Convertible Note Hedge Transaction

General Terms:

Trade Date:

December 14, 2006

Option Style:

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

Option Type:

Call

Buyer:

Counterparty

Seller:

Dealer

Shares:

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

Number of Options:

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

Option Entitlement:

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

Number of Shares:

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

Applicable Percentage:

60%

Strike Price:

USD 21.15

Premium:

USD 31,260,000

Premium Payment Date:

December 19, 2006 or such later date as agreed upon by the parties

Exchange:

NASDAQ Global Select Market.

Related Exchange(s):

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

Exercise and Valuation:

Exercise Period:

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

Exercise Dates:

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

Exercisable Options:

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

Expiration Time:

At the close of trading of the regular trading session on the Exchange

Expiration Date:

Each Exercise Date.

Final Expiration Date:

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

Automatic Exercise:

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

Notice of Exercise:

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

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

Dealer’s Telephone Number and Telex and/or Facsimile Number and Contact Details for purpose of Giving Notice:

To be provided by Dealer.

Settlement Terms:

Method of Settlement:

Net Share Settlement

Settlement Date:

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

Net Share Settlement:

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

Notice of Convertible Obligation:

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

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

Other Applicable Provisions:

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

Failure to Deliver:

Applicable

3. Additional Terms applicable to the Transaction:

   Adjustments applicable to the Transaction:

Method of Adjustment:

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

Extraordinary Events applicable to the Transaction:

Merger Events:

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

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

Notice of Merger Consideration:

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

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

Consequence of Merger Events:

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

Nationalization, Insolvency
or Delisting:

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

Additional Disruption Events:

(a) Change in Law:

Applicable

(b) Insolvency Filing:

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

Determining Party:

For all applicable Additional Disruption Events, Dealer

Non-Reliance:

Applicable

Agreements and Acknowledgments Regarding Hedging Activities:

Applicable

Additional
Acknowledgments:

Applicable

Additional Termination Events:

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

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

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

Credit Support Provider:

MERRILL LYNCH & CO., INC.

Credit Support Document:

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

4. Calculation Agent:

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