CADENCE DESIGN SYSTEMS, INC. 2002 DEFERRED COMPENSATION VENTURE INVESTMENT PLAN

 

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                                                                   EXHIBIT 10.32

 

                          CADENCE DESIGN SYSTEMS, INC.

 

               2002 DEFERRED COMPENSATION VENTURE INVESTMENT PLAN

 

         CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, hereby

establishes the Cadence Design Systems, Inc. 2002 Deferred Compensation Venture

Investment Plan, effective as of July 1, 2002, for the purpose of providing

certain deferred compensation benefits to a select group of management and

highly compensated executives of the Employer. The Plan is an unfunded deferred

compensation plan that is intended to qualify for the exemptions provided in

Sections 201, 301, and 401 of ERISA.

 

                                    SECTION 1

                                    DEFINITIONS

 

1.        DEFINITIONS. As used in the Plan:

 

         1.1       "ACCOUNT" shall mean, for each Participant, a separate

bookkeeping account established under the Plan and maintained by Employer in the

name of such Participant, that is:

 

                  (a)       Increased by: (i) an amount equal to the Deferred

Compensation of such Participant; and (ii) allocations of Profit made in

accordance with Section 3.8;

 

                  (b)       Decreased by: (i) an amount equal to the cash

distributed to such Participant pursuant to a distribution election made

pursuant to the Plan; (ii) the fair market value of any other property

distributed to such Participant pursuant to a distribution election made in

accordance with the Plan; and (iii) allocations of Loss made in accordance with

Section 3.8; and

 

                  (c)       Otherwise adjusted in accordance with the provisions

of the Plan.

 

         1.2       "AVAILABLE CAPITAL" shall mean, for each Participant, as of

the time of determination, such Participant's Deferred Compensation measured

from the Effective Date to the time of determination:

 

                  (a)       increased by such Participant's deemed share of

Distributable Assets that the Committee has determined are available for

re-investment in accordance with Section 3.7(c), and assets transferred to the

Trust in accordance with Section 3.9 (each determined by the Committee in its

sole discretion and measured from the Effective Date to the time of

determination); and

 

                  (b)       reduced by the aggregate Losses allocated to such

Participant's Account (other than Losses attributable to Portfolio Investments,

as determined by the Committee in its sole discretion) from the Effective Date

to the time of determination and further reduced by any assets transferred from

the Trust in accordance with Section 3.9;

 

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                  (c)       and further reduced by the sum of, for each Portfolio

Investment acquired by the Partnership prior to the time of determination, the

product of (x) the cost basis of such Portfolio Investment as reported by the

Partnership, and (y) such Participant's Investment Percentage in respect of such

Portfolio Investment (or zero if such Participant has no Investment Percentage

in respect of such Portfolio Investment).

 

         1.3       "BASE SALARY" for a given Plan Year means an Employee's

regular cash compensation payable during the Plan Year, excluding any bonuses,

commissions, overtime, incentive payments, non-monetary awards, compensation

deferred pursuant to all Section 125 (cafeteria) or Section 401(k) (savings)

plans of the Employer and other special compensation, and reduced by the tax

withholding obligations imposed on the Employer and any other withholding

requirements imposed by law with respect to such amounts.

 

         1.4       "BENEFICIARY" shall mean the person entitled to receive a

Participant's deferred Compensation benefits in accordance with Section 4.1 in

the event of the Participant's death.

 

         1.5        "BOARD" shall mean the Board of Directors of the Employer, as

constituted from time to time.

 

         1.6       "CASH BONUS" shall mean amounts (if any) awarded under the

bonus plans or policies maintained by the Employer and any commissions earned on

sales.

 

         1.7       "CHANGE OF CONTROL" shall have the meaning set forth in

Section 5.1.

 

         1.8       "CODE" shall mean the Internal Revenue Code of 1986, as

amended from time to time, and the rules and regulations promulgated thereunder.

 

          1.9       "COMMITTEE" shall mean the Compensation Committee of the Board

or any other committee designated by the Board to administer the Plan in

accordance with Section 8.1.

 

         1.10      "COMPENSATION" shall mean the Base Salary, Cash Bonuses, and

Directors Fees described in Section 3.1.

 

         1.11      "DEFERRAL ELECTION PERIOD" shall mean, during a Plan Year, a

semi-annual period (a) beginning on January 1 and ending at the close of

business on June 30, or (b) beginning on July 1 and ending at the close of

business on December 31.

 

         1.12      "DEFERRED COMPENSATION" shall mean, for each Participant, the

aggregate amount of Compensation which is subject to a deferral election made in

accordance with Section 3.1 that actually would have been paid to such

Participant in the absence of such deferral election, calculated from the

Effective Date to the time of determination. "Deferred Compensation" in respect

of a Plan Year, shall mean, for each Participant, the aggregate amount of

Compensation which is subject to a deferral election made in accordance with

Section 3.1 that actually would have been paid to such Participant in the

absence of such deferral election, calculated from January 1 of such Plan Year

to the close of business on December 31 of such Plan Year.

 

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         1.13      "DIRECTORS FEES" for a given Plan Year means the annual

retainer, meeting fees, any committee meeting fees, and consulting fees payable

to members of the Board for services during such year.

 

         1.14      "DISTRIBUTABLE ASSETS" shall mean cash or Marketable

Securities distributed by the Partnership to the Trust.

 

         1.15      "EFFECTIVE DATE" shall mean July 1, 2002.

 

         1.16      "ELIGIBLE COMPENSATION" shall mean an Employee's projected

annual compensation from the Employer, determined by the Employer at or before

the beginning of the Plan Year, which may consist of salary, bonus, and/or

incentive payments, determined before any deductions under any qualified plan of

the Employer (including a Code Section 401(k) or 125 plan) and excluding any

special or non-recurring compensatory payments such as moving or relocation

bonuses or automobile allowances.

 

         1.17      "EMPLOYEE" shall mean an employee of the Employer who (a) is a

U.S. citizen or is a lawful permanent resident of the U.S., within the meaning

of Code Section 7701(b)(1)(A)(i), (b) earns solely U.S. source income from the

Employer, and (c) is exclusively on the Employer's U.S. payroll system.

References to the term "Employee" herein shall include references to a

Non-Employee Director or Beneficiary where the context so requires.

 

         1.18      "EMPLOYER" shall mean Cadence Design Systems, Inc., a Delaware

corporation, and any successor organization thereto (but not Subsidiaries or

affiliates of the Employer).

 

         1.19      "EMPLOYER CONTRIBUTIONS" shall mean the Employer's

discretionary contribution, if any, pursuant to Section 3.1(d).

 

         1.20      "EMPLOYER PLAN" shall mean a non-qualified deferred

compensation plan (other than the Plan) sponsored by the Employer that is

intended to qualify for the exemptions provided in Sections 201, 301, and 401 of

ERISA.

 

         1.21      "ERISA" shall mean the Employee Retirement Income Security Act

of 1974, as amended, and the rules and regulations promulgated thereunder.

 

         1.22      "GAAP" shall mean United States generally accept accounting

principles, consistently applied.

 

         1.23      "GENERAL PARTNER" shall mean Telos Venture Management II, LLC,

a Delaware limited liability company.

 

         1.24      "IDLE FUNDS INCOME" shall mean any income attributable to the

following short-term investments of cash: (i) debt securities issued or backed

by the United States or a State; (ii) investment grade rated commercial paper;

(iii) certificates or other evidences of deposit in any commercial bank holding

over $500 million in deposits; (iv) money market or similar mutual fund

interests; and (v) other highly liquid investments.

 

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         1.25      "INCUMBENT DIRECTORS" shall mean directors who are either: (i)

directors of the Employer as of the Effective Date; or (ii) elected, or

nominated for election, to the Board with the affirmative votes of at least a

majority of the Incumbent Directors at the time of such election or nomination

(but shall not include an individual whose election or nomination is in

connection with an actual or threatened proxy contest relating to the election

of directors to the Employer).

 

         1.26      "INSOLVENT" or "INSOLVENCY" shall have the meaning set forth

in Section 7 of the Trust Agreement.

 

         1.27      "INVESTMENT PERCENTAGE" shall mean, for each Participant, a

fraction, expressed as a percentage, which is assigned by the Committee in

respect of each Portfolio Investment made by the Partnership during a Plan Year:

 

                  (x)       the numerator of which equals the sum of (i) the

Available Capital of such Participant immediately following the close of

business on the last day of the preceding Plan Year, (ii) the Deferred

Compensation of such Participant in respect of such Plan Year, plus (iii) any

increase in the Available Capital of such Participant during such Plan Year by

operation of Section 1.2(b); and

 

                  (y)       the denominator of which equals the sum of (i) the

Available Capital of all Participants immediately following the close of

business on the last day of the preceding Plan Year, (ii) the Deferred

Compensation of all Participants in respect of such Plan Year; plus (iii) any

increase in the Available Capital of all Participants during such Plan Year by

operation of Section 1.2(b).

 

At all times following the Partnership's acquisition of a Portfolio Investment,

the aggregate Investment Percentages for all of the Participants in respect of

such Portfolio Investment shall equal 100 percent.

 

         1.28      "MARKETABLE SECURITIES" shall mean a Security that is freely

tradable by the holder thereof. For purposes of the preceding sentence, a

Security shall be deemed to be freely tradable if: (i) Securities equivalent to

such Security are generally traded on one or more established public markets;

(ii) such Security is not subject to "lockup" or other contractual restrictions,

and (iii) the Trust and/or each Participant receiving such Security is not

subject to restrictions and limitations on the transferability thereof under

Rule 144(e) (except for restrictions and limitations specifically applicable to

a particular Participant, such as restrictions applicable to a Participant that

is an affiliate of the issuer of such Security).

 

         1.29      "NON-EMPLOYEE DIRECTOR" shall mean a director of the Employer

who is not otherwise an employee of the Employer.

 

         1.30      "PARTICIPANT" shall mean an Employee or Non-Employee Director

who (i) has become a Participant in the Plan pursuant to Sections 3.3(a) through

(e), as applicable, and (ii) has not ceased to be a Participant pursuant to

Section 3.3(h).

 

         1.31      "PARTNERSHIP" shall mean Telos Venture Partners II, L.P., a

Delaware limited partnership.

 

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         1.32      "PERMANENT DISABILITY" shall mean that a Participant is unable

to engage in any substantial gainful activity by reason of any medically

determinable physical or mental impairment that can be expected to result in

death or otherwise meets the definition of "Permanent Disability" as set forth

in the Employer's Long Term Disability Plan. A Participant shall not be deemed

to have a Permanent Disability unless he or she furnishes proof of such

condition sufficient to satisfy the Committee, acting in its sole and absolute

discretion.

 

         1.33      "PLAN" shall mean the Cadence Design Systems, Inc. 2002

Deferred Compensation Venture Investment Plan, as set forth herein and as

hereafter amended from time to time.

 

         1.34      "PLAN YEAR" shall mean the calendar year beginning on January

1 and ending at the close of business on December 31; provided, however, that

the 2002 Plan Year shall be the period beginning on the Effective Date through

the close of business on December 31, 2002.

 

         1.35      "PORTFOLIO INVESTMENT" shall mean any promissory note,

Security, or other interest in a corporation or other business entity which is

issued to the Partnership. Except as otherwise determined by the Committee

acting in its sole discretion, for purposes of determining a Participant's

Investment Percentage, each promissory note, Security or other interest in a

corporation or other entity which is issued to the Partnership at a specific

time shall be deemed to be a separate Portfolio Investment from any Security,

promissory note, or other interest in such corporation or business entity that

is issued at a subsequent time; provided, however, that in the event a Security

held by the Partnership is exchanged for another Security pursuant to a merger,

acquisition, reorganization, recapitalization or similar transaction, a

Participant's Investment Percentage applicable to such newly received Security

(immediately following receipt) shall equal the Participant's Investment

Percentage in respect of the Security exchanged therefor (as determined

immediately prior to such exchange).

 

         1.36      "PROFITS AND LOSSES" shall mean, for any period, items of

deemed income and gain as well as items of deemed loss, expense and deduction,

determined in accordance with GAAP (as if Participants' Accounts were invested

to acquire Partnership interest or in any other manner specified by the

Committee, acting in its sole and absolute discretion); provided, however, that

Profits and Loss computed for each allocation period under Section 3.8 shall not

be determined by taking into account any unrealized gains and losses; and

provided, further, that Losses shall include all items of cost and expense

associated with the formation, operation, dissolution, winding-up, or

termination of the Plan and Trust.

 

         1.37      "SECURITIES" shall mean equity, debt, synthetic securities of

any type, or any other evidence of ownership of an asset or entity.

 

         1.38      "SUBSIDIARY" shall mean any corporation (other than the

Employer) in an unbroken chain of corporations or other entities beginning with

the Employer, if each of the entities other than the last entity in the unbroken

chain holds equity or other indicia of ownership representing fifty percent

(50%) or more of the total combined voting power of all classes of equity or

other indicia of ownership in one of the other entities in such chain.

 

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         1.39      "TALITY" shall mean the entity formed under the name "Tality

Corporation," or any other name, to own and operate the electronics design

services group business of the Employer.

 

         1.40      "TERMINATION DATE" shall have the meaning set forth in Section

3.3(h)(ii).

 

         1.41      "TRUST" shall mean the cash and other assets and/or properties

held and administered by Trustee pursuant to the Trust Agreement to carry out

the provisions of the Plan.

 

         1.42      "TRUST AGREEMENT" shall mean the Cadence Design Systems, Inc.

2002 Deferred Compensation Venture Investment Trust Agreement, including any

amendments thereto, entered into between the Employer and the Trustee to carry

out the provisions of the Plan.

 

         1.43      "TRUSTEE" shall mean the designated Trustee acting at any time

under the Trust Agreement.

 

         1.44      "1994 PLAN" shall mean the Cadence Design Systems, Inc. 1994

Deferred Compensation Plan, as amended from time to time.

 

         1.45      "1996 PLAN" shall mean the Cadence Design Systems, Inc. 1996

Deferred Compensation Plan, as amended from time to time.

 

                                    SECTION 2

                                    ELIGIBILITY

 

         2.1       ELIGIBILITY. Eligibility to participate in the Plan shall be

limited to (a) Employees who (i) have Eligible Compensation of at least $150,000

for the Plan Year, (ii) are classified as officers, vice-presidents, directors,

or an equivalent title, and (iii) have been selected to participate in the Plan

by the Committee acting in its sole and absolute discretion, and (b)

Non-Employee Directors who have been selected to participate in the Plan by the

Committee acting in its sole and absolute discretion. Participation in the Plan

shall commence as of the effective date of the eligible Employee's or

Non-Employee Director's enrollment form, which shall be completed and submitted

to the Employer in accordance with the provisions of Section 3.3. Nothing in the

Plan or in any administrative form used to administer the Plan or Trust shall be

construed to require any contributions to be made to the Plan on behalf of the

Participant by the Employer. The Committee has the discretion to end the

eligibility of one or more Participants at any time in the sole and absolute

discretion of the Committee.

 

                                    SECTION 3

                            DEFERRAL OF COMPENSATION

 

         3.1       DEFERRAL OF COMPENSATION.

 

                   (a)       Each eligible Employee or Non-Employee Director may

elect, in accordance with Section 3.3, to defer the receipt of a portion of the

Base Salary or Directors Fees for active service otherwise payable to him or her

by the Employer during each Plan Year or portion of a Plan Year that the

Participant is in the employ or service of the Employer. Each eligible Employee

may elect, in accordance with Section 3.3, to defer the receipt of a portion of

 

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the Cash Bonus for active service otherwise payable to him or her by the

Employer during each Deferral Election Period or portion of a Deferral Election

Period that the Participant is in the employ or service of the Employer. The

Employer shall furnish each Participant with a statement of his or her Account

balance within 90 days of the end of each Plan Year or such longer period as the

Committee deems appropriate.

 

                           (i)       The amount or percentage of Compensation

          that a Participant elects to defer under Section 3.3 will remain

         constant for the Plan Year (or for Cash Bonus amounts, the Deferral

         Election Period) with respect to which the election was made and shall

         not be subject to change during such period, except to the extent that

         a Participant ceases to be eligible to defer Compensation for the

         period due to the termination of such Participant's employment or

         service to the Employer.

 

                            (ii)      Each such deferral election as to Base

         Salary or Directors Fees, or discontinuance of a deferral election as

         to Base Salary or Directors Fees, will continue in force for each

         successive Plan Year, until or unless suspended or modified by the

         filing of a subsequent election with the Employer by the Participant in

         accordance with Section 3.3.

 

                           (iii)     Each deferral election as to an eligible

         Employee's Cash Bonus shall continue in force only for the Deferral

         Election Period with respect to which it was made and shall not apply

         to any successive Deferral Election Periods or Plan Years. Any deferral

         election with respect to a Cash Bonus must be made prior to the time

         the amount of the bonus is determined, prior to the end of the period

         of time as to which the bonus is awarded, and at a time that the amount

         of any such Cash Bonus remains substantially uncertain, as determined

         by the Committee in its sole and absolute discretion.

 

                           (iv)      Subject to Section 3.1(c), Compensation

         deferral elections shall be subject to minimum dollar and maximum

         percentage amounts as follows: (i) the minimum annual deferral amount

         is $10,000, which shall be withheld from the Participant's

         Compensation; and (ii) the maximum deferral percentage amount is 80

         percent of the Participant's Base Salary, 100 percent of the

         Participant's Cash Bonus (if any), and 100 percent of the Participant's

         Directors Fees, as applicable.

 

                           (v)       The Employer shall withhold the amount or

         percentage of Base Salary specified to be deferred by an eligible

         Employee in equal amounts for each payroll period and shall withhold

         the amount or percentage of Cash Bonus (if any) specified to be

         deferred at the time or times such Cash Bonus is or otherwise would be

         paid to the Employee. The Employer shall withhold the amount or

         percentage of Directors Fees specified to be deferred by a Non-Employee

         Director at the time or times such Directors Fees are or otherwise

         would be paid to such Non-Employee Director.

 

                           (vi)      Subject to Sections 3.6, 7.1 and 7.2, all

         deferrals of Compensation made pursuant to this Section 3.1(a) shall be

         fully vested at all times.

 

                  (b)       Notwithstanding any provision of this Section 3.1 to

the contrary, amounts deferred under the Plan shall be calculated and withheld

from the Employee's Base Salary and/or

 

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Cash Bonus (if any) after such Compensation has been reduced to reflect any tax

withholding obligations imposed on the Employer, any other withholding

requirements imposed by law, salary reduction contributions to the Employer's

Code Section 125 (cafeteria) and Code Section 401(k) (savings) plans, but before

any reductions for contributions to the Employer's Code Section 423 (employee

stock purchase) plan, the 1994 Plan, or the 1996 Plan.

 

                  (c)       Notwithstanding any provision of this Section 3.1 to

the contrary, the Committee may, in its sole and absolute discretion, decline to

accept all or any portion of any Participant's Compensation deferral election.

 

                  (d)       The Employer shall not be obligated to make any other

contribution to the Plan on behalf of any Participant or for any other purpose

at any time.

 

                           (i)       The Employer shall be entitled, in its sole

         and absolute discretion, to make Employer Contributions to the Plan on

         behalf of one or more Participants. Employer Contributions, if any, may

         be made without regard to whether the Participant to whose account such

         contribution is credited has made, or is making, Compensation deferrals

         pursuant to Section 3.1(a). The Employer shall not be bound or

         obligated to apply any specific formula or basis for calculating the

         amount of any Employer Contributions and the Employer shall have sole

         and absolute discretion as to the allocation of any Employer

         Contributions among Participants' Accounts. The use of any particular

         formula or basis for making an Employer Contribution in one or more

         Deferral Election Periods or Plan Years shall not bind or obligate the

         Employer to use such formula or basis in any other Deferral Election

         Period or Plan Year. Employer Contributions may be subject to a

         substantial risk of forfeiture in accordance with the terms of a

         vesting schedule, which may be selected by the Employer in its sole and

         absolute discretion.

 

                           (ii)      To the extent that the Trust lacks

         sufficient assets at any time to fulfill its capital contribution

         obligations to the Partnership, the Employer shall be entitled, in its

         sole and absolute discretion, to make capital contributions to the

         Trust to enable the Trust to satisfy such capital contribution

         obligations. If Employer makes capital contributions to the Trust in

         accordance with the preceding sentence, then, solely for purposes of

         maintaining the Participants' Accounts under the Plan, the Committee

         may establish an Account for Employer, and the provisions of Section

         3.8 may be amended in accordance with Section 7.1 to account for the

         extent and timing of Employer's contributions to the Trust pursuant to

         this Section 3.1(d)(ii).

 

         3.2       DISTRIBUTIONS OF ACCOUNT BALANCES. Subject to Section 3.2(f):

 

                   (a)       A Participant shall elect whether he or she will

receive distribution of his or her entire Account, subject to applicable tax

withholding requirements, (i) upon reaching a specified age, (ii) upon passage

of a specified number of years, (iii) upon termination of his or her employment

or service with the Employer, (iv) upon the earlier to occur of (A) his or her

termination of employment or service with the Employer or (B) passage of a

specified number of years or attainment of a specified age, or (v) upon the

later to occur of (A) his or her termination of employment or service with the

Employer or (B) passage of a specified number of years or

 

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attainment of a specified age, as elected by the Participant in accordance with

the form established by the Committee. Such form may permit a Participant to

make an election among some or all of the alternatives listed in this Section

3.2(a), as determined in the Committee's sole and absolute discretion, and shall

also permit the Participant to make an election, pursuant to the provisions of

Section 3.2(e), to receive all amounts payable to him or her under the Plan in a

single lump sum or in equal monthly installments over a designated period of

five (5) or ten (10) years. A designation of the time of distribution shall be

required as a condition of participation in the Plan. These elections shall be

made in accordance with Section 3.4. All payments shall be made in the form of

cash.

 

                  (b)        Distributions shall be made to the maximum extent

allowable under the Plan and the election made by the Participant, except that

no distribution shall be made to the extent that the receipt of such

distribution, when combined with the receipt of all other "applicable employee

remuneration" (as defined in Code Section 162(m)(4)), would cause any

remuneration received by the Participant to be nondeductible by the Employer

under Code Section 162(m)(l). The portion of any distributable amount that is

not distributed by operation of this Section 3.2(b) shall be distributed in

subsequent taxable years in which such distribution would not be subject to the

deductibility limitation of Code Section 162(m) in accordance with the manner

elected by the Participant. For Participants who have elected to receive payment

in a single lump sum or in equal monthly installments over a designated period

of five (5) or ten (10) years in accordance with Section 3.2(e), the

commencement date of the lump sum payment or the five (5) or ten (10) year

period (whichever is applicable) shall be automatically extended, when necessary

to satisfy the requirements of this Section 3.2(b), for one-year periods until

all Account balances have been distributed in the manner elected by the

Participants.

 

                  (c)       Upon termination of a Participant's employment or

service with the Employer by reason of death or Permanent Disability prior to

the time when payment of his or her Account balance otherwise would have been

made or commenced under the provisions of Section 3.2(a), the Participant or his

or her Beneficiary will be entitled to receive all amounts credited to the

Account as of the date of the Participant's death or Permanent Disability

(notwithstanding any contrary election to receive distributions under the first

sentence of Section 3.2(a)). Upon termination of the Participant's employment or

service with the Employer by reason other than death or Permanent Disability

prior to the date when payment of his or her Account balance otherwise would

have been made or commenced under the provisions of Section 3.2(a), the Employer

may, in the sole and absolute discretion of the Committee, distribute to the

Participant all amounts credited to the Participant's Account as of the date of

such termination (notwithstanding any contrary election to receive distributions

under the first sentence of Section 3.2(a)). Said amounts shall be payable in

the form determined pursuant to the provisions of Section 3.2(e).

 

                  (d)       Upon the