Document:

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                                                                   EXHIBIT 10.32

                          CADENCE DESIGN SYSTEMS, INC.

                              AMENDED AND RESTATED
               2002 DEFERRED COMPENSATION VENTURE INVESTMENT PLAN

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                                TABLE OF CONTENTS

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                                                                PAGE
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SECTION 1 Definitions......................................       1

SECTION 2 Eligibility......................................       6

SECTION 3 Deferral of Compensation.........................       6

SECTION 4 Designation of Beneficiary.......................      15

SECTION 5 Change of Control................................      16

SECTION 6 Trust Provisions.................................      17

SECTION 7 Amendment and Termination........................      17

SECTION 8 Administration...................................      17

SECTION 9 General and Miscellaneous........................      18
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                          CADENCE DESIGN SYSTEMS, INC.

               2002 DEFERRED COMPENSATION VENTURE INVESTMENT PLAN

      CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, hereby establishes
the Cadence Design Systems, Inc. Amended and Restated 2002 Deferred Compensation
Venture Investment Plan, effective as of July 1, 2002, amended and restated as
of July 1, 2004, for the purpose of providing certain deferred compensation
benefits to a select group of management and highly compensated executives of
the Employer. The Plan is an unfunded deferred compensation plan that is
intended to qualify for the exemptions provided in Sections 201, 301, and 401 of
ERISA.

                                   SECTION 1

                                   DEFINITIONS

1.    DEFINITIONS. As used in the Plan:

      1.1   "ACCOUNT" shall mean, for each Participant, a separate bookkeeping
account established under the Plan and maintained by Employer in the name of
such Participant, that is:

                  (a) Increased by: (i) an amount equal to the Deferred
Compensation of such Participant; and (ii) allocations of Profit made in
accordance with Section 3.8;

                  (b) Decreased by: (i) an amount equal to the cash distributed
to such Participant pursuant to a distribution election made pursuant to the
Plan; (ii) the fair market value of any other property distributed to such
Participant pursuant to a distribution election made in accordance with the
Plan; and (iii) allocations of Loss made in accordance with Section 3.8; and

                  (c) Otherwise adjusted in accordance with the provisions of
the Plan.

      1.2   "AVAILABLE CAPITAL" with respect to one of the Partnerships shall
mean, for each Participant, as of the time of determination, such Participant's
Deferred Compensation that has been designated for investment in such
Partnership measured from the Effective Date to the time of determination:

                  (a) increased by such Participant's deemed share of
Distributable Assets that the Committee has determined are available for
re-investment in such Partnership in accordance with Section 3.7(c), and assets
transferred to the Trust in accordance with Section 3.9 that have been
designated for investment in such Partnership (each determined by the Committee
in its sole discretion and measured from the Effective Date to the time of
determination); and

                  (b) reduced by the aggregate Losses allocated to such
Participant's Account (other than Losses attributable to Portfolio Investments,
as determined by the Committee in its sole discretion) from the Effective Date
to the time of determination (but only to the extent that such Losses reduce
amounts available in the Participant's account that had previously been
designated for investment in the Partnership, as determined by the Committee in
its sole discretion) and further reduced by any assets that had previously been
designated for investment in such Partnership that are transferred from the
Trust in accordance with Section 3.9;

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                  (c) and further reduced by the sum of, for each Portfolio
Investment acquired by such Partnership prior to the time of determination, the
product of (x) the cost basis of such Portfolio Investment as reported by the
Partnership, and (y) such Participant's Investment Percentage in respect of such
Portfolio Investment (or zero if such Participant has no Investment Percentage
in respect of such Portfolio Investment).

      1.3   "BASE SALARY" for a given Plan Year means an Employee's regular cash
compensation payable during the Plan Year, excluding any bonuses, commissions,
overtime, incentive payments, non-monetary awards, compensation deferred
pursuant to all Section 125 (cafeteria) or Section 401(k) (savings) plans of the
Employer and other special compensation, and reduced by the tax withholding
obligations imposed on the Employer and any other withholding requirements
imposed by law with respect to such amounts.

      1.4   "BENEFICIARY" shall mean the person entitled to receive a
Participant's deferred Compensation benefits in accordance with Section 4.1 in
the event of the Participant's death.

      1.5   "BOARD" shall mean the Board of Directors of the Employer, as
constituted from time to time.

      1.6   "CASH BONUS" shall mean amounts (if any) awarded under the bonus
plans or policies maintained by the Employer and any commissions earned on
sales.

      1.7   "CHANGE OF CONTROL" shall have the meaning set forth in Section 5.1.

      1.8   "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder.

      1.9   "COMMITTEE" shall mean the Compensation Committee of the Board or
any other committee designated by the Board to administer the Plan in accordance
with Section 8.1.

      1.10  "COMPENSATION" shall mean the Base Salary, Cash Bonuses, and
Directors Fees described in Section 3.1.

      1.11  "DEFERRAL ELECTION PERIOD" shall mean, during a Plan Year, a
semi-annual period (a) beginning on January 1 and ending at the close of
business on June 30, or (b) beginning on July 1 and ending at the close of
business on December 31.

      1.12  "DEFERRED COMPENSATION" shall mean, for each Participant, the
aggregate amount of Compensation which is subject to a deferral election made in
accordance with Section 3.1 that actually would have been paid to such
Participant in the absence of such deferral election, calculated from the
Effective Date to the time of determination. "Deferred Compensation" in respect
of a Plan Year, shall mean, for each Participant, the aggregate amount of
Compensation which is subject to a deferral election made in accordance with
Section 3.1 that actually would have been paid to such Participant in the
absence of such deferral election, calculated from January 1 of such Plan Year
to the close of business on December 31 of such Plan Year.

      1.13  "DIRECTORS FEES" for a given Plan Year means the annual retainer,
meeting fees, any committee meeting fees, and consulting fees payable to members
of the Board for services during such year.

      1.14  "DISTRIBUTABLE ASSETS" shall mean cash or Marketable Securities
distributed by either of the Partnerships to the Trust.

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

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      1.16  "ELIGIBLE COMPENSATION" shall mean an Employee's projected annual
compensation from the Employer, determined by the Employer at or before the
beginning of the Plan Year, which may consist of salary, bonus, and/or incentive
payments, determined before any deductions under any qualified plan of the
Employer (including a Code Section 401(k) or 125 plan) and excluding any special
or non-recurring compensatory payments such as moving or relocation bonuses or
automobile allowances.

      1.17  "EMPLOYEE" shall mean an employee of the Employer who (a) is a U.S.
citizen or is a lawful permanent resident of the U.S., within the meaning of
Code Section 7701(b)(1)(A)(i), (b) earns solely U.S. source income from the
Employer, and (c) is exclusively on the Employer's U.S. payroll system.
References to the term "Employee" herein shall include references to a
Non-Employee Director or Beneficiary where the context so requires.

      1.18  "EMPLOYER" shall mean Cadence Design Systems, Inc., a Delaware
corporation, and any successor organization thereto (but not Subsidiaries or
affiliates of the Employer).

      1.19  "EMPLOYER CONTRIBUTIONS" shall mean the Employer's discretionary
contribution, if any, pursuant to Section 3.1(d).

      1.20  "EMPLOYER PLAN" shall mean a non-qualified deferred compensation
plan (other than the Plan) sponsored by the Employer that is intended to qualify
for the exemptions provided in Sections 201, 301, and 401 of ERISA.

      1.21  "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.

      1.22  "GAAP" shall mean United States generally accept accounting
principles, consistently applied.

      1.23  "GENERAL PARTNERS" shall mean, collectively, the Telos II General
Partner and the Telos III General Partner.

      1.24  "IDLE FUNDS INCOME" shall mean any income attributable to the
following short-term investments of cash: (i) debt securities issued or backed
by the United States or a State; (ii) investment grade rated commercial paper;
(iii) certificates or other evidences of deposit in any commercial bank holding
over $500 million in deposits; (iv) money market or similar mutual fund
interests; and (v) other highly liquid investments.

      1.25  "INCUMBENT DIRECTORS" shall mean directors who are either: (i)
directors of the Employer as of the Effective Date; or (ii) elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Employer).

      1.26  "INSOLVENT" or "INSOLVENCY" shall have the meaning set forth in
Section 7 of the Trust Agreement.

      1.27  "INVESTMENT PERCENTAGE" shall mean, for each Participant, a
fraction, expressed as a percentage, which is assigned by the Committee in
respect of each Portfolio Investment made by one of the Partnerships during a
Plan Year:

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            (x)   the numerator of which equals the sum of (i) the Available
Capital of such Participant with respect to the Investing Partnership
immediately following the close of business on the last day of the preceding
Plan Year, plus (ii) the Deferred Compensation of such Participant in respect of
such Plan Year that has been designated for investment in the Investing
Partnership, plus (iii) any increase in the Available Capital of such
Participant with respect to the Investing Partnership during such Plan Year by
operation of Section 1.2(a), minus (iv) any decrease in the Available Capital of
such Participant with respect to the Investing Partnership during such Plan Year
by operation of Section 1.2(b); and

            (y)   the denominator of which equals the sum of (i) the Available
Capital of all Participants with respect to the Investing Partnership
immediately following the close of business on the last day of the preceding
Plan Year, plus (ii) the Deferred Compensation of all Participants in respect of
such Plan Year that has been designated for investment in the Investing
Partnership, plus (iii) any increase in the Available Capital of all
Participants with respect to the Investing Partnership during such Plan Year by
operation of Section 1.2(a), minus (iv) any decrease in the Available Capital of
all Participants with respect to the Investing Partnership during such Plan Year
by operation of Section 1.2(b).

At all times following a Partnership's acquisition of a Portfolio Investment,
the aggregate Investment Percentages for all of the Participants in respect of
such Portfolio Investment shall equal 100 percent.

      1.28  "INVESTING PARTNERSHIP" shall mean, with respect to each Portfolio
Investment, the Partnership that acquired such Portfolio Investment.

      1.29  "MARKETABLE SECURITIES" shall mean a Security that is freely
tradable by the holder thereof. For purposes of the preceding sentence, a
Security shall be deemed to be freely tradable if: (i) Securities equivalent to
such Security are generally traded on one or more established public markets;
(ii) such Security is not subject to "lockup" or other contractual restrictions,
and (iii) the Trust and/or each Participant receiving such Security is not
subject to restrictions and limitations on the transferability thereof under
Rule 144(e) (except for restrictions and limitations specifically applicable to
a particular Participant, such as restrictions applicable to a Participant that
is an affiliate of the issuer of such Security).

      1.30  "NON-EMPLOYEE DIRECTOR" shall mean a director of the Employer who is
not otherwise an employee of the Employer.

      1.31  "PARTICIPANT" shall mean an Employee or Non-Employee Director who
(i) has become a Participant in the Plan pursuant to Sections 3.3(a) through
(e), as applicable, and (ii) has not ceased to be a Participant pursuant to
Section 3.3(h).

      1.32  "PARTNERSHIPS" shall mean, collectively, the Telos II Partnership
and the Telos III Partnership.

      1.33  "PERMANENT DISABILITY" shall mean that a Participant is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or otherwise meets the definition of "Permanent Disability" as set forth
in the Employer's Long Term Disability Plan. A Participant shall not be deemed
to have a Permanent Disability unless he or she furnishes proof of such
condition sufficient to satisfy the Committee, acting in its sole and absolute
discretion.

      1.34  "PLAN" shall mean the Cadence Design Systems, Inc. Amended and
Restated 2002 Deferred Compensation Venture Investment Plan, as set forth herein
and as hereafter amended from time to time.

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      1.35  "PLAN YEAR" shall mean the calendar year beginning on January 1 and
ending at the close of business on December 31; provided, however, that the 2002
Plan Year shall be the period beginning on the Effective Date through the close
of business on December 31, 2002.

      1.36  "PORTFOLIO INVESTMENT" shall mean any promissory note, Security, or
other interest in a corporation or other business entity which is issued to
either of the Partnerships. Except as otherwise determined by the Committee
acting in its sole discretion, for purposes of determining a Participant's
Investment Percentage, each promissory note, Security or other interest in a
corporation or other entity which is issued to one of the Partnerships at a
specific time shall be deemed to be a separate Portfolio Investment from any
Security, promissory note, or other interest in such corporation or business
entity that is issued at a subsequent time; provided, however, that in the event
a Security held by one of the Partnerships is exchanged for another Security
pursuant to a merger, acquisition, reorganization, recapitalization or similar
transaction, a Participant's Investment Percentage applicable to such newly
received Security (immediately following receipt) shall equal the Participant's
Investment Percentage in respect of the Security exchanged therefor (as
determined immediately prior to such exchange).

      1.37  "PROFITS AND LOSSES" shall mean, for any period, items of deemed
income and gain as well as items of deemed loss, expense and deduction,
determined in accordance with GAAP (as if Participants' Accounts were invested
to acquire interests in one or both of the Partnerships or in any other manner
specified by the Committee, acting in its sole and absolute discretion);
provided, however, that Profits and Loss computed for each allocation period
under Section 3.8 shall not be determined by taking into account any unrealized
gains and losses; and provided, further, that Losses shall include all items of
cost and expense associated with the formation, operation, dissolution,
winding-up, or termination of the Plan and Trust.

      1.38  "SECURITY" or "SECURITIES" shall mean equity, debt, synthetic
securities of any type, or any other evidence of ownership of an asset or
entity.

      1.39  "SUBSIDIARY" shall mean any corporation (other than the Employer) in
an unbroken chain of corporations or other entities beginning with the Employer,
if each of the entities other than the last entity in the unbroken chain holds
equity or other indicia of ownership representing fifty percent (50%) or more of
the total combined voting power of all classes of equity or other indicia of
ownership in one of the other entities in such chain.

      1.40  "TELOS II GENERAL PARTNER" shall mean Telos Venture Management II,
LLC, a Delaware limited liability company.

      1.41  "TELOS II PARTNERSHIP" shall mean Telos Venture Partners II, L.P., a
Delaware limited partnership.

      1.42  "TELOS III GENERAL PARTNER" shall mean Telos Venture Management III,
LLC, a Delaware limited liability company.

      1.43  "TELOS III PARTNERSHIP" shall mean Telos Venture Partners III, L.P.,
a Delaware limited partnership.

      1.44  "TERMINATION DATE" shall have the meaning set forth in Section
3.3(h)(ii).

      1.45  "TRUST" shall mean the cash and other assets and/or properties held
and administered by Trustee pursuant to the Trust Agreement to carry out the
provisions of the Plan.

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      1.46  "TRUST AGREEMENT" shall mean the Cadence Design Systems, Inc. 2002
Deferred Compensation Venture Investment Trust Agreement, including any
amendments thereto, entered into between the Employer and the Trustee to carry
out the provisions of the Plan.

      1.47  "TRUSTEE" shall mean the designated Trustee acting at any time under
the Trust Agreement.

      1.48  "1994 PLAN" shall mean the Cadence Design Systems, Inc. 1994
Deferred Compensation Plan, as amended from time to time.

      1.49  "1996 PLAN" shall mean the Cadence Design Systems, Inc. 1996
Deferred Compensation Plan, as amended from time to time.

                                    SECTION 2

                                   ELIGIBILITY

      2.1   ELIGIBILITY. Eligibility to participate in the Plan shall be limited
to (a) Employees who (i) have Eligible Compensation of at least $150,000 for the
Plan Year, (ii) are classified as officers, vice-presidents, directors, or an
equivalent title, and (iii) have been selected to participate in the Plan by the
Committee acting in its sole and absolute discretion, and (b) Non-Employee
Directors who have been selected to participate in the Plan by the Committee
acting in its sole and absolute discretion. Participation in the Plan shall
commence as of the effective date of the eligible Employee's or Non-Employee
Director's enrollment form, which shall be completed and submitted to the
Employer in accordance with the provisions of Section 3.3. Nothing in the Plan
or in any administrative form used to administer the Plan or Trust shall be
construed to require any contributions to be made to the Plan on behalf of the
Participant by the Employer. The Committee has the discretion to end the
eligibility of one or more Participants at any time in the sole and absolute
discretion of the Committee.

                                    SECTION 3

                            DEFERRAL OF COMPENSATION

      3.1   DEFERRAL OF COMPENSATION.

                  (a) Each eligible Employee or Non-Employee Director may elect,
in accordance with Section 3.3, to defer the receipt of a portion of the Base
Salary or Directors Fees for active service otherwise payable to him or her by
the Employer during each Plan Year or portion of a Plan Year that the
Participant is in the employ or service of the Employer. Each eligible Employee
may elect, in accordance with Section 3.3, to defer the receipt of a portion of
the Cash Bonus for active service otherwise payable to him or her by the
Employer during each Deferral Election Period or portion of a Deferral Election
Period that the Participant is in the employ or service of the Employer. The
Employer shall furnish each Participant with a statement of his or her Account
balance within 90 days of the end of each Plan Year or such longer period as the
Committee deems appropriate.

                        (i)   The amount or percentage of Compensation that a
Participant elects to defer under Section 3.3 will remain constant for the Plan
Year (or for Cash Bonus amounts, the Deferral Election Period) with respect to
which the election was made and shall not be subject to change during such
period, except to the extent that a Participant ceases to be eligible to defer
Compensation for the period due to the termination of such Participant's
employment or service to the Employer.

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                        (ii)  Each such deferral election as to Base Salary or
Directors Fees, or discontinuance of a deferral election as to Base Salary or
Directors Fees, will continue in force for each successive Plan Year, until or
unless suspended or modified by the filing of a subsequent election with the
Employer by the Participant in accordance with Section 3.3.

                        (iii) Each deferral election as to an eligible
Employee's Cash Bonus shall continue in force only for the Deferral Election
Period with respect to which it was made and shall not apply to any successive
Deferral Election Periods or Plan Years. Any deferral election with respect to a
Cash Bonus must be made prior to the time the amount of the bonus is determined,
prior to the end of the period of time as to which the bonus is awarded, and at
a time that the amount of any such Cash Bonus remains substantially uncertain,
as determined by the Committee in its sole and absolute discretion.

                        (iv)  Subject to Section 3.1(c), Compensation deferral
elections shall be subject to minimum dollar and maximum percentage amounts as
follows: (i) the minimum annual deferral amount is $10,000, which shall be
withheld from the Participant's Compensation; and (ii) the maximum deferral
percentage amount is 80 percent of the Participant's Base Salary, 100 percent of
the Participant's Cash Bonus (if any), and 100 percent of the Participant's
Directors Fees, as applicable.

                        (v)   The Employer shall withhold the amount or
percentage of Base Salary specified to be deferred by an eligible Employee in
equal amounts for each payroll period and shall withhold the amount or
percentage of Cash Bonus (if any) specified to be deferred at the time or times
such Cash Bonus is or otherwise would be paid to the Employee. The Employer
shall withhold the amount or percentage of Directors Fees specified to be
deferred by a Non-Employee Director at the time or times such Directors Fees are
or otherwise would be paid to such Non-Employee Director.

                        (vi)  Subject to Sections 3.6, 7.1 and 7.2, all
deferrals of Compensation made pursuant to this Section 3.1(a) shall be fully
vested at all times.

                  (b) Notwithstanding any provision of this Section 3.1 to the
contrary, amounts deferred under the Plan shall be calculated and withheld from
the Employee's Base Salary and/or Cash Bonus (if any) after such Compensation
has been reduced to reflect any tax withholding obligations imposed on the
Employer, any other withholding requirements imposed by law, salary reduction
contributions to the Employer's Code Section 125 (cafeteria) and Code Section
401(k) (savings) plans, but before any reductions for contributions to the
Employer's Code Section 423 (employee stock purchase) plan, the 1994 Plan, or
the 1996 Plan.

                  (c) Notwithstanding any provision of this Section 3.1 to the
contrary, the Committee may, in its sole and absolute discretion, decline to
accept all or any portion of any Participant's Compensation deferral election.

                  (d) The Employer shall not be obligated to make any other
contribution to the Plan on behalf of any Participant or for any other purpose
at any time.

                        (i)   The Employer shall be entitled, in its sole and
absolute discretion, to make Employer Contributions to the Plan on behalf of one
or more Participants. Employer Contributions, if any, may be made without regard
to whether the Participant to whose account such contribution is credited has
made, or is making, Compensation deferrals pursuant to Section 3.1(a). The
Employer shall not be bound or obligated to apply any specific formula or basis
for calculating the amount of any Employer Contributions and the Employer shall
have sole and absolute discretion as to the allocation of any Employer
Contributions among Participants' Accounts. The use of any particular formula or
basis for making an Employer Contribution in one or more Deferral Election
Periods or Plan Years shall not bind or obligate the Employer

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to use such formula or basis in any other Deferral Election Period or Plan Year.
Employer Contributions may be subject to a substantial risk of forfeiture in
accordance with the terms of a vesting schedule, which may be selected by the
Employer in its sole and absolute discretion.

                        (ii)  To the extent that the Trust lacks sufficient
assets at any time to fulfill its capital contribution obligations to one or
both of the Partnerships, the Employer shall be entitled, in its sole and
absolute discretion, to make capital contributions to the Trust to enable the
Trust to satisfy such capital contribution obligations. If Employer makes
capital contributions to the Trust in accordance with the preceding sentence,
then, solely for purposes of maintaining the Participants' Accounts under the
Plan, the Committee may establish an Account for Employer, and the provisions of
Section 3.8 may be amended in accordance with Section 7.1 to account for the
extent and timing of Employer's contributions to the Trust pursuant to this
Section 3.1(d)(ii).

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

                  (a) A Participant shall elect whether he or she will receive
distribution of his or her entire Account, subject to applicable tax withholding
requirements, (i) upon reaching a specified age, (ii) upon passage of a
specified number of years, (iii) upon termination of his or her employment or
service with the Employer, (iv) upon the earlier to occur of (A) his or her
termination of employment or service with the Employer or (B) passage of a
specified number of years or attainment of a specified age, or (v) upon the
later to occur of (A) his or her termination of employment or service with the
Employer or (B) passage of a specified number of years or attainment of a
specified age, as elected by the Participant in accordance with the form
established by the Committee. Such form may permit a Participant to make an
election among some or all of the alternatives listed in this Section 3.2(a), as
determined in the Committee's sole and absolute discretion, and shall also
permit the Participant to make an election, pursuant to the provisions of
Section 3.2(e), to receive all amounts payable to him or her under the Plan in a
single lump sum or in equal monthly installments over a designated period of
five (5) or ten (10) years. A designation of the time of distribution shall be
required as a condition of participation in the Plan. These elections shall be
made in accordance with Section 3.4. All payments shall be made in the form of
cash.

                  (b) Distributions shall be made to the maximum extent
allowable under the Plan and the election made by the Participant, except that
no distribution shall be made to the extent that the receipt of such
distribution, when combined with the receipt of all other "applicable employee
remuneration" (as defined in Code Section 162(m)(4)), would cause any
remuneration received by the Participant to be nondeductible by the Employer
under Code Section 162(m)(l). The portion of any distributable amount that is
not distributed by operation of this Section 3.2(b) shall be distributed in
subsequent taxable years in which such distribution would not be subject to the
deductibility limitation of Code Section 162(m) in accordance with the manner
elected by the Participant. For Participants who have elected to receive payment
in a single lump sum or in equal monthly installments over a designated period
of five (5) or ten (10) years in accordance with Section 3.2(e), the
commencement date of the lump sum payment or the five (5) or ten (10) year
period (whichever is applicable) shall be automatically extended, when necessary
to satisfy the requirements of this Section 3.2(b), for one-year periods until
all Account balances have been distributed in the manner elected by the
Participants.

                  (c) Upon termination of a Participant's employment or service
with the Employer by reason of death or Permanent Disability prior to the time
when payment of his or her Account balance otherwise would have been made or
commenced under the provisions of Section 3.2(a), the Participant or his or her
Beneficiary will be entitled to receive all amounts credited to the Account as
of the date of the Participant's death or Permanent Disability (notwithstanding
any contrary election to receive distributions under the first sentence of
Section 3.2(a)). Upon termination of the Participant's employment or service
with the Employer

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<PAGE>

by reason other than death or Permanent Disability prior to the date when
payment of his or her Account balance otherwise would have been made or
commenced under the provisions of Section 3.2(a), the Employer may, in the sole
and absolute discretion of the Committee, distribute to the Participant all
amounts credited to the Participant's Account as of the date of such termination
(notwithstanding any contrary election to receive distributions under the first
sentence of Section 3.2(a)). Said amounts shall be payable in the form
determined pursuant to the provisions of Section 3.2(e).

                  (d) Upon the death of a Participant prior to the complete
distribution to him or her of the entire balance of his or her Account (and
after the date of termination of employment or service with the Employer), the
balance of his or her Account on the date of death shall be payable to the
Participant's Beneficiary pursuant to Section 3.2(e). Notwithstanding any other
provision of the Plan to the contrary, except for Section 3.2(f), the
Participant's Beneficiary may receive the distribution of the remaining portion
of such deceased Participant's Account in the form of a single lump sum if the
Beneficiary requests such a distribution and the Committee, in its sole and
absolute discretion, consents to such a distribution.

                  (e) The Employer shall distribute or direct distribution of
the balance of amounts previously credited to a Participant's Account, in a
single lump sum, or in monthly installments over a period of five (5) years or
ten (10) years, as the Participant shall designate pursuant to his or her
distribution election made pursuant to Section 3.4. The Participant's
distribution election shall be in the form established by the Committee in
accordance with the terms of the Plan. A designation of the form of distribution
shall be required as a condition of participation in the Plan. Subject to the
other provisions of this Section 3.2, distribution of the lump sum or the first
installment generally shall be made or commenced within ninety (90) days
following the date specified in the first sentence of Section 3.2(a). Subsequent
installments, if any, shall be made on the first day of each month following the
first installment as determined by Employer. The amount of each installment
shall be calculated by dividing the Account balance as of the date of the
distribution by the number of installments remaining pursuant to the
Participant's distribution election. Each such installment, if any, shall take
into account deemed allocations of items of Profit and Loss to the Participant's
Account. If at the time for a distribution of an installment payment, the
balance in a Participant's Account that may be distributed is less than the
amount of the distribution calculated in accordance with the prior two
sentences, then at such time only that lesser amount that may be distributed
shall be distributed to the Participant. The remaining amount (subject to any
necessary adjustments as determined by the Committee acting in its sole and
absolute discretion) that should have been distributed with such installment
shall be distributed at a reasonably administratively convenient time following
the time that any additional amounts that may be distributed have been allocated
to the Participant's Account. If the balance in a Participant's Account cannot
be distributed in its entirety on the date for final distribution of the
Participant's Account under such Participant's last effective distribution
election, then as that balance becomes distributable, it shall be distributed to
such Participant as soon as reasonably administratively convenient.

                  (f) Distributions shall be made in accordance with a
Participant's distribution election only to the extent that the Committee
determines, in its sole and absolute discretion, that the Trust has sufficient
Distributable Assets available to reasonably satisfy the distribution elections
made, or to be made, by all Participants; provided, however, that the Committee
shall be entitled, in its sole and absolute discretion, to permit distributions
to Participants in accordance with their positive Account balances or in any
other manner that the Committee deems appropriate. Notwithstanding any provision
of the Plan or the Trust Agreement to the contrary, no distribution shall be
made to any Participant except to the extent that such distribution is approved
by the Committee, acting in its sole and absolute discretion, and such
distribution does not:

                        (i)   require either the transfer of an interest in one
or both of the Partnerships or any other investment partnership or trust holding
some or all of the Distributable Assets;

                                                                             -9-
<PAGE>

                        (ii)  require a distribution of assets from one or both
of the Partnerships;

                        (iii) cause the Trust to be insolvent or cause the
Trust's assets to be insufficient to satisfy any unpaid debt or capital calls
made by one or both of the General Partners;

                        (iv)  cause one or both of the Partnerships or the Trust
to sell or distribute Securities other than Marketable Securities; or

                        (v)   create a negative balance in the Account of such
Participant or increase the amount by which such Account balance is negative.

      3.3   ELECTION TO DEFER COMPENSATION. Each eligible Employee or
Non-Employee Director's decision to become a Participant shall be entirely
voluntary.

                  (a) INITIAL ELECTIONS BY CURRENT EMPLOYEES AND NON-EMPLOYEE
DIRECTORS. An Employee or Non-Employee Director who is eligible to participate
in the Plan pursuant to Section 2.1 may elect to become a Participant in the
Plan by electing in writing, no later than the Effective Date, to defer his or
her Compensation under the Plan. An election under this Section 3.3(a) to defer
Compensation shall be effective only for the 2002 Plan Year.

                  (b) INITIAL ELECTIONS BY OTHER EMPLOYEES. Each Employee who
first becomes eligible to participate in the Plan pursuant to Section 2.1 during
the 2002 Plan Year or a subsequent Plan Year (whether by hire or promotion) may
elect to become a Participant in the Plan by electing in writing, within thirty
(30) days of the date of his or her hire or promotion (as the case may be), to
defer his or her Compensation under the Plan. An election under this Section
3.3(b) to defer Base Salary shall be effective only for the remainder of the
Plan Year with respect to which the election is made.

                  (c) INITIAL ELECTIONS BY OTHER NON-EMPLOYEE DIRECTORS. Each
individual who is elected a Non-Employee Director during a Plan Year and is
eligible to participate in the Plan pursuant to Section 2.1 may elect to become
a Participant in the Plan by electing in writing, within thirty (30) calendar
days of the effective date of his or her election to the Board, to defer his or
her Compensation under the Plan. An election under this Section 3.3(c) to defer
Compensation shall be effective only for the remainder of the Plan Year with
respect to which the election is made.

                  (d) ELECTIONS FOR SUBSEQUENT PLAN YEARS. An Employee or
Non-Employee Director who is eligible to participate in the Plan pursuant to
Section 2.1 may elect to become a Participant (or to continue or reinstate his
or her active participation) in the Plan for any subsequent Plan Year by
electing in writing, at least twenty (20) days (or such other period of time
determined by the Committee and communicated to eligible individuals prior to
the beginning of the Plan Year with respect to which the Compensation to be
deferred is otherwise payable to them) prior to the beginning of the Plan Year
with respect to which the Compensation to be deferred is otherwise payable to
the Employee or Non-Employee Director.

                  (e) SEPARATE ELECTION TO DEFER BONUSES. Each Employee who is
eligible to participate in the Plan pursuant to Section 2.1 shall make a
separate written Compensation deferral election with respect to the Cash Bonus
portion(s) (if any) of his or her Compensation. An election under this Section
3.3(e) to defer Cash Bonus shall be effective only for the Deferral Election
Period with respect to which the election is made. An Employee's Compensation
deferral election with respect to his or her Cash Bonus(es) shall be made prior
to the time the amount of the bonus is determined, prior to the end of the
period of time as to which the bonus is awarded, and at a time that the amount
of any such bonus remains substantially uncertain, as determined by the
Committee acting in its sole and absolute discretion.

                                                                            -10-
<PAGE>

                  (f) NO ELECTION CHANGES DURING PLAN YEAR OR DEFERRAL ELECTION
PERIOD. A Participant shall not be permitted to change or revoke his or her
election to defer (i) Base Salary or Directors Fees for a Plan Year after the
beginning of such Plan Year, (ii) Cash Bonus for a Deferral Election Period
after the beginning of such Deferral Election Period.

                  (g) SPECIFIC TIMING AND METHOD OF ELECTION. Notwithstanding
any provision of this Section 3.3 to the contrary, the Committee, in its sole
and absolute discretion, shall determine the manner and deadlines for
Participants to make Compensation deferral elections under the Plan. The
deadlines prescribed by the Committee may be earlier than the deadlines
otherwise specified in this Section 3.3, but shall not be later than such
specified deadlines.

                  (h) TERMINATION OF PARTICIPATION.

                        (i)   An eligible Employee or Non-Employee Director who
has become a Participant shall remain a Participant until his or her entire
vested positive Account balance is distributed. An eligible Employee or
Non-Employee Director who has become a Participant may or may not be an active
Participant making Compensation deferrals for a particular period, depending on
whether such Participant is entitled, and has elected, to make Compensation
deferrals for such Plan Year or Deferral Election Period.

                        (ii)  Notwithstanding any provision in the Plan or Trust
Agreement to the contrary, from and after the close of business on the date that
a Participant's employment or service to the Employer is terminated (the
"Termination Date"), such Participant shall no longer be entitled to make
Compensation deferrals under the Plan (except to the extent that such
Participant is subsequently re-hired or begins to provide services to the
Employer, and is deemed eligible to become an active Participant in the Plan in
accordance with Section 2.1). Except as otherwise determined by the Committee
acting in its sole and absolute discretion, from and after a Participant's
Termination Date: (A) the Available Capital of such Participant with respect to
either of the Partnerships shall not be deemed to be invested in either of the
Partnerships during any Plan Year which begins after the Termination Date; and
(B) the Participant's Investment Percentage in respect of each Portfolio
Investment made by one of the Partnerships during any Plan Year beginning after
the Termination Date shall equal zero percent.

      3.4   DISTRIBUTION ELECTION. Each Participant shall indicate on his or her
Compensation deferral election made pursuant to Section 3.3, the form and time
of payment of his or her positive Account balance as provided in Section 3.2.
Subject to Section 3.2(f), a Participant's election as to the form and time of
payment shall apply to all amounts credited to the Participant's Account, and
except to the limited extent provided below, shall be irrevocable. If permitted
by the Committee in its sole and absolute discretion, a Participant may change
the terms of such distribution election by making a new distribution election,
and any such new election will be effective as of the later of the date that is
(a) six (6) months following the date the new election is made, or (b) the first
day of the Plan Year following the Plan Year in which the new election is made
and will apply to the Participant's entire Account. A Participant may not make a
new election once distributions from the Plan have commenced or which would
first become effective at a time when distributions from the Plan have
commenced. The Participant's distribution election shall be in the form and
manner established by the Committee acting in its sole and absolute discretion.

      3.5   PAYMENT UPON CHANGE OF CONTROL. Notwithstanding any provision of the
Plan to the contrary, the aggregate balance credited to each Participant's
Account shall be distributed to such Participant, subject to Section 3.2(f), in
a single lump sum within ninety (90) days following a Change of Control, except
to the extent that one or more of the Committee, the Board, or the Employer's
401(k)/NQDC Administrative Committee (as each is composed immediately prior to
such Change in Control) determines in its sole and absolute discretion that no
such distribution shall be made following a Change of Control.

                                                                            -11-
<PAGE>

      3.6   EMPLOYEE'S RIGHTS UNSECURED. The right of a Participant or his or
her Beneficiary to receive a distribution hereunder shall be an unsecured claim
against the general assets of the Employer, and neither the Participant nor his
or her Beneficiary shall have any rights in or against any amount credited to
his or her Account or any specific assets of the Employer, except as otherwise
provided in the Trust Agreement. Nothing contained in the Plan, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind or a fiduciary relationship between the Plan and the Employer or any
other person.

      3.7   INVESTMENT OF CONTRIBUTIONS.

                  (a) Although no assets will be segregated or otherwise set
aside with respect to a Participant's Account, the amount that is ultimately
payable to the Participant with respect to his or her Account shall be
determined as if such Account had been invested in such manner as the Committee,
in its sole and absolute discretion, may specify from time to time. The
Committee, in its sole and absolute discretion, shall adopt (and may modify from
time to time) such rules and procedures as it deems necessary or appropriate to
implement the deemed investment of Participants' Accounts.

                  (b) The investment options available to each Participant for
the deemed investment of his or her Account shall be determined by the Committee
in its sole and absolute discretion and described in a separate written
document, a copy of which shall be attached hereto and by this reference is
incorporated herein. Prior to July 1, 2004, all of the Trust's assets were
invested to acquire limited partnership interests in the Telos II Partnership,
and such investment was the sole option available to Participants under the Plan
for the deemed investment of their Accounts. From and after July 1, 2004, it is
the Committee's intention to allow for the investment of the Trust's assets, at
the direction of the Committee, in either the Telos II Partnership or the Telos
III Partnership. From and after July 1, 2004, the Committee may allow
Participants, as part of their deferral election made pursuant to Section 3.3,
to direct the Trustee to make deemed investments of their Accounts in either of
the Partnerships; provided, however, that the Committee retains the authority to
limit the deemed investment of Participants' Accounts to one of the
Partnerships. Notwithstanding the forgoing, unless otherwise determined by the
Committee, all amounts in a Participant's Account prior to July 1, 2004, shall
be deemed to have been designated for investment in the Telos II Partnership. In
the event that the Committee makes additional investment options available to
Participants for the deemed investment of their Accounts, each Participant shall
have the right to direct the Trustee as to the deemed investment of the portion
of his or her Account among those options in accordance with policies and
procedures implemented by the Committee, the Trustee and the terms and
conditions of those options, and the Plan shall be amended to account for such
options.

                  (c) RECYCLING OF DISTRIBUTABLE ASSETS.

                        (i)   The Committee shall be entitled, in its sole and
absolute discretion, to direct the Trust to retain Distributable Assets (or cash
proceeds from the liquidation thereof) to satisfy any capital calls issued by
the either of the General Partners or any items of deemed debt or expense which
are allocable to a Participant's Account in accordance with the Plan.

                        (ii)  A Participant may request that the Committee,
acting in its sole and absolute discretion, direct the Trustee to retain
Distributable Assets (or cash proceeds from the liquidation thereof) and invest
such assets in one of the Partnerships or other available investment options in
accordance with policies and procedures implemented by the Trustee, provided,
however, that no Participant whose employment or service with the Employer has
terminated may request that the Committee direct the Trustee to re-invest any
Distributable Assets in either of the Partnerships.

                                                                            -12-
<PAGE>

                        (iii) If the Committee directs the Trustee to retain all
or a portion of a Participant's deemed share of Distributable Assets in
accordance with this Section 3.7(c), such assets shall be deemed to increase the
Available Capital of such Participant with respect to the Partnership in which
the Committee determines such Distributable Assets will be invested (to the
extent of the value thereof) until such time as such assets are re-invested by
the Trustee or used to satisfy any items of deemed debt or expense which are
allocable to such Participant's Account.

                  (d) Notwithstanding any provision of the Plan to the contrary,
the Committee may determine not to take account of a Participant's deemed
investment elections, if any, and determine to have the Participant's Account
deemed invested in any other manner as the Committee shall determine. The
Committee shall also be entitled to designate the manner in which the Trust's
assets shall be invested for interim short-term periods of time pending
investment in one of the Partnerships or following distribution from one of the
Partnerships but prior to distribution from the Trust or re-investment of the
Trust's assets in another investment option.

      3.8   ALLOCATIONS.

                  (a) Except as otherwise provided in the Plan, items of Profit
and Loss shall be allocated among the Participants' Accounts at the close of
business on last day of each Plan Year, as follows:

                        (i)   First, items of Profit and Loss attributable to
each Portfolio Investment, as determined by the Committee in its sole
discretion, shall be allocated among the Participants' Accounts in proportion to
each Participant's respective Investment Percentage for such Portfolio
Investment;

                        (ii)  Next, items of Profit attributable to Idle Funds
Income shall be allocated among the Participants' Accounts in proportion to each
Participant's deemed interest in the cash assets of the Trust (as determined by
the Committee in its sole and absolute discretion); and

                        (iii) Next, all remaining items of Profit and Loss shall
be allocated among the Participants' Accounts in proportion to the aggregate
Deferred Compensation of each Participant.

                  (b) Prior to the final allocation of items of Profit and Loss
in respect of a Plan Year, the Committee may make interim allocations of items
of Profit and Loss among the Participants' Accounts in proportion to the
Deferred Compensation of each Participant in respect of such Plan Year
(determined as of the time of such interim allocation) or in any other manner
that the Committee deems appropriate, acting in its sole and absolute
discretion. Immediately following the final allocation of items of Profit and
Loss in respect of a Plan Year, the Committee shall be entitled to cause items
of Profit and Loss among the Participants' Accounts to be re-allocated, as
necessary, to cause the Participants' Accounts to reflect the same amounts that
they would have reflected if all items of Profit and Loss for such Plan Year had
been allocated in accordance with Section 3.8(a).

                  (c) If an item of Loss otherwise allocable in respect of a
Plan Year under Sections 3.8(a) or 3.8(b) would create a negative balance in a
Participant's Account (or increase the amount by which such Account balance is
negative), the item shall not be allocated to such Participant's Account but
shall instead be specially allocated as follows:

                        (i)   First, to the Participants' Accounts as a group,
to the extent possible in proportion to respective positive Account balances,
until the Account balance of each Participant has been reduced to (but not less
than ) zero; and

                                                                            -13-
<PAGE>

                        (ii)  Next, to the Participants as a group in proportion
to the aggregate amount of Deferred Compensation for each Participant.

To the extent that there have been special allocations of Loss under this
Section 3.8(c) away from a Participant that have not been subsequently been
reversed pursuant to this sentence, the next available items of Profit otherwise
allocable to such Participant pursuant to Sections 3.8(a) and 3.8(b) shall be
specially allocated to the Participants to whom such items of Loss had been
specially allocated under this Section 3.8(c) so as to first offset in reverse
order such special allocations of Loss.

                  (d) To the extent that (i) Losses that otherwise would have
been allocated to a Participant under this Section 3.8 were allocated to one or
more other Participant's Accounts under Section 3.8(c) in consequence of such
Participant's Account balance having been equal to, reduced to, or less than
zero, (ii) such allocation has not been reversed pursuant to the subsequent
operation of Section 3.8(c) or this Section 3.8(d), and (iii) by operation of a
deferral election, Section 3.7(c) or Section 3.9, a Participant's Available
Capital subsequently increases, the Accounts of the Participants shall be
adjusted in connection with such increase in such Participant's Available
Capital (to the extent of the value thereof) to effect a reallocation of such
Losses to the Participant.

                  (e) From time to time, the Trustee shall be entitled, with
Committee approval, to borrow funds to satisfy the obligations of the Trust,
whether to cover expenses, meet capital calls issued by either of the General
Partners, or otherwise. The principal amount of any such loan, and costs
associated with interest expenses on such loan, shall be allocated to
Participants' Accounts as determined by the Committee in its sole and absolute
discretion.

                  (f) The selection of a given method of allocating deemed
expenses or other items of Profit and Loss among Participants' Accounts shall
not be deemed to restrict the Committee in any manner whatsoever from selecting
a different method for future allocations or to imply that a different method
would not be fair and equitable to Participants.

      3.9   TRANSFER OF ASSETS.

                  (a) The Committee shall be entitled, in its sole and absolute
discretion, to direct the Trustee to:

                        (i)   transfer assets to the Trust from the trust
established under the 1996 Plan for the benefit of the Participant (if such
individual is a participant under the 1996 Plan and such transfer is approved by
the plan administrator of the 1996 Plan in its sole and absolute discretion);

                        (ii)  transfer assets to the Trust from the trust
established under the 1994 Plan for the benefit of the Participant (if such
individual is a participant under the 1994 Plan and such transfer is approved by
the plan administrator of the 1994 Plan in its sole and absolute discretion);

                        (iii) transfer Distributable Assets to the trust
established under the 1994 Plan for the benefit of the Participant (if such
individual is a participant under the 1994 Plan and such transfer is approved by
the plan administrator of the 1994 Plan in its sole and absolute discretion);

                        (iv)  transfer to the Trust some or all of the assets of
any other trust established under the terms of an Employer Plan, and designate
which Partnership or other investment option such assets will be available for
deemed investment in; or

                                                                            -14-
<PAGE>

                        (v)   transfer of some or all of the Trust's assets to
any other trust established under the terms of an Employer Plan.

                  (b) In the event that assets are transferred in accordance
with Section 3.9(a) to the Trust, such assets shall be subject to the terms and
conditions of the Trust, provided, however, that such assets shall continue to
be subject to the distribution election made by a Participant under the
applicable Employer Plan unless such distribution election is revised as
permitted by the Plan. In the event that assets are transferred in accordance
with Section 3.9(a) to a trust established under an applicable Employer Plan,
such assets shall be subject to the terms and conditions of such trust,
provided, however, that such assets shall continue to be subject to the
Participant's distribution election under the Plan unless such distribution
election is revised as permitted by the applicable Employer Plan.

                  (c) Any transfer of assets made in accordance with this
Section 3.9 from the Trust to any other trust established under an Employer
Plan, or from any other trust established under an Employer Plan to the Trust,
shall not cause any individual's rights to a distribution under the Plan or any
Employer Plan to be a secured right to a distribution under the Plan or any
Employer Plan.

                                    SECTION 4

                           DESIGNATION OF BENEFICIARY

      4.1   DESIGNATION OF BENEFICIARY.

                  (a) Each Participant may designate a Beneficiary or
Beneficiaries to receive any amount due hereunder by the Participant by written
notice thereof to the Employer at any time prior to his or her death and may
revoke or change the Beneficiary designated therein without the Beneficiary's
consent by written notice delivered to the Employer at any time and from time to
time prior to the Participant's death.

                  (b) If a Participant designates a person other than or in
addition to his or her spouse as a primary Beneficiary, the designation shall be
ineffective unless the Participant's spouse consents to the designation. Any
spousal consent required under this Section 4.1 shall be ineffective unless it
(i) is set forth in writing in a form specified by the Committee in its sole and
absolute discretion, (ii) acknowledges the effect of the Participant's
designation of another person as his or her Beneficiary, and (iii) is signed by
the spouse and witnessed by a notary public. Any spousal consent required under
this Section 4.1 shall be valid only with respect to the spouse who signs the
consent.

                  (c) Any Beneficiary designation or revocation shall be
effective only if it is received by the Employer. However, when so received, the
designation or revocation shall be effective as of the date the notice is
executed (whether or not the Participant still is living), but without prejudice
to the Committee on account of any payment made before the change is recorded.
The last effective designation received by the Employer shall supersede all
prior designations.

                  (d) If the Participant dies without having effectively
designated a Beneficiary, or if no Beneficiary survives him or her, then such
amount shall be paid to his or her estate. Designations of Beneficiaries shall
be in the form and manner determined by the Committee in its sole and absolute
discretion.

                                                                            -15-
<PAGE>

                                    SECTION 5

                                CHANGE OF CONTROL

      5.1   CHANGE OF CONTROL. For purposes of the Plan, a Change of Control
shall mean the following:

                  (a) The first public announcement or public acknowledgment
(including without limitation, a report filed pursuant to Section 13(d) of the
Securities Exchange Act of 1934 as amended (the "Exchange Act")) by the Employer
that a "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Employer, a Subsidiary or an employee benefit plan
of the Employer or a Subsidiary, or other controlled affiliate of the Employer,
including any trustee of such plan acting as trustee) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act or
comparable successor rule), directly or indirectly, of securities of the
Employer representing fifty percent (50%) or more of the combined voting power
of the Employer's then outstanding Common Stock entitled to vote in the election
of directors, where such person's beneficial ownership of the Employer's Common
Stock was not initiated by the Employer or approved by the Employer's Board of
Directors; or

                  (b) The sale, lease or other disposition of all or
substantially all of the assets of the Employer;

                  (c) The merger or consolidation of the Employer with or into
another corporation not initiated by the Employer, in which the Employer is not
the surviving corporation and the stockholders of the Employer immediately prior
to the merger or consolidation fail to possess direct or indirect beneficial
ownership of more than eighty percent (80%) of the voting power of the
securities of the surviving corporation (or if the surviving corporation is a
controlled affiliate of another entity, then the required beneficial ownership
shall be determined with respect to the securities of that entity which controls
the surviving corporation and is not itself a controlled affiliate of any other
entity) immediately following such transaction, or a reverse merger not
initiated by the Employer, in which the Employer is the surviving corporation
and the stockholders of the Employer immediately prior to the reverse merger
fail to possess direct or indirect beneficial ownership of more than eighty
percent (80%) of the securities of the Employer (or if the Employer is a
controlled affiliate of another entity, then the required beneficial ownership
shall be determined with respect to the securities of that entity which controls
the Employer and is not itself a controlled affiliate of any other entity)
immediately following the reverse merger. For purposes of this Section 5.1(c),
any person who acquired securities of the Employer prior to the occurrence of a
merger, reverse merger, or consolidation in contemplation of such transaction
and who after such transaction possesses direct or indirect beneficial ownership
of at least ten percent (10%) of the Common Stock of the Employer or the
surviving corporation (or if the Employer or the surviving corporation is a
controlled affiliate, then of the appropriate entity as determined above)
immediately following such transaction shall not be included in the group of
stockholders of the Employer immediately prior to such transaction; or

                  (d) A change in the composition of the Board, as a result of
which fewer than a majority of the directors are Incumbent Directors; or

                  (e) Any liquidation or dissolution of the Employer.

                                                                            -16-
<PAGE>

                                    SECTION 6

                                TRUST PROVISIONS

      6.1   TRUST AGREEMENT. The Employer shall establish the Trust within an
administratively reasonable period of time following the adoption of the Plan
for the purpose of retaining assets set aside by the Employer pursuant to the
Trust Agreement for payment of amounts payable pursuant to the Plan. The Trust
shall be intended to constitute a grantor trust (within the meaning of subpart
E, part I, subchapter J, chapter 1, subtitle A of the Code). Any Plan benefits
not paid from the Trust shall be paid solely from the Employer's general funds,
and any benefits paid from the Trust shall be credited against and reduced by a
corresponding amount of the Employer's liability to Participants under the Plan.
No special or separate fund, other than the Trust, shall be required to be
established and no other segregation of assets shall be required to be made to
assist the Employer in meeting its obligations to pay benefits under the Plan.
All Trust assets shall be subject to the claims of the general creditors of the
Employer in the event the Employer is Insolvent. The obligations of the Employer
to pay benefits under the Plan constitutes an unfunded, unsecured promise to pay
benefits under the Plan and Participants and Beneficiaries shall have no greater
rights than the general creditors of the Employer.

                                    SECTION 7

                            AMENDMENT AND TERMINATION

      7.1   AMENDMENT. The Committee shall be entitled, in its sole and absolute
discretion, to amend the Plan in such manner as it may determine, at any time
and for any reason. Any such amendment shall become effective upon the date
stated therein, and shall be binding on all Participants, except as otherwise
provided in such amendment.

      7.2   TERMINATION. Notwithstanding any other provision of the Plan to the
contrary, the Committee shall have the right to terminate the Plan at any time
and for any reason and, subject to Section 3.2(f), direct the lump sum payments
of all assets held by the Trust if the Employer is not then Insolvent. Except as
otherwise provided in the Plan, no such termination shall reduce the balance
then credited to a Participant's Account.

                                    SECTION 8

                                 ADMINISTRATION

      8.1   ADMINISTRATION. The Employer is hereby designated as the
administrator of the Plan (within the meaning of section 3(16)(A) of ERISA). The
Committee shall administer and interpret the Plan in accordance with the
provisions of the Plan and the Trust Agreement. The Committee shall have all
powers and discretion necessary or appropriate to supervise the administration
of the Plan and to control its operation, including (but not limited to) the
following powers:

                  (a) To interpret and determine the meaning and validity of the
provisions of the Plan and to determine any question arising under, or in
connection with, the administration, operation or validity of the Plan or any
amendment thereto;

                  (b) To determine any and all considerations affecting the
eligibility of any employee or director to become a Participant or remain a
Participant in the Plan;

                                                                            -17-
<PAGE>

                  (c) To determine the status and rights of Participants and
their spouses, Beneficiaries or estates;

                  (d) To establish and revise the accounting method for the
Plan;

                  (e) To employ legal counsel, consultants, actuaries and agents
as it may deem desirable in the administration of the Plan and to rely on the
opinion of such counsel or the computations of such consultants or other agents
in carrying out the provisions of the Plan;

                  (f) To arrange for the preparation and delivery of an annual
statement of benefits for each Participant;

                  (g) To publish a claims and appeal procedure satisfying the
minimum requirements of section 503 of ERISA pursuant to which individuals or
estates may claim Plan benefits and appeal denials of such claims;

                  (h) To delegate some or all of the powers and responsibilities
under the Plan and the Trust Agreement to such person or persons as it shall
deem necessary, desirable or appropriate for administration of the Plan; and

                  (i) To cause deferrals of Compensation to be credited, and
items of Profit and Loss allocated, to Participants' Accounts and determine all
issues and questions regarding Account balances, and the time, form, manner and
amount of any distributions to Participants or Beneficiaries.

Any determination or decision by the Committee (or its delegates) shall be
conclusive and binding on all persons, and shall be given the maximum possible
deference allowed by law.

      8.2   LIABILITY OF COMMITTEE; INDEMNIFICATION. To the maximum extent not
prohibited by law, no member of the Committee shall be liable to any person and
in any event shall be indemnified by the Employer, from and against any and all
losses, claims, damages or liabilities (including attorneys' fees and amounts
paid, with the approval of the Committee and the Board in settlement of any
claim) for any duty, decision, action taken or omitted in connection with the
interpretation and administration of the Plan, so long as unless such duty,
decision, action taken or omitted was not attributable to the bad faith or
willful misconduct of such individual.

      8.3   EXPENSES. All costs and expenses of establishing, adopting and
administering the Plan and the Trust, including legal fees and expenses, shall
be borne by the Trust unless the Employer elects in its sole and absolute
discretion to pay all or a portion of those expenses; provided, however, that
the Employer shall bear, and shall not be reimbursed by, the Trust for any tax
liability of the Employer associated with the investment of the assets of the
Trust.

                                    SECTION 9

                            GENERAL AND MISCELLANEOUS

      9.1   RIGHTS AGAINST EMPLOYER. Except as expressly provided in the Plan,
neither the establishment nor the maintenance of the Plan shall be held or
construed as giving to any Employee or to any other person, any legal, equitable
or other rights against the Employer, or against its officers, directors, agents
or stockholders, or as giving to any Employee or Beneficiary any equitable or
other interest in the assets, business or shares of Employer stock or giving any
Employee the right to be retained in the employ of the

                                                                            -18-
<PAGE>

Employer. Neither the Plan nor any action taken hereunder shall be held or
construed as giving to any Employee the right to be retained in the employ of
the Employer or as affecting the right of the Employer to dismiss any Employee.
Any benefit paid or payable under the Plan shall not be deemed salary or other
compensation for the purpose of computing benefits under any other employee
benefit plan or arrangement of the Employer for the benefit of its Employees,
but Compensation deferrals under the Plan shall be deemed salary or other
compensation for the purpose of computing benefits under other employee benefit
plans or arrangements of the Employer for the benefit of its Employees, but only
to the extent provided under the terms of such other plans or arrangements.
Nothing in the Plan or in any instrument executed pursuant thereto shall confer
upon any Non-Employee Director any right to continue in the service of the
Employer in any capacity or shall affect any right of the Employer, the Board or
stockholders of the Employer to remove any Non-Employee Director pursuant to the
Employer's By-Laws and the provisions of the Delaware General Corporation Law.

      9.2   NO ASSIGNMENT OR TRANSFER. No right, title or interest of any kind
in the Plan shall be transferable or assignable by any Participant, former
Participant or his or her Beneficiary, spouse or estate or be subject to
alienation, anticipation, encumbrance, garnishment, attachment, execution or
levy of any kind, whether voluntary or involuntary, or be subject to the debts,
contracts, liabilities, engagements, or torts of the Participant, former
Participant or his or her Beneficiary or spouse. Any attempt to alienate,
anticipate, encumber, sell, transfer, assign, pledge, garnish, attach or
otherwise subject to legal or equitable process or encumber or dispose of any
interest in the Plan shall be void. Notwithstanding the foregoing, and only if
the Committee in its sole and absolute discretion so permits pursuant to such
procedures it may specify from time to time, a Participant's interest in the
Plan may be transferable to an alternate payee in accordance with a domestic
relations order.

      9.3   SEVERABILITY. If any provision of the Plan shall be declared illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions of the Plan but shall be fully severable, and the Plan
shall be construed and enforced as if said illegal or invalid provision had
never been inserted herein.

      9.4   CONSTRUCTION. The article and section headings and numbers are
included only for convenience of reference and are not be taken as limiting or
extending the meaning of any of the terms and provisions of the Plan. Whenever
appropriate, words used in the singular shall include the plural or the plural
may be read as the singular. When used herein, the masculine gender includes the
feminine gender.

      9.5   GOVERNING LAW. The provisions of the Plan shall be construed,
administered and enforced in accordance with ERISA, and to the extent not
preempted by ERISA, with the laws of the State of Delaware (other than its
conflict of laws provisions).

      9.6   PAYMENT DUE TO INCOMPETENCE. If the Committee receives evidence that
a Participant or Beneficiary entitled to receive any payment under the Plan is
physically or mentally incompetent to receive such payment, the Committee may,
in its sole and absolute discretion, direct the payment to any other person or
trust which has been legally appointed by the courts or to any other person
determined by the Employer to be a proper recipient on behalf of such person
otherwise entitled to payment, or any of them, in such manner and proportion as
the Employer may deem proper. Any such payment shall be in complete discharge of
the Employer's obligations under the Plan to the extent of such payment.

      9.7   TAXES. The Employer may withhold from any benefits payable under the
Plan, all federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling.

                                                                            -19-
<PAGE>

      9.8   ATTORNEY'S FEES. The Employer shall pay the reasonable attorney's
fees incurred by any Participant in an action brought against the Employer to
enforce the Participant's rights under the Plan, provided that such fees shall
only be payable in the event that the Participant prevails in such action.

      9.9   PLAN BINDING ON SUCCESSORS/ASSIGNEES. The Plan shall be binding upon
and inure to the benefit of the Employer and its successor and assigns and the
Participant and the Participant's designee and estate.

   [Remainder of this page intentionally left blank; signature page follows.]

                                                                            -20-
<PAGE>

                                    EXECUTION

      IN WITNESS WHEREOF, the Employer has caused its authorized officer to
execute this amendment and restatement of the Plan on this _____ day of
__________, 2004.

CADENCE DESIGN SYSTEMS, INC.

Signature: ________________________________

By: _______________________________________

Title: ____________________________________

                                                                            -21-<PAGE>

                                                                   EXHIBIT 10.78

                          CADENCE DESIGN SYSTEMS, INC.
                              EMPLOYMENT AGREEMENT
                             WITH MICHAEL J. FISTER

      THIS AGREEMENT (this "Agreement") is made effective as of May 12, 2004
(the "Effective Date"), between CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), and Michael J. Fister ("Executive").

      WHEREAS, the Company is engaged in the electronic design automation
software business; and

      WHEREAS, the Company desires to secure the services of Executive as
President and Chief Executive Officer, and Executive desires to perform such
services for the Company, on the terms and conditions as set forth herein.

      NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:

1.    TERM AND DUTIES.

      1.1   EFFECTIVE DATE. The Company hereby employs Executive and Executive
hereby accepts employment pursuant to the terms and provisions of this Agreement
commencing on the Effective Date. Executive thereafter shall be employed on an
at will basis, meaning that either Executive or the Company may terminate
Executive's employment at any time, with or without Cause (as defined in Section
4.2 hereof), in the manner specified herein.

      1.2   SERVICES.

            (a)   Executive shall have the title President and Chief Executive
Officer ("CEO"). Executive's duties will be assigned to Executive from time to
time by the Board of Directors of the Company (the "Board"). Executive shall
report directly to the Board.

<PAGE>

            (b)   During his employment with the Company as CEO, the Company
shall recommend Executive's membership on the Board to the Board's Corporate
Governance and Nominating Committee.

            (c)   Executive shall be required to comply with all applicable
company policies and procedures, as such shall be adopted, modified or otherwise
established by the Company from time to time.

      1.3   SERVICES TO BE EXCLUSIVE. During his employment with the Company,
Executive agrees to devote his full productive time and best efforts to the
performance of Executive's duties hereunder. Executive further agrees, as a
condition to the performance by the Company of each and all of its obligations
hereunder, that so long as Executive is employed by the Company as CEO pursuant
to the terms of this Agreement, he will not directly or indirectly render
services of any nature to, otherwise become employed by, serve on the board of
directors of, or otherwise participate or engage in any other business without
the Company's prior written consent. Nothing herein contained shall be deemed to
preclude Executive from (i) continuing to serve as a non-employee member of the
Board of Directors of Autodesk, Inc. during the term of his employment with the
Company, and (ii) having outside personal investments and involvement with
appropriate community activities, or from devoting a reasonable amount of time
to such matters, provided that they shall in no manner interfere with or
derogate from Executive's work for the Company.

      1.4   OFFICE. The Company shall maintain an office for Executive at the
Company's corporate headquarters, which currently are located in San Jose,
California.

2.    COMPENSATION.

      The Company shall pay to Executive, and Executive shall accept as full
consideration for his services hereunder, compensation consisting of the
following:

      2.1   BASE SALARY. The Company shall initially pay Executive a base salary
of Eight Hundred Thousand Dollars ($800,000) per year ("Base Salary"), payable
in

                                       2
<PAGE>

installments in accordance with the Company's customary payroll practices, less
such deductions and withholdings required by law or authorized by Executive. The
Board or the Compensation Committee of the Board (the "Compensation Committee")
shall review the amount of the Base Salary from time to time, but no less
frequently than annually. Any increase approved during the first four (4) months
of the Company's fiscal year shall become retroactively effective as of the
beginning of such fiscal year, and any increase approved thereafter shall become
effective on the date determined by the Board or the Compensation Committee, as
appropriate.

      2.2   BONUS. Executive shall participate in the Company's Senior Executive
Bonus Plan or its successor (the "Bonus Plan") at an annual target bonus of one
hundred percent (100%) of Executive's Base Salary (the "Target Bonus") for the
Company's fiscal year with respect to which such bonus shall be determined
pursuant to the terms of such Bonus Plan (the criteria for earning a bonus
thereunder are set annually by the Compensation Committee). For fiscal 2004,
Executive shall be guaranteed a bonus equal to the amount of annual Base Salary
paid to Executive for the portion of the year that Executive was employed by the
Company. The Board or the Compensation Committee shall review the amount of the
Target Bonus from time to time, but no less frequently than annually. The Board
or the Compensation Committee may choose, in its sole discretion, to approve a
bonus payment in excess of 100% of Executive's Base Salary for any fiscal year.

      2.3   SIGN-ON BONUS.

      The Company shall pay Executive a sign-on bonus of $1,000,000, 50% of
which shall be paid within thirty (30) days after the Effective Date and 50% of
which shall be paid on the earliest to occur of:

      (i)   the date which is 180 days after the Effective Date,

      (ii)  the termination of Executive's employment as the result of a
            Permanent Disability (as defined in Section 4.4 hereof) or death,
            and

                                       3
<PAGE>

      (iii) the termination of Executive's employment without Cause (as defined
            in Section 4.2 hereof) or as a result of an event constituting a
            Constructive Termination (as defined in Section 4.3 hereof);

      provided, however, that Executive shall not receive any such payment if
Executive voluntarily terminates his employment for any reason other than a
Constructive Termination (as defined in Section 4.3 hereof) or is terminated for
Cause (as defined in Section 4.2 hereof) before the applicable payment date.

      2.4   EQUITY GRANTS.

            (a)   Inducement Grants. As an inducement to entering into this
Agreement, Executive shall receive a grant of restricted stock and stock options
on the Effective Date, as follows: (i) Executive shall be entitled to receive
600,000 shares of restricted stock pursuant to the Company's 1993 Nonstatutory
Stock Incentive Plan and/or the Company's 2000 Nonstatutory Equity Incentive
Plan, such grant of restricted shares to vest over three (3) years, with 33 1/3%
of the shares vesting at the end of each full year of Executive's employment
over the three-year period measured from the Effective Date, and be subject to
such other terms and conditions as shall be documented in a restricted stock
agreement, substantially in the form attached hereto as Exhibit A, which
Executive shall execute and deliver to the Company concurrently with the grant
of such shares; and (ii) Executive shall receive a grant of 3,000,000 options
for Company common stock pursuant to the Company's 2000 Nonstatutory Equity
Incentive Plan, such option grant to have an exercise price equal to the average
of the high and low prices (as published by the NYSE) of Company stock on the
date of grant, and to vest over four years, with 25% of the options vesting at
the end of Executive's first full year of employment measured from the Effective
Date and the remainder vesting over the next 36 months in equal amounts each
month, and be subject to such other terms and conditions as shall be documented
in the option grant

                                       4
<PAGE>

agreement, which shall be in the Company's customary form to be executed and
delivered by Executive concurrently with such grant.

            (b)   Subsequent Grants. After the inducement grants described
above, Executive shall be eligible to receive grants of either restricted stock
or stock options, or both, as the Compensation Committee may determine from time
to time. All stock options shall be granted at one hundred percent (100%) of the
fair market value of the Company's common stock on the date of grant, except as
otherwise mandated by applicable law or regulations. Any awards shall vest in
accordance with the Company's vesting policy for additional grants to executive
officers of the Company in effect on the date of the grant by the Compensation
Committee, and shall contain such other terms and conditions as shall be set
forth in the agreement documenting the grant.

      2.5   INDEMNIFICATION. In the event Executive is made, or threatened to be
made, a party to any legal action or proceeding, whether civil or criminal, by
reason of the fact that Executive is or was a director or officer of the Company
or serves or served any other corporation or other person which is at least
fifty percent (50%) or more owned by the Company or controlled by the Company in
any capacity at the Company's request, Executive shall be indemnified by the
Company, and the Company shall pay Executive's related expenses when and as
incurred, all to the fullest extent not prohibited by law, as more fully
described in the form of Indemnification Agreement attached hereto as Exhibit B.

3.    EXPENSES AND BENEFITS.

      3.1   REASONABLE AND NECESSARY BUSINESS EXPENSES. In addition to the
compensation provided for in Section 2 hereof, the Company shall reimburse
Executive for all reasonable, customary and necessary expenses incurred in the
performance of Executive's duties hereunder. Executive shall first account for
such expenses by submitting a signed statement itemizing such expenses prepared
in accordance with the policy set by the Company for reimbursement of such
expenses.

                                       5
<PAGE>

The amount, nature and extent of reimbursement for such expenses shall always be
subject to the control, supervision and direction of the Company's Chief
Financial Officer, and/or its General Counsel, and the Board.

      3.2   BENEFITS. During Executive's full-time employment with the Company,
pursuant to this Agreement:

            (a)   Executive shall be eligible to participate in the Company's
standard U.S. health insurance, life insurance and disability insurance plans,
as such plans may be modified from time to time;

            (b)   Executive shall be eligible to participate in the Company's
qualified and non-qualified retirement and other deferred compensation programs
pursuant to their terms, as such programs may be modified from time to time; and

            (c)   Executive shall be eligible to participate in any other
benefit plan or arrangement implemented for other executive officers of the
Company for which he satisfies the same eligibility requirements applicable to
those executive officers.

      3.3   RELOCATION BENEFITS.

            (a)   During the first two weeks of Executive's employment with the
Company, the Company shall reimburse Executive for reasonable and actual
expenses incurred by him and his wife for travel, lodging and meals in
connection with their temporary relocation to the San Jose, California area.

            (b)   During the next three months of Executive's employment with
the Company as CEO, the Company shall reimburse Executive for all (i) reasonable
and actual costs associated with leasing a furnished apartment, and (ii) such
other reasonable and actual relocation expenses agreed to by the Company.

            (c)   During the next 24 months of Executive's employment with the
Company as CEO, the Company shall provide Executive with (i) a $5,000 per month
housing allowance, and (ii) reimbursement of such other reasonable and actual
relocation expenses agreed to by the Company.

                                       6
<PAGE>

            (d)   During the first two years of Executive's employment with the
Company as CEO, Executive shall be entitled to reimbursement for the reasonable
and actual cost of moving his household goods and certain other personal items
to the San Jose, California area pursuant to the terms of the Company's Domestic
Relocation Policy then in effect.

            (e)   If during the first five years of Executive's employment with
the Company as CEO he sells his home in Portland, Oregon and/or buys a new home
in the San Francisco/San Jose, California area (or any other location in
proximity to the Company's then corporate headquarters), the Company (i) will
reimburse Executive for his reasonable and documented closing costs (including
title search, title insurance, transfer taxes, escrow fees, appraisals, points
and other loan origination fees) associated with such sale and/or purchase and
(ii) will absorb and/or reimburse Executive for the broker's commission paid in
connection with the sale of Executive's home in Portland, Oregon, provided that
Executive complies and cooperates with the Company's Domestic Relocation Policy
then in effect, including, but not limited to, using a third party reasonably
satisfactory to the Company to handle such sale.

            (f)   To the extent any of the relocation benefits provided by this
Section 3.3 are included in Executive's gross income for tax purposes, Executive
shall receive an additional amount equal to (x) the amount of the relocation
benefits included in Executive's income (net of any related income tax deduction
allowable to Executive for the underlying expenses) divided by the remainder of
1 minus TR (as defined below), minus (y) the amount included in Executive's
income (as so netted). For purposes of this Section 3.3(f), "TR" shall equal the
highest effective marginal tax rate taking into account all applicable federal,
state and local income taxes (and reflecting the value of lost or phased out
itemized deductions) and applicable employment taxes all assumed at the highest
rate otherwise applicable to Executive.

                                       7
<PAGE>

      3.4   SARBANES-OXLEY ACT LOAN PROHIBITION. To the extent that any company
benefit, program, practice, arrangement, or any term of this Agreement would or
might otherwise result in the Company's extension of a credit arrangement to
Executive not permissible under the Sarbanes-Oxley Act of 2002 (a "Loan"), the
Company will use reasonable efforts to provide Executive with a substitute for
such Loan, which is lawful and of at least equal value.

4.    TERMINATION OF EMPLOYMENT AS CEO.

      4.1   GENERAL. Executive's employment by the Company as CEO under this
Agreement shall terminate immediately upon delivery to Executive of written
notice of termination by the Company, upon the Company's receipt of written
notice of termination by Executive at least thirty (30) days before the
specified effective date of such termination, or upon Executive's death or
Permanent Disability (as defined in Section 4.4 hereof); provided, however, that
only five (5) business days' written notice shall be required under this Section
4.1 in connection with Executive's voluntary termination of his employment in
connection with a Constructive Termination (as defined in Section 4.3 hereof).
In the event of such termination, except where Executive is terminated for Cause
(as defined in Section 4.2 hereof) or as the result of a Permanent Disability or
death, or where Executive voluntarily terminates his employment for any reason
other than in connection with a Constructive Termination, and upon execution by
Executive at or about the effective date of such termination of the Executive
Transition and Release Agreement, in the form attached hereto as Exhibit C (the
"Transition Agreement"), the Company shall provide Executive with the benefits
set forth in the Transition Agreement.

      4.2   DEFINITION OF CAUSE. For purposes of this Agreement, "Cause" shall
be limited to (1) Executive's gross misconduct or fraud in the performance of
his services hereunder; (2) Executive's conviction or guilty plea or plea of
nolo contendere with respect to any felony; (3) Executive's engaging in any
material act of theft or other

                                       8
<PAGE>

material misappropriation of company property in connection with his employment;
(4) Executive's material breach of this Agreement after written notice delivered
to Executive identifying such breach and his failure to cure such breach, if
curable, within thirty (30) days following delivery of such notice; (5)
Executive's material breach of the Proprietary Information Agreement (as defined
in Section 8 hereof) after written notice delivered to Executive identifying
such breach and his failure to cure such breach, if curable, within thirty (30)
days following delivery of such notice; or (6) Executive's material breach of
the Company's Code of Business Conduct as such code may be revised from time to
time after written notice delivered to Executive identifying such breach and his
failure to cure such breach, if curable, within thirty (30) days following
delivery of such notice. In no event may the Company terminate Executive's
employment for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of at
least a majority of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to Executive and an opportunity for Executive,
together with Executive's counsel, to be heard before the Board), finding that
in the good faith opinion of the Board, Executive was culpable for the conduct
constituting "Cause" and specifying the particulars thereof.

      4.3   CONSTRUCTIVE TERMINATION. Notwithstanding anything in this Section 4
to the contrary, Executive may, upon written notice to the Company, voluntarily
end his employment upon or within ninety (90) days following the occurrence of
an event constituting a Constructive Termination (but with at least five (5)
business days' written notice to the Company) and be eligible for the benefits
set forth in the Transition Agreement in exchange for executing and delivering
that agreement in accordance with Section 9.3 hereof. For purposes of this
Agreement, "Constructive Termination" shall mean:

            (a)   a material adverse change, without Executive's written
consent, in Executive's authority, duties, title or reporting relationship to
the Board causing

                                       9
<PAGE>

Executive's position to be of materially less stature or responsibility, after
written notice delivered to the Company of such change and the Company's failure
to cure such change, if curable, within thirty (30) days following delivery of
such notice; provided, however, that such a material adverse change shall in all
events be deemed to occur if Executive no longer serves as the Chief Executive
Officer of a publicly traded company, unless Executive consents in writing to
such change;

            (b)   a reduction, without Executive's written consent, in
Executive's Base Salary in effect on the Effective Date (or such higher level as
may be in effect in the future) by more than ten percent (10%) or a reduction by
more than ten percent (10%) in Executive's stated Target Bonus in effect on the
Effective Date (or such greater Target Bonus amount as may be in effect in the
future) under the Bonus Plan;

            (c)   a relocation of Executive's principal place of employment by
more than thirty (30) miles, unless Executive consents in writing to such
relocation;

            (d)   any material breach by the Company of any provision of this
Agreement, after written notice delivered to the Company of such breach and the
Company's failure to cure such breach, if curable, within thirty (30) days
following delivery of such notice; or

            (e)   any failure by the Company to obtain the assumption of this
Agreement by any successor to the Company.

      4.4   PERMANENT DISABILITY. For purposes of this Agreement, "Permanent
Disability" shall mean any medically determinable physical or mental impairment
that can reasonably be expected to result in death or that has lasted or can
reasonably be expected to last for a continuous period of not less than twelve
(12) months and renders Executive unable to perform effectively his services
pursuant to this Agreement.

      4.5   CHANGE IN CONTROL.

            (a)   Should there occur a Change in Control (as defined below) and
if within three (3) months before the Change in Control or thirteen (13) months
following

                                       10
<PAGE>

the Change in Control either (i) Executive's employment under this Agreement is
terminated without Cause or (ii) Executive terminates his employment pursuant to
this Agreement as a result of an event constituting a Constructive Termination,
then, in exchange for executing and delivering the Transition Agreement,
Executive shall be entitled to all of the benefits set forth therein, except
that (i) the payments of salary and bonus described in Section 5 of that
Agreement shall equal two (2) years of Executive's Base Salary and Target Bonus
at the level in effect on the Transition Commencement Date (as defined in such
agreement) or, if greater, at the highest level in effect at any time during the
term of this Agreement; and (ii) all of the unvested options and other stock
awards outstanding and held by Executive on the Transition Commencement Date
shall immediately vest and become exercisable in full on the Transition
Commencement Date.

            (b)   For purposes of this Section 4.5, a Change in Control shall be
deemed to occur upon the consummation of any one of the following events:

                  (i)   any "person" (as such term is used in sections 13(d) and
                        14(d) of the Securities Exchange Act of 1934, as
                        amended) becomes the "beneficial owner" (as defined in
                        Rule 13d-3 of that Act), directly or indirectly, of
                        securities of the Company representing more than fifty
                        percent (50%) of the total voting power represented by
                        the Company's then outstanding voting securities; or

                  (ii)  a change in the composition of the Board occurring
                        within a two-year period, as a result of which fewer
                        than a majority of the directors are Incumbent Directors
                        ("Incumbent Directors" means directors who either (A)
                        are directors of the Company as of the Effective Date,
                        or (B) are elected, or nominated for election, to the
                        Board with the affirmative votes of at least a

                                       11
<PAGE>

                        majority of the Incumbent Directors at the time of such
                        election or nomination, but will not include an
                        individual whose election or nomination is in connection
                        with an actual or threatened proxy contest relating to
                        the election of directors to the Board);

                  (iii) the consummation of a merger or consolidation of the
                        Company with any other corporation, other than a merger
                        or consolidation in which the holders of the Company's
                        outstanding voting securities immediately prior to such
                        merger or consolidation receive, in exchange for their
                        voting securities of the Company in consummation of such
                        merger or consolidation, securities possessing at least
                        fifty percent (50%) of the total voting power
                        represented by the outstanding voting securities of the
                        surviving entity (or parent thereof) immediately after
                        such merger or consolidation; or

                  (iv)  the consummation of the sale or disposition by the
                        Company of all or substantially all the Company's
                        assets.

      4.6   TERMINATION FOR CAUSE, ON ACCOUNT OF DEATH, PERMANENT DISABILITY, OR
VOLUNTARY TERMINATION. In the event Executive's employment is terminated for
Cause, or on account of death or Permanent Disability, or Executive voluntarily
terminates his employment with the Company other than in connection with a
Constructive Termination, then:

            (a)   Executive will be paid only (a) any earned but unpaid Base
Salary and any outstanding expense reimbursements submitted and approved
pursuant to Section 3.1 hereof, (b) any amount owed to Executive pursuant to
Sections 2.3 and 3.3 hereof, and (c) other unpaid vested amounts or benefits
under the compensation,

                                       12
<PAGE>

incentive and benefit plans of the Company in which Executive participates, in
each case under this clause (c) as of the effective date of such termination;
and

            (b)   Executive shall not become a party to the Transition Agreement
and shall not be bound by any of the terms and provisions thereof.

5.    EXCISE TAX.

      In the event that any benefits payable to Executive pursuant to the
Transition Agreement ("Termination Benefits") (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any comparable successor provisions, and (ii)
but for this Section 5 would be subject to the excise tax imposed by Section
4999 of the Code, or any comparable successor provisions (the "Excise Tax"),
then Executive's Termination Benefits shall be either (a) provided to Executive
in full, or (b) provided to Executive as to such lesser extent which would
result in no portion of such benefits being subject to the Excise Tax, whichever
of the foregoing amounts, when taking into account applicable federal, state,
local and foreign income and employment taxes, the Excise Tax, and any other
applicable taxes, results in the receipt by Executive, on an after-tax basis, of
the greatest amount of benefits, notwithstanding that all or some portion of
such benefits may be taxable under the Excise Tax. Unless the Company and
Executive otherwise agree in writing, any determination required under this
Section 5 shall be made in writing in good faith by a nationally recognized
accounting firm selected by the Company (the "Accountants"). In the event of a
reduction of benefits hereunder, Executive shall be given the choice of which
benefits to reduce. If Executive does not provide written identification to the
Company of which benefits he chooses to reduce within ten (10) days after notice
of the Accountants' determination, and Executive has not disputed the
Accountants' determination, then the Company shall select the benefits to be
reduced. For purposes of making the calculations required by this Section 5, the
Accountants may make reasonable assumptions and approximations concerning

                                       13
<PAGE>

applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code, and other applicable legal authority.
The Company and Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section 5. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.

      If, notwithstanding any reduction described in this Section 5, the
Internal Revenue Service (the "IRS") determines that Executive is liable for the
Excise Tax as a result of the receipt of the payment of benefits as described
above, then Executive shall be obligated to pay back to the Company, within
thirty (30) days after a final IRS determination or in the event that Executive
challenges the final IRS determination, a final judicial determination, a
portion of the payment equal to the "Repayment Amount." The Repayment Amount
with respect to the payment of benefits shall be the smallest such amount, if
any, as shall be required to be paid to the Company so that Executive's net
after-tax proceeds with respect to any payment of benefits (after taking into
account the payment of the Excise Tax and all other applicable taxes imposed on
such payment) shall be maximized. The Repayment Amount with respect to the
payment of benefits shall be zero if a Repayment Amount of more than zero would
not result in Executive's net after-tax proceeds with respect to the payment of
such benefits being maximized. If the Excise Tax is not eliminated pursuant to
this paragraph, Executive shall pay the Excise Tax.

      Notwithstanding any other provision of this Section 5, if (1) there is a
reduction in the payment of benefits as described in this Section 5, (2) the IRS
later determines that Executive is liable for the Excise Tax, the payment of
which would result in the maximization of Executive's net after-tax proceeds
(calculated as if Executive's benefits had not previously been reduced), and (3)
Executive pays the Excise Tax, then the Company shall pay to Executive those
benefits which were reduced pursuant to this

                                       14
<PAGE>

subsection as soon as administratively possible after Executive pays the Excise
Tax so that Executive's net after-tax proceeds with respect to the payment of
benefits are maximized.

6.    DISPUTE RESOLUTION.

      (a)   Each of the parties expressly agrees that, to the extent permitted
by applicable law and to the extent that the enforceability of this Agreement is
not thereby impaired, any and all disputes, controversies or claims between
Executive and the Company arising under this Agreement (as opposed to the
Transition Agreement), except those arising under Sections 6(d) and 9.10 hereof
or under the Proprietary Information Agreement (as defined in Section 8 hereof),
shall be determined exclusively by final and binding arbitration before a single
arbitrator in accordance with the JAMS Arbitration Rules and Procedures, or
successor rules then in effect, and that judgment upon the award of the
arbitrator may be rendered in any court of competent jurisdiction. This
includes, without limitation, any and all disputes, controversies, and/or claims
arising out of or concerning Executive's employment by the Company as CEO or the
termination of Executive's employment as CEO or this Agreement, and includes,
without limitation, claims by Executive against directors, officers or employees
of the Company, whether arising under theories of liability or damages based on
contract, tort or statute, to the full extent permitted by law. As a material
part of this agreement to arbitrate claims, the parties expressly waive all
rights to a jury trial in court on all statutory or other claims. This Section 6
does not purport to limit either party's ability to recover any remedies
provided for by statute, including attorneys' fees.

      (b)   The arbitration shall be held in the San Jose, California
metropolitan area, and shall be administered by JAMS or, in the event JAMS does
not then conduct arbitration proceedings, a similarly reputable arbitration
administrator. Under such proceeding, the parties shall select a mutually
acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except
as provided herein, the Federal Arbitration Act

                                       15
<PAGE>

shall govern the interpretation and enforcement of such arbitration proceeding.
The arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of California, or federal law, if California law is
preempted, and the arbitrator is without jurisdiction to apply any different
substantive law. The parties agree that they will be allowed to engage in
adequate discovery, the scope of which will be determined by the arbitrator,
consistent with the nature of the claims in dispute. The arbitrator shall have
the authority to entertain a motion to dismiss and/or a motion for summary
judgment by any party and shall apply the standards governing such motions under
the Federal Rules of Civil Procedure. The arbitrator shall render an award that
shall include a written statement of opinion setting forth the arbitrator's
findings of fact and conclusions of law. Judgment upon the award may be entered
in any court having jurisdiction thereof. The parties intend this arbitration
provision to be valid, enforceable, irrevocable and construed as broadly as
possible.

      (c)   The Company shall be responsible for payment of the arbitrator's
fees as well as all administrative fees associated with the arbitration. The
parties shall be responsible for their own attorneys' fees and costs (including
expert fees and costs), except as provided in Section 9.14 hereof.

      (d)   The parties agree, however, that damages would be an inadequate
remedy for the Company in the event of a breach or threatened breach of Section
1.3 of this Agreement or any provision of the Proprietary Information Agreement
(as defined in Section 8 hereof). In the event of any such breach or threatened
breach, the Company may, either with or without pursuing any potential damage
remedies, obtain from a court of competent jurisdiction, and enforce, an
injunction prohibiting Executive from violating Section 1.3 of this Agreement or
any provision of the Proprietary Information Agreement (as defined in Section 8
hereof) and requiring Executive to comply with the terms of those agreements.

                                       16
<PAGE>

7.    COOPERATION WITH THE COMPANY AFTER TERMINATION OF THE EMPLOYMENT PERIOD.

      Following the termination of his full-time employment for any reason
(other than death), Executive shall cooperate with the Company in all matters
relating to the winding up of his pending work on behalf of the Company and the
orderly transfer of any such pending work to other employees of the Company as
may be designated by the Company. Executive also agrees to participate as a
witness in any litigation or regulatory proceeding to which the Company or any
of its affiliates is a party at the request of the Company upon delivery to
Executive of reasonable advance notice and the Company's written obligation to
reimburse Executive for all reasonable and documented expenses incurred in
connection therewith. Furthermore, Executive agrees to return to the Company all
property of the Company, including all hard and soft copies of records,
documents, materials and files relating to confidential, proprietary or
sensitive company information in his possession or control, as well as all other
company-owned property in his possession or control, at the time of the
termination of his full-time employment, except to the extent that the Company
determines that retention of any of such property is necessary, desirable or
convenient in order to permit Executive to satisfy his obligations under this
Section 7 or under the Transition Agreement, after which time Executive shall
promptly return all such retained company property.

8.    PROPRIETARY INFORMATION AGREEMENT.

      Executive shall, on the Effective Date, execute and deliver to the Company
an Employee Proprietary Information and Inventions Agreement, in the form
attached hereto as Exhibit D (the "Proprietary Information Agreement").

9.    GENERAL.

      9.1   WAIVER. Neither party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other

                                       17
<PAGE>

party of any of the provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other shall neither be
construed as, nor constitute, a continuing waiver of such breach or of other
breaches of the same or any other provision of this Agreement.

      9.2   SEVERABILITY. If for any reason a court of competent jurisdiction or
arbitrator finds any provision of this Agreement to be unenforceable, the
provision shall be deemed amended as necessary to conform to applicable laws or
regulations, or if it cannot be so amended without materially altering the
intention of the parties, the remainder of this Agreement shall continue in full
force and effect as if the offending provision were not contained herein.

      9.3   NOTICES. All notices and other communications required or permitted
to be given under this Agreement must be in writing and shall be considered
effective either (a) upon personal service or (b) upon delivery by facsimile and
depositing such notice in the U.S. Mail, postage prepaid, return receipt
requested and, if addressed to the Company, in care of the General Counsel at
the Company's principal corporate address, and, if addressed to Executive, at
his most recent address shown on the Company's corporate records or at any other
address that Executive may specify by notice to the Company, or (c) three (3)
days after depositing such notice in the U.S. Mail as described in clause (b) of
this paragraph.

      9.4   COUNTERPARTS. This Agreement may be executed by facsimile and in any
number of counterparts, each of which shall be deemed an original and all of
which taken together constitutes one and the same instrument, and in making
proof hereof it shall not be necessary to produce or account for more than one
such counterpart.

      9.5   ENTIRE AGREEMENT. The parties hereto acknowledge that each has read
this Agreement, understands it, and agrees to be bound by its terms. The parties
further agree that this Agreement, the exhibits to this Agreement, and the
documents, plans and policies referred to in this Agreement (which are hereby
incorporated herein

                                       18
<PAGE>

by reference) constitute the complete and exclusive statement of the agreement
between the parties and supersede all proposals (oral or written),
understandings, representations, conditions, covenants, and all other
communications between the parties relating to the subject matter hereof.

      9.6   GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, without regard to its conflict of laws principles.

      9.7   ASSIGNMENT AND SUCCESSORS. The Company shall have the right to
assign its rights and obligations under this Agreement to an entity that,
directly or indirectly, acquires all or substantially all of the assets of the
Company. The rights and obligations of the Company under this Agreement shall
inure to the benefit and shall be binding upon the successors and assigns of the
Company. Executive shall not have any right to assign his obligations under this
Agreement and shall only be entitled to assign his rights under this Agreement
upon his death, solely to the extent permitted by this Agreement, or as
otherwise agreed to by the Company.

      9.8   AMENDMENTS. This Agreement, and the terms and conditions of the
matters addressed in this Agreement, may only be amended in writing executed
both by the Executive and the Chairman of the Board and/or the General Counsel
of the Company.

      9.9   TERMINATION AND SURVIVAL OF CERTAIN PROVISIONS. This Agreement shall
terminate upon the termination of Executive's full-time employment for any
reason; provided, however, that the following provisions of this Agreement shall
survive its termination: the Company's and Executive's obligations under Section
7 hereof, the Company's obligations to provide compensation earned through the
termination of the employment relationship, plus all reimbursements to which
Executive is entitled, under Sections 2 and 3 hereof, the Company's and
Executive's obligations under Section 5 hereof, the Company's and Executive's
obligations enumerated in the Transition Agreement, if applicable, the Company's
obligation to indemnify Executive

                                       19
<PAGE>

pursuant to Section 2.5 hereof and the referenced Indemnification Agreement, the
dispute resolution provisions of Section 6 hereof and, to the extent applicable,
this Section 9.

      9.10  FORMER EMPLOYERS. Executive represents and warrants to the Company
that he is not subject to any employment, confidentiality or other agreement or
restriction that would prevent him from fully satisfying his duties under this
Agreement or that would be violated if he did so. Without the Company's prior
written approval, Executive will not:

            (a)   disclose any proprietary information belonging to a former
                  employer or other entity without its written permission;

            (b)   contact any former employer's customers or employees to
                  solicit their business or employment on behalf of the Company
                  in violation of Executive's existing obligations to his former
                  employer; or

            (c)   distribute announcements about or otherwise publicize
                  Executive's employment with the Company.

      Executive shall indemnify and hold the Company harmless from any
liabilities, including reasonable defense costs, it may incur because he is
alleged to have broken any of these promises or improperly revealed or used such
proprietary information or to have threatened to do so, or if a former employer
challenges Executive's entering into this Agreement or rendering services
pursuant to it.

      9.11  DEPARTMENT OF HOMELAND SECURITY VERIFICATION REQUIREMENT. If
Executive has not already done so, he will timely file all documents, if any,
required by the Department of Homeland Security to verify his identity and his
lawful employment in the United States. Notwithstanding any other provision of
this Agreement, if Executive fails to meet any such requirements promptly after
receiving a written request from the Company to do so, his employment will
terminate immediately upon notice from the Company and he will not be entitled
to any compensation from the

                                       20
<PAGE>

Company of any type, and, if already paid by the Company, Executive will be
required to repay the sign-on bonus described in Section 2.3 hereof.

      9.12  HEADINGS. The headings of the several sections and paragraphs of
this Agreement are inserted solely for the convenience of reference and are not
a part of and are not intended to govern, limit or aid in the construction of
any term or provision hereof.

      9.13  REIMBURSEMENT OF EXECUTIVE'S ATTORNEYS' FEES. The Company shall
reimburse, as promptly as practicable after its receipt of documentation
therefor, all of Executive's reasonable and documented attorneys' fees and
expenses in connection with the negotiation, and execution and delivery of, this
Agreement and the exhibits attached hereto.

      9.14  ATTORNEYS' FEES. In the event of any dispute, controversy, claim,
litigation or arbitration arising out of or concerning Executive's employment by
the Company as CEO or the termination of Executive's employment as CEO or this
Agreement, the prevailing party in any such dispute, controversy, claim,
litigation or arbitration shall be entitled to reasonable attorneys' fees
(excluding expert fees and costs).

      9.15  TAXES AND OTHER WITHHOLDINGS. Notwithstanding any other provision of
this Agreement, the Company may withhold from amounts payable hereunder all
federal, state, local and foreign taxes and other amounts that are required to
be withheld by applicable laws or regulations, and the withholding of any amount
shall be treated as payment thereof for purposes of determining whether
Executive has been paid amounts to which he is entitled.

                                       21
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Agreement on this 12th
day of May, 2004.

CADENCE DESIGN SYSTEMS, INC.                    EXECUTIVE

By:________________________________             ________________________________
         R.L. Smith McKeithen                   Michael J. Fister

Title: Sr. VP & General Counsel

<PAGE>

                                    EXHIBIT A

                       FORM OF RESTRICTED STOCK AGREEMENT

<PAGE>

                          CADENCE DESIGN SYSTEMS, INC.
                  NONSTATUTORY INCENTIVE STOCK AWARD AGREEMENT
              ________ NONSTATUTORY EQUITY INCENTIVE PLAN ("PLAN")

Cadence Design Systems, Inc. (the "Company"), pursuant to the Plan, hereby
grants you an Incentive Stock Award as set forth below. This award is subject to
all of the terms and conditions set forth in this Nonstatutory Incentive Stock
Award Agreement ("Agreement") and in the Incentive Stock Award Terms and the
Plan located on the Cadence Stock Information Website (located at
http://ess.cadence.com); provided, however, that in the event of a conflict
between the terms of this Agreement and the terms of the Plan, the terms of this
Agreement shall prevail.

Grantee:                                             _____________
ID Number:                                           _____________
Nonstatutory Incentive Stock Award Number:           _____________
Date of Award:                                       _____________
Vesting Commencement Date:                           _____________
Number of Shares Subject to Incentive Stock Award:   _____________

VESTING SCHEDULE:  33 1/3% of the shares vest on _________
                   33 1/3% of the shares vest on _________
                   33 1/3% of the shares vest on _________

Acceptance: Your right to the Incentive Stock will be forfeited unless you
deliver to the Company a counterpart of this Agreement together with an
Acknowledgment and Statement of Decision Regarding Section 83(b) Election in the
form attached hereto as Exhibit A, duly executed by you and your spouse, if
applicable, no later than __________, 2004, unless you have received an
extension from the Company in writing.

CADENCE DESIGN SYSTEMS, INC.

By: _____________________________________

Title: ______________________________________

Date: ________ ___, 2004

ACKNOWLEDGED AND AGREED

_________________________________________
Employee

_________________________________________
Spouse

<PAGE>

                          CADENCE DESIGN SYSTEMS, INC.
                    NONSTATUTORY INCENTIVE STOCK AWARD TERMS
                    ______ NONSTATUTORY EQUITY INCENTIVE PLAN

      Pursuant to your Nonstatutory Incentive Stock Award Agreement
("Agreement") and these Nonstatutory Incentive Stock Award Terms (collectively,
your "Incentive Stock Award"), CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), has granted you an Incentive Stock Award under its
_____ Nonstatutory Equity Incentive Plan (the "Plan") for the number of shares
of Incentive Stock indicated in your Agreement and subject to the restrictions
indicated in your Agreement. The Plan is incorporated herein by reference.
Defined terms not explicitly defined in your Incentive Stock Award but defined
in the Plan shall have the same definitions as in the Plan.

      The details of your Incentive Stock Award are as follows:

1.    INCENTIVE STOCK AWARD. Subject to the provisions of Section 2 hereof and
Section 3 hereof, upon the issuance to you of Incentive Stock hereunder, you
shall have all the rights of a stockholder with respect to such Incentive Stock,
including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.

2.    RESTRICTIONS ON SALE OR OTHER TRANSFER. Each share of Incentive Stock
awarded to you pursuant to this Agreement may not be sold or otherwise
transferred except pursuant to the following provisions:

      a.    The shares shall be held in book entry form with the Company's
transfer agent until the restrictions set forth herein lapse in accordance with
the provisions of Section 3 hereof or until the shares are forfeited pursuant to
paragraph (c) of this Section 2. Notwithstanding the foregoing, you may request
that stock certificates evidencing such shares be issued in your name and
delivered to you, with each such certificate bearing the following legend:

      The shares of Cadence Design Systems, Inc. common stock evidenced by this
      certificate may not be sold or otherwise transferred except pursuant to
      the provisions of the Incentive Stock Agreement by and between Cadence
      Design Systems, Inc. and the registered owner of such shares. Additional
      information on the restrictions imposed under such Incentive Stock
      Agreement may be obtained from the Corporate Secretary of Cadence Design
      Systems, Inc.

<PAGE>

      b.    No such shares may be sold, transferred or otherwise alienated or
hypothecated so long as such shares are subject to the restriction provided for
in this Section 2.

      c.    Upon your termination of employment with the Company or its
subsidiaries for any reason other than those which result in a lapse of
restrictions pursuant to Section 3 hereof, then any such shares as to which the
foregoing restrictions have yet to lapse pursuant to Section 3 shall be
forfeited by you and acquired by the Company at no cost to the Company on the
date of such termination of employment, and you shall forthwith surrender and
deliver to the Company any certificates evidencing such shares.

3.    LAPSE OF RESTRICTIONS

      a.    The restrictions set forth in Section 2 hereof shall lapse (provided
that such shares have not previously been forfeited pursuant to the provisions
of paragraph (c) of Section 2 hereof) as to 33 1/3% of the total number of
shares subject to this Incentive Stock Award upon Grantee's completion of each
year of employment with the Company over the three-year period measured from the
Vesting Commencement Date.

      b.    Notwithstanding the forgoing, the restrictions set forth in Section
2 hereof shall lapse (provided that such shares have not previously been
forfeited pursuant to the provisions of paragraph (c) of Section 2 hereof) upon
all shares that remain subject to the foregoing restrictions if, prior to the
vesting of all of the shares subject to this Incentive Stock Award pursuant to
the schedule described in paragraph (a) of this Section 3, the employment of the
Grantee by the Company or its subsidiaries is terminated on account of death or
permanent and total disability, as determined in accordance with applicable
Company personnel policies.

      c.    Notwithstanding the foregoing, all or a portion of the shares
subject to this Incentive Stock Award shall vest on an accelerated basis, and
the restrictions set forth in Section 2 hereof shall concurrently lapse with
respect to those shares, upon the termination of Grantee's employment as Chief
Executive Officer of the Company under certain prescribed circumstances set
forth in Section 4.5 of the Grantee's Employment Agreement with the Company,
dated as of May 12, 2004, and Sections 4, 5 and 6 of the Executive Transition
and Release Agreement attached as Exhibit C to such Employment Agreement.

      d.    The foregoing notwithstanding, no such lapse of restriction shall
become effective unless and until Grantee or Grantee's legal representative
shall surrender to the Company the certificates representing such shares, if
any, and upon surrender thereof the Company shall cause new certificates
evidencing such shares to be issued and delivered to Grantee or Grantee's legal

<PAGE>

representative, free from the restriction provided for in Section 2 hereof or
any other restrictions on the sale or other transfer of such shares. The
foregoing notwithstanding, no stock certificate shall be delivered to Grantee or
Grantee's legal representative as hereinabove provided unless and until Grantee
or Grantee's legal representative shall have paid to the Company in cash the
full amount of all federal and state withholding or other employment taxes
applicable to the taxable income of Grantee resulting from the lapse of such
restrictions.

4.    NO RIGHTS TO CONTINUED EMPLOYMENT OR SERVICE. Nothing in the Plan or this
Incentive Stock Award shall confer upon you any right to continue in the employ
of the Company or its Affiliates (or to continue acting as a Consultant) or
shall affect the right of the Company or its Affiliates to terminate your
employment with or without cause or the right to terminate your relationship as
a Consultant pursuant to the terms of your consultant agreement with the Company
or its Affiliates.

5.    TAX CONSEQUENCES. Set forth below is a brief summary as of the Date of
Award of the some of the federal tax consequences of our grant of an Incentive
Stock Award to you. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. YOU SHOULD CONSULT A TAX ADVISOR BEFORE
MAKING ANY TAX ELECTION RELATING TO YOUR AWARD. The income tax consequences of
our grant of Incentive Stock to you depend upon whether or not you make an
election under section 83(b) of the Internal Revenue Code to be taxed upon
grant. To make the election, you must file the statement required under section
83(b) with the Internal Revenue Service no later than 30 days after the grant of
the shares to you. Once made, the election is irrevocable. A suggested form is
available from the Company. Copies of the election must also be attached to your
federal income tax return for the year of the grant and a copy must be provided
to the Company.

      a.    NO SECTION 83(b) ELECTION MADE. If you do not make the section 83(b)
election, our grant of Incentive Stock to you is not a taxable event for you.
Rather, recognition of taxable income is postponed until the restrictions on the
shares lapse -- in other words, each time you vest in any of the shares. At each
such time, you will recognize ordinary income equal to the value (the average of
the high and low price of Company common stock on the New York Stock Exchange on
the day the shares vest, or on the next trading day if the vesting date falls on
a day that is not a trading day) of the Incentive Stock and that amount will be
your basis in those shares. Any dividends with a record date prior to that time
will be taxed to you as ordinary income, not as dividends, when paid. If those
shares are otherwise a capital asset in your hands, any gain or loss on a
subsequent sale or other taxable disposition will be capital gain or loss.

<PAGE>

      b.    SECTION 83(b) ELECTION MADE. If you make the section 83(b) election,
you will recognize ordinary income at the time of our grant of Incentive Stock
to you equal to the value of such shares on the date of the grant determined
without regard to any of the restrictions thereon and that amount will be your
basis in those shares. If those shares are subsequently forfeited before the
restrictions lapse, you will be entitled to no deduction on account thereof. If
those shares are otherwise a capital asset in your hands, any gain or loss on a
sale or other taxable disposition after the restrictions lapse will be capital
gain or loss.

6.    ENFORCEMENT. This Agreement shall be construed, administered and enforced
in accordance with the laws of the State of Delaware.

                                   ACCEPTANCE

      By executing the Agreement, you represent that you are familiar with the
terms and provisions of the Plan and accept your Incentive Stock Award subject
to all of the terms and provisions thereof. You hereby agree to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors of the Company upon any questions arising under the Plan.

<PAGE>

                                    EXHIBIT A
                       TO INCENTIVE STOCK AWARD AGREEMENT

                    ACKNOWLEDGMENT AND STATEMENT OF DECISION
                        REGARDING SECTION 83(b) ELECTION

      The undersigned (which term includes the undersigned's spouse) has been
issued ___________[NUMBER OF UNVESTED SHARES] unvested shares (the "Incentive
Stock") of Common Stock of Cadence Design Systems, Inc., a Delaware corporation
(the "Company"), under Section ___ of the Company's ______ Nonstatutory Equity
Incentive Plan (the "Plan"), and is returning to Company a signed Nonstatutory
Incentive Stock Award Agreement (the "Agreement") together with this
Acknowledgment and Statement of Decision Regarding Section 83(b) Election.
Capitalized terms not otherwise defined herein have the meanings set forth in
the Agreement and in the Plan. The undersigned hereby states as follows:

      1.    The undersigned acknowledges receipt of a copy of the Plan, the
Agreement and the Nonstatutory Incentive Stock Terms (the "Terms") relating to
the issuance of such Incentive Stock. The undersigned has carefully reviewed the
Plan, the Agreement and the Terms.

      2.    The undersigned either [check and complete as applicable]:

            (a)   ____ has consulted, and has been fully advised by, the
                  undersigned's own tax advisor,
                  _____________________________________, whose business address
                  is ______________________________, regarding all federal,
                  state and local tax consequences of acquiring the Incentive
                  Stock, including the tax rules governing the issuance, vesting
                  and forfeiture of the Incentive Stock, advisability of making
                  an election pursuant to Section 83(b) of the Internal Revenue
                  Code of 1986, as amended (an "83(b) Election") and the
                  consequences of the sale of shares to pay Withholding
                  Obligations; or

            (b)   ____ has knowingly chosen not to consult such a tax advisor.

      3.    The undersigned hereby states that the undersigned has decided
[check as applicable]:

            (a)   ____ to make an 83(b) Election with respect to the Incentive
                  Stock, and will submit to the Company no later than 30 days
                  following the date hereof an executed 83(b) Election form; or

            (b)   ____ not to make an 83(b) Election with respect to the
                  Incentive Stock.

<PAGE>

      4.    The undersigned acknowledges that, if an 83(b) Election is to be
filed, he/she/they will be solely responsible for the accuracy of the
information set forth in, and the tax consequences of filing, the 83(b)
Election, and for properly filing such election with the Internal Revenue
Service (and any other applicable taxing authority) on a timely basis and
including a copy thereof in the undersigned's income tax return. In addition,
the undersigned understands that the 83(b) Election must be filed no later than
30 days after the date the Incentive Stock is deemed issued, which could be as
early as the date the Company provided you with the Agreement.

      5.    Neither the Company nor any of its affiliates, employees, officers,
directors, attorneys or accountants has made any warranty or representation to
the undersigned with respect to the tax consequences of the undersigned's
acquisition, holding, vesting, or forfeiture of Incentive Stock, the making or
failure to make an 83(b) Election, the sale of shares to pay Withholding
Obligations, or any other tax consequences pertaining to the Plan or the
Agreement. THE COMPANY MAKES NO RECOMMENDATION REGARDING THE ADVISABILITY OF
MAKING AN 83(b) ELECTION, BUT CAUTIONS THAT THERE ARE SIGNIFICANT TAX
CONSEQUENCES THAT WOULD ARISE FROM MAKING THE ELECTION, AND THAT THE AGREEMENT
SHOULD NOT BE SIGNED AND THE ELECTION SHOULD NOT BE MADE WITHOUT A COMPLETE
UNDERSTANDING THOSE CONSEQUENCES. THE UNDERSIGNED ACKNOWLEDGES THAT IT IS THE
UNDERSIGNED'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO ASCERTAIN AND
UNDERSTAND THE TAX CONSEQUENCES OF PARTICIPATING IN THE PLAN AND TO FILE, OR
REFRAIN FROM FILING, ANY 83(b) ELECTION, EVEN IF THE UNDERSIGNED REQUESTS THE
COMPANY OR ITS REPRESENTATIVES TO EXPLAIN THOSE CONSEQUENCES OR MAKE THAT FILING
ON THE UNDERSIGNED'S BEHALF.

Date: ___________________________                 ______________________________
                                                  [NAME]

Date: ___________________________                 ______________________________
                                                  Spouse of [NAME]

<PAGE>

                                    EXHIBIT B

                               INDEMNITY AGREEMENT

<PAGE>

                               INDEMNITY AGREEMENT

      This Indemnity Agreement, dated as of May 12, 2004, is made by and between
Cadence Design Systems, Inc., a Delaware corporation (the "Company"),
and,              the President and Chief Executive Officer of the Company (the
"Indemnitee").

                                    RECITALS

      A.    The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors and officers;

      B.    The statutes and judicial decisions regarding the duties of
directors and officers area often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;

      C.    Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so substantial (whether or not the case is meritorious), that
the defense and/or settlement of such litigation is often beyond the personal
resources of officers and directors;

      D.    The Company believes that it is unfair for its directors and
officers and the directors and officers of its subsidiaries to assume the risk
of large judgments and other expenses that may be incurred in cases in which the
director or officer received no personal profit and in cases where the director
or officer was not culpable;

      E.    The Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as the Company or a
subsidiary of the Company are often related to the knowledge, motives and intent
of such director or officer, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director
or officer can reasonably recall such matters; and may extend beyond the normal
time for retirement for such director or officer with the result that he, after
retirement or in the event of his death, his spouse, heirs, executors or
administrators, may be faced with limited ability and undue hardship in
maintaining an adequate

                                       1
<PAGE>

defense, which may discourage such a director or officer from serving in that
position;

      F.    Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
individuals to serve as officers and directors of the Company and its
subsidiaries and to encourage such individuals to take the business risks
necessary for the success of the Company and its subsidiaries, it is necessary
for the Company to contractually indemnify its officers and directors and the
officers and directors of its subsidiaries in connection with claims against
such persons in connection with their service, and has further concluded that
the failure to provide such contractual indemnification could result in great
harm to the Company and its subsidiaries and the Company's shareholders;

      G.    The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company and/or the
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or the
subsidiaries of the Company; and

      H.    The Indemnitee is willing to serve, or to continue to serve, the
Company and/or the subsidiaries of the Company provided that he is furnished the
indemnity provided for herein.

                                    AGREEMENT

      NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

      1.    DEFINITIONS.

            (a)   COVERED PERSON. For purposes of this Agreement, a "covered
person" shall include the Indemnitee and any heir, executor, administrator or
other legal representative of the Indemnitee following his death or incapacity.

            (b)   EXPENSES. For purposes of this Agreement, "expenses" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Section 145 or otherwise.

                                       2
<PAGE>

            (c)   PROCEEDING. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever, and including any of the foregoing commenced by or on behalf of the
Company, derivatively or otherwise.

            (d)   SUBSIDIARY. For purposes of this Agreement, "subsidiary" means
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, and one or more other subsidiaries,
or by one or more other subsidiaries.

      2.    AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue
to serve the Company and/or its subsidiaries in his present capacity, so long as
he is duly appointed or elected or until such time as he tenders his resignation
in writing, provided, however, that nothing contained in this Agreement is
intended to create any right to continued employment by Indemnitee.

      3.    MAINTENANCE OF LIABILITY INSURANCE.

            (a)   The Company hereby covenants and agrees that, so long as the
Indemnitee shall continue to serve as an officer or director of the Company or
any of its subsidiaries, and thereafter so long as the Indemnitee shall be
subject to any possible proceeding by reason of such service, the Company,
subject to Section 3(b), shall use reasonable efforts to obtain and maintain in
full force and effect directors' and officers' liability insurance ("D&O
Insurance") in reasonable amounts from established and reputable insurers.

            (b)   Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.

      4.    MANDATORY INDEMNIFICATION.

            (a)   RIGHT TO INDEMNIFICATION. In the event a covered person was or
is made a party or is threatened to be made a party to or is involved in any
proceeding, by reason of the fact that the Indemnitee is or was a director,
officer or employee of the Company (including any subsidiary or affiliate
thereof or any constituent corporation or any of the foregoing absorbed in any
merger) or is or was serving at the request of the Company (including such
subsidiary, affiliate or constituent corporation) as a director, officer or
employee

                                       3
<PAGE>

of another corporation, or of a partnership, joint venture, trust or other
entity, including service with respect to employee benefit plans, such person
shall be indemnified and held harmless by the Company to the fullest extent
permitted by applicable law, against all expenses, liability and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
and other taxes and penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
indemnification shall continue after the Indemnitee has ceased to serve in such
capacity and shall inure to the benefit of his heirs, executors and
administrators; provided, however, that except for a proceeding pursuant to
Section 7, the Company shall indemnify any such person in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Company.

            (b)   EXCEPTION FOR AMOUNTS COVERED BY INSURANCE. Notwithstanding
the foregoing, the Company shall not be obligated to indemnify a covered person
for expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) which have been paid directly to such person by D&O Insurance.

            (c)   PARTIAL INDEMNIFICATION. If a covered person is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify such person
for such total amount except as to the portion thereof to which the Indemnitee
is not entitled.

      5.    MANDATORY ADVANCEMENT OF EXPENSES. The Company shall pay all
expenses incurred by a covered person, or in defending any such proceeding as
they are incurred in advance of its final disposition; provided, however, that
if the Delaware General Corporations Law then so requires, the payment of such
expenses incurred in advance of the final disposition of such proceeding shall
be made only upon delivery to the Company of an undertaking, by or on behalf of
such covered person, to repay all amounts so advanced if it should be determined
ultimately that such person is not entitled to the payment of such expenses by
the Company.

      6.    NOTICE AND OTHER INDEMNIFICATION PROCEDURES.

            (a)   Promptly after receipt by a covered person of notice of the
commencement of or the threat of commencement of any proceeding, such

                                       4
<PAGE>

person shall, if such person believes that indemnification with respect thereto
may be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

            (b)   If, at the time of the receipt of a notice of the commencement
of a proceeding, the Company has D&O Insurance in effect, the Company shall give
prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of the covered person, all amounts payable as a result of such
proceeding in accordance with the terms of such policies.

            (c)   In the event the Company shall be obligated to advance the
expenses for any proceeding against the covered person, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by the covered person (such approval not to be unreasonably
withheld), upon the delivery to the covered person of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the covered person and the retention of such counsel by the Company, the Company
will not be liable to the covered person under this Agreement for any fees of
counsel subsequently incurred by the covered person with respect to the same
proceeding, provided that (i) the covered person shall have the right to employ
separate counsel in any such proceeding at the covered person's expense; and
(ii) if (A) the employment of counsel by the covered person has been previously
authorized by the Company, (B) the covered person shall have reasonably
concluded that there may be a conflict of interest between the Company the
covered person in the conduct of any such defense of (C) the Company shall not,
in fact, have employed counsel to assume the defense of such proceeding, the
fees and expenses of the covered person's counsel shall be at the expense of the
Company.

      7.    RIGHT OF INDEMNITEE TO BRING SUIT. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Company within
sixty (60) days after a written claim has been received by the Company, except
in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the covered person may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in a suit brought
by the Company to recover and advancement of expenses pursuant to the terms of
an undertaking, the covered person shall be entitled to be paid also the expense
of prosecuting or defending such suit. In (i) any suit brought by a covered
person to enforce a right to indemnification hereunder (but not in a suit
brought by a covered person to enforce a right to an advancement of expenses) it
shall be a defense that indemnification is not permitted by applicable law, and

                                       5
<PAGE>

(ii) in any suit by the Company to recover an advancement of expenses pursuant
to the terms hereof, the Company shall be entitled to recover such expenses upon
a final adjudication that indemnification is not permitted by applicable law.
Neither the failure of the Company (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the covered
person is proper in the circumstances, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel or its
stockholders) that indemnification is not proper, shall create a presumption
that the covered person is not entitled to indemnification or, in the case of
such a suit brought by a covered person, be a defense to such suit. In any suit
brought by a covered person to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Company to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving that
the covered person is not entitled to be indemnified, or to such advancement of
expenses, shall be on the Company.

      8.    LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any subsidiary against the Indemnitee, his spouse, heirs, estate, executors
or administrators after the expiration of one year from the act or omission of
the Indemnitee upon which such proceeding is based; however, in a case where the
Indemnitee fraudulently conceals the facts underlying such cause of action, no
proceeding shall be brought and no cause of action shall be asserted after the
expiration of one year from the earlier of (i) the date the Company or any
subsidiary of the Company discovers such facts, or (ii) the date the Company of
any subsidiary of the Company could have discovered such facts by the exercise
of reasonable diligence. Any claim or cause of action of the Company or any
subsidiary of the Company, including claims predicated upon the negligent act or
omission of the Indemnitee, shall be extinguished and deemed released unless
asserted by filing of a legal action within such period. This Section 8 shall
not apply to any cause of action which has accrued on the date hereof and of
which the Indemnitee is aware on the date hereof, but as to which the Company
has no actual knowledge apart from the Indemnitee's knowledge.

      9.    NON-EXCLUSIVITY. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee or any covered person may have under any
provision of law, the Company's Certificate of Incorporation or Bylaws, the vote
of the Company's shareholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an officer, director or employee of the
Company, and the Indemnitee's right hereunder shall continue after the

                                       6
<PAGE>

Indemnitee has ceased to so act and shall inure to the benefit of any heir,
executor, administrator or other legal representative of the Indemnitee.

      10.   INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.

      11.   SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to Section 10
hereof.

      12.   MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.

      13.   SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.

      14.   NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.

      15.   GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
with Delaware.

      16.   CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of

                                       7
<PAGE>

Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.

      17.   GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.

      The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.

                                            CADENCE DESIGN SYSTEMS, INC.

                                            By:  _______________________________

                                            Its: _______________________________

                                            Address: ___________________________

                                                     ___________________________

                                            INDEMNITEE

                                            By:  _______________________________

                                            Address: ___________________________

                                                     ___________________________

                                       8
<PAGE>

                                    EXHIBIT C

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

<PAGE>

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

      This Executive Transition and Release Agreement (this "Agreement") is
entered into between Michael J. Fister ("Executive") and Cadence Design Systems,
Inc., a Delaware corporation ("Cadence" or the "Company").

      1.    TRANSITION COMMENCEMENT DATE. As of ((Transition Commencement Date))
(the "Transition Commencement Date"), Executive will no longer hold the position
of President and Chief Executive Officer ("CEO") and will be relieved of all of
Executive's authority and responsibilities in those positions. Executive will be
paid (a) any earned but unpaid base salary for his services as CEO prior to the
Transition Commencement Date and any outstanding expense reimbursements
submitted and approved pursuant to Section 3.1 of Executive's Employment
Agreement with the Company dated as of May 12, 2004 (the "Employment
Agreement"); (b) any amounts owed to Executive pursuant to Sections 2.3 and 3.3
of the Employment Agreement; and (c) other unpaid vested amounts or benefits
under the compensation, incentive and benefit plans of the Company in which
Executive participates, in each case under this clause (c) as of the Transition
Commencement Date. The payment of the foregoing amounts shall be made to
Executive by not later than the next regular payroll date following the
Transition Commencement Date.

      As of the first day of the month following the Transition Commencement
Date, Executive will no longer participate in Cadence's medical, dental, and
vision insurance plans (unless Executive elects to continue coverage pursuant to
COBRA), and will not be eligible for a bonus for any services rendered after
that date, except as expressly provided herein.

      2.    TRANSITION PERIOD. The period from the Transition Commencement Date
to the date when Executive's employment with Cadence pursuant to this Agreement
terminates (the "Transition Termination Date") is called the "Transition Period"
in this Agreement. Executive's Transition Termination Date will be the earliest
to occur of:

            a.    the date on which Executive provides Cadence with his written
                  resignation from his employment with Cadence pursuant to this
                  Agreement;

            b.    the date on which Cadence terminates Executive's employment
                  due to a material breach by Executive of his duties or
                  obligations under paragraph 3(b), 3(c) or 3(d) of this
                  Agreement, after written notice delivered to Executive
                  identifying such breach and his failure to cure such breach,
                  if curable, within thirty (30) days following delivery of such
                  notice; and

            c.    one year from the Transition Commencement Date.

<PAGE>

      3.    DUTIES AND OBLIGATIONS DURING THE TRANSITION PERIOD AND AFTERWARDS.

            a.    During the Transition Period, Executive will assume the
position of ((New Position Title)). In this position, Executive will render
those services requested by Cadence's ((Management Representative)) on an
as-needed basis. Executive's time rendering those services is not expected to
exceed 20 hours per month. Executive shall not be required to perform those
services on the Company's premises and shall instead be permitted to perform
those services at a location determined by Executive. Except as otherwise
provided in paragraph 3(b) of this Agreement, Executive's obligations hereunder
will not preclude Executive from accepting and holding full-time employment
elsewhere.

            b.    As a Cadence ((New Position)), as well as other positions
Executive may have held with Cadence, Executive has obtained extensive and
valuable knowledge and information concerning Cadence's business (including
confidential information relating to Cadence and its operations, intellectual
property, assets, contracts, customers, personnel, plans, marketing plans,
research and development plans and prospects). Executive acknowledges and agrees
that it would be virtually impossible for Executive to work as an employee,
consultant or advisor in the electronic design automation industry without
inevitably disclosing confidential and proprietary information belonging to
Cadence. Accordingly, during the Transition Period, Executive will not, directly
or indirectly, provide services, whether as an employee, consultant, independent
contractor, agent, sole proprietor, partner, joint venture, corporate officer or
director, on behalf of any corporation, limited liability company, partnership,
or other entity or person or successor thereto that (i) is listed on Exhibit A
attached hereto, as modified or amended by Cadence's Board of Directors from
time to time and delivered to Executive prior to the Company's termination of
his employment as CEO or the Company's notifying him of such termination as CEO
(or, in the event Executive terminates his employment as CEO, prior to the date
on which Executive has notified the Company of his decision to terminate such
employment), or (ii) is named as a competitor of Cadence in the most recent
applicable document filed by Cadence before the Transition Commencement Date
with the Securities and Exchange Commission that contains such information;
provided, however, that the number of competitors designated pursuant to clause
(i) above shall not, when added to the competitors designated pursuant to clause
(ii) above, result in the total number of competitors being greater than ten
(10).

            c.    During the Transition Period and for a period of one year
following the Transition Termination Date, Executive will be prohibited, to the
fullest extent allowed by applicable law, and except with the written advance
approval of the then CEO or General Counsel, from voluntarily or involuntarily,
for any reason whatsoever, directly or indirectly, individually or on behalf of
persons or entities not now parties to this Agreement, encouraging, inducing,
attempting to induce, soliciting or attempting to solicit for employment,
contractor or consulting opportunities anyone who is employed at that time, or
was employed during the previous one year, by Cadence or any Cadence affiliate.

                                       2
<PAGE>

            d.    During the Transition Period, Executive will be prohibited, to
the fullest extent allowed by applicable law, and except with the written
advance approval of the then CEO or General Counsel, from directly or
indirectly, individually or on behalf of persons or entities not now parties to
this Agreement, intentionally and knowingly interfering or attempting to
interfere with the relationship or prospective relationship of Cadence or any
Cadence affiliate with any former, present or future client, customer, joint
venture partner, or financial backer of Cadence or any Cadence affiliate.

            e.    Executive will fully cooperate with Cadence in all matters
relating to his employment, including the winding up of work performed in
Executive's prior position and the orderly transition of such work to other
Cadence employees. Executive also agrees to participate as a witness in any
litigation or regulatory proceeding to which the Company or any of its
affiliates is a party at the request of the Company upon delivery to Executive
of reasonable advance notice and the Company's written commitment to reimburse
Executive for all reasonable expenses incurred in connection therewith.

            f.    Executive will not make any statement, written or oral, that
disparages Cadence or any of its affiliates, or any of Cadence's or its
affiliates' products, services, policies, business practices, employees,
executives, officers or directors. The foregoing provision shall not preclude
Executive from making any statements required by law.

            g.    Notwithstanding paragraph 9 hereof, the parties agree that
damages would be an inadequate remedy for Cadence in the event of a breach or
threatened breach by Executive of paragraph 3(b), 3(c), 3(d) or 3(f) hereof. In
the event of any such breach or threatened breach, Cadence may, either with or
without pursuing any potential damage remedies, obtain from a court of competent
jurisdiction, and enforce, an injunction prohibiting Executive from violating
this Agreement and requiring Executive to comply with the terms of this
Agreement.

      4.    TRANSITION COMPENSATION AND BENEFITS. In consideration and
compensation for Executive's services during the Transition Period, Cadence will
provide the following to Executive:

            a.    a monthly salary of $2,000 less applicable tax withholdings
                  and deductions, payable in accordance with Cadence's regular
                  payroll schedule;

            b.    all of the unvested options and other outstanding stock awards
                  held by Executive on the Transition Commencement Date that
                  would have vested over the succeeding twenty four (24) month
                  period had Executive continued to serve as CEO under his
                  Employment Agreement during that period shall immediately vest
                  and become exercisable in full on the Effective Date of this
                  Agreement, and there shall be no further vesting of those
                  options or stock awards during the Transition Period. This
                  acceleration will have no effect on any other provisions of
                  the stock awards;

                                       3
<PAGE>

            c.    Executive's employment pursuant to this Agreement shall be
                  considered a continuation of employee status and continuous
                  service for all purposes under any stock options previously
                  granted to Executive by the Company and outstanding on the
                  Transition Commencement Date; and

            d.    if Executive elects to continue coverage under Cadence's
                  medical, dental, and vision insurance plans pursuant to COBRA
                  following the Transition Commencement Date, Cadence will pay
                  the COBRA premiums for Executive and his qualified
                  beneficiaries during the Transition Period.

Except as so provided or as otherwise set forth in paragraph 6 hereof, Executive
will receive no other compensation or benefits from Cadence in consideration of
Executive's services during the Transition Period.

      5.    TERMINATION PAYMENTS AND BENEFITS. In consideration for Executive's
acceptance of this Agreement, Cadence will provide to Executive within or
commencing within ten (10) business days after the Effective Date (as defined in
paragraph 8 hereof) and after Executive has returned to the Company all hard and
soft copies of records, documents, materials and files relating to confidential,
proprietary or sensitive company information in his possession or control during
his period of employment as CEO, as well as all other company-owned property
then in his possession, the following termination payments and benefits to which
Executive would not otherwise be entitled:

            a.    a lump-sum payment equal to 180% of Executive's annual Base
                  Salary at the highest rate in effect during Executive's
                  employment as CEO, less applicable tax deductions and
                  withholdings; and

            b.    an amount equal to 180% of Executive's annual Target Bonus at
                  the highest target rate in effect during Executive's
                  employment as CEO, less applicable tax deductions and
                  withholdings, payable in twelve (12) monthly pro rata
                  installments, provided that the twelfth payment is contingent
                  upon Executive's further execution of a Release of Claims in
                  the form of Attachment 1 to this Agreement; provided, further,
                  that the Company shall have no further obligation to make any
                  monthly installments after the Transition Termination Date
                  should such date occur pursuant to paragraph 2(a) or 2(b)
                  hereof.

      6.    CHANGE IN CONTROL. If this Agreement is executed by Executive
pursuant to Section 4.5 of the Employment Agreement in connection with a Change
in Control (as defined in Section 4.5 of the Employment Agreement), then the
following adjustments shall be made to paragraphs 4 and 5 hereof:

            a.    all of the unvested options and other outstanding stock awards
                  held by Executive on the Transition Commencement Date shall

                                       4
<PAGE>

                  immediately vest in full and become exercisable on the
                  Transition Commencement Date as to all the underlying shares
                  of the Company's common stock;

            b.    the lump sump payment to be made to Executive pursuant to
                  paragraph 5(a) hereof shall be equal to 200% of Executive's
                  annual Base Salary at the highest rate in effect during
                  Executive's employment as CEO, less applicable tax deductions
                  and withholdings; and

            c.    the amount to be paid to Executive pursuant to paragraph 5(b)
                  hereof shall be equal, in the aggregate, to 200% of
                  Executive's annual Target Bonus at the highest target rate in
                  effect during Executive's employment as CEO, less applicable
                  tax deductions and withholdings.

      7.    GENERAL RELEASE OF CLAIMS.

            a.    Executive hereby irrevocably, fully and finally releases
Cadence, its parent, subsidiaries, affiliates, directors, officers, agents and
employees ("Releasees") from all causes of action, claims, suits, demands or
other obligations or liabilities, whether known or unknown, suspected or
unsuspected, that Executive ever had or now has as of the time that Executive
signs this Agreement which relate to his hiring, his employment with the
Company, the termination of his employment with the Company and claims asserted
in shareholder derivative actions or shareholder class actions against the
Company and its officers and Board of Directors, to the extent those derivative
or class actions relate to the period during which Executive served as CEO. The
claims released include, but are not limited to, any claims arising from or
related to Executive's employment with Cadence, such as claims arising under (as
amended) Title VII of the Civil Rights Act of 1964, the Civil Rights Act of
1991, the Age Discrimination in Employment Act of 1974, the Americans with
Disabilities Act, the Equal Pay Act, the Fair Labor Standards Act, the
California Fair Employment and Housing Act, the California Labor Code, the
Employee Retirement Income and Security Act of 1974 (except for any vested right
Executive has to benefits under an ERISA plan), the state and federal Worker
Adjustment and Retraining Notification Act, and the California Business and
Professions Code; any other local, state, federal, or foreign law governing
employment; and the common law of contract and tort. In no event, however, shall
any claims, causes of action, suits, demands or other obligations or liabilities
be released pursuant to the foregoing if and to the extent they relate to:

                  i.    any amounts or benefits to which Executive is or becomes
entitled to pursuant to the provisions of this Agreement (including, without
limitation, paragraphs 1, 4, 5 and 6 hereof) or pursuant to the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of Executive's full-time employment as CEO;

                                       5
<PAGE>

                  ii.   claims for workers' compensation benefits under any of
the Company's workers' compensation insurance policies or funds; and

                  iii.  claims related to Executive's COBRA rights.

            b.    Executive represents and warrants that he has not filed any
claim, charge or complaint against any of the Releasees.

            c.    Executive acknowledges that the payments provided in this
Agreement constitute adequate consideration for the release set forth in this
paragraph 7.

            d.    Executive intends that this release of claims cover all claims
subject to this release, whether or not known to Executive. Executive further
recognizes the risk that, subsequent to the execution of this Agreement,
Executive may incur loss, damage or injury which Executive attributes to the
claims encompassed by this release. Executive expressly assumes this risk by
signing this Agreement and voluntarily and specifically waives any rights
conferred by California Civil Code section 1542 which provides as follows:

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor which if known by him must have
      materially affected his settlement with the debtor.

            e.    Executive represents and warrants that there has been no
assignment or other transfer of any interest in any claim by Executive that is
covered by this release.

      8.    REVIEW OF AGREEMENT; REVOCATION OF ACCEPTANCE. Executive has been
given at least 21 days in which to review and consider this Agreement, although
Executive is free to accept this Agreement anytime within that 21-day period.
Executive is advised to consult with an attorney about the Agreement. If
Executive accepts this Agreement, Executive will have an additional 7 days from
the date that Executive signs this Agreement to revoke that acceptance, which
Executive may effect by means of a written notice sent to both the General
Counsel and the Senior Vice President of Human Resources of Cadence. If this
7-day period expires without a timely revocation, this Agreement will become
final and effective on the eighth day following the date of Executive's
signature will be the "Effective Date" of this Agreement.

      9.    ARBITRATION. Subject to paragraph 3(g) hereof, all claims, disputes,
questions, or controversies arising out of or relating to this Agreement,
including without limitation the construction or application of any of the
terms, provisions, or conditions of this Agreement, will be resolved exclusively
in final and binding arbitration in accordance with the Arbitration Rules and
Procedures, or successor rules then in effect, of Judicial Arbitration &
Mediation Services, Inc. ("JAMS"). The arbitration will be held in the San Jose,
California, metropolitan area, and will be conducted and administered by JAMS,
or in the event JAMS does not then conduct arbitration proceedings, a similarly
reputable arbitration administrator. Executive and Cadence will select a
mutually

                                       6
<PAGE>

acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except
as provided by this Agreement, the Federal Arbitration Act will govern the
administration of the arbitration proceedings. The arbitrator will apply the
substantive law (and the law of remedies, if applicable) of the State of
California, or federal law, as applicable, and the arbitrator is without
jurisdiction to apply any different substantive law. Executive and Cadence will
each be allowed to engage in adequate discovery, the scope of which will be
determined by the arbitrator consistent with the nature of the claim[s] in
dispute. The arbitrator will have the authority to entertain a motion to dismiss
and/or a motion for summary judgment by any party and will apply the standards
governing such motions under the Federal Rules of Civil Procedure. The
arbitrator will render a written award and supporting opinion that will set
forth the arbitrator's findings of fact and conclusions of law. Judgment upon
the award may be entered in any court of competent jurisdiction. Cadence will
pay the arbitrator's fees, as well as all administrative fees, associated with
the arbitration. Each party will be responsible for paying its own attorneys'
fees and costs (including expert witness fees and costs, if any), except as
provided in paragraph 13 hereof.

      10.   NO ADMISSION OF LIABILITY. Nothing in this Agreement will constitute
or be construed in any way as an admission of any liability or wrongdoing
whatsoever by Cadence or Executive.

      11.   INTEGRATED AGREEMENT. This Agreement, together with the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of Executive's full-time employment as CEO, is intended by the parties to be a
complete and final expression of their rights and duties respecting the subject
matter of this Agreement. Except as expressly provided herein, nothing in this
Agreement is intended to negate Executive's agreement to abide by Cadence's
policies while serving as a Cadence employee, including but not limited to
Cadence's Employee Handbook, Sexual Harassment Policy and Code of Business
Conduct, or Executive's continuing obligations under Executive's Employee
Proprietary Information and Inventions Agreement, or any other agreement
governing the disclosure and/or use of proprietary information, which Executive
signed while working with Cadence or its predecessors; nor to waive any of
Executive's obligations under state and federal trade secret laws.

      12.   FULL SATISFACTION OF COMPENSATION OBLIGATIONS; ADEQUATE
CONSIDERATION. Executive agrees that the payments and benefits provided herein,
together with any payments or benefits to which Executive is or may become
entitled to pursuant to the provisions of the Employment Agreement that survive
the termination of Executive's full-time employment as CEO pursuant to Section
9.9 of the Employment Agreement, are in full satisfaction of all obligations of
Cadence to Executive arising out of or in connection with Executive's employment
through the Transition Termination Date, including, without limitation, all
compensation, salary, bonuses, reimbursement of expenses, and benefits.

      13.   ATTORNEYS' FEES. In the event of any dispute, controversy, claim,
litigation or arbitration arising out of or concerning Executive's employment by
Cadence or the termination of Executive's employment or this Agreement, the
prevailing party in any

                                       7
<PAGE>

such dispute, controversy, claim, litigation or arbitration shall be entitled to
reasonable attorneys' fees (excluding expert fees and costs).

      14.   TAXES AND OTHER WITHHOLDINGS. Notwithstanding any other provision of
this Agreement, the Company may withhold from amounts payable hereunder all
federal, state, local and foreign taxes and other amounts that are required to
be withheld by applicable laws or regulations, and the withholding of any amount
shall be treated as payment thereof for purposes of determining whether
Executive has been paid amounts to which he is entitled.

      15.   WAIVER. Neither party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other party of any of the provisions of this Agreement. Further, the waiver
by either party of a particular breach of this Agreement by the other shall
neither be construed as, nor constitute, a continuing waiver of such breach or
of other breaches of the same or any other provision of this Agreement.

      16.   MODIFICATION. This Agreement may not be modified unless such
modification is embodied in writing, signed by the party against whom the
modification is to be enforced.

      17.   ASSIGNMENT AND SUCCESSORS. Cadence shall have the right to assign
its rights and obligations under this Agreement to an entity that, directly or
indirectly, acquires all or substantially all of the assets of Cadence. The
rights and obligations of Cadence under this Agreement shall inure to the
benefit and shall be binding upon the successors and assigns of Cadence.
Executive shall not have any right to assign his obligations under this
Agreement and shall only be entitled to assign his rights under this Agreement
upon his death, solely to the extent permitted by this Agreement, or as
otherwise agreed to by Cadence.

      18.   SEVERABILITY. In the event that any part of this Agreement is found
to be void or unenforceable, all other provisions of the Agreement will remain
in full force and effect.

      19.   GOVERNING LAW. This Agreement will be governed and enforced in
accordance with the laws of the State of California, without regard to its
conflict of laws principles.

                                       8
<PAGE>

                             EXECUTION OF AGREEMENT

     The parties execute this Agreement to evidence their acceptance of it.

Dated: __________________.                      Dated:  _______________.

Michael J. Fister                               CADENCE DESIGN SYSTEMS, INC.

___________________________                     By: ____________________________
                                                    Name
                                                    Title
                                       9
<PAGE>

                                  ATTACHMENT 1

                                RELEASE OF CLAIMS

      1.    For valuable consideration, I irrevocably, fully and finally release
Cadence Design Systems, Inc. ("Cadence"), its parent, subsidiaries, affiliates,
directors, officers, agents and employees from all causes of action, claims,
suits, demands or other obligations or liabilities, whether known or unknown,
suspected or unsuspected, that I ever had or now have as of the time that I sign
this Release which relate to my hiring, my employment with Cadence, the
termination of my employment with Cadence and claims asserted in shareholder
derivative actions or shareholder class actions against Cadence and its officers
and Board of Directors, to the extent those derivative or class actions relate
to the period during which I served as CEO. The claims released include, but are
not limited to, any claims arising from or related to my employment with
Cadence, such as claims arising under (as amended) Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1974, the Americans with Disabilities Act, the Equal Pay Act, the Fair
Labor Standards Act, the California Fair Employment and Housing Act, the
California Labor Code, the Employee Retirement Income and Security Act of 1974
(except for any vested right I have to benefits under an ERISA plan), the state
and federal Worker Adjustment and Retraining Notification Act, and the
California Business and Professions Code; any other local, state, federal, or
foreign law governing employment; and the common law of contract and tort. This
Release is not intended to, and does not, encompass (i) any right to
compensation or benefits that I have under my Executive Transition and Release
Agreement with Cadence (including, without limitation, paragraphs 1, 4, 5 and 6
thereof) or pursuant to those provisions of my Employment Agreement dated as of
May 12, 2004 with Cadence, which, pursuant to Section 9.9 of such Employment
Agreement, survive the termination of my full-time employment as CEO, (ii) any
claims I may have for workers' compensation benefits under any of Cadence's
workers' compensation insurance policies or funds, and (iii) any claims related
to my COBRA rights.

      2.    I intend that this Release cover all claims subject hereto, whether
or not known to me. I further recognize the risk that, subsequent to the
execution of this Agreement, I may incur loss, damage or injury which I
attribute to the claims encompassed by this Release. I expressly assume this
risk by signing this Release and voluntarily and specifically waive any rights
conferred by California Civil Code section 1542 which provides as follows:

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor which if known by him must have
      materially affected his settlement with the debtor.

      3.    I represent and warrant that there has been no assignment or other
transfer of any interest in any claim by me that is covered by this Release.

      4.    I acknowledge that Cadence has given me 21 days in which to consider
this Release and advised me to consult an attorney about it. I further
acknowledge that

<PAGE>

once I execute this Release, I will have an additional 7 days in which to revoke
my acceptance of this Release by means of a written notice of revocation given
to ________. This Release will not be final and effective until the expiration
of this revocation period.

Dated: _______________________.             ____________________________________
                                                     Michael J. Fister

                                            ____________________________________
                                                        Sign Name

                                       2
<PAGE>

                                    EXHIBIT D

                        PROPRIETARY INFORMATION AGREEMENT

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