve any criminal or quasi-criminal allegations or proceeding, action, indictment, allegation or investigation against Parent, the Company, any of its subsidiaries or any of their respective employees or affiliates, (C) relate to or arise in connection with intellectual property rights of the Company or any of its subsidiaries, or (D) involve a customer or supplier of Parent, Holdings, the Company or any of its subsidiaries;

(iii)settlement of, or an adverse judgment with respect to, the Third Party Claim could, in the good-faith judgment of Parent, establish a precedential custom or practice

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materially adverse to the continuing business interests of Parent, Holdings, the Surviving Corporation or any other Parent Indemnitee;

(iv)under applicable standards of professional conduct, a conflict on any significant issue may exist between the Parent Indemnitees and the Indemnifying Parties in respect of the Third Party Claim; or

(v)Stockholder Agent does not (A) agree, on behalf of the Indemnifying Parties, that the Indemnifying Parties shall be fully responsible for all Losses relating to such Third Party Claim and (B) provide reasonable assurance to Parent of the financial capacity of the Indemnifying Parties (taking into account Stockholder Agent’s rights pursuant to Section 7.4(c)) to prosecute the defense actively and diligently.

(c)If the Stockholder Agent is permitted to assume any such defense, the Stockholder Agent shall conduct the defense of the Third Party Claim actively and diligently. The Stockholder Agent shall not compromise or settle such Third Party Claim or consent to entry of any judgment in respect thereof without the prior written consent of Parent and/or any other Parent Indemnitees, as applicable, which consent shall not be unreasonably withheld or delayed.

(d)In the event that the Stockholder Agent assumes the defense of the Third Party Claim in accordance with Section 7.5(b), Parent, Holdings or any other Parent Indemnitee may retain separate counsel and participate in the defense of the Third Party Claim, but the fees and expenses of such counsel shall be at the expense of Parent or Holdings, unless Parent, Holdings or such Parent Indemnitees shall reasonably determine that (i) there is a conflict of interest between or among Parent, Holdings or the Parent Indemnitees, on the one hand, and the Stockholder Agent and the Indemnifying Parties, on the other hand, or (ii) the Stockholder Agent has failed to vigorously prosecute or defend, with respect to such Third Party Claim, in which case the reasonable fees and expenses of such counsel will be paid out of the Escrow Fund. Parent and Holdings will, at the Indemnifying Parties’ expense,cooperate in the defense of the Third Party Claim and will provide full access to documents, assets, properties, books and records reasonably requested by the Stockholder Agent and material to the claim and will make available all officers, directors and employees reasonably requested by the Stockholder Agent for investigation, depositions and trial.

(e)If the Stockholder Agent fails or elects not to assume the defense of Parent or its affiliates or any other Parent Indemnitee against such Third Party Claim, which Stockholder Agent had the right to assume under Section 7.5(b), Parent, Holdings or any other Parent Indemnitee shall have the right to undertake the defense and Parent and Holdings shall not compromise or settle such Third Party Claim or consent to entry of any judgment in respect thereof without the prior written consent of the Stockholder Agent, which consent shall not be unreasonably withheld or delayed. If the Stockholder Agent is not entitled to assume the defense of Parent, Holdings or other Parent Indemnitees against such Third Party Claim pursuant to Section 7.5(b), Parent, Holdings or the Parent Indemnitees shall have the right to undertake the defense, consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim in any manner it may deem appropriate (and Parent, Holdings or Parent Indemnitees need not consult with, or obtain any consent from, the Stockholder Agent in connection therewith); provided, however, that, except with the written consent of the Stockholder Agent, no settlement of any such claim or consent to entry

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of any judgment with respect to such Third Party Claim shall alone be determinative of the validity of the Third Party Claim against the Escrow Fund or personally against the Indemnifying Parties. In each case, Parent, Holdings or the Parent Indemnitees shall conduct the defense of the Third Party Claim actively and diligently, and the Stockholder Agent will cooperate with Parent, Holdings or Parent Indemnitees, and the Stockholder Agent and the Indemnifying Parties will cooperate in the defense of that claim and the Stockholder Agent will provide full access to documents, assets, properties, books and records in its possession reasonably requested by Parent and material to the claim and will make available all individuals within its control reasonably requested by Parent for investigation, depositions and trial.

(f)Notwithstanding the foregoing, the Stockholder Agent shall not be entitled to control any Third Party Claim relating to Taxes of Parent, Holdings, the Surviving Corporation or the Company or any of its subsidiaries, and shall not be entitled to settle, either administratively or after the commencement of litigation, any claim for Taxes which could, in each case, as determined in Parent’s reasonable discretion, adversely affect the liability of Parent, Holdings or the Surviving Corporation or its subsidiaries for Taxes for any period (or portion thereof) after the Closing Date by more than a de minimis amount, without the prior written consent of Parent.

Section 7.6Limits on Recovery.

(a)With respect to all Losses: (i) each Indemnifying Party shall be severally, in the same proportion as such Indemnifying Party’s Recovery Percentage, and not jointly, liable for the amount of any Losses, except to the extent such liability is limited pursuant to this Section 7.6; and (ii) the Parent Indemnitees may seek recovery for any Losses directly from the Indemnifying Parties only after proceeding against the Escrow Fund.

(b)With respect to Losses that are not Special Losses (the “Ordinary Losses”), the aggregate maximum liability of the Indemnifying Parties (excluding any amounts payable pursuant to the Stockholder Agent’s rights under Section 7.4(c)) shall not exceed an amount equal to (i) 12.5% multiplied by (ii) the Base Cash Amount.

(c)With respect to Special IP Losses, the aggregate maximum liability of the Indemnifying Parties (excluding any amounts payable pursuant to the Stockholder Agent’s rights under Section 7.4(c)), when taken together with any Ordinary Losses, shall not exceed an amount equal to (i) 20% multiplied by (ii) the Base Cash Amount.

(d)With respect to all Special Losses (except for Special IP Losses that are subject to Section 7.6(c)), the aggregate maximum liability of the Indemnifying Parties (excluding any amounts payable pursuant to the Stockholder Agent’s rights under Section 7.4(c)), when taken together with any Special IP Losses and any Ordinary Losses, shall not exceed an amount equal to the Base Cash Amount.

(e)Notwithstanding anything to the contrary herein, except as provided in Section 7.6(c), in the event and to the extent the Parent Indemnitees recover any Special Losses from the Escrow Fund, the amount of such recovery shall not reduce or limit the amount that the Parent Indemnitees would otherwise be entitled to recover from the Indemnifying Parties in respect

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of Ordinary Losses the Indemnification Claims for which are made prior to the day that is 10 Business Days following the expiration of the applicable Survival Period.

(f)Nothing in this Agreement shall be deemed a waiver by any party of (i) any right to specific performance or injunctive relief or (ii) any right or remedy, including money damages in excess of the Escrow Fund and the Total Merger Consideration, arising by reason of any claim of fraud or willful misrepresentation with respect to this Agreement, the Transaction Agreements or the Transactions.

ARTICLE 8.

MISCELLANEOUS

Section 8.1Entire Agreement. This Agreement (including the Company Disclosure Schedule, the Updated Disclosure Schedule, other schedules and the Exhibits hereto) and the other Transaction Agreements constitute the entire agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersedes all other prior agreements and understandings both written and oral between the parties with respect to the subject matter hereof and thereof.

Section 8.2Validity. If any provision of this Agreement or the application thereof to any person or circumstance is held invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby and to such extent the provisions of this Agreement are agreed to be severable.

Section 8.3Notices. All notices, requests, claims, consents, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt, or, in the case of an e-mail or a facsimile, upon confirmation of receipt) by delivery in person, by e-mail, by facsimile, by nationally recognized overnight courier or by registered or certified mail (postage prepaid, return receipt requested) to each other party as follows:

if to Parent, Holdings, Acquisition Sub or the Company (after the Effective Time):

Cadence Design Systems, Inc.
2655 Seely Avenue, Building 5
San Jose, CA 95134
Facsimile: (408) 428-5455
Attention:  Office of the General Counsel

with a copy to (which shall not constitute notice):
Gibson, Dunn & Crutcher LLP
555 Mission Street

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San Francisco, CA 94105
Facsimile: (415) 374-8461
Email:    SMcDowell@gibsondunn.com
    MReed@gibsondunn.com
Attention:    Stewart L. McDowell    Michael L. Reed

if to the Company (prior to the Effective Time):
Tensilica, Inc.
3393 Octavius Drive
Santa Clara, CA 95054
Fax: (408) 986-8919
Attention: Chief Executive Officer

with a copy to (which shall not constitute notice):
Shareholder Representative Services LLC
1614 15th Street, Suite 200
Denver, CO 80202
Facsimile: (303) 623-0294
Telephone: (303) 648-4085
Email: deals@shareholderrep.comAttention: Managing Director

with a copy to (which shall not constitute notice):
Pillsbury Winthrop Shaw Pitman LLP
2550 Hanover Street
Palo Alto, CA 94304
Facsimile: (650) 233-4545
E-Mail: SPierson@pillsburylaw.com
Attention: Stanley F. Pierson

if to Stockholder Agent to:
Shareholder Representative Services LLC
1614 15th Street, Suite 200
Denver, CO 80202
Facsimile: (303) 623-0294
Telephone: (303) 648-4085
Email: deals@shareholderrep.comAttention: Managing Director

with a copy to (which shall not constitute notice):

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Pillsbury Winthrop Shaw Pitman LLP
2250 Hanover Street
Palo Alto, CA 94304
Facsimile: (650) 233-4545
E-Mail: SPierson@pillsburylaw.com
Attention: Stanley F. Pierson

or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above.

Section 8.4Governing Law; Waiver of Jury Trial.

(a)This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law thereof.

(b)Each of the parties hereto consents to the exclusive jurisdiction of any state or federal court located within the State of Delaware, and irrevocably agrees that all actions or proceedings relating to this Agreement or the transactions contemplated hereby shall be litigated in one of such courts, and each of the parties waives any objection that it may have based on improper venue or forum non conveniens to the conduct of any such action or proceeding in any such court and waives personal service of any and all process upon it, and consent to all such service of process made in the manner set forth in Section 8.3. Nothing contained in this Section 8.4(b) shall affect the right of any party to serve legal process on any other party in any other manner permitted by law.

(c)Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore, to the fullest extent permitted by applicable law, each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or any of the Transactions. Each party certifies and acknowledges that (i) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each such party understands and has considered the implications of this waiver, (iii) each such party makes this waiver voluntarily, and (iv) each such party has been induced to enter into this Agreement by, among other things, the waivers and certifications in this Section 8.4(c).

Section 8.5Descriptive Headings; Section References. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. All references herein to Articles, Sections, subsections, paragraphs and clauses are references to Articles, Sections, subsections, paragraphs and clauses, respectively, of this Agreement unless specified otherwise.

Section 8.6Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and its successors and permitted assigns and, except as expressly provided herein, including in Section 8.1, nothing in this Agreement is intended to or shall confer

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upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement.

Section 8.7Certain Definitions. For the purposes of this Agreement the terms:

(a)“affiliate” means a person that, directly or indirectly, through one or more intermediaries controls, is controlled by or is under common control with the first-mentioned person;

(b)“Business Day” means any day other than a Saturday, Sunday or national holiday;

(c)“capital stock” means common stock, preferred stock, partnership interests, limited liability company interests or other ownership interests entitling the holder thereof to vote with respect to matters involving the issuer thereof;

(d)“control”, including, with correlative meaning, the terms “controlling,” “controlled by” and “under common control with,” means, for purposes of the definition of “affiliate” set forth in Section 8.7(a), the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such person, whether through the ownership of voting securities, by contract, or otherwise;

(e)“Datasite”means the online Merrill data site established by the Company in connection with the Transactions;

(f)“Due Date” means the due date taking into account extensions of time to file in effect;

(g)“include” or “including” means “include, without limitation” or “including, without limitation,” as the case may be, and the language following “include” or “including” shall not be deemed to set forth an exhaustive list;

(h)“knowledge” or “known” means, with respect to any matter in question, the knowledge of such matter of, for the Company, any director or officer of the Company or any subsidiary of the Company (and in all events including the Key Employees) or any employee of the Company set forth on Schedule 8.7(h), and for Parent, Holdings and Acquisition Sub, any officer of Parent. Any such individual will be deemed to have knowledge of a particular fact, circumstance if: (i) such individual has actual knowledge of such fact, circumstance, event or other matter; (ii) such fact, circumstance, event or other matter is reflected in one or more documents (whether written or electronic, including e-mails sent to or by such individual) in, or that have been in, such individual’s possession, including personal files of such person; or (iii) such fact, circumstance, event or other matter is reflected in one or more documents (whether written or electronic) contained in books and records of the Company that would reasonably be expected to be reviewed by a person who has the duties and responsibilities of such individual in the reasonable and customary performance of such duties and responsibilities;

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(i)“Lien” means, with respect to any asset (including any security), any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset; provided,however, that the term “Lien” shall not include (i) statutory liens for Taxes, which are not yet due and payable or are being contested in good faith by appropriate proceedings and are disclosed in Section 2.13(b)(iii) of the Company Disclosure Schedule, (ii) statutory or common law liens to secure landlords, lessors or renters under leases or rental agreements confined to the premises rented, (iii) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance, old age pension or other social security programs mandated under applicable laws, (iv) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen to secure claims for labor, materials or supplies and other like liens, and (v) restrictions on transfer of securities imposed by applicable state and federal securities laws;

(j)“Optionholder” means a holder of a Company Stock Option, whether vested or unvested;

(k)“Ordinary Course of Business” means the Company’s or its subsidiaries’ ordinary course of business, consistent with the Company’s or its subsidiaries’ past practices;

(l)“person” means an individual, corporation, partnership, limited liability company, association, academic institution, trust, unincorporated organization or other legal entity, including any Governmental Entity;

(m)“Restricted Company Share”means each outstanding share of Company Common Stock subject to a right of repurchase by the Company (other than rights of first refusal set forth in the Amended and Restated Investors’ Rights Agreement, dated as of March 31, 2009, by and between the Company and each of the Stockholders (as defined in such agreement) named therein) immediately prior to the Effective Time;

(n)“Stockholder” means any holder of Shares (including Restricted Company Shares);

(o)“subsidiary” or “subsidiaries” means, with respect to the Company, Parent, Holdings, the Surviving Corporation or any other person, any corporation, partnership, limited liability company, association, trust, unincorporated association or other legal entity of which the Company, Parent, Holdings, the Surviving Corporation or any such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, more than 50% of the capital stock or other ownership interest the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity; and

(p)“Transaction Agreements” means this Agreement, the Escrow Agreement, the Non-Competition Agreements, the Employment Letters and the other ancillary agreements that are exhibits to or otherwise attached to the preceding agreements.

Section 8.8Personal Liability. Except as expressly set forth herein with respect to the Escrow Holders, this Agreement shall not create or be deemed to create or permit any personal

88

liability or obligation on the part of any Stockholder or Parent, Holdings, Acquisition Sub or the Surviving Corporation or any officer, director, employee, agent, stockholder, shareholder, representative or investor of any party hereto.

Section 8.9Specific Performance. The parties hereby acknowledge and agree that the failure of any party to perform its agreements and covenants hereunder, including its failure to take all actions as are necessary on its part to the consummation of the Merger, will cause irreparable injury to the other parties, for which damages, even if available, will not be an adequate remedy. Accordingly, each party hereby consents to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of such party’s obligations and to the granting by any court of the remedy of specific performance of its obligations hereunder, including specific performance to compel the consummation of the Merger.

Section 8.10Counterparts. This Agreement may be executed by facsimile and in one or more counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.

Section 8.11Amendment. This Agreement may be amended only by an instrument in writing signed by or on behalf of the parties hereto.

Section 8.12Tax Withholding. Notwithstanding anything herein to the contrary, all amounts payable pursuant to the terms of this Agreement shall be subject to applicable Tax withholding requirements, and Parent, Holdings, the Surviving Corporation and Escrow Agent shall be entitled to deduct or withhold or cause to be withheld from amounts payable pursuant to this Agreement any amount they determine is required to be deducted or withheld under the Code, or any applicable provision of Tax Law. To the extent that amounts are so withheld, such amounts shall be treated for all purposes of this Agreement as having been paid to the persons with respect to whom such amounts were withheld.

Section 8.13Fees and Expenses. Except as expressly provided in this Agreement, each party shall bear its own expenses in connection with this Agreement and the Transactions. The Indemnifying Parties shall be responsible for the Company Transaction Expenses, provided that after the Closing Date, the Indemnifying Parties shall only be responsible for the indemnification obligations set forth in Article 7.

Section 8.14No Presumption Against Drafting Party. Each of Parent, Holdings, Acquisition Sub and the Company acknowledges that each party to this Agreement has been represented by legal counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the drafting party has no application and is expressly waived.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.

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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf as of the day and year first above written.

CADENCE DESIGN SYSTEMS, INC.
By:	/s/ Lip-Bu Tan
	Lip-Bu Tan
	President and Chief Executive Officer
By:	/s/ Martin Lund
	Senior Vice President, Research and
	Development
TUNDRA HOLDINGS, INC.
By:	/s/ Geoffrey G. Ribar
	Geoffrey G. Ribar
	President and Chief Executive Officer
TUNDRA SUBSIDIARY CORPORATION
By:	/s/ Geoffrey G. Ribar
	Geoffrey G. Ribar
	President and Chief Executive Officer
TENSILICA, INC.
By:	/s/ Jack Guedj
	Jack Guedj
	President and Chief Executive Officer
STOCKHOLDER AGENT
Shareholder Representative Services LLC, solely
in its capacity as the Stockholder Agent
By:	/s/ Donald J. Morrissey, Jr.
Name:	Donald J. Morrissey, Jr.
Title:	Managing Director

SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER

EX-10.01

Exhibit 10.01

CADENCE DESIGN SYSTEMS, INC. EMPLOYMENT AGREEMENTWITH MARTIN N. LUND

THIS AGREEMENT (this “Agreement”), made effective as of March 28, 2013 (the “Effective Date”), between CADENCE DESIGN SYSTEMS, INC., a Delaware corporation (the “Company”), and MARTIN N. LUND (“Executive”), sets forth the employment terms between the parties.

WHEREAS, Executive serves as Senior Vice President, Research and Development, SoC Realization Group; 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 continues to employ Executive and Executive hereby accepts continued employment pursuant to the terms and provisions of this Agreement as of 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, Research and Development, SoC Realization Group. Executive’s duties will be assigned to Executive by the Company’s Chief Executive Officer (the “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.

1.3.NO CONFLICTING SERVICES. 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 except as expressly authorized under the Company’s Code of Business Conduct. Nothing

1

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 and that they comply with the Company’s Code of Business Conduct.

1.4. OFFICE. The Company shall maintain an office for Executive at the Company’s corporate headquarters, currently located in San Jose, California (“Office”).

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. As of the Effective Date, the Company shall pay Executive a base salary of Three Hundred Fifty Thousand Dollars ($350,000) 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, as amended from time to time (the “Bonus Plan”) at an annual target bonus of seventy-five percent (75%) of Executive’s Base Salary (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 and incentive stock awards by the Company which remain in full force and effect in accordance with the terms of the stock plan(s) and 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 not less than 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 plan(s) and 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 and the plan(s) under which such awards are granted.

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, limited liability company, partnership, joint venture or other entity in any capacity at the Company’s request, Executive shall be indemnified by the Company, and the Company shall

2

pay Executive’s related expenses when and as incurred, all to the fullest extent not prohibited by law, as more fully described in and subject to the terms of the form of Indemnity Agreement 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 in accordance with the Company’s applicable policies. Executive shall first account for such expenses by submitting a 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 Chief Financial Officer, the CEO 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 subject to any cure period specified below, 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). 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 as a Constructive Termination (as

3

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 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) and, where such breach is curable, if such breach is not cured within thirty (30) days following delivery of written notice thereof from the Company; (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, and, where such breach is curable, if such breach is not cured within thirty (30) days following delivery of written notice thereof from the Company.

4.3.CONSTRUCTIVE TERMINATION. Notwithstanding anything in this Section 4 to the contrary, Executive may, upon at least thirty (30) days’ 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)The Company removes Executive from his position as Senior Vice President, Research and Development, SoC Realization Group 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)any change, without Executive’s written consent, to Executive’s reporting structure causing Executive to no longer report to the CEO, 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;

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(d)a relocation of Executive’s Office 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;

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

(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.

In the event of an event or circumstance constituting Constructive Termination, the Company may notify Executive at any time prior to expiration of the cure period that it will not cure the circumstance, in which case the cure period shall end immediately upon such notification.

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 all of the essential functions of his position pursuant to this Agreement, with or without reasonable accommodation.

4.5.CHANGE IN CONTROL.

(a)Should there occur a Change in Control (as defined below) and if within three (3) months prior to or thirteen (13) months following the Change in Control either (i) Executive’s employment under this Agreement is terminated without Cause or (ii) Executive resigns his employment as a result of an event constituting a Constructive Termination, then, in exchange for executing and delivering the Transition Agreement, and subject to the terms of the Transition Agreement except as otherwise provided in this Section 4.5(a), Executive shall be entitled to all of the benefits set forth therein, except that (1) in addition to the amount of the payment described in paragraph 5(a) of the Transition Agreement, Executive shall be entitled to an additional amount equal to fifty percent (50%) of Executive’s annual Base Salary at the highest annual Base Salary rate in effect at any time during the term of this Agreement (the “Highest Base Salary”), which amount shall be paid at the same time as the payment under such paragraph 5(a); (2) in addition to the amount of the payment described in paragraph 6(a) of the Transition Agreement, Executive shall be entitled to an additional amount equal to thirty-seven and one half percent (37.5%) of Executive’s Highest Base Salary; and (3) in lieu of the acceleration described in paragraph 4(a) of the form of Transition Agreement attached hereto, all

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unvested equity compensation awards (including stock options, restricted stock, and restricted stock units) that are outstanding and held by Executive on the Transition Commencement Date shall immediately vest and become exercisable in full on the Transition Commencement Date, provided, that, if Executive’s termination of employment without Cause or by reason of Constructive Termination occurs within three months prior to a Change in Control, any unvested equity compensation awards that do not vest on the Transition Commencement Date shall vest in full immediately prior to the effective time of the Change in Control. Any acceleration of vesting pursuant to this Section 4.5(a) shall have no effect on any other provisions of the equity compensation awards or the plans governing such awards.

(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) other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under 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 or any “person” acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person) ownership of securities of the Company representing thirty percent (30%) or more of the total voting power; or

(ii)    during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(iii)    the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by the voting securities of the Company or

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such surviving entity outstanding immediately after such merger or consolidation; or

(iv)    the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

4.6. TERMINATION FOR CAUSE, VOLUNTARY TERMINATION, OR TERMINATION ON ACCOUNT OF DEATH OR PERMANENT DISABILITY.

(a)In the event Executive’s employment is terminated for Cause or Executive voluntarily terminates his employment with the Company other than in connection with a Constructive Termination, then Executive will be paid only (i) any earned but unpaid Base Salary and any outstanding expense reimbursements submitted and approved pursuant to Section 3.1 hereof, and (ii) other unpaid vested amounts or benefits under the Company compensation, incentive and benefit plans in which Executive participates, in each case under this clause (ii) as of the effective date of such termination; and

(b)    In the event Executive’s employment is terminated on account of death or Permanent Disability, then, in addition to all amounts payable pursuant to Section 4.6(a), upon execution by Executive or Executive’s representative or a representative of Executive’s estate, as soon as reasonably practicable but in no event later than one hundred eighty (180) days following the date of Executive’s termination of employment, of the Release Agreement, in the form attached hereto as Exhibit C, and such Release Agreement becoming effective, the Company shall provide Executive or his estate, as the case may be, the following benefits to which Executive would not otherwise be entitled: (i) all unvested equity compensation awards (including stock options, restricted stock and restricted stock units) outstanding and held by Executive on the date of his termination that would have vested over the twelve (12) months following the date of termination had Executive continued in employment under his Employment Agreement during that period shall immediately vest and become exercisable in full on the date of such termination, such equity compensation awards and all previously vested equity compensation awards shall remain exercisable for twenty-four (24) months from the date of such termination (but not later than the expiration of the term of the applicable equity compensation award), and there shall be no further vesting of any equity compensation awards thereafter; provided that this acceleration will have no effect on any other provisions of the awards; and (ii) solely in the event of termination on account of Permanent Disability, if Executive elects to continue coverage under Cadence’s medical, dental and vision insurance plans pursuant to COBRA, Cadence will pay Executive’s COBRA premiums for twelve (12) months following such termination. In the event that Executive performs full-time or part-time employment or consulting services during the 12-month period following his termination on account of Permanent Disability without the written consent of the Company, then all equity compensation awards the vesting of which had been accelerated pursuant to the preceding sentence shall be forfeited and Executive shall return to the Company all stock obtained or on which restrictions

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terminated upon such vesting and the proceeds from the sale of any such stock, and all stock, net of exercise price, obtained upon the exercise of options that vested pursuant to the preceding sentence and the proceeds, net of exercise price, from the sale of any such stock.

(c)     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, 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 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 and Executive shall have no right to Termination Benefits in excess of the amount so determined. 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 the cost of all fees the Accountants charge in connection with any calculations contemplated by this Section 5.

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, 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

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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 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 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.

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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 provide the Company with reasonable cooperation 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 or any of its affiliates 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 and documented 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 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.

The Executive has, before the Effective Date, executed and delivered to the Company an Employee Proprietary Information and Inventions Agreement dated February 13, 2012(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,

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postage prepaid, return receipt requested and, if addressed to 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 that 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, or (d) upon delivery by email, if addressed to the Company to generalcounsel@cadence.com and if addressed to Executive to such email address as Executive may specify by notice to the Company.

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 constitute 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 equity compensation award 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, representations, conditions, covenants, and all other communications between the parties relating to the subject matter hereof; provided, however, that the Proprietary Information Agreement, 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, Code of Business Conduct and Clawback Policy, as amended from time to time, 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, to his estate or designated beneficiary, 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

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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 plus all reimbursements to which Executive is entitled, 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 Indemnity 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 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.

9.12.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.

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9.13.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.

9.14.TAX MATTERS. Notwithstanding anything in this Agreement or the Transition Agreement to the contrary, to the extent that the Company in good faith determines that any payment resulting from Executive’s termination of employment provided for in this Agreement or the Transition Agreement constitutes a “deferral of compensation” and that the Executive is a “specified employee,” both within the meaning of Section 409A of the Code, no such amounts shall be payable to Executivepursuant to this Agreement or the Transition Agreementprior to the earliest of (a) Executive’s death following the Termination Date (as such term is defined in the Transition Agreement) or (b) the date that is six months following the date of Executive’s “separation from service” with the Company (within the meaning of Section 409A of the Code). In addition, with regard to any provision herein or in the Transition Agreement that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A of the Code, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be deemed to be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.

IN WITNESS WHEREOF, the parties have executed this Agreement on this 28th day of March, 2013.

CADENCE DESIGN SYSTEMS, INC. By: /s/ Lip-Bu Tan	EXECUTIVE /s/ Martin N. Lund
Lip-Bu Tan	Martin N. Lund
President & Chief Executive Officer

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EXHIBIT A

INDEMNITY AGREEMENT

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INDEMNITY AGREEMENT

This Indemnity Agreement (this “Agreement”), dated as of ________________, is made by and between Cadence Design Systems, Inc., a Delaware corporation (the “Company”), and ______________, a ____________________ 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 and indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations;

B.    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;

C.    The Company believes that its directors and officers and the directors and officers of its subsidiaries should be able to serve as such, and in such other capacities as the Company may request, as the case may be, free from undue concern about the risk of large judgments and other expenses that may be incurred as a result of the good faith performance of their duties to the Company or its subsidiaries;

D.    The Company recognizes that the long period of time that may elapse before the trial or other disposition of legal proceedings 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 director or officer from serving in that position;

E.    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 directors and certain officers 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, and in the best interests of the Company and its stockholders, for the Company to contractually indemnify such individuals, and to assume for itself maximum liability for claims against such persons in connection with their service;

F.    The Company desires and has requested the Indemnitee to serve or continue to serve as a director and/or an 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

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G.    The Indemnitee is willing to serve, or to continue to serve, the Company and/or the subsidiaries of the Company provided 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)Change in Control. For purposes of this Agreement, a “change in control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company’s then outstanding voting securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

(b)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.

(c)Disinterested Directors. For purposes of this Agreement, “disinterested directors” mean any director of the Company who is not or was not a party to the proceeding in respect of which indemnification is being sought by a covered person.

(d)Expenses. For purposes of this Agreement, “expenses” include 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

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by a covered person in connection with either the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement under this Agreement, Section 145 of the Delaware General Corporation Law or otherwise.

(e)Independent Legal Counsel. For purposes of this Agreement, “independent legal counsel” means a law firm or a member of a law firm that neither is presently nor in the past five years has been retained to represent (i) the Company or a covered person in any matter material to either such party, or (ii) any other party to the proceeding giving rise to a claim for indemnification or advancement hereunder. “Independent legal counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the covered person in an action to determine such covered person’s right to indemnification or advancement under this Agreement.

(f)Proceeding. For purposes of this Agreement, “proceeding” means any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative, legislative, investigative or of any other type whatsoever, and including any of the foregoing commenced by or on behalf of the Company, derivatively or otherwise.

(g)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 or other form of service for the Company or its subsidiaries 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.

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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, employee or agent 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, employee or agent 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 and the Company’s Bylaws, against all expenses, liability and loss (including, without limitation, attorneys’ fees, judgments, fines, forfeitures, ERISA excise and other taxes and penalties, and amounts paid or to be paid in settlement) actually and 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, administrators and other legal representatives; 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.

(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, attorneys’ fees, judgments, fines, forfeitures, ERISA excise and other taxes and penalties, and amounts paid or to be paid in settlement) which have been paid directly to such person or a third party on the covered person’s behalf by D&O Insurance.

(c)    Partial Indemnification; Successful Defense. 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, attorneys’ fees, judgments, fines, forfeitures, ERISA excise and other taxes and penalties, and amounts paid or to be paid in settlement) incurred by the covered person in the investigation, defense, settlement or appeal of a proceeding, but not entitled, however, to indemnification for the total amount thereof, the Company shall nevertheless indemnify such person for such total amount, except as to the portion thereof to which the covered person is not entitled by applicable law, the Company’s Bylaws or this Agreement. Notwithstanding any other provision of this Agreement, to the extent that a covered person has been successful, on the merits or otherwise, in whole or in part, in the defense of a proceeding, or in the defense of any claim, issue or matter therein, including, without limitation, the dismissal of any action without prejudice, the covered person shall be indemnified against the total amount of any expenses actually and reasonably incurred or suffered by such person in connection therewith.

5.    Mandatory Advancement of Expenses. The Company shall pay all expenses incurred by a covered person in advance of the final disposition of a proceeding as they are incurred; provided, however, that if the Delaware General Corporation Law then so requires, the

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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, after a final adjudication (including all appeals), that such person is not entitled to the payment of such expenses by the Company.

6.    Notice and Procedures for Obtaining Indemnification and Advancement.

(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 or advancement with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof; provided, however, that the failure to notify the Company shall not relieve the Company of any liability it may have to such covered person under this Agreement.

(b)Upon written request by a covered person for indemnification pursuant to Section 4(a), the entitlement of such covered person to indemnification, to the extent not provided pursuant to the terms of this Agreement, shall be determined and such indemnification shall be paid in full within sixty (60) days after a written request for indemnification has been received by the Company. Such request shall include documentation or information which is necessary for such determination and which is reasonably available to the covered person. Upon making a request for indemnification, a covered person shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proving that the covered person is not entitled to be indemnified. If the person or persons empowered to make such determination pursuant to Section 6(c) fail to make the requested determination with respect to indemnification within sixty (60) days after a written request for indemnification has been received by the Company, a requisite determination of entitlement to indemnification shall be deemed to have been made and the covered person shall be absolutely entitled to such indemnification, absent actual and material fraud in the request for indemnification.

(c)The determination of entitlement to indemnification pursuant to Section 6(b) shall be made by the following person or persons who shall be empowered to make such determination: (i) the Board, by a majority vote of disinterested directors, whether or not such majority constitutes a quorum; (ii) a committee of disinterested directors designated by a majority vote of such directors, whether or not such majority constitutes a quorum; (iii) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board, a copy of which shall be delivered to the covered person; or (iv) the stockholders of the Company. If a change in control has occurred and results in individuals who were directors prior to the circumstances giving rise to the change in control ceasing for any reason to constitute a majority of the Board, such determination shall be made by independent legal counsel of a reputable national law firm in a written opinion, and such independent counsel shall render its written opinion to the Company and to the covered person. The Company agrees to pay the reasonable fees of such independent legal counsel and to indemnify fully such independent legal counsel against any and all expenses (including attorneys’ fees), claims, liabilities, loss and damages arising out of or relating to this Agreement

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or the engagement of such independent legal counsel pursuant hereto. The independent legal counsel shall be selected by the Board and approved by the covered person; provided, however, that if a change in control has occurred, such independent legal counsel shall be selected by the covered person and approved by the Company (such approval not to be unreasonably withheld or delayed).

(d)Expenses incurred by a covered person in advance of the final disposition of a proceeding shall be paid by the Company at the request of the covered person, each such payment of expenses to be made within twenty (20) days after a written request for such payment has been received by the Company. Such request shall reasonably evidence the expenses incurred by the covered person and, to the extent required pursuant to Section 5, shall include or be accompanied by an undertaking by or on behalf of such covered person, to repay all amounts so advanced if it should be determined ultimately, after a final adjudication (including all appeals), that such person is not entitled to the payment of such expenses by the Company.

(e)Any expenses incurred by a covered person in connection with a request for indemnification or advancement of expenses hereunder, under any other agreement, any provision of the Company’s Bylaws or any D&O insurance, shall be borne by the Company.

(f)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.

(g)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 shall 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) a conflict of interest exists requiring the covered person to retain separate counsel, as reasonably determined by legal counsel for the Company and the covered person, the fees and expenses of the covered person’s counsel shall be at the expense of the Company. If the Company has assumed the defense of a proceeding, the Company shall not be liable to indemnify a covered person under this Agreement for any amounts paid in settlement of any proceeding effected without the Company’s written consent; provided, however, that if a change in control has occurred, the Company shall be liable for indemnification for amounts paid in settlement if independent legal counsel has approved the

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settlement. The Company shall not settle any proceeding in any manner that would impose any penalty or limitation on, or disclosure obligation with respect to, a covered person without the covered person’s written consent. Neither the Company nor a covered person shall unreasonably withhold or delay its consent to any proposed settlement.

7.    Right of Covered Person to Bring Suit. If (a) indemnification is not paid in full by the Company within sixty (60) days after a written request for indemnification has been received by the Company pursuant to Section 6(b); (b) a determination is made pursuant to Section 6(c) that a covered person is not entitled to indemnification; or (c) a written request for an advancement of expenses is not paid in full by the Company within twenty (20) days after a written request for such payment has been received by the Company pursuant to Section 6(d), the covered person may at any time thereafter bring suit against the Company to recover the unpaid amount of any claim for indemnification or advancement. If 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 (including all appeals) that indemnification is not permitted by applicable law. Neither the failure of the Company (including the Board, a committee thereof, 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 because the Indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Company (including the Board, a committee thereof, independent legal counsel or its stockholders) that the Indemnitee has not met the applicable standard of conduct, 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. If a determination is made or deemed to have been made pursuant to the terms of Section 6 that a covered person is entitled to indemnification, the Company shall be bound by such determination and shall be precluded from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding and enforceable. 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 of its subsidiaries 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

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asserted after the expiration of one year from the earlier of (a) the date the Company or any subsidiary of the Company discovers such facts, or (b) 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 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 or any of its subsidiaries 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 disinterested directors or stockholders, other agreements, or otherwise, both as to acts or omissions in the Indemnitee’s official capacity and to acts or omissions in another capacity while occupying the Indemnitee’s position as an officer, director or employee of the Company and/or its subsidiaries, and the Indemnitee’s right hereunder shall continue after the Indemnitee has ceased to serve the Company or any of its subsidiaries and shall inure to the benefit of any heir, executor, administrator or other legal representative of the Indemnitee. Notwithstanding the foregoing, this Agreement shall supersede and replace any prior indemnification agreements entered into between the Company and the Indemnitee, and any such prior agreements shall be terminated upon execution of this Agreement.

10.    Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement 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, (a) 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 (b) 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.

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14.    Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (a) upon receipt, if delivered by hand, or (b) 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 within 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.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

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

CADENCE DESIGN SYSTEMS, INC.

By: ______________________________

Name:

Title:

Address: 2655 Seely Avenue, Building 5

      San Jose, California 95134

                 Attention: Office of the General Counsel

INDEMNITEE

By: ______________________________

Name:

Title:

Address:

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EXHIBIT B

EXECUTIVE TRANSITION AND RELEASE AGREEMENT

EXECUTIVE TRANSITION AND RELEASE AGREEMENT

This Executive Transition and Release Agreement (this “Agreement”) is entered into between Martin N. Lund (“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, Research and Development, SoC Realization Group and will be relieved of all of Executive’s authority and responsibilities in that position. Executive will be paid (a) any earned but unpaid base salary for his services as an officer of the Company 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 [______, 2013] (the “Employment Agreement”); and (b) 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 (b) as of the Transition Commencement Date. The payment of the foregoing amounts shall be made to Executive by no 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.

2.TRANSITION PERIOD. The period from the Transition Commencement Date to the date when Executive’s employment with Cadence under this Agreement 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 material breach by Executive of Executive’s duties or obligations under 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.

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 at mutually-convenient times. Executive’s time rendering those services shall not exceed twenty (20) hours per month. 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.

Neither party expects that Executive will resume employment with Cadence in the future at a level that exceeds the level set forth in this Section 3(a) and it is the parties’ intent that Executive will have experienced a “separation from service” as defined in Section 409A of the Code as of the Transition Commencement Date.

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 any business in which Cadence engages on the Transition Commencement Date, including the electronic design automation (“EDA”) 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 venturer, corporate officer or director, on behalf of any corporation, limited liability company, partnership, or other entity or person or successor thereto that (i) is engaged in any business in which Cadence or any of its affiliates is engaged on the Transition Commencement Date or has been engaged at any time during the 12-month period immediately preceding the Transition Commencement Date, whether in the EDA industry or otherwise, anywhere in the world (a “Cadence Business”), or (ii) produces, markets, distributes or sells any products, directly or indirectly through intermediaries, that are competitive with Cadence or any of its affiliates. As used in this paragraph, the term “EDA industry” means the research, design or development of electronic design automation software, electronic design verification and memory models, design IP, 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, during the Transition Period, Executive receives an offer of employment or consulting from any person or entity that engages in whole or in part in a Cadence Business, then Executive must first obtain written approval from Cadence’s CEO before accepting said offer.

c.During the Transition Period, Executive will be prohibited, to the fullest 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, recruiting, attempting to recruit, soliciting or attempting to solicit or participating in any way in hiring or retaining 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 and Inventions Agreement, dated February 13, 2012.

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, past, present or future. 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 of Executive’s execution of the release of claims in this Agreement and as compensation for Executive’s services during the Transition Period, Cadence will provide the following payments and benefits to Executive (to which Executive would not otherwise be entitled), after Executive has returned to the Company all hard and soft copies of records, documents, materials and files in his possession or control, which contain or relate to confidential, proprietary or sensitive information obtained by Executive in conjunction with his employment with the Company, as well as all other Company-owned property, except to the extent retained pursuant to Section 7 of the Employment Agreement:

a.all of the unvested equity compensation awards (including stock options, restricted stock and restricted stock units) that are not performance-based within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), that are outstanding and held by Executive on the Transition Commencement Date and that would have vested over the twelve (12) months following the Transition Commencement Date had Executive continued to serve as an executive of the Company pursuant to his Employment Agreement, shall

immediately vest and become exercisable in full on the Effective Date of this Agreement, and there shall be no further vesting of those equity compensation awards during or after the Transition Period, notwithstanding any provision in any equity compensation award to the contrary, except as otherwise provided by paragraph 7 hereof. Provided Executive continues in employment under this Agreement through the end of the applicable performance period, unvested equity compensation awards that are performance-based within the meaning of Section 162(m) of the Code and that are outstanding and held by Executive on the Transition Commencement Date shall continue to vest though the end of the applicable performance period provided any such performance period ends within twelve (12) months following the Transition Commencement Date, but only to the extent justified by the satisfaction of the performance goals prescribed for such equity awards. Upon the conclusion of the performance period, such awards shall immediately vest to the extent they would have vested over the twelve (12) months following the Transition Commencement Date had Executive continued to serve as an executive of the Company pursuant to his Employment Agreement, and there shall be no further vesting of such awards during or after the Transition Period except as otherwise provided by paragraph 7 hereof. Any acceleration pursuant to this paragraph 4(a) will have no effect on any other provisions of the stock awards;

b.Executive’s employment pursuant to this Agreement shall be considered a continuation of employee status and continuous service for all purposes under any equity compensation awards previously granted to Executive by the Company and outstanding on the Transition Commencement Date; 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 or as otherwise set forth in paragraphs 5 and 7 hereof, 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 under this Agreement and Cadence does not terminate Executive’s employment with Cadence pursuant to paragraph 2(b) due to a material breach by Executive of Executive’s duties under this Agreement, and in consideration for, and subject to, Executive’s execution and acceptance of and adherence to this Agreement and Executive’s further execution and delivery of a Release of Claims in the form of Attachment 1 hereto on a date that is at least six months after the Transition Commencement Date, and as compensation for Executive’s services during the Transition Period, Cadence will provide to Executive the following termination payment, to which Executive would not otherwise be entitled, in each case, so long as the revocation period of the Release of Claims (as defined in that document) has expired prior to the date of payment:

a.a lump-sum payment of $_____ [amount equal to 100% of Executive’s annual Base Salary at the highest rate in effect during Executive’s employment with the

Company], less applicable tax deductions and withholdings, payable on the thirtieth (30th) day following the date that is six months after the Transition Commencement Date; and

b.for a period of six months, a monthly salary of $4,000 less applicable tax withholdings and deductions, payable in accordance with Cadence’s regular payroll schedule,commencing on the first pay date that is more than thirty (30) days following the date that is six months after the Transition Commencement Date.

6.SECOND TERMINATION PAYMENT AND BENEFITS; REFUND OF PAYMENTS.

a.    Provided that Executive does not resign from employment with Cadence under this Agreement and Cadence does not terminate Executive’s employment with Cadence pursuant to paragraph 2(b) due to a material breach by Executive of Executive’s duties under this Agreement, on the thirtieth (30th) day following the Termination Date, and in consideration for, and subject to, Executive’s execution and acceptance of and adherence to 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 the following termination payment, to which Executive would not otherwise be entitled, so long as the revocation period of the Release of Claims (as defined in that document) has expired prior to the date of payment:

i.    a lump-sum payment of $_______ [amount equal to 75% of Executive’s annual Base Salary at the highest rate in effect during Executive’s employment with the Company], less applicable tax deductions and withholdings.

b.    If the Company should terminate Executive’s employment with the Company due to a breach by Executive of Executive’s duties or obligations under this Agreement, Executive shall promptly refund to the Company any and all amounts theretofore paid to Executive pursuant to paragraph 5(a), with interest on any such amount of eight percent per annum, compounded monthly.

c.    Notwithstanding anything in this Agreement to the contrary, to the extent that the Company in good faith determines that any payment resulting from Executive’s termination of employment provided for in this Agreement constitutes a “deferral of compensation” and that Executive is a “specified employee”, both within the meaning of Section 409A of the Code, no such amounts shall be payable to Executive pursuant to the Agreement prior to the earlier of (1) Executive’s death following the Transition Commencement Date or (2) the date that is six months following the date of Executive’s “separation from service” with the Company (within the meaning of Section 409A of the Code).

7.CHANGE IN CONTROL. If this Agreement is executed by Executive in connection with his termination without Cause (as defined in the Employment Agreement) or Constructive Termination (as defined in the Employment Agreement) occurring within thirteen (13) months following a Change in Control (as defined in the Employment Agreement) or if a Change in Control occurs within three (3) months following his termination without Cause or Constructive Termination, in which case the Company shall promptly notify Executive of the occurrence of such Change in Control, then:

a.Section 4.5(a)(3) of the Employment Agreement shall apply in lieu of paragraph 4(a) of this Agreement; and

b.Sections 4.5(a)(1) and 4.5(a)(2)of the Employment Agreement shall apply in addition to paragraphs 5(a) and 6(a) of this Agreement.

For the avoidance of doubt, if this Agreement has already been executed by Executive and Cadence and within three (3) months following the Transition Commencement Date a Change in Control occurs (a “Post-Termination Timely Change in Control”), then paragraphs 7(a) and 7(b) of this Agreement shall take effect immediately upon the effectiveness of the Post-Termination Timely Change in Control.

8.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 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 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;

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

v.any other rights or claims that Executive has or may have that cannot, as a matter of law, be waived.

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

c.Executive acknowledges that the payments provided in this Agreement constitute adequate consideration for the release set forth in this paragraph 8.

d.Executive intends that this release of claims cover all claims described above, 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 or her favor at the time of executing the release, which if known by him or her must have materially affected his or her 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.

9.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.

10.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, if California law is preempted, 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.

11.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.

12.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.

13.FULL SATISFACTION OF COMPENSATION OBLIGATIONS; ADEQUATE CONSIDERATION. Executive agrees that the payments and benefits provided herein satisfy in full 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.

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. Notwithstanding anything herein or in the Employment Agreement to the contrary, the Company may, in its sole discretion, amend this Agreement (which amendment shall be effective upon its adoption or at such other time designated by the Company) at any time prior to a Change in Control as may be necessary to avoid the imposition of the additional tax under Section 409A(a)(1)(B) of the Code; provided, however, that any such amendment shall not materially reduce the benefits provided to Executive pursuant to this Agreement without the Executive’s consent.

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 in writing 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.

EXECUTION OF AGREEMENT

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

Dated: ____________________________	Dated: ______________________________
MARTIN N. LUND	CADENCE DESIGN SYSTEMS, INC.
___________________________________	By: __________________________________

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 or 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 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. 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 which I am or become entitled to receive pursuant to the provisions of my Executive Transition and Release Agreement with Cadence or pursuant to the provisions designated in Section 9.9 of my Employment Agreement with Cadence 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;

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

v.    any other rights or claims that I have or may have that cannot, as a matter of law, be waived.

2.    I intend that this Release cover all claims described above, whether or not known to me. I further recognize the risk that, subsequent to the execution of this Release, 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 or her favor at the time of executing the release, which if known by him or her must have materially affected his or her 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 the General Counsel and the executive overseeing Human Resources. This Release will not be final and effective until the expiration of this revocation period.

Dated: __________________    ________________________________

Print Name

________________________________

Sign Name

ATTACHMENT 2

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 or 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 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. 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 which I am or become entitled to receive pursuant to the provisions of my Executive Transition and Release Agreement with Cadence or pursuant to the provisions designated in Section 9.9 of my Employment Agreement with Cadence 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;

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

v.    any other rights or claims that I have or may have that cannot, as a matter of law, be waived.

2.    I intend that this Release cover all claims described above, whether or not known to me. I further recognize the risk that, subsequent to the execution of this Release, 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 or her favor at the time of executing the release, which if known by him or her must have materially affected his or her 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 the General Counsel and the executive overseeing Human Resources. This Release will not be final and effective until the expiration of this revocation period.

Dated: __________________    ___________________________________

Print Name

__________________________________

Sign Name

EXHIBIT C

RELEASE AGREEMENT

(DEATH or PERMANENT DISABILITY)

RELEASE AGREEMENT

1. GENERAL RELEASE OF CLAIMS.

a.Martin N. Lund or, in the event of his incapacity due to Permanent Disability as defined in his Employment Agreement, his legal representative acting on his behalf, or, in the event of his death, his estate (all of which are hereafter referred to as “Executive” as the context requires), 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 Release Agreement which relate to his hiring or 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 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 which Executive is or becomes entitled to receive pursuant to the provisions of this Release Agreement, pursuant to Section 4.6(b) of Executive’s Employment Agreement with Cadence, or pursuant to the provisions designated in Section 9.9 of that 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;

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

v.any other rights or claims that Executive has or may have that cannot, as a matter of law, be waived.

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

c.Executive acknowledges that the payments and benefits described in paragraph 1(a)(i) constitute adequate consideration for this release.

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 Release 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 Release 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 or her favor at the time of executing the release, which if known by him or her must have materially affected his or her 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.

f.The undersigned represents that he is the individual executive, his legal representative or the executor or administrator of his estate, and that he or it is authorized to bind the individual executive or his estate, as applicable.

2.REVIEW OF RELEASE AGREEMENT; REVOCATION OF ACCEPTANCE. Executive has been given at least 21 days in which to review and consider this Release Agreement, although Executive is free to accept this Release Agreement anytime within that 21-day period. Executive is advised to consult with an attorney about the Release Agreement. If Executive accepts this Release Agreement, Executive will have an additional 7 days from the date that Executive signs this Release 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 Release 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 Release Agreement.

The undersigned has executed this Release Agreement on this ____ day of ____________, _______.

_________________________________

Print Name

__________________________________

Sign Name

EX-31.01

Exhibit 31.01

CERTIFICATIONS

I, Lip-Bu Tan, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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.

By:	/s/ Lip-Bu Tan
	Lip-Bu Tan
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: April 25, 2013

EX-31.02

Exhibit 31.02

CERTIFICATIONS

I, Geoffrey G. Ribar, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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.

By:	/s/ Geoffrey G. Ribar
	Geoffrey G. Ribar
	Senior Vice President and Chief Financial Officer
	(Principal Accounting and Financial Officer)

Date: April 25, 2013

EX-32.01

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 March 30, 2013 of Cadence Design Systems, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lip-Bu Tan, 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/ Lip-Bu Tan
Lip-Bu Tan
President and Chief Executive Officer
(Principal Executive Officer)
Date:	April 25, 2013

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.

EX-32.02

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 March 30, 2013 of Cadence Design Systems, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Geoffrey G. Ribar, 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/ Geoffrey G. Ribar
Geoffrey G. Ribar
Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Date:	April 25, 2013

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.

XML

Goodwill and Acquired Intangibles (Details 3) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Estimated amortization expense
2013-remaining period	$ 20,395
2014	25,404
2015	25,057
2016	24,348
2017	23,260
Thereafter	59,427
Acquired Intangibles	$ 177,891	$ 184,938

XML

Other Income, Net (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Other Income, Net
Interest income	$ 425	$ 337
Gains (losses) on sale of marketable debt and equity securities, net	(25)	117
Gains on sale of non-marketable equity investments	1,190	0
Gains on securities in Cadence’s NQDC	152	1,798
Gains on foreign exchange	764	100
Other income (expense), net	(331)	82
Total other income, net	$ 2,175	$ 2,434

XML

Cash, Cash Equivalents and Investments (Details 3) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013
Contractual maturity of marketable debt investments
Marketable Investments, Debt Maturities, Within One Year, Amortized Cost	$ 34,718
Marketable Investments, Debt Maturities, Year One Through Three, Amortized Cost	64,203
Marketable investments, Debt Maturities, Amortized Cost, Total	98,921
Marketable Investments, Debt Maturities, Within One Year, Fair Value	34,777
Marketable Investments, Debt Maturities, Year One Through Three, Fair Value	64,264
Marketable Investments, Debt Maturities, Fair Value, Total	$ 99,041

XML

Segment Reporting (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Entity Wide Disclosure on Geographic Areas Revenue from External Customers
Total revenue	$ 354,266	$ 315,830
Americas:
United States	149,171	130,455
Total Americas	153,786	138,579
Other Americas [Member]
Entity Wide Disclosure on Geographic Areas Revenue from External Customers
Geographic Areas, revenue from External Customers attributed to Individual Foreign Countries	4,615	8,124
Europe, Middle East and Africa [Member]
Entity Wide Disclosure on Geographic Areas Revenue from External Customers
Geographic Areas, revenue from External Customers attributed to Individual Foreign Countries	78,920	59,709
Japan [Member]
Entity Wide Disclosure on Geographic Areas Revenue from External Customers
Geographic Areas, revenue from External Customers attributed to Individual Foreign Countries	53,474	56,219
Asia [Member]
Entity Wide Disclosure on Geographic Areas Revenue from External Customers
Geographic Areas, revenue from External Customers attributed to Individual Foreign Countries	$ 68,086	$ 61,323

XML

Cash, Cash Equivalents and Investments (Details 1) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012	Mar. 31, 2012	Dec. 31, 2011
Classified as cash and cash equivalents
Cash and interest bearing deposits	$ 150,934	$ 160,023
Money market funds	659,218	566,334
Total cash and cash equivalents	$ 810,152	$ 726,357	$ 659,687	$ 601,602

XML

Debt Credit Facility (Details Textual) (USD $)	3 Months Ended		3 Months Ended
	Mar. 30, 2013 Revolving Credit Facility [Member]	Dec. 29, 2012 Revolving Credit Facility [Member]	Mar. 30, 2013 Maximum [Member] Revolving Credit Facility [Member]	Mar. 30, 2013 Minimum [Member] Revolving Credit Facility [Member]	Mar. 30, 2013 Credit Facility Interest LIBOR And Spread [Member] Maximum [Member] Revolving Credit Facility [Member]	Mar. 30, 2013 Credit Facility Interest LIBOR And Spread [Member] Minimum [Member] Revolving Credit Facility [Member]	Mar. 30, 2013 Credit facility interest base rate and spread [Member] Maximum [Member] Revolving Credit Facility [Member]	Mar. 30, 2013 Credit facility interest base rate and spread [Member] Minimum [Member] Revolving Credit Facility [Member]	Apr. 25, 2013 Revolving Credit Facility [Member]	Mar. 30, 2013 Revolving Credit Facility [Member]	Dec. 29, 2012 Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Credit facility, date of agreement	Dec. 12, 2012
Credit facility, interest rate description	Interest accrues based on Cadence's consolidated leverage ratio. Borrowings may be made at LIBOR plus a margin between 1.25% and 2.0% per annum or at the base rate plus a margin between 0.25% and 1.0% per annum, where in each case the margin is determined by reference to a specified leverage ratio. Interest is payable quarterly.
Credit facility, term	5 years
Credit facility, current borrowing capacity	$ 250,000,000
Credit facility additional borrowing capacity available	150,000,000
Credit facility, maximum borrowing capacity	400,000,000
Credit facility, maturity date	Dec. 12, 2017
Credit facility, collateral description	The facility is secured by certain accounts receivable and certain equity interests in Cadence’s subsidiaries.
Credit facility, interest rate spread					2.00%	1.25%	1.00%	0.25%
Credit facility, commitment fee percentage			0.35%	0.20%
Credit facility, covenant description	The credit facility contains customary negative covenants that, among other things, restrict Cadence's ability to incur additional indebtedness, grant liens and make certain investments, make acquisitions, dispose of certain assets and make certain restricted payments, including dividends. In addition, the credit facility contains financial covenants that require Cadence to maintain a leverage ratio not to exceed 3 to 1, and a minimum interest coverage ratio of 3 to 1.
Credit facility, amount outstanding	$ 0	$ 0							$ 100,000,000	$ 0	$ 0
Credit facility, covenant compliance	Cadence was in compliance with all financial covenants as of March 30, 2013 and December 29, 2012.

XML

Net Income Per Share (Tables)

3 Months Ended

Mar. 30, 2013

Earnings Per Share [Abstract]

Basic and diluted net income per share

The calculations for basic and diluted net income per share for the three months ended March 30, 2013 and March 31, 2012 are as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands, except per share amounts)
Net income	$	78,609	$	31,104
Weighted average common shares used to calculate basic net income per share	274,936		267,940
2023 Notes	11		11
2015 Warrants	10,668		2,523
Share-based awards	6,536		7,259
Weighted average common shares used to calculate diluted net income per share	292,151		277,733
Net income per share - basic	$	0.29	$	0.12
Net income per share - diluted	$	0.27	$	0.11

Potential shares of Cadence's common stock excluded

The following table presents shares of Cadence’s common stock outstanding for the three months ended March 30, 2013, and March 31, 2012, that were excluded from the computation of diluted net income per share because the effect of including these shares in the computation of diluted net income per share would have been anti-dilutive:

	Three Months Ended
	March 30, 2013	March 31, 2012
	(In thousands)
2011 Warrants and 2013 Warrants	6,830	7,815
Options to purchase shares of common stock	6,754	14,070
Non-vested shares of restricted stock	—	33
Total potential common shares excluded	13,584	21,918

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Net Income Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Earnings Per Share, Basic and Diluted [Abstract]
Net income	$ 78,609	$ 31,104
Weighted-average common shares used to calculate basic net income per share (in shares)	274,936	267,940
2023 Notes	11	11
2015 Warrants	10,668	2,523
Share-based awards	6,536	7,259
Weighted average common shares used to calculate diluted net income per share (in shares)	292,151	277,733
Net income per share - basic (in usd per share)	$ 0.29	$ 0.12
Net income per share - diluted (in usd per share)	$ 0.27	$ 0.11

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Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Short-term investments:
Available-for-sale securities	$ 100,992	$ 100,704
Trading securities held in Non - Qualified Deferred Compensation Plan, or NQDC	19,302	24,329
2015 Notes Hedges	315,895	303,154
Foreign Currency Contract, Asset, Fair Value Disclosure		1,737
Total Assets	1,095,407	996,258
Liabilities
Acquisition-related contingent consideration	3,579	4,218
2015 Notes Embedded Conversion Derivative	315,895	303,154
Foreign Currency Contracts, Liability, Fair Value Disclosure	477
Total Liabilities	319,951	307,372
Money market funds [Member]
Assets
Cash equivalents	659,218	566,334
Corporate debt securities [Member]
Short-term investments:
Available-for-sale securities	34,453	31,359
Bank certificates of deposit [Member]
Short-term investments:
Available-for-sale securities	24,827	27,826
United States Treasury securities [Member]
Short-term investments:
Available-for-sale securities	21,225	23,239
United States government agency securities [Member]
Short-term investments:
Available-for-sale securities	14,246	10,258
Commercial paper [Member]
Short-term investments:
Available-for-sale securities	4,290	5,783
Marketable equity securities [Member]
Short-term investments:
Available-for-sale securities	1,951	2,239
Fair Value Measurements, Level 1 [Member]
Short-term investments:
Trading securities held in Non - Qualified Deferred Compensation Plan, or NQDC	19,302	24,329
2015 Notes Hedges	0	0
Foreign Currency Contract, Asset, Fair Value Disclosure		0
Total Assets	715,942	626,399
Liabilities
Acquisition-related contingent consideration	0	0
2015 Notes Embedded Conversion Derivative	0	0
Foreign Currency Contracts, Liability, Fair Value Disclosure	0
Total Liabilities	0	0
Fair Value Measurements, Level 1 [Member] | Money market funds [Member]
Assets
Cash equivalents	659,218	566,334
Fair Value Measurements, Level 1 [Member] | Corporate debt securities [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 1 [Member] | Bank certificates of deposit [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 1 [Member] | United States Treasury securities [Member]
Short-term investments:
Available-for-sale securities	21,225	23,239
Fair Value Measurements, Level 1 [Member] | United States government agency securities [Member]
Short-term investments:
Available-for-sale securities	14,246	10,258
Fair Value Measurements, Level 1 [Member] | Commercial paper [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 1 [Member] | Marketable equity securities [Member]
Short-term investments:
Available-for-sale securities	1,951	2,239
Fair Value Measurements, Level 2 [Member]
Short-term investments:
Trading securities held in Non - Qualified Deferred Compensation Plan, or NQDC	0	0
2015 Notes Hedges	315,895	303,154
Foreign Currency Contract, Asset, Fair Value Disclosure		1,737
Total Assets	379,465	369,859
Liabilities
Acquisition-related contingent consideration	0	0
2015 Notes Embedded Conversion Derivative	315,895	303,154
Foreign Currency Contracts, Liability, Fair Value Disclosure	477
Total Liabilities	316,372	303,154
Fair Value Measurements, Level 2 [Member] | Money market funds [Member]
Assets
Cash equivalents	0	0
Fair Value Measurements, Level 2 [Member] | Corporate debt securities [Member]
Short-term investments:
Available-for-sale securities	34,453	31,359
Fair Value Measurements, Level 2 [Member] | Bank certificates of deposit [Member]
Short-term investments:
Available-for-sale securities	24,827	27,826
Fair Value Measurements, Level 2 [Member] | United States Treasury securities [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 2 [Member] | United States government agency securities [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 2 [Member] | Commercial paper [Member]
Short-term investments:
Available-for-sale securities	4,290	5,783
Fair Value Measurements, Level 2 [Member] | Marketable equity securities [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 3 [Member]
Short-term investments:
Trading securities held in Non - Qualified Deferred Compensation Plan, or NQDC	0	0
2015 Notes Hedges	0	0
Foreign Currency Contract, Asset, Fair Value Disclosure		0
Total Assets	0	0
Liabilities
Acquisition-related contingent consideration	3,579	4,218
2015 Notes Embedded Conversion Derivative	0	0
Foreign Currency Contracts, Liability, Fair Value Disclosure	0
Total Liabilities	3,579	4,218
Fair Value Measurements, Level 3 [Member] | Money market funds [Member]
Assets
Cash equivalents	0	0
Fair Value Measurements, Level 3 [Member] | Corporate debt securities [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 3 [Member] | Bank certificates of deposit [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 3 [Member] | United States Treasury securities [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 3 [Member] | United States government agency securities [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 3 [Member] | Commercial paper [Member]
Short-term investments:
Available-for-sale securities	0	0
Fair Value Measurements, Level 3 [Member] | Marketable equity securities [Member]
Short-term investments:
Available-for-sale securities	$ 0	$ 0

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Goodwill and Acquired Intangibles (Details 1) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Acquired intangibles with finite lives, excluding intangibles fully amortized at end of prior fiscal year
Gross Carrying Amount	$ 282,713	$ 289,289
Accumulated Amortization	(104,822)	(104,351)
Acquired Intangibles	177,891	184,938
Existing Technology [Member]
Acquired intangibles with finite lives, excluding intangibles fully amortized at end of prior fiscal year
Gross Carrying Amount	112,697	112,940
Accumulated Amortization	(33,595)	(30,171)
Acquired Intangibles	79,102	82,769
Agreements and relationships [Member]
Acquired intangibles with finite lives, excluding intangibles fully amortized at end of prior fiscal year
Gross Carrying Amount	133,397	133,764
Accumulated Amortization	(39,965)	(37,769)
Acquired Intangibles	93,432	95,995
Distribution rights [Member]
Acquired intangibles with finite lives, excluding intangibles fully amortized at end of prior fiscal year
Gross Carrying Amount	30,100	30,100
Accumulated Amortization	(29,348)	(28,595)
Acquired Intangibles	752	1,505
Tradenames Trademarks And Patents [Member]
Acquired intangibles with finite lives, excluding intangibles fully amortized at end of prior fiscal year
Gross Carrying Amount	6,519	12,485
Accumulated Amortization	(1,914)	(7,816)
Acquired Intangibles	$ 4,605	$ 4,669

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Other Comprehensive Income (Details 1) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Accumulated other comprehensive income
Foreign currency translation gain	$ 42,491	$ 48,653
Changes in defined benefit plan liabilities	(4,911)	(5,229)
Unrealized holding gains on available-for-sale securities	242	526
Total accumulated other comprehensive income	$ 37,822	$ 43,950

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Cash, Cash Equivalents and Investments (Details 2) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Short-term investments
Amortized Cost	$ 100,738	$ 100,170
Gross Unrealized Gains	261	545
Gross Unrealized Losses	(7)	(11)
Fair Value	100,992	100,704
Corporate Debt Securities [Member]
Short-term investments
Amortized Cost	34,409	31,313
Gross Unrealized Gains	51	57
Gross Unrealized Losses	(7)	(11)
Fair Value	34,453	31,359
Certificates of Deposit [Member]
Short-term investments
Amortized Cost	24,800	27,805
Gross Unrealized Gains	27	21
Gross Unrealized Losses	0	0
Fair Value	24,827	27,826
US Treasury Securities [Member]
Short-term investments
Amortized Cost	21,198	23,213
Gross Unrealized Gains	27	26
Gross Unrealized Losses	0	0
Fair Value	21,225	23,239
US Government Corporations and Agencies Securities [Member]
Short-term investments
Amortized Cost	14,231	10,245
Gross Unrealized Gains	15	13
Gross Unrealized Losses	0	0
Fair Value	14,246	10,258
Commercial Paper [Member]
Short-term investments
Amortized Cost	4,283	5,777
Gross Unrealized Gains	7	6
Gross Unrealized Losses	0	0
Fair Value	4,290	5,783
Marketable Debt Securities [Member]
Short-term investments
Amortized Cost	98,921	98,353
Gross Unrealized Gains	127	123
Gross Unrealized Losses	(7)	(11)
Fair Value	99,041	98,465
Marketable Equity Securities [Member]
Short-term investments
Amortized Cost	1,817	1,817
Gross Unrealized Gains	134	422
Gross Unrealized Losses	0	0
Fair Value	$ 1,951	$ 2,239

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Acquisitions and Acquisition-Related Contingent Consideration

3 Months Ended

Mar. 30, 2013

Business Combinations [Abstract]

ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

During the first fiscal quarter of 2013, Cadence signed definitive agreements to purchase two different companies. Neither acquisition closed during the quarter due to waiting periods for regulatory approvals.

Cosmic Circuits Private Limited

On February 7, 2013, Cadence entered into an agreement to acquire Cosmic Circuits Private Limited, or Cosmic, a privately held provider of intellectual property used in system-on-chip design and verification based in Bangalore, India, for aggregate consideration of approximately $61.2 million in cash. Lip-Bu Tan, Cadence’s president, chief executive officer and director, is also a member of the board of directors of Cosmic. In addition, a trust for the benefit of the children of Mr. Tan owns approximately 8.5% of Cosmic, and Mr. Tan and his wife serve as co-trustees of the trust. Prior to and during the negotiations of the transaction, Mr. Tan recused himself from the discussions and negotiations between and at Cadence and Cosmic, including any discussions and negotiations related to the consideration provided to Cosmic. A financial advisor provided a fairness opinion to Cadence in connection with the transaction, and the Board of Directors of Cadence reviewed the transaction and concluded that it was in the best interests of Cadence to proceed with such transaction. The completion of the transaction is subject to certain conditions, including regulatory approval.

Tensilica, Inc.

On March 11, 2013, Cadence entered into an agreement to acquire Tensilica, Inc., or Tensilica, a provider of configurable dataplane processing units. On April 22, 2013, after quarter-end, Cadence completed the acquisition of Tensilica. The cash outlay at closing, after taking into account adjustments for certain costs and an estimated $25.0 million of cash held by Tensilica at closing, was approximately $326.4 million. In addition, Cadence assumed certain unvested Tensilica options. Of the net $326.4 million, $5.8 million is conditioned upon certain Tensilica shareholders remaining employees of Cadence over designated retention periods. Cadence will also make payments to certain employees that will be conditioned upon continued employment and certain performance metrics over a three-year period. Cadence is in the process of determining the fair value of the net assets acquired and will include Tensilica’s results of operations in its financial statements with effect from the purchase date.

Acquisition-related Contingent Consideration

One of the fiscal 2011 acquisitions includes contingent consideration payments based on certain future financial measures associated with the acquired technology. This contingent consideration arrangement requires payments of up to $5.0 million if these measures are met during the three-year period subsequent to October 1, 2011. The fair value of the contingent consideration arrangement recorded on the date of the acquisition was $3.5 million. The fair value of the contingent consideration as of March 30, 2013 was $3.5 million.

Cadence may be obligated to make cash payments in connection with its business combinations and asset acquisitions, subject to the satisfaction of certain financial measures. If performance is such that these payments are fully achieved, Cadence may be obligated to pay up to an aggregate of $14.4 million over the next 37 months. Of the $14.4 million, up to $9.0 million would be recorded as operating expenses in the condensed consolidated income statements.

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Fair Value (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Liabilities included in level 3 representing fair value of contingent consideration associated with acquisitions
Beginning Balance	$ 4,218
Payments	(582)	(39)
Ending Balance	3,579
Fair Value Measurements, Level 3 [Member]
Liabilities included in level 3 representing fair value of contingent consideration associated with acquisitions
Beginning Balance	4,218
Payments	740
Adjustments	101
Ending Balance	$ 3,579

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Debt (Details) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Debt Instrument [Line Items]
Principal	$ 494,639	$ 494,639
Unamortized debt discount	(42,068)	(47,628)
Carrying value	452,571	447,011
Notes Due Twenty-Thirteen [Member]
Debt Instrument [Line Items]
Principal	144,461	144,461
Unamortized debt discount	(4,797)	(6,447)
Carrying value	139,664	138,014
Convertible Senior Notes Due 2015 [Member]
Debt Instrument [Line Items]
Principal	350,000	350,000
Unamortized debt discount	(37,271)	(41,181)
Carrying value	312,729	308,819
Zero Coupon Zero Yield Senior Convertible Notes Due Two Zero Two Three [Member]
Debt Instrument [Line Items]
Principal	178	178
Unamortized debt discount	0	0
Carrying value	178	178
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Principal	0	0
Unamortized debt discount	0	0
Carrying value	$ 0	$ 0

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Segment Reporting (Tables)

3 Months Ended

Mar. 30, 2013

Segment Reporting [Abstract]

Summary of revenue by geography

The following table presents a summary of revenue by geography for the three months ended March 30, 2013 and March 31, 2012:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Americas:
United States	$	149,171	$	130,455
Other Americas	4,615		8,124
Total Americas	153,786		138,579
Europe, Middle East and Africa	78,920		59,709
Japan	53,474		56,219
Asia	68,086		61,323
Total	$	354,266	$	315,830

Summary of long-lived assets by geography

The following table presents a summary of long-lived assets by geography as of March 30, 2013 and December 29, 2012:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Americas:
United States	$	209,006	$	214,711
Other Americas	216		185
Total Americas	209,222		214,896
Europe, Middle East and Africa	4,994		5,410
Japan	979		1,649
Asia	22,260		22,484
Total	$	237,455	$	244,439

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Segment Reporting (Details 1) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Summary of long-lived assets by geography
Total long-lived assets	$ 237,455	$ 244,439
Americas:
United States	209,006	214,711
Total Americas	209,222	214,896
Other Americas [Member]
Summary of long-lived assets by geography
Long-Lived Assets in Individual Foreign Countries	216	185
Europe, Middle East and Africa [Member]
Summary of long-lived assets by geography
Long-Lived Assets in Individual Foreign Countries	4,994	5,410
Japan [Member]
Summary of long-lived assets by geography
Long-Lived Assets in Individual Foreign Countries	979	1,649
Asia [Member]
Summary of long-lived assets by geography
Long-Lived Assets in Individual Foreign Countries	$ 22,260	$ 22,484

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Fair Value (Details Textual) (Fair Value, Inputs, Level 3 [Member], Contingent Consideration Liability [Member])	3 Months Ended	12 Months Ended
	Mar. 30, 2013	Dec. 29, 2012
Minimum [Member]
Fair Value of Financial Instrument (Textual) [Abstract]
Fair Value Inputs, Discount Rate	11.00%	11.00%
Maximum [Member]
Fair Value of Financial Instrument (Textual) [Abstract]
Fair Value Inputs, Discount Rate	16.00%	16.00%

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Debt (Details 1) (Convertible Senior Notes Due 2015 [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Convertible Senior Notes Due 2015 [Member]
Effective interest rate and components of interest expense of 2015 notes
Effective interest rate	8.10%	8.10%
Contractual interest expense	$ 2,289	$ 2,289
Amortization of debt discount	$ 3,910	$ 3,592

XML

Debt (Details 2) (Convertible Senior Notes Due 2013 [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Convertible Senior Notes Due 2013 [Member]
Effective interest rate and components of interest expense of 2013 notes
Effective interest rate	6.40%	6.40%
Contractual interest expense	$ 540	$ 540
Amortization of debt discount	$ 1,651	$ 1,539

XML

Debt

3 Months Ended

Mar. 30, 2013

Debt Disclosure [Abstract]

DEBT

DEBT

Cadence’s outstanding debt as of March 30, 2013 and December 29, 2012 was as follows:

	March 30, 2013							December 29, 2012
	(In thousands)
	Principal		Unamortized Discount			Carrying Value		Principal		Unamortized Discount			Carrying Value
2015 Notes	$	350,000	$	(37,271	)	$	312,729	$	350,000	$	(41,181	)	$	308,819
2013 Notes	144,461		(4,797		)	139,664		144,461		(6,447		)	138,014
2023 Notes	178		—			178		178		—			178
Revolving line of credit	—		—			—		—		—			—
Total outstanding debt	$	494,639	$	(42,068	)	$	452,571	$	494,639	$	(47,628	)	$	447,011

2015 Notes

In June 2010, Cadence issued $350.0 million principal amount of 2.625% Cash Convertible Senior Notes Due 2015, or the 2015 Notes. At maturity, the holders of the 2015 Notes will be entitled to receive the principal amount of the 2015 Notes plus accrued interest. The 2015 Notes are convertible into cash prior to maturity upon the occurrence of certain conditions described in the table below. To the extent that the 2015 Notes are convertible prior to maturity and a holder of the 2015 Notes elects to convert its notes prior to maturity, that note holder will be entitled to receive cash equal to the principal amount of the notes plus any additional conversion value as described in the table below under the heading "Conversion feature."

Cadence entered into hedge transactions, or the 2015 Notes Hedges, in connection with the issuance of the 2015 Notes. The purpose of the 2015 Notes Hedges was to limit Cadence’s exposure to the additional cash payments above the principal amount of the 2015 Notes that may be due to the holders. As a result of the 2015 Notes Hedges, Cadence’s maximum expected cash exposure upon conversion of the 2015 Notes is the $350.0 million principal balance of the notes. In June 2010, Cadence also sold warrants in separate transactions, or the 2015 Warrants. As a result of the 2015 Warrants, Cadence will experience dilution to its diluted earnings per share if its average closing stock price exceeds $10.78 for any fiscal quarter. To the extent that Cadence’s stock price exceeds $10.78 at expiration of the 2015 Warrants, Cadence will issue shares to net settle the 2015 Warrants.

A summary of key terms of the 2015 Notes is as follows:

	2015 Notes
	(In thousands, except percentages and per share amounts)
Outstanding principal maturity value – at March 30, 2013	$350,000
Contractual interest rate	2.625%
Contractual maturity date	June 1, 2015
Initial conversion rate	132.5205 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $7.55 per share of Cadence common stock.
Conversion feature (in addition to principal amount payable in cash)	Cash to the extent Cadence’s stock price exceeds approximately $7.55 per share, calculated based on the applicable conversion rate multiplied by the volume weighted average price of Cadence common stock over a specified period.
Early conversion conditions (or the Early Conversion Conditions)	• Closing stock price greater than $9.81 for at least 20 of the last 30 trading days in a fiscal quarter (convertible only for subsequent quarter); • Specified corporate transactions; or • Note trading price falls below a calculated minimum.
Conversion immediately preceding maturity	From March 1, 2015 until the second trading day immediately preceding the maturity date, holders may convert their 2015 Notes at any time into cash as described above under “Conversion feature.”
Redemption at Cadence’s option prior to maturity	None.
Fundamental change put right	Upon certain fundamental corporate changes prior to maturity, the 2015 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest.
Make-whole premium	Upon certain fundamental changes prior to maturity, if Cadence’s stock price were between $6.16 and $40.00 per share at that time, the 2015 Note holders would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”
Financial covenants	None.

Impact of Early Conversion Conditions on Financial Statements

The 2015 Notes are convertible into cash from March 31, 2013 through June 29, 2013 because Cadence’s closing stock price exceeded $9.81 for at least 20 days in the 30-day period prior to March 30, 2013. Accordingly, the net balance of the 2015 Notes of $312.7 million is classified as a current liability on Cadence’s condensed consolidated balance sheet as of March 30, 2013. The classification of the 2015 Notes as current or long-term on the condensed consolidated balance sheet is evaluated at each balance sheet date and may change from time to time depending on whether Cadence’s closing stock price has exceeded $9.81 during the periods specified in the table above under “Early conversion conditions.”

If one of the 2015 Notes Early Conversion Conditions is met in any future fiscal quarter, Cadence will classify its net liability under the 2015 Notes as a current liability on the condensed consolidated balance sheet as of the end of that fiscal quarter. If none of the 2015 Notes Early Conversion Conditions have been met in a future fiscal quarter prior to the one-year period immediately preceding the maturity date, Cadence will classify its net liability under the 2015 Notes as a long-term liability on the condensed consolidated balance sheet as of the end of that fiscal quarter. If the note holders elect to convert their 2015 Notes prior to maturity, any unamortized discount and transaction fees will be expensed at the time of conversion. If the entire outstanding principal amount had been converted on March 30, 2013 Cadence would have recorded an expense of $42.4 million associated with the conversion, comprised of $37.3 million of unamortized debt discount and $5.1 million of unamortized transaction fees.

As of March 30, 2013, the if-converted value of the 2015 Notes to the note holders of approximately $646.1 million exceeded the principal amount of $350.0 million. The fair value of the 2015 Notes was $657.8 million as of March 30, 2013 and $640.1 million as of December 29, 2012. The 2015 Notes currently trade at a premium to the if-converted value of the notes. As of March 30, 2013, none of the note holders had elected to convert their 2015 Notes.

2015 Notes Embedded Conversion Derivative

The conversion feature of the 2015 Notes, or the 2015 Notes Embedded Conversion Derivative, requires bifurcation from the 2015 Notes and is accounted for as a derivative liability. The fair value of the 2015 Notes Embedded Conversion Derivative at the time of issuance of the 2015 Notes was $76.6 million and was recorded as original debt discount for purposes of accounting for the debt component of the 2015 Notes. This discount is amortized as interest expense using the effective interest method over the term of the 2015 Notes. The 2015 Notes Embedded Conversion Derivative is carried on the condensed consolidated balance sheet at its estimated fair value. The fair value was $315.9 million as of March 30, 2013 and $303.2 million as of December 29, 2012.

2015 Notes Hedges

The 2015 Notes Hedges expire on June 1, 2015 and must be settled in cash. The aggregate cost of the 2015 Notes Hedges was $76.6 million. The 2015 Notes Hedges are accounted for as derivative assets and are carried on the condensed consolidated balance sheet at their estimated fair value. The 2015 Note Hedges fair value was $315.9 million as of March 30, 2013 and $303.2 million as of December 29, 2012. The 2015 Notes Embedded Conversion Derivative liability and the 2015 Notes Hedges asset are adjusted to fair value each reporting period and unrealized gains and losses are reflected in the condensed consolidated income statements. The 2015 Notes Embedded Conversion Derivative and the 2015 Notes Hedges are designed to have similar fair values. Accordingly, the changes in the fair values of these instruments offset during the three months ended March 30, 2013 and March 31, 2012 and did not have a net impact on the condensed consolidated income statements for the respective periods.

The classification of the 2015 Notes Embedded Conversion Derivative liability and the 2015 Notes Hedges asset as current or long-term on the condensed consolidated balance sheet corresponds with the classification of the 2015 Notes, is evaluated at each balance sheet date and may change from time to time depending on whether the closing stock price Early Conversion Condition is met for a particular quarter.

2015 Warrants

In June 2010, Cadence sold the 2015 Warrants in separate transactions for the purchase of up to approximately 46.4 million shares of Cadence’s common stock at a strike price of $10.78 per share, for total proceeds of $37.5 million, which was recorded as an increase in stockholders’ equity. The 2015 Warrants expire on various dates from September 2015 through December 2015 and must be settled in net shares of Cadence’s common stock. Therefore, upon expiration of the 2015 Warrants, Cadence will issue shares of common stock to the purchasers of the 2015 Warrants that represent the value by which the price of the common stock exceeds the strike price stipulated within the particular warrant agreement.

The effective interest rate and components of interest expense of the 2015 Notes for the three months ended March 30, 2013 and March 31, 2012 were as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands, except percentages)
Effective interest rate	8.1		%	8.1		%
Contractual interest expense	$	2,289		$	2,289
Amortization of debt discount	$	3,910		$	3,592

2013 Notes and 2011 Notes

In December 2006, Cadence issued $250.0 million principal amount of 1.500% Convertible Senior Notes Due December 15, 2013, or the 2013 Notes. At the same time, Cadence issued$250.0 million principal amount of 1.375% Convertible Senior Notes Due December 15, 2011, or the 2011 Notes. During 2010, Cadence repurchased a portion of the 2011 Notes and the 2013 Notes. The 2011 Notes matured on December 15, 2011, at which time Cadence paid the remaining balance on the 2011 Notes in full. As of March 30, 2013, the remaining principal maturity value of the 2013 Notes was $144.5 million.

At maturity, the holders of the 2013 Notes will be entitled to receive the principal amount of the 2013 Notes plus accrued interest. The 2013 Notes are convertible into a combination of cash and shares of Cadence common stock upon the occurrence of certain conditions described in the table below. To the extent that the 2013 Notes are convertible prior to maturity and a holder of the 2013 Notes elects to convert its notes prior to maturity, that note holder will be entitled to receive cash for the principal amount of the notes plus shares for any additional conversion value as described in the table below under the heading “Conversion feature.” As of March 30, 2013, the 2013 Notes were not convertible.

Cadence entered into hedge transactions, or the 2013 Notes Hedges and the 2011 Notes Hedges, in connection with the issuance of the 2013 Notes and the 2011 Notes. The 2011 Notes Hedges expired unexercised on December 15, 2011. Pursuant to the 2013 Notes Hedges, Cadence has the option to receive the amount of shares that may be owed to the 2013 Notes holders. The purpose of the 2013 Notes Hedges was to limit Cadence’s exposure to the dilution that may result from the issuance of shares upon conversion of the notes. In December 2006, Cadence also sold warrants in separate transactions, or the 2013 Warrants and the 2011 Warrants. As a result of the 2013 Warrants, Cadence will experience dilution to its diluted earnings per share to the extent its average closing stock price exceeds $31.50 for any fiscal quarter. If Cadence’s stock price is above $31.50 at the expiration of the 2013 Warrants, Cadence will issue shares to settle the 2013 Warrants.

A summary of key terms of the 2013 Notes is as follows:

	2013 Notes
	(In thousands, except percentages and per share amounts)
Principal maturity value – at issuance	$250,000
Outstanding principal maturity value – at March 30, 2013	$144,461
Contractual interest rate	1.500%
Contractual maturity date	December 15, 2013
Equity component - included in common stock - at March 30, 2013 and December 29, 2012	$63,027
Initial conversion rate	47.2813 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $21.15 per share of Cadence common stock.
Conversion feature (in addition to principal amount payable in cash)	Shares to the extent Cadence’s stock price exceeds $21.15 per share, calculated based on the applicable conversion rate multiplied by the volume weighted average price of Cadence common stock over a specified period.
Early conversion conditions (or the Early Conversion Conditions)	•  Closing stock price greater than $27.50 for at least 20 of the last 30 trading days in a calendar quarter (convertible only for subsequent quarter); •  Specified corporate transactions; or •  Note trading price falls below calculated minimum.
Conversion immediately preceding maturity	From November 1, 2013, and until the trading day immediately preceding the maturity date, holders may convert their 2013 Notes at any time into cash and Cadence shares as described above under “Conversion feature.”
Redemption at Cadence’s option prior to maturity	None.
Fundamental change put right	Upon a fundamental change prior to maturity, the 2013 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest.
Make-whole premium	Upon certain fundamental changes, prior to maturity, if Cadence’s stock price were between $18.00 and $60.00 per share at that time, the 2013 Note holders would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”
Financial covenants	None.

Impact of Early Conversion Conditions on Financial Statements

As of March 30, 2013, none of the 2013 Notes Early Conversion Conditions had been met. The 2013 Notes mature on December 15, 2013 and the liability component of the 2013 Notes is classified as a current liability as of March 30, 2013.

As of March 30, 2013, the if-converted value of the 2013 Notes to the note holders did not exceed the principal amount of the 2013 Notes. The total fair value of the 2013 Notes, including the equity component, was $145.0 million as of March 30, 2013 and was $144.1 million as of December 29, 2012.

2013 and 2011 Notes Hedges

The 2011 Notes Hedges expired unexercised on December 15, 2011. The 2013 Notes Hedges expire on December 15, 2013, and must be settled in net shares of Cadence common stock. Therefore, upon expiration of the 2013 Notes Hedges, the counterparties will deliver shares of common stock to Cadence that represent the value, if any, by which the price of the common stock exceeds the price stipulated within the particular hedge agreement. The aggregate cost of the hedges entered into in connection with the 2011 Notes Hedges (which had similar conversion features as the 2013 Notes) and 2013 Notes Hedges was $119.8 million and was recorded as a reduction to stockholders’ equity. In connection with the purchase of a portion of the 2013 Notes and 2011 Notes during fiscal 2010, Cadence also sold a portion of the 2013 Notes Hedges and the 2011 Notes Hedges representing options to purchase approximately 9.7 million shares of Cadence’s common stock for proceeds of $0.4 million. The estimated fair value of the remaining 2013 Notes Hedges was $0.3 million as of March 30, 2013 and $0.7 million as of December 29, 2012. Subsequent changes in the fair value of the 2013 Notes Hedges will not be recognized in the condensed consolidated financial statements as long as the instruments remain classified as equity.

2013 and 2011 Warrants

In December 2006, Cadence sold warrants in separate transactions, which consisted of the 2013 Warrants and the 2011 Warrants, for the purchase of up to 23.6 million shares of Cadence’s common stock at a strike price of $31.50 per share for proceeds of $39.4 million, which was recorded as an increase in stockholders’ equity. In connection with the purchase of some of the 2013 Notes and the 2011 Notes during fiscal 2010, Cadence also purchased some of the 2013 Warrants and the 2011 Warrants, reducing the number of shares of Cadence common stock subject to purchase rights by 9.7 million shares at a cost of $0.1 million. The 2011 Warrants expired on various dates from February 2012 through April 2012, reducing the number of shares of Cadence common stock subject to purchase rights by 7.1 million shares. The 2013 Warrants will expire on various dates from February 2014 through April 2014. The 2013 Warrants must be settled in net shares of Cadence’s common stock. Therefore, upon expiration, Cadence will issue shares of common stock to the purchasers of the warrants that represent the value, if any, by which the price of the common stock exceeds the strike price stipulated within the particular warrant agreement.

The effective interest rate and components of interest expense of the 2013 Notes for the three months ended March 30, 2013, and of the 2013 Notes and 2011 Notes for the three months ended March 31, 2012, were as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands, except percentages)
Effective interest rate	6.4		%	6.4		%
Contractual interest expense	$	540		$	540
Amortization of debt discount	$	1,651		$	1,539

Zero Coupon Zero Yield Senior Convertible Notes Due 2023

In August 2003, Cadence issued $420.0 million principal amount of its Zero Coupon Zero Yield Senior Convertible Notes Due 2023, or the 2023 Notes. As of March 30, 2013 and December 29, 2012, the remaining balance and the total fair value of the 2023 Notes was $0.2 million.

Credit Facility

In December 2012, Cadence entered into a five-year senior secured revolving credit facility with a group of lenders led by Bank of America, N.A., as administrative agent. The credit facility provides for borrowings up to $250.0 million, with the right to request increased capacity up to an additional $150.0 million upon the receipt of lender commitments, for total maximum borrowings of $400.0 million.

Any outstanding loans drawn under the credit facility are due at maturity in December 2017. Outstanding amounts may be paid at any time prior to maturity. The facility is secured by certain accounts receivable and certain equity interests in Cadence’s subsidiaries.

Interest accrues based on Cadence’s consolidated leverage ratio. Borrowings may be made at LIBOR plus a margin between 1.25% and 2.00% per annum or at the base rate plus a margin between 0.25% and 1.00% per annum, where in each case the margin is determined by reference to a specified leverage ratio. Interest is payable quarterly. A commitment fee ranging from 0.20% to 0.35% is assessed on the daily average undrawn portion of revolving commitments.

The credit facility contains customary negative covenants that, among other things, restrict Cadence’s ability to incur additional indebtedness, grant liens and make certain investments, make acquisitions, dispose of certain assets and make certain restricted payments, including dividends. In addition, the credit facility contains financial covenants that require Cadence to maintain a leverage ratio not to exceed 3 to 1, and a minimum interest coverage ratio of 3 to 1.

Cadence had no outstanding balance on the credit facility and was in compliance with all financial covenants as of March 30, 2013 and December 29, 2012. After quarter-end on April 23, 2013, Cadence borrowed $100.0 million on the line of credit for general working capital purposes.

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Debt (Details Textual) (USD $)			3 Months Ended			3 Months Ended			3 Months Ended	12 Months Ended		1 Months Ended	3 Months Ended
	Mar. 30, 2013	Dec. 29, 2012	Mar. 30, 2013 Convertible Senior Notes Due 2013 [Member]	Dec. 29, 2012 Convertible Senior Notes Due 2013 [Member]	Dec. 30, 2006 Convertible Senior Notes Due 2013 [Member]	Mar. 30, 2013 Convertible Senior Notes Due 2011 [Member]	Dec. 29, 2012 Convertible Senior Notes Due 2011 [Member]	Dec. 30, 2006 Convertible Senior Notes Due 2011 [Member]	Mar. 30, 2013 Convertible Senior Notes Due 2011 [Member] Convertible Senior Notes Due 2013 [Member]	Jan. 01, 2011 Convertible Senior Notes Due 2011 [Member] Convertible Senior Notes Due 2013 [Member]	Dec. 30, 2006 Convertible Senior Notes Due 2011 [Member] Convertible Senior Notes Due 2013 [Member]	Jun. 30, 2010 Convertible Senior Notes Due 2015 [Member]	Mar. 30, 2013 Convertible Senior Notes Due 2015 [Member]	Mar. 31, 2012 Convertible Senior Notes Due 2015 [Member]	Dec. 29, 2012 Convertible Senior Notes Due 2015 [Member]	Mar. 30, 2013 Zero Coupon Zero Yield Senior Convertible Notes Due 2023 [Member]	Dec. 29, 2012 Zero Coupon Zero Yield Senior Convertible Notes Due 2023 [Member]	Aug. 31, 2003 Zero Coupon Zero Yield Senior Convertible Notes Due 2023 [Member]
Convertible Notes (Textual) [Abstract]
Principal amount, issued					$ 250,000,000			$ 250,000,000				$ 350,000,000						$ 420,000,000
Principal amount outstanding			144,461,000	144,461,000		0	0						350,000,000		350,000,000	178,000	178,000
Stated interest rate of Convertible Senior Notes			1.50%			1.375%							2.625%
Net current liability of convertible senior notes	452,571,000	447,011,000											312,729,000
Equity component of convertible debt - included in common stock			63,027,000	63,027,000
Maturity date of Convertible Senior Notes			Dec. 15, 2013			Dec. 15, 2011							Jun. 01, 2015
Warrants to purchase shares of common stock price per share (in usd per share)			$ 31.50						$ 31.50				$ 10.78
Conversion rate of Notes			47.2813 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $21.15 per share of Cadence common stock.										132.5205 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $7.55 per share of Cadence common stock.
Minimum closing price of common stock for specified days for conversion of notes (in usd per share)			$ 27.50										$ 9.81
Minimum number of trading days limit for which closing price exceeds fixed price for conversion of notes			20 days										20 days
Number of final trading days range within which closing price exceeds the fixed price for conversion of notes			30 days										30 days
Total expense if convertible notes are converted													42,400,000
Unamortized Debt Discount expensed if convertible notes are converted													37,300,000
Unamortized Transaction Fees expensed if convertible notes are converted													5,100,000
If Converted Value of Convertible Senior Notes													646,100,000
Event 1			Closing stock price greater than $27.50 for at least 20 of the last 30 trading days in a calendar quarter (convertible only for subsequent quarter).										Closing stock price greater than $9.81 for at least 20 of the last 30 trading days in a fiscal quarter (convertible only for subsequent quarter).
Event 2			Specified corporate transactions										Specified corporate transactions
Event 3			Note trading price falls below calculated minimum										Note trading price falls below a calculated minimum
Conversion rate of Convertible Senior Notes subject to certain conversion rate adjustments (in usd per share)			$ 21.15										$ 7.55
Condition 1			Upon a fundamental change prior to maturity, the 2013 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest. Upon certain fundamental changes, prior to maturity, if Cadence’s stock price were between $18.00 and $60.00 per share at that time, the 2013 Note holder would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”										Upon certain fundamental corporate changes prior to maturity, the 2015 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest. Upon certain fundamental changes prior to maturity, if Cadence’s stock price were between $6.16 and $40.00 per share at that time, the 2015 notes holder would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”
Minimum closing price of common stock to make whole premium in the form of increase to conversion rate (in usd per share)			$ 18.00										$ 6.16
Maximum closing price of common stock to make whole premium in form of increase to conversion rate (in usd per share)			$ 60.00										$ 40.00
Conversion rate for convertible senior notes per thousand principal amount of notes			47.2813										132.5205
Debt instrument principal amount conversion rate for specified shares of common stock			1,000										1,000
Total estimated fair value													657,800,000		640,100,000	178,000	178,000
Fair Value of 2015 Notes Embedded Conversion Derivative at the time of issuance												76,600,000
Estimated Fair Value of 2015 Notes Embedded Conversion Derivative at the balance sheet date													315,900,000		303,200,000
Cost of 2015 Notes Hedges												76,600,000
Estimated Fair Value of 2015 Notes hedges at the balance sheet date													315,900,000		303,200,000
Shares of Common Stock that can be purchased under warrants (in shares)											23,600,000		46,400,000
Amount received in cash proceeds from the sale of warrants											39,400,000	37,500,000
Notes Warrants expiration date description			various dates from February 2014 through April 2014			various dates from February 2012 through April 2012							various dates from September 2015 through December 2015
Aggregate cost of 2011 Notes and 2013 Notes Hedges											119,800,000
Portion of 2011 Notes and 2013 Notes hedges sold representing options to purchase Cadence's common stock (in shares)										9,700,000
Proceeds received from sale of 2011 Notes and 2013 Notes Hedges										400,000
Estimated fair value of the remaining 2013 Notes Hedges			300,000	700,000
Number of shares underlying warrants purchased with purchase of 2011 Notes and 2013 Notes (in shares)										9,700,000
Cost for repurchase of portion of 2011 Notes and 2013 Notes Warrants										100,000
Total estimated fair value (including equity component)			145,000,000	144,100,000
Impact on Income statement related to fair value adjustments of 2015 Notes Embedded Conversion Derivative and 2015 Notes Hedges													$ 0	$ 0
Reduction in number of shares available for purchase under warrants (in shares)						7,100,000

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Receivables and Allowances for Doubtful Accounts (Details) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Current and long-term receivables balances
Accounts receivable	$ 41,269	$ 67,259
Installment contract receivables, short-term	33,984	30,647
Long-term receivables	3,734	7,559
Total receivables	78,987	105,465
Less allowance for doubtful accounts	0	(85)
Total receivables, net	$ 78,987	$ 105,380

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Contingencies (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Contingencies (Textual) [Abstract]
General period of warranty on sales of hardware products	90 days
Significant losses from indemnification claims	$ 0	$ 0

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Current Assets:
Cash and cash equivalents	$ 810,152	$ 726,357
Short-term investments	100,992	100,704
Receivables, net of allowances of $0 and $85, respectively	75,253	97,821
Inventories	37,016	36,163
2015 notes hedges	315,895	303,154
Prepaid expenses and other	122,604	127,036
Total current assets	1,461,912	1,391,235
Property, plant and equipment, net of accumulated depreciation of $626,732 and $635,450, respectively	237,455	244,439
Goodwill	232,608	233,266
Acquired intangibles, net of accumulated amortization of $104,822 and $104,351, respectively	177,891	184,938
Accounts Receivable, Net, Noncurrent	3,734	7,559
Other assets	209,663	225,566
Total assets	2,323,263	2,287,003
Current Liabilities:
Convertible notes	452,571	447,011
2015 notes embedded conversion derivative	315,895	303,154
Accounts payable and accrued liabilities	156,606	171,318
Current portion of deferred revenue	285,553	295,787
Total current liabilities	1,210,625	1,217,270
Long-Term Liabilities:
Long-term portion of deferred revenue	41,432	50,529
Other long-term liabilities	51,533	104,033
Total long-term liabilities	92,965	154,562
Commitments and Contingencies
Stockholders' Equity:
Common stock and capital in excess of par value	1,727,901	1,721,556
Treasury stock, at cost	(175,110)	(200,786)
Accumulated deficit	(570,940)	(649,549)
Accumulated other comprehensive income	37,822	43,950
Total stockholders’ equity	1,019,673	915,171
Total liabilities and stockholders’ equity	$ 2,323,263	$ 2,287,003

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Cash, Cash Equivalents and Investments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012	Mar. 31, 2012	Dec. 31, 2011
Cash, Cash Equivalents and Investments [Abstract]
Cash and cash equivalents	$ 810,152	$ 726,357	$ 659,687	$ 601,602
Short-term investments	100,992	100,704
Cash, cash equivalents, and short-term investments	$ 911,144	$ 827,061

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Statement of Cash Flows [Abstract]
Cash and cash equivalents at beginning of period	$ 726,357	$ 601,602
Cash flows from operating activities:
Net income	78,609	31,104
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	21,682	21,939
Amortization of debt discount and fees	6,281	5,734
Stock-based compensation	13,810	11,525
Gain on investments, net	(1,006)	(1,949)
Deferred income taxes	8,695	223
Provisions (recoveries) for losses (gains) on receivables, net	(85)	0
Other non-cash items	(922)	746
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	23,652	60,172
Inventories	(979)	(154)
Prepaid expenses and other	(1,099)	(5,545)
Other assets	4,148	(577)
Accounts payable and accrued liabilities	(11,003)	(19,582)
Deferred revenue	(16,648)	(39,315)
Other long-term liabilities	(49,799)	(3,612)
Net cash provided by operating activities	75,336	60,709
Cash flows from investing activities:
Purchases of available-for-sale securities	(24,282)	0
Proceeds from the sale of available-for-sale securities	14,985	0
Proceeds from the maturity of available-for-sale securities	8,700	0
Proceeds from the sale of long-term investments	6,102	44
Purchases of property, plant and equipment	(6,569)	(8,201)
Investment in venture capital partnerships and equity investments	0	(250)
Cash paid in business combinations and asset acquisitions, net of cash acquired	(757)	(1,041)
Net cash used for investing activities	(1,821)	(9,448)
Cash flows from financing activities:
Principal payments on receivable financing	(2,526)	0
Payment of acquisition-related contingent consideration	(582)	(39)
Tax effect related to employee stock transactions allocated to equity	5,276	2,842
Proceeds from issuance of common stock	21,801	12,761
Stock received for payment of employee taxes on vesting of restricted stock	(8,775)	(6,173)
Net cash provided by financing activities	15,194	9,391
Effect of exchange rate changes on cash and cash equivalents	(4,914)	(2,567)
Increase in cash and cash equivalents	83,795	58,085
Cash and cash equivalents at end of period	810,152	659,687
Supplemental cash flow information:
Interest paid	183	0
Income taxes paid (refunded), including foreign withholding tax	(21)	4,699
Non-cash investing and financing activities:
Available-for-sale securities received from customer	209	15
Receivables related to sales of available-for-sale securities	$ 0	$ 122

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Acquisitions and Acquisition-Related Contingent Consideration (Details Textual 1) (USD $)	3 Months Ended		12 Months Ended
	Mar. 30, 2013	Dec. 29, 2012	Dec. 31, 2011 Two Thousand Eleven Acquisition [Member]	Mar. 30, 2013 Two Thousand Eleven Acquisition [Member]
Business Acquisition, Contingent Consideration [Line Items]
Maximum payments for contingent consideration arrangement			$ 5,000,000
Time of certain financial measures subsequent to consummation of the acquisition related to contingent consideration			3 years
Beginning date of acquisition related contingent consideration measurement period			subsequent to October 1, 2011
Acquisition related contingent consideration at initial fair value			3,521,000
Acquisition-related contingent consideration	3,579,000	4,218,000		3,500,000
Maximum amount obligated to pay by Cadence	14,400,000
Period over which consideration may be paid	37 months
Portion of amount of contingent consideration potential expense in future periods	$ 9,000,000

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Receivables and Allowances for Doubtful Accounts (Tables)

3 Months Ended

Mar. 30, 2013

Receivables [Abstract]

Current and long-term accounts receivable balances

Cadence’s current and long-term receivables balances as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Accounts receivable	$	41,269	$	67,259
Installment contract receivables, short-term	33,984		30,647
Long-term receivables	3,734		7,559
Total receivables	$	78,987	$	105,465
Less allowance for doubtful accounts	—		(85		)
Total receivables, net	$	78,987	$	105,380

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Goodwill and Acquired Intangibles (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013
Changes in the carrying amount of goodwill
Balance as of December 29, 2012	$ 233,266
Effect of foreign currency translation	(658)
Balance as of March 30, 2013	$ 232,608

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Cash, Cash Equivalents and Investments (Tables)

3 Months Ended

Mar. 30, 2013

Cash, Cash Equivalents and Investments [Abstract]

Summary of cash, cash equivalents and short-term investments

Cadence’s cash, cash equivalents and short-term investments at fair value as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cash and cash equivalents	$	810,152	$	726,357
Short-term investments	100,992		100,704
Cash, cash equivalents and short-term investments	$	911,144	$	827,061

Summary of cash and cash equivalents

The following table summarizes Cadence’s cash and cash equivalents at fair value as of March 30, 2013 and December 29, 2012:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cash and interest bearing deposits	$	150,934	$	160,023
Money market funds	659,218		566,334
Total cash and cash equivalents	$	810,152	$	726,357

Summary of short-term investments

The following tables summarize Cadence’s short-term investments as of March 30, 2013 and December 29, 2012:

	As of March 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Corporate debt securities	$	34,409	$	51	$	(7	)	$	34,453
Bank certificates of deposit	24,800		27		—			24,827
United States Treasury securities	21,198		27		—			21,225
United States government agency securities	14,231		15		—			14,246
Commercial paper	4,283		7		—			4,290
Marketable debt securities	98,921		127		(7		)	99,041
Marketable equity securities	1,817		134		—			1,951
Total short-term investments	$	100,738	$	261	$	(7	)	$	100,992

	As of December 29, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Corporate debt securities	$	31,313	$	57	$	(11	)	$	31,359
Bank certificates of deposit	27,805		21		—			27,826
United States Treasury securities	23,213		26		—			23,239
United States government agency securities	10,245		13		—			10,258
Commercial paper	5,777		6		—			5,783
Marketable debt securities	98,353		123		(11		)	98,465
Marketable equity securities	1,817		422		—			2,239
Total short-term investments	$	100,170	$	545	$	(11	)	$	100,704

Contractual maturity of marketable debt investments

The amortized cost and estimated fair value of marketable debt securities included in short-term investments as of March 30, 2013, by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

	Amortized Cost		Fair Value
	(In thousands)
Due in less than one year	$	34,718	$	34,777
Due in one to three years	64,203		64,264
Total marketable debt securities included in short-term investments	$	98,921	$	99,041

Carrying value of non-marketable securities

Cadence’s non-marketable investments as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cost method	$	3,038	$	3,038
Equity method	3,932		4,249
Total non-marketable investments	$	6,970	$	7,287

Net realized gains on the sale of non-marketable investments

Net realized gains on the sale of non-marketable investments during the three months ended March 30, 2013 and March 31, 2012 were as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Gains on sale of non-marketable investments	$	1,190	$	—

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Basis of Presentation

3 Months Ended

Mar. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

BASIS OF PRESENTATION

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Cadence Design Systems, Inc., or Cadence, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission, or the SEC. 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 on Form 10-Q comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for a Quarterly Report on Form 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’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012. In the condensed consolidated income statements for the three months ended March 30, 2013, Cadence combined product and maintenance revenue because product and maintenance revenue is generally recognized from agreements that require customers to purchase both the product and associated maintenance in a bundled offering. Cadence reclassified prior period product and maintenance revenue balances to conform to the current period presentation. Certain other prior period balances have also been reclassified to conform to current period presentation.

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q 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 of operations, cash flows and financial position for the periods and dates presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year.

Preparation of the condensed consolidated financial statements in conformity with United States 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Statement of Financial Position [Abstract]
Allowance for receivables	$ 0	$ 85
Accumulated depreciation on property, plant and equipment	626,732	635,450
Accumulated amortization on acquired intangibles assets	$ 104,822	$ 104,351

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Other Income, Net

3 Months Ended

Mar. 30, 2013

Other Income and Expenses [Abstract]

OTHER INCOME, NET

OTHER INCOME, NET

Cadence’s other income, net for the three months ended March 30, 2013 and March 31, 2012 was as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands)
Interest income	$	425		$	337
Gains (losses) on sale of marketable debt and equity securities, net	(25		)	117
Gains on sale of non-marketable equity investments	1,190			—
Gains on securities in Cadence’s NQDC	152			1,798
Gains on foreign exchange	764			100
Other income (expense), net	(331		)	82
Total other income, net	$	2,175		$	2,434

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Document and Entity Information	3 Months Ended
	Mar. 30, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	CADENCE DESIGN SYSTEMS INC
Entity Central Index Key	0000813672
Document Type	10-Q
Document Period End Date	Mar. 30, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-28
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding	282,995,052

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Segment Reporting

3 Months Ended

Mar. 30, 2013

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. Cadence’s chief operating decision maker is its President and Chief Executive Officer, or CEO, who reviews Cadence’s consolidated results as one reportable segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geographic region.

Outside the United States, Cadence markets and supports its products and services primarily through its subsidiaries. Revenue is attributed to geography based upon the country in which the product is used or services are delivered. Long-lived assets are attributed to geography based on the country where the assets are located.

The following table presents a summary of revenue by geography for the three months ended March 30, 2013 and March 31, 2012:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Americas:
United States	$	149,171	$	130,455
Other Americas	4,615		8,124
Total Americas	153,786		138,579
Europe, Middle East and Africa	78,920		59,709
Japan	53,474		56,219
Asia	68,086		61,323
Total	$	354,266	$	315,830

The following table presents a summary of long-lived assets by geography as of March 30, 2013 and December 29, 2012:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Americas:
United States	$	209,006	$	214,711
Other Americas	216		185
Total Americas	209,222		214,896
Europe, Middle East and Africa	4,994		5,410
Japan	979		1,649
Asia	22,260		22,484
Total	$	237,455	$	244,439

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Condensed Consolidated Income Statements (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Revenue:
Product and maintenance	$ 328,271	$ 286,288
Service	25,995	29,542
Total revenue	354,266	315,830
Costs and Expenses:
Cost of product and maintenance	29,847	27,212
Cost of service	18,344	19,374
Marketing and sales	90,402	83,795
Research and development	124,084	108,594
General and administrative	29,810	27,770
Amortization of acquired intangibles	3,791	3,786
Restructuring and other charges (credits)	(148)	(51)
Total costs and expenses	296,130	270,480
Income from operations	58,136	45,350
Interest expense	(9,262)	(8,537)
Other income, net	2,175	2,434
Income before provision (benefit) for income taxes	51,049	39,247
Provision (benefit) for income taxes	(27,560)	8,143
Net income	$ 78,609	$ 31,104
Net income per share - basic (in usd per share)	$ 0.29	$ 0.12
Net income per share - diluted (in usd per share)	$ 0.27	$ 0.11
Weighted average common shares outstanding - basic (in shares)	274,936	267,940
Weighted average common shares outstanding - diluted (in shares)	292,151	277,733

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Fair Value

3 Months Ended

Mar. 30, 2013

Fair Value Disclosures [Abstract]

FAIR VALUE

FAIR VALUE

Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Cadence’s market assumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1 – Quoted prices for identical instruments in active markets;

• Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires Cadence to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. Cadence recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the three months ended March 30, 2013.

On a quarterly basis, Cadence measures at fair value certain financial assets and liabilities. The fair value of financial assets and liabilities was determined using the following levels of inputs as of March 30, 2013 and December 29, 2012:

	Fair Value Measurements as of March 30, 2013:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	659,218	$	659,218	$	—	$	—
Short-term investments:
Corporate debt securities	34,453		—		34,453		—
Bank certificates of deposit	24,827		—		24,827		—
United States Treasury securities	21,225		21,225		—		—
United States government agency securities	14,246		14,246		—		—
Commercial paper	4,290		—		4,290		—
Marketable equity securities	1,951		1,951		—		—
Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC	19,302		19,302		—		—
2015 Notes Hedges	315,895		—		315,895		—
Total Assets	$	1,095,407	$	715,942	$	379,465	$	—
	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Acquisition-related contingent consideration	$	3,579	$	—	$	—	$	3,579
2015 Notes Embedded Conversion Derivative	315,895		—		315,895		—
Foreign currency exchange contracts	$	477	$	—	$	477	$	—
Total Liabilities	$	319,951	$	—	$	316,372	$	3,579
	Fair Value Measurements as of December 29, 2012:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	566,334	$	566,334	$	—	$	—
Short-term investments:
Corporate debt securities	31,359		—		31,359		—
Bank certificates of deposit	27,826		—		27,826		—
United States Treasury securities	23,239		23,239		—		—
United States government agency securities	10,258		10,258		—		—
Commercial paper	5,783		—		5,783		—
Marketable equity securities	2,239		2,239		—		—
Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC	24,329		24,329		—		—
2015 Notes Hedges	303,154		—		303,154		—
Foreign currency exchange contracts	1,737		—		1,737		—
Total Assets	$	996,258	$	626,399	$	369,859	$	—

	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Acquisition-related contingent consideration	$	4,218	$	—	$	—	$	4,218
2015 Notes Embedded Conversion Derivative	303,154		—		303,154		—
Total Liabilities	$	307,372	$	—	$	303,154	$	4,218

Level 1 Measurements

Cadence’s cash equivalents held in money market funds, available-for-sale United States Treasury securities, United States government agency securities, marketable equity securities and the trading securities held in Cadence’s NQDC trust are measured at fair value using level 1 inputs.

Level 2 Measurements

The 2015 Notes Hedges and the 2015 Notes Embedded Conversion Derivative are measured at fair value using level 1 and level 2 inputs. These instruments are not actively traded and are valued using an option pricing model that uses observable market data for all inputs, such as implied volatility of Cadence’s common stock, risk-free interest rate and other factors.

Cadence’s available-for-sale corporate debt securities, bank certificates of deposit and commercial paper are measured at fair value using level 2 inputs. Cadence obtains the fair values of its level 2 available-for-sale securities from a professional pricing service and validates the fair values by assessing the pricing methods and inputs and by comparing the fair values to another independent source.

The fair values of Cadence’s 2013 Notes and 2015 Notes, which differ from their carrying values, are influenced by interest rates and Cadence’s stock price and stock price volatility and are determined by prices for the 2013 Notes and 2015 Notes observed in market trading, which are level 2 inputs.

Cadence’s foreign currency exchange contracts are measured at fair value using observable foreign currency exchange rates.

Level 3 Measurements

The liabilities included in level 3 represent the fair value of contingent consideration associated with certain of Cadence’s 2011 and 2010 acquisitions. Cadence makes estimates regarding the fair value of contingent consideration liabilities on the acquisition date and at the end of each reporting period until the contingency is resolved. The fair value of these arrangements is determined by calculating the net present value of the expected payments using significant inputs that are not observable in the market, including revenue projections and discount rates consistent with the level of risk of achievement. The fair value of these contingent consideration arrangements is affected most significantly by the changes in the revenue projections, but is also impacted by the discount rate used to adjust the outcomes to their present values. If the revenue projections increase or decrease, the fair value of the contingent consideration will increase or decrease accordingly, in amounts that will vary based on the timing of the projected revenues, the timing of the expected payments and the discount rate used to calculate the present value of the expected payments. Cadence used discount rates ranging from 11% to 16% to value its contingent consideration liabilities as of March 30, 2013 and December 29, 2012. Cadence believes that its estimates and assumptions are reasonable, but significant judgment is involved.

Changes in the fair value of contingent consideration liabilities subsequent to the acquisition are recorded in general and administrative expense in the condensed consolidated income statements.

The following table summarizes the level 3 activity for the three months ended March 30, 2013:

	(In thousands)
Balance as of December 29, 2012	$	4,218
Payments	(740		)
Adjustments	101
Balance as of March 30, 2013	$	3,579

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Receivables and Allowances for Doubtful Accounts

3 Months Ended

Mar. 30, 2013

Receivables [Abstract]

RECEIVABLES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS

RECEIVABLES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS

Cadence’s current and long-term receivables balances as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Accounts receivable	$	41,269	$	67,259
Installment contract receivables, short-term	33,984		30,647
Long-term receivables	3,734		7,559
Total receivables	$	78,987	$	105,465
Less allowance for doubtful accounts	—		(85		)
Total receivables, net	$	78,987	$	105,380

Cadence’s customers are primarily concentrated within the semiconductor, electronics systems and consumer electronics industries. As of March 30, 2013, one customer accounted for approximately 11% of Cadence’s total receivables. As of December 29, 2012, no single customer accounted for 10% of Cadence’s total receivables. As of March 30, 2013, approximately 53% of Cadence’s total receivables were attributable to the ten customers with the largest balances of total receivables. As of December 29, 2012, approximately 47% of Cadence’s total receivables were attributable to the ten customers with the largest balances of total receivables.

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Fair Value (Tables)

3 Months Ended

Mar. 30, 2013

Fair Value Disclosures [Abstract]

Fair value of financial assets and liabilities

On a quarterly basis, Cadence measures at fair value certain financial assets and liabilities. The fair value of financial assets and liabilities was determined using the following levels of inputs as of March 30, 2013 and December 29, 2012:

	Fair Value Measurements as of March 30, 2013:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	659,218	$	659,218	$	—	$	—
Short-term investments:
Corporate debt securities	34,453		—		34,453		—
Bank certificates of deposit	24,827		—		24,827		—
United States Treasury securities	21,225		21,225		—		—
United States government agency securities	14,246		14,246		—		—
Commercial paper	4,290		—		4,290		—
Marketable equity securities	1,951		1,951		—		—
Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC	19,302		19,302		—		—
2015 Notes Hedges	315,895		—		315,895		—
Total Assets	$	1,095,407	$	715,942	$	379,465	$	—
	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Acquisition-related contingent consideration	$	3,579	$	—	$	—	$	3,579
2015 Notes Embedded Conversion Derivative	315,895		—		315,895		—
Foreign currency exchange contracts	$	477	$	—	$	477	$	—
Total Liabilities	$	319,951	$	—	$	316,372	$	3,579
	Fair Value Measurements as of December 29, 2012:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	566,334	$	566,334	$	—	$	—
Short-term investments:
Corporate debt securities	31,359		—		31,359		—
Bank certificates of deposit	27,826		—		27,826		—
United States Treasury securities	23,239		23,239		—		—
United States government agency securities	10,258		10,258		—		—
Commercial paper	5,783		—		5,783		—
Marketable equity securities	2,239		2,239		—		—
Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC	24,329		24,329		—		—
2015 Notes Hedges	303,154		—		303,154		—
Foreign currency exchange contracts	1,737		—		1,737		—
Total Assets	$	996,258	$	626,399	$	369,859	$	—

	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Acquisition-related contingent consideration	$	4,218	$	—	$	—	$	4,218
2015 Notes Embedded Conversion Derivative	303,154		—		303,154		—
Total Liabilities	$	307,372	$	—	$	303,154	$	4,218

Liabilities included in level 3 representing fair value of contingent consideration associated with acquisitions

The following table summarizes the level 3 activity for the three months ended March 30, 2013:

	(In thousands)
Balance as of December 29, 2012	$	4,218
Payments	(740		)
Adjustments	101
Balance as of March 30, 2013	$	3,579

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Basis of Presentation (Policies)

3 Months Ended

Mar. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Preparation of the condensed consolidated financial statements in conformity with United States 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Cadence’s market assumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1 – Quoted prices for identical instruments in active markets;

• Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires Cadence to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. Cadence recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the three months ended March 30, 2013.

Contingencies

At least quarterly, 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 or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on Cadence’s judgments using 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.

Non-Marketable Investments

Non-Marketable Investments

Cadence’s non-marketable investments generally consist of voting preferred stock or convertible debt of privately held companies and are included in other assets on Cadence’s condensed consolidated balance sheets. If Cadence determines that it has the ability to exercise significant influence over the issuer, which may include considering whether the investments are in-substance common stock, the investment is accounted for using the equity method.

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Other Comprehensive Income

3 Months Ended

Mar. 30, 2013

Other Comprehensive Income (Loss), Net of Tax [Abstract]

OTHER COMPREHENSIVE INCOME

OTHER COMPREHENSIVE INCOME

Cadence’s other comprehensive income is comprised of foreign currency translation gains and losses, changes in defined benefit plan liabilities, and changes in unrealized holding gains and losses on available-for-sale securities net of reclassifications for realized gains and losses as presented in Cadence’s condensed consolidated statements of comprehensive income.

Accumulated other comprehensive income was comprised of the following as of March 30, 2013, and December 29, 2012:

	As of
	March 30, 2013			December 29, 2012
	(In thousands)
Foreign currency translation gain	$	42,491		$	48,653
Changes in defined benefit plan liabilities	(4,911		)	(5,229		)
Unrealized holding gains on available-for-sale securities	242			526
Total accumulated other comprehensive income	$	37,822		$	43,950

For the three months ended March 30, 2013 and March 31, 2012 there were no significant amounts reclassified from accumulated other comprehensive income to net income.

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Cash, Cash Equivalents and Investments

3 Months Ended

Mar. 30, 2013

Cash, Cash Equivalents and Investments [Abstract]

CASH, CASH EQUIVALENTS AND INVESTMENTS

CASH, CASH EQUIVALENTS AND INVESTMENTS

Cadence’s cash, cash equivalents and short-term investments at fair value as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cash and cash equivalents	$	810,152	$	726,357
Short-term investments	100,992		100,704
Cash, cash equivalents and short-term investments	$	911,144	$	827,061

Cash and Cash Equivalents

Cadence considers all highly liquid investments with original maturities of three months or less on the date of purchase to be cash equivalents. The amortized cost of Cadence’s cash equivalents approximates fair value. The following table summarizes Cadence’s cash and cash equivalents at fair value as of March 30, 2013 and December 29, 2012:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cash and interest bearing deposits	$	150,934	$	160,023
Money market funds	659,218		566,334
Total cash and cash equivalents	$	810,152	$	726,357

Short-Term Investments

The following tables summarize Cadence’s short-term investments as of March 30, 2013 and December 29, 2012:

	As of March 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Corporate debt securities	$	34,409	$	51	$	(7	)	$	34,453
Bank certificates of deposit	24,800		27		—			24,827
United States Treasury securities	21,198		27		—			21,225
United States government agency securities	14,231		15		—			14,246
Commercial paper	4,283		7		—			4,290
Marketable debt securities	98,921		127		(7		)	99,041
Marketable equity securities	1,817		134		—			1,951
Total short-term investments	$	100,738	$	261	$	(7	)	$	100,992

	As of December 29, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Corporate debt securities	$	31,313	$	57	$	(11	)	$	31,359
Bank certificates of deposit	27,805		21		—			27,826
United States Treasury securities	23,213		26		—			23,239
United States government agency securities	10,245		13		—			10,258
Commercial paper	5,777		6		—			5,783
Marketable debt securities	98,353		123		(11		)	98,465
Marketable equity securities	1,817		422		—			2,239
Total short-term investments	$	100,170	$	545	$	(11	)	$	100,704

As of March 30, 2013, any securities held by Cadence with an unrealized loss had been held for less than six months.

The amortized cost and estimated fair value of marketable debt securities included in short-term investments as of March 30, 2013, by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

	Amortized Cost		Fair Value
	(In thousands)
Due in less than one year	$	34,718	$	34,777
Due in one to three years	64,203		64,264
Total marketable debt securities included in short-term investments	$	98,921	$	99,041

Non-Marketable Investments

Cadence’s non-marketable investments generally consist of voting preferred stock or convertible debt of privately held companies and are included in other assets on Cadence’s condensed consolidated balance sheets. If Cadence determines that it has the ability to exercise significant influence over the issuer, which may include considering whether the investments are in-substance common stock, the investment is accounted for using the equity method.

Cadence’s non-marketable investments as of March 30, 2013 and December 29, 2012 were as follows:

	As of
	March 30, 2013		December 29, 2012
	(In thousands)
Cost method	$	3,038	$	3,038
Equity method	3,932		4,249
Total non-marketable investments	$	6,970	$	7,287

Net realized gains on the sale of non-marketable investments during the three months ended March 30, 2013 and March 31, 2012 were as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Gains on sale of non-marketable investments	$	1,190	$	—

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Net Income per Share

3 Months Ended

Mar. 30, 2013

Earnings Per Share [Abstract]

NET INCOME PER SHARE

NET INCOME PER SHARE

Basic net income per share is computed by dividing net income during the period by the weighted average number of shares of common stock outstanding during that period, less unvested restricted stock awards. Diluted net income per share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock method of accounting.

The calculations for basic and diluted net income per share for the three months ended March 30, 2013 and March 31, 2012 are as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands, except per share amounts)
Net income	$	78,609	$	31,104
Weighted average common shares used to calculate basic net income per share	274,936		267,940
2023 Notes	11		11
2015 Warrants	10,668		2,523
Share-based awards	6,536		7,259
Weighted average common shares used to calculate diluted net income per share	292,151		277,733
Net income per share - basic	$	0.29	$	0.12
Net income per share - diluted	$	0.27	$	0.11

The following table presents shares of Cadence’s common stock outstanding for the three months ended March 30, 2013, and March 31, 2012, that were excluded from the computation of diluted net income per share because the effect of including these shares in the computation of diluted net income per share would have been anti-dilutive:

	Three Months Ended
	March 30, 2013	March 31, 2012
	(In thousands)
2011 Warrants and 2013 Warrants	6,830	7,815
Options to purchase shares of common stock	6,754	14,070
Non-vested shares of restricted stock	—	33
Total potential common shares excluded	13,584	21,918

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Contingencies

3 Months Ended

Mar. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

CONTINGENCIES

Legal Proceedings

From time to time, Cadence is involved in various disputes and litigation that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, indemnification obligations, mergers and acquisitions, licensing, contracts, distribution arrangements and employee relations matters. At least quarterly, 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 or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on Cadence’s judgments using 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.

Other Contingencies

Cadence provides its customers with a warranty on sales of hardware products, generally for a 90-day period. Cadence did not incur any significant costs related to warranty obligations during the three months ended March 30, 2013 or March 31, 2012.

Cadence’s product license and services agreements typically include a limited indemnification provision for claims from third parties relating to Cadence’s intellectual property. If the potential loss from any indemnification claim is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. The indemnification is generally limited to the amount paid by the customer. Cadence did not incur any significant losses from indemnification claims during the three months ended March 30, 2013 or March 31, 2012.

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Acquisitions and Acquisition-Related Contingent Consideration (Details Textual) (USD $) In Millions, unless otherwise specified			0 Months Ended
	Feb. 07, 2013 Cosmic Circuit Private Limited [Member]	Apr. 22, 2013 Tensilica [Member]	Feb. 07, 2013 Trust For benefit of children of chief executive officer [Member] Cosmic Circuit Private Limited [Member]
Business Acquisition [Line Items]
Business acquisition, cost of acquired entity, cash expected to be paid	$ 61.2
Related party, ownership percentage in acquired company			8.50%
Business Acquisition Purchase Current Assets Cash and Cash Equivalents of Acquired Entity		25.0
Cash paid for acquired entity at closing		326.4
Additional payments deferred on the acquisition date		$ 5.8

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Net Income Per Share (Details 1) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Potential shares of Cadence's common stock excluded
Total potential common shares excluded	13,584	21,918
2011 Warrants and 2013 Warrants
Potential shares of Cadence's common stock excluded
Total potential common shares excluded	6,830	7,815
Options to purchase shares of common stock
Potential shares of Cadence's common stock excluded
Total potential common shares excluded	6,754	14,070
Non-vested shares of restricted stock
Potential shares of Cadence's common stock excluded
Total potential common shares excluded	0	33

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Goodwill and Acquired Intangibles (Tables)

3 Months Ended

Mar. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in the carrying amount of goodwill

The changes in the carrying amount of goodwill during the three months ended March 30, 2013 were as follows:

	Gross Carrying Amount
	(In thousands)
Balance as of December 29, 2012	$	233,266
Effect of foreign currency translation	(658		)
Balance as of March 30, 2013	$	232,608

Acquired intangibles with finite lives, excluding intangibles fully amortized at end of prior fiscal year

Acquired intangibles with definite lives as of March 30, 2013 were as follows, excluding intangibles that were fully amortized as of December 29, 2012:

	Gross Carrying Amount		Accumulated Amortization			Acquired Intangibles, Net
	(In thousands)
Existing technology	$	112,697	$	(33,595	)	$	79,102
Agreements and relationships	133,397		(39,965		)	93,432
Distribution rights	30,100		(29,348		)	752
Tradenames, trademarks and patents	6,519		(1,914		)	4,605
Total acquired intangibles	$	282,713	$	(104,822	)	$	177,891

Acquired intangibles with definite lives as of December 29, 2012 were as follows, excluding intangibles that were fully amortized as of December 31, 2011:

	Gross Carrying Amount		Accumulated Amortization			Acquired Intangibles, Net
	(In thousands)
Existing technology	$	112,940	$	(30,171	)	$	82,769
Agreements and relationships	133,764		(37,769		)	95,995
Distribution rights	30,100		(28,595		)	1,505
Tradenames, trademarks and patents	12,485		(7,816		)	4,669
Total acquired intangibles	$	289,289	$	(104,351	)	$	184,938

Amortization of acquired intangibles

Amortization of acquired intangibles for the three months ended March 30, 2013 and March 31, 2012 was as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Cost of product and maintenance	$	3,807	$	2,899
Amortization of acquired intangibles	3,791		3,786
Total amortization of acquired intangibles	$	7,598	$	6,685

Estimated amortization expense

Estimated amortization expense for the following five fiscal years and thereafter is as follows:

	(In thousands)
2013 – remaining period	$	20,395
2014	25,404
2015	25,057
2016	24,348
2017	23,260
Thereafter	59,427
Total estimated amortization expense	$	177,891

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Other Comprehensive Income (Tables)

3 Months Ended

Mar. 30, 2013

Other Comprehensive Income (Loss), Net of Tax [Abstract]

Accumulated other comprehensive income net of tax

Accumulated other comprehensive income was comprised of the following as of March 30, 2013, and December 29, 2012:

	As of
	March 30, 2013			December 29, 2012
	(In thousands)
Foreign currency translation gain	$	42,491		$	48,653
Changes in defined benefit plan liabilities	(4,911		)	(5,229		)
Unrealized holding gains on available-for-sale securities	242			526
Total accumulated other comprehensive income	$	37,822		$	43,950

For the three months ended March 30, 2013 and March 31, 2012 there were no significant amounts reclassified from accumulated other comprehensive income to net income.

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Cash, Cash Equivalents and Investments (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012	Dec. 29, 2012
Carrying value of non-marketable investments
Cost Method Investments	$ 3,038		$ 3,038
Equity method	3,932		4,249
Total non-marketable investments	6,970		7,287
Net realized gains on the sale of non-marketable investments
Gains on sale of non-marketable investments	$ 1,190	$ 0

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Receivables and Allowances for Doubtful Accounts (Details Textual)	Mar. 30, 2013 Customer	Dec. 29, 2012 Customer
Accounts Receivable and Allowances for Doubtful Accounts (Textual) [Abstract]
Number of customers with receivables balance greater than ten percent of total balance	1	0
Percent of receivables attributable to single customer	11.00%	10.00%
Percentage of Company's total receivables, net attributable to the ten customers with largest balance	53.00%	47.00%
Number of customers with largest balance of receivables	10	10

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Statement of Other Comprehensive Income [Abstract]
Net income	$ 78,609	$ 31,104
Other comprehensive loss, net of tax effects:
Foreign currency translation loss	(6,162)	(2,466)
Changes in unrealized holding gains or losses on available-for-sale securities, net of reclassification adjustment for realized gains and losses	(284)	(4)
Changes in defined benefit plan liabilities	318	(29)
Total other comprehensive loss, net of tax effects	(6,128)	(2,499)
Comprehensive income	$ 72,481	$ 28,605

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Goodwill and Acquired Intangibles

3 Months Ended

Mar. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND ACQUIRED INTANGIBLES

GOODWILL AND ACQUIRED INTANGIBLES

Goodwill

The changes in the carrying amount of goodwill during the three months ended March 30, 2013 were as follows:

	Gross Carrying Amount
	(In thousands)
Balance as of December 29, 2012	$	233,266
Effect of foreign currency translation	(658		)
Balance as of March 30, 2013	$	232,608

Acquired Intangibles, Net

Acquired intangibles with definite lives as of March 30, 2013 were as follows, excluding intangibles that were fully amortized as of December 29, 2012:

	Gross Carrying Amount		Accumulated Amortization			Acquired Intangibles, Net
	(In thousands)
Existing technology	$	112,697	$	(33,595	)	$	79,102
Agreements and relationships	133,397		(39,965		)	93,432
Distribution rights	30,100		(29,348		)	752
Tradenames, trademarks and patents	6,519		(1,914		)	4,605
Total acquired intangibles	$	282,713	$	(104,822	)	$	177,891

Acquired intangibles with definite lives as of December 29, 2012 were as follows, excluding intangibles that were fully amortized as of December 31, 2011:

	Gross Carrying Amount		Accumulated Amortization			Acquired Intangibles, Net
	(In thousands)
Existing technology	$	112,940	$	(30,171	)	$	82,769
Agreements and relationships	133,764		(37,769		)	95,995
Distribution rights	30,100		(28,595		)	1,505
Tradenames, trademarks and patents	12,485		(7,816		)	4,669
Total acquired intangibles	$	289,289	$	(104,351	)	$	184,938

Amortization expense from existing technology intangible assets and maintenance agreement intangible assets is included in cost of product and maintenance. Amortization of acquired intangibles for the three months ended March 30, 2013 and March 31, 2012 was as follows:

	Three Months Ended
	March 30, 2013		March 31, 2012
	(In thousands)
Cost of product and maintenance	$	3,807	$	2,899
Amortization of acquired intangibles	3,791		3,786
Total amortization of acquired intangibles	$	7,598	$	6,685

Estimated amortization expense for the following five fiscal years and thereafter is as follows:

	(In thousands)
2013 – remaining period	$	20,395
2014	25,404
2015	25,057
2016	24,348
2017	23,260
Thereafter	59,427
Total estimated amortization expense	$	177,891

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Other Income, Net (Tables)

3 Months Ended

Mar. 30, 2013

Other Income and Expenses [Abstract]

Other Income, Net

Cadence’s other income, net for the three months ended March 30, 2013 and March 31, 2012 was as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands)
Interest income	$	425		$	337
Gains (losses) on sale of marketable debt and equity securities, net	(25		)	117
Gains on sale of non-marketable equity investments	1,190			—
Gains on securities in Cadence’s NQDC	152			1,798
Gains on foreign exchange	764			100
Other income (expense), net	(331		)	82
Total other income, net	$	2,175		$	2,434

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Goodwill and Acquired Intangibles (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Amortization of acquired intangibles
Cost of product and maintenance	$ 3,807	$ 2,899
Amortization of Intangible Assets	3,791	3,786
Total amortization of acquired intangibles	$ 7,598	$ 6,685

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Debt (Tables)

3 Months Ended

Mar. 30, 2013

Debt Disclosure [Abstract]

Summary of debt outstanding

Cadence’s outstanding debt as of March 30, 2013 and December 29, 2012 was as follows:

	March 30, 2013							December 29, 2012
	(In thousands)
	Principal		Unamortized Discount			Carrying Value		Principal		Unamortized Discount			Carrying Value
2015 Notes	$	350,000	$	(37,271	)	$	312,729	$	350,000	$	(41,181	)	$	308,819
2013 Notes	144,461		(4,797		)	139,664		144,461		(6,447		)	138,014
2023 Notes	178		—			178		178		—			178
Revolving line of credit	—		—			—		—		—			—
Total outstanding debt	$	494,639	$	(42,068	)	$	452,571	$	494,639	$	(47,628	)	$	447,011

Summary of key terms of 2015 notes and 2013 notes

A summary of key terms of the 2013 Notes is as follows:

	2013 Notes
	(In thousands, except percentages and per share amounts)
Principal maturity value – at issuance	$250,000
Outstanding principal maturity value – at March 30, 2013	$144,461
Contractual interest rate	1.500%
Contractual maturity date	December 15, 2013
Equity component - included in common stock - at March 30, 2013 and December 29, 2012	$63,027
Initial conversion rate	47.2813 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $21.15 per share of Cadence common stock.
Conversion feature (in addition to principal amount payable in cash)	Shares to the extent Cadence’s stock price exceeds $21.15 per share, calculated based on the applicable conversion rate multiplied by the volume weighted average price of Cadence common stock over a specified period.
Early conversion conditions (or the Early Conversion Conditions)	•  Closing stock price greater than $27.50 for at least 20 of the last 30 trading days in a calendar quarter (convertible only for subsequent quarter); •  Specified corporate transactions; or •  Note trading price falls below calculated minimum.
Conversion immediately preceding maturity	From November 1, 2013, and until the trading day immediately preceding the maturity date, holders may convert their 2013 Notes at any time into cash and Cadence shares as described above under “Conversion feature.”
Redemption at Cadence’s option prior to maturity	None.
Fundamental change put right	Upon a fundamental change prior to maturity, the 2013 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest.
Make-whole premium	Upon certain fundamental changes, prior to maturity, if Cadence’s stock price were between $18.00 and $60.00 per share at that time, the 2013 Note holders would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”
Financial covenants	None.

A summary of key terms of the 2015 Notes is as follows:

	2015 Notes
	(In thousands, except percentages and per share amounts)
Outstanding principal maturity value – at March 30, 2013	$350,000
Contractual interest rate	2.625%
Contractual maturity date	June 1, 2015
Initial conversion rate	132.5205 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $7.55 per share of Cadence common stock.
Conversion feature (in addition to principal amount payable in cash)	Cash to the extent Cadence’s stock price exceeds approximately $7.55 per share, calculated based on the applicable conversion rate multiplied by the volume weighted average price of Cadence common stock over a specified period.
Early conversion conditions (or the Early Conversion Conditions)	• Closing stock price greater than $9.81 for at least 20 of the last 30 trading days in a fiscal quarter (convertible only for subsequent quarter); • Specified corporate transactions; or • Note trading price falls below a calculated minimum.
Conversion immediately preceding maturity	From March 1, 2015 until the second trading day immediately preceding the maturity date, holders may convert their 2015 Notes at any time into cash as described above under “Conversion feature.”
Redemption at Cadence’s option prior to maturity	None.
Fundamental change put right	Upon certain fundamental corporate changes prior to maturity, the 2015 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest.
Make-whole premium	Upon certain fundamental changes prior to maturity, if Cadence’s stock price were between $6.16 and $40.00 per share at that time, the 2015 Note holders would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”
Financial covenants	None.

Effective interest rate and components of interest expense of 2015 notes

The effective interest rate and components of interest expense of the 2015 Notes for the three months ended March 30, 2013 and March 31, 2012 were as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands, except percentages)
Effective interest rate	8.1		%	8.1		%
Contractual interest expense	$	2,289		$	2,289
Amortization of debt discount	$	3,910		$	3,592

Effective interest rate and components of interest expense of 2013 notes and 2011 notes

The effective interest rate and components of interest expense of the 2013 Notes for the three months ended March 30, 2013, and of the 2013 Notes and 2011 Notes for the three months ended March 31, 2012, were as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
	(In thousands, except percentages)
Effective interest rate	6.4		%	6.4		%
Contractual interest expense	$	540		$	540
Amortization of debt discount	$	1,651		$	1,539