UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant To Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

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CADENCE DESIGN SYSTEMS, INC.

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CADENCE DESIGN SYSTEMS, INC.

2655 SEELY AVENUE
SAN JOSE, CALIFORNIA 95134

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 7, 2008

 

 

 

TO THE STOCKHOLDERS OF

CADENCE DESIGN SYSTEMS, INC.:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, will be held on May 7, 2008, at 1:00 p.m. Pacific time, at Cadence’s principal executive offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134 for the following purposes:

 

1. To elect directors to serve until the 2009 Annual Meeting of Stockholders and until their successors are elected and qualified.

 

2. To approve an amendment to the Amended and Restated Employee Stock Purchase Plan to increase the number of shares of common stock reserved for issuance thereunder.

 

3. To ratify the selection of KPMG LLP as the independent registered public accounting firm of Cadence for its fiscal year ending January 3, 2009.

 

4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

These items of business are more fully described in the proxy statement accompanying this notice.

 

Cadence’s Board of Directors has fixed the close of business on March 14, 2008 as the record date for the determination of stockholders entitled to notice of, and to vote at, this Annual Meeting of Stockholders and at any adjournment or postponement thereof.

 

By Order of the Board of Directors

 

R.L. Smith McKeithen
Secretary

 

San Jose, California

March 25, 2008

 

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE CAST YOUR VOTE AS INSTRUCTED IN THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS AS PROMPTLY AS POSSIBLE. IF YOU CHOSE TO RECEIVE PAPER COPIES OF YOUR PROXY MATERIALS, INCLUDING THE PROXY CARD, PLEASE COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE RETURN ENVELOPE PROVIDED (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) AS PROMPTLY AS POSSIBLE TO ENSURE YOUR REPRESENTATION AT THE MEETING. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THE RECORD HOLDER.

 

TABLE OF CONTENTS

 

CADENCE DESIGN SYSTEMS, INC.
2655 SEELY AVENUE
SAN JOSE, CALIFORNIA 95134

 

 

 

 

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 2008

 

 

 

 

 

GENERAL

 

The enclosed proxy is solicited on behalf of the Board of Directors of Cadence Design Systems, Inc., a Delaware corporation, which is referred to in this proxy statement as Cadence, for use at its Annual Meeting of Stockholders to be held on May 7, 2008, at 1:00 p.m. Pacific time, or at any adjournment or postponement thereof, for the purposes set forth in this proxy statement and in the accompanying notice of annual meeting. The annual meeting will be held at Cadence’s offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134. Cadence intends to make available this proxy statement on the Internet at http://www.cadence.com/company/investor_relations/index.aspx on or about March 25, 2008 to all stockholders entitled to vote at the annual meeting.

 

INTERNET AVAILABILITY OF PROXY MATERIALS

 

Pursuant to the new rules recently adopted by the Securities and Exchange Commission, which is referred to in this proxy statement as the SEC, Cadence is now furnishing proxy materials to our stockholders primarily via the Internet, rather than mailing printed copies of these materials to each stockholder. We believe that this new process should expedite stockholders’ receipt of proxy materials, lower the costs of our annual meeting and help to conserve natural resources. On or about March 25, 2008, we mailed to each stockholder (other than those who previously requested electronic or paper delivery) a Notice of Internet Availability of Proxy Materials containing instructions on how to access and review the proxy materials, including our proxy statement and our annual report, on the Internet and how to access a proxy card to vote on the Internet or by telephone. The Notice of Internet Availability of Proxy Materials also contains instructions on how to receive a paper copy of the proxy materials. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request one. If you received a Notice of Internet Availability by mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials.

 

An audio webcast of the annual meeting will also be available on the investor relations page of Cadence’s website at www.cadence.com. The webcast will allow investors to listen to the proceedings of the annual meeting, but stockholders accessing the annual meeting using the Internet will not be considered present at the annual meeting by virtue of this access and will not be able to vote on matters presented at the annual meeting or ask any questions of Cadence’s directors, management, or its independent registered public accounting firm. For a description of how to vote on matters presented at the annual meeting, see “Voting” below. The webcast will begin promptly at 1:00 p.m. Pacific time on the day of the meeting and may be accessed on Cadence’s website for 30 days thereafter.

 

VOTING RIGHTS AND OUTSTANDING SHARES

 

Only holders of record of Cadence’s outstanding common stock, $0.01 par value per share, at the close of business on March 14, 2008, which is referred to in this proxy statement as the record date, will be entitled to notice of and to vote at the annual meeting. At the close of business on the record date, Cadence had approximately 260,470,262 shares of common stock outstanding and entitled to vote. Each holder of record of common stock outstanding on the record date will be entitled to one vote for each share held on all matters to be voted on at the annual meeting.

QUORUM; ABSTENTIONS; BROKER NON-VOTES

 

The presence in person or by proxy of a majority of the shares of Cadence common stock outstanding and entitled to vote on the record date is required for a quorum at the annual meeting. Both abstentions and broker non-votes are counted as present for purposes of determining the presence of a quorum, but broker non-votes will not be counted towards the tabulation of votes cast on proposals presented to stockholders.

 

“Broker non-votes” include shares for which a bank, broker or other nominee (i.e., record) holder has not received voting instructions from the beneficial owner and for which the nominee holder does not have discretionary power to vote on a particular matter. Under the rules that govern brokers who are record owners of shares that are held in brokerage accounts for the beneficial owners of the shares, brokers who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on routine matters but have no discretion to vote such uninstructed shares on non-routine matters. The proposals to be voted on at the annual meeting include both routine matters such as the proposal regarding the election of directors and the ratification of Cadence’s independent registered public accounting firm, and non-routine matters such as the proposal regarding the Amended and Restated Employee Stock Purchase Plan.

 

VOTE REQUIRED

 

The election of directors at the annual meeting requires that each director receive a majority of the votes cast with respect to that director at the annual meeting (number of shares voted “for” a director must exceed the number of votes cast “against” that director), provided that in a contested election, the directors shall be elected by the affirmative vote of a plurality of the votes cast at the annual meeting.

 

Each other item to be voted on at the annual meeting requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting.

 

All votes will be tabulated by a representative of the inspector of elections appointed for the annual meeting. This representative will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Mellon Investor Services LLC has been appointed as the inspector of elections for the annual meeting.

 

VOTING

 

Stockholders of record have three options for submitting their vote prior to the annual meeting: (i) vote via the Internet by following the instructions provided in the Notice of Internet Availability of Proxy Materials, (ii) vote via telephone by following the instructions provided in the Notice of Internet Availability of Proxy Materials, or (iii) complete, sign, date and mail in a paper proxy card in a pre-addressed envelope, which you can request as outlined in the Notice of Internet Availability of Proxy Materials.

 

If a stockholder attends the annual meeting, he or she may also submit his or her vote in person, and any votes that were previously submitted — whether via the Internet, by telephone or by mail — will be superseded by the vote that is cast at the annual meeting. Whether the proxy is submitted via the Internet, by telephone or by mail, if it is properly completed and submitted and if it is not revoked prior to the annual meeting, the shares will be voted at the annual meeting in the manner set forth in this proxy statement or as otherwise specified by the stockholder.

 

REVOCABILITY OF PROXIES

 

Whether the proxy is submitted via the Internet, by telephone or by mail, any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. A proxy may be revoked by filing a written notice of revocation or a duly executed proxy bearing a later date with the Cadence Corporate Secretary at Cadence’s principal executive offices, located at 2655 Seely Avenue, Building 5, San Jose, California 95134, or it may be revoked by attending the meeting and voting in person. Attendance at the meeting will not, by itself, be sufficient to revoke a proxy. Accessing the webcast of the annual meeting will not, by itself, constitute attendance at the annual meeting and will not enable a stockholder to revoke his, her or its proxy using the Internet.

SOLICITATION

 

Cadence will bear the entire cost of soliciting proxies, including the preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders in connection with the matters to be voted on at the annual meeting. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding shares of Cadence common stock beneficially owned by others for forwarding to the beneficial owners. Cadence will reimburse persons representing beneficial owners of its common stock for their costs of forwarding solicitation materials to the beneficial owners. The solicitation of proxies through this proxy statement may be supplemented by telephone, facsimile, use of the Internet, or personal solicitation by directors, officers or other employees of Cadence and by Georgeson Inc., which is referred to in this proxy statement as Georgeson. Cadence has retained Georgeson to solicit proxies for a fee of approximately $10,000, plus reasonable expenses, and has separately retained Georgeson to prepare a stockholder vote analysis of certain proposals. No additional compensation will be paid to directors, officers or other employees of Cadence or any of its subsidiaries for their services in soliciting proxies.

 

HOUSEHOLDING INFORMATION

 

The SEC has adopted rules that allow companies and intermediaries, such as brokers, to deliver a single copy of certain proxy materials to certain stockholders who share the same address, a practice referred to as “householding.” Some banks, brokers and other nominees will be householding Cadence’s Notice of Internet Availability of Proxy Materials and proxy materials for stockholders who do not participate in electronic delivery of proxy materials, unless contrary instructions are received from the affected stockholders. Once you have received notice from your broker or other nominee holder of your Cadence common stock that the broker or other nominee holder will be householding the Notice of Internet Availability of Proxy Materials or proxy materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Notice of Internet Availability of Proxy Materials and proxy materials, or if you are receiving multiple copies of the Notice of Internet Availability of Proxy Materials and proxy materials and wish to receive only one copy, please notify your broker or other nominee holder of your Cadence common stock. You may also request additional copies of Cadence’s Notice of Internet Availability of Proxy Materials and proxy materials by writing to Cadence’s Corporate Secretary at 2655 Seely Avenue, Building 5, San Jose, California 95134, or by calling Cadence’s Investor Relations Group at (408) 944-7100 or emailing the Investor Relations Group at investor_relations@cadence.com. Please note, however, that if you wish to receive a paper proxy or voting instruction or other proxy materials for purposes of this year’s annual meeting, you should follow the instructions provided in the Notice of Internet Availability of Proxy Materials. Copies of Cadence’s SEC filings and certain other submissions are made available free of charge on the investor relations page of Cadence’s website at www.cadence.com as soon as practicable after we have electronically filed or furnished these documents with the SEC.

 

Cadence’s common stock is listed on the NASDAQ Global Select Market, which is referred to in this proxy statement as NASDAQ.

 

Cadence and its Board of Directors, which is also referred to in this proxy statement as the Board, regularly review and evaluate Cadence’s corporate governance practices. Cadence’s corporate governance documents are posted on the investor relations page of its website at www.cadence.com. Printed copies of these documents are also available to stockholders upon written request directed to Cadence’s Corporate Secretary at 2655 Seely Avenue, Building 5, San Jose, California 95134.

 

CORPORATE GOVERNANCE GUIDELINES

 

The Board of Directors of Cadence has adopted Corporate Governance Guidelines for the Board, which cover various topics relating to the Board and its activities including, but not limited to, the selection and composition of the Board, Board leadership, compensation of directors, responsibilities of directors, Board access to senior management and outside advisors, meeting procedures and committee matters. The Corporate Governance and

Nominating Committee periodically reviews the Corporate Governance Guidelines, which may be amended by the Board at any time. The Corporate Governance Guidelines were most recently amended in March 2008.

 

CODE OF BUSINESS CONDUCT

 

Cadence has adopted a Code of Business Conduct to provide standards for ethical conduct in dealing with customers, suppliers, agents, political entities and others. The Code of Business Conduct applies to all Cadence directors, officers and employees (and those of its subsidiaries), including Cadence’s Chief Executive Officer and Chief Financial Officer. Compliance with the Code of Business Conduct is a condition of continued service to or employment with Cadence. The Code of Business Conduct covers topics including, but not limited to, integrity and confidentiality of assets and information, conflicts of interest, compliance with federal and state securities laws, employment practices, payment practices, compliance with competition laws and regulations, and compliance with other laws.

 

Except as provided by applicable law, each person subject to the Code of Business Conduct has the responsibility to report any possible misconduct, including unethical business practices, violations of the code and apparent or suspected illegal activities, in the following manner:

 

 

Any waiver of a provision of the Code of Business Conduct with respect to a director or an executive officer may only be made by the Board or the Corporate Governance and Nominating Committee. Any waivers for other employees may be granted only by the Chief Executive Officer or the General Counsel, or their respective designees. Cadence will file with the SEC on Form 8-K amendments to the Code of Business Conduct and any waiver of its provisions made with respect to any director or executive officer as required under applicable SEC rules.

 

STOCK OWNERSHIP GUIDELINES

 

Cadence’s Board of Directors has adopted Stock Ownership Guidelines to align the interests of its directors and executive officers with the interests of stockholders and to further promote Cadence’s commitment to sound corporate governance. Cadence does not require that directors or executive officers own a specific number of shares because it expects that directors and executive officers will act in Cadence’s best interests regardless of the number of shares they own. However, the Board has established share ownership guidelines for its members and Cadence’s executive officers. Each member of Cadence’s Board of Directors is encouraged to hold at least 5,000 shares of Cadence common stock within the first two years of his or her election to the Board, and Cadence’s executive officers are encouraged to hold at least the following number of shares of Cadence common stock no later than five years after the date of his or her designation to the following offices: Chief Executive Officer — 100,000 shares; Chief Financial Officer and Executive Vice Presidents — 50,000 shares; and Senior Vice Presidents — 25,000 shares. All directors and executive officers met the Stock Ownership Guidelines as of the record date.

 

DIRECTOR INDEPENDENCE

 

Cadence’s Corporate Governance Guidelines require that at least a majority of the Board of Directors be “independent directors” within the meaning of the corporate governance listing standards of NASDAQ. To be “independent” a director must not have a relationship that, in the opinion of the Board, would interfere with his or

her exercise of independent judgment in carrying out the responsibilities of a Cadence director. In making these determinations, the Board considers all relevant facts and circumstances and applies the following standards:

 

 

The Board has determined that Mr. Lucas, Mr. Scalise, Dr. Shoven, Mr. Siboni, Mr. Swainson and Mr. Tan, who constitute a majority of the Board, are “independent directors” within the meaning of the corporate governance listing standards of NASDAQ.

 

BOARD MEETINGS

 

During the fiscal year ended December 29, 2007, Cadence’s Board of Directors held twelve meetings, in addition to taking other actions by unanimous written consent in lieu of a meeting. Each Board member attended more than 75% of the meetings of the Board and of the committees on which he served that were held during the period for which he was a director or committee member during fiscal 2007. Cadence’s Corporate Governance Guidelines encourage directors to attend its annual meetings of stockholders. Except for John A. C. Swainson, all of Cadence’s then current directors attended the 2007 Annual Meeting of Stockholders.

 

Under Cadence’s Corporate Governance Guidelines, Cadence’s independent directors meet separately at regularly scheduled sessions and at least twice annually. Pursuant to Cadence’s Corporate Governance Guidelines, Dr. Shoven, as the Chairman of the Board and an independent director, presides over meetings of the independent directors.

 

CONTACTING THE BOARD OF DIRECTORS

 

Stockholders interested in communicating directly with the Board may do so by sending a letter to the Cadence Board of Directors, or to any individual director, group of directors or committee of the Board, c/o the Office of the Corporate Secretary, Cadence Design Systems, Inc., 2655 Seely Avenue, Building 5, San Jose, California 95134. Inquiries and other communications may be submitted anonymously and confidentially. The Office of the Corporate Secretary will review the correspondence and shall transmit such communications as soon as practicable to the identified director addressee(s), unless there are legal or other considerations that mitigate against further

transmission of the communication, as determined by the Corporate Secretary. In that regard, certain items that are unrelated to the duties and responsibilities of the Board of Directors will not be forwarded by the Corporate Secretary, such as business solicitations or advertisements, junk mail and mass mailings, new product suggestions, product complaints, product inquiries, resumes and other forms of job inquiries, spam and surveys. In addition, material that the Corporate Secretary determines is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the provision that the Board of Directors or individual directors so addressed shall be advised of any communication withheld for legal or other considerations as soon as practicable.

 

COMMITTEES OF THE BOARD OF DIRECTORS

 

The Board of Directors currently has the following committees:

 

 

Each of the above committees has a written charter approved by the Board. The charters of the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee are posted on the investor relations page of Cadence’s website at www.cadence.com. The members and chairs of the committees are identified in the following table.

 

						Corporate
						Governance and
Director		Audit		Compensation		Nominating		Finance		Technology
Michael J. Fister										ü
Donald L. Lucas		ü		ü		Chair		Chair
Dr. Alberto Sangiovanni-Vincentelli										Chair
George M. Scalise				ü		ü
Dr. John B. Shoven		ü		Chair		ü		ü
Roger S. Siboni		Chair				ü		ü
John A.C. Swainson						ü
Lip-Bu Tan								ü		ü

 

Audit Committee

 

The Board has determined that all members of the Audit Committee are “independent” as defined by the NASDAQ corporate governance listing standards and Rule 10A-3 of the Securities Exchange Act of 1934, as amended, which is referred to in this proxy statement as the Exchange Act. The Board has also determined that each of Mr. Lucas, Dr. Shoven and Mr. Siboni, constituting all the members of the Audit Committee, is an “audit committee financial expert” as defined in rules promulgated by the SEC. In addition, the Board has determined that each Audit Committee member is able to read and understand fundamental financial statements and, other than strictly in his capacity as a member of the Board or a committee of the Board, has not participated in preparing Cadence’s financial statements in any of the past three years.

 

The Audit Committee charter was most recently amended in February 2006 and complies with the NASDAQ corporate governance listing standards. The duties and responsibilities of the Audit Committee include:

 

 

 

The Audit Committee held nine meetings during fiscal 2007. See “Report of the Audit Committee” below for more information.

 

Compensation Committee

 

The Compensation Committee of the Board of Directors is comprised of three non-employee directors of Cadence who the Board has determined are all “independent” as defined by the corporate governance listing standards of NASDAQ. In addition, all Compensation Committee members are “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (which is referred to in this proxy statement as the Code), to allow Cadence a tax deduction for certain employee compensation exceeding $1,000,000 for an individual. All Compensation Committee members are also “outside directors” within the meaning of Exchange Act Rule 16b-3 to exempt certain option grants and similar transactions from the short-swing profits prohibition of Section 16 of the Exchange Act. The Compensation Committee is comprised of Mr. Lucas, Mr. Scalise and Dr. Shoven. As of May 9, 2007, Dr. Shoven replaced Mr. Lucas as Chair of the Compensation Committee. The Compensation Committee acts on behalf of the Board, as provided in the committee’s charter, to review and approve corporate goals and objectives relevant to the compensation of Cadence’s CEO and other executive officers, evaluate the CEO’s performance in light of those goals and objectives, and determine and approve the CEO’s and other executive officers’ compensation. At or near the beginning of each fiscal year, the Compensation Committee typically establishes base salary levels and target bonuses for the CEO and other executive officers of Cadence. In addition, the Compensation Committee administers the Senior Executive Bonus Plan, Cadence’s equity-based compensation plans and stock purchase plans, and Cadence’s deferred compensation plans. The Compensation Committee also reviews and recommends to the Board the compensation of Cadence’s directors.

 

The Compensation Committee charter was most recently amended in February 2007. The duties and responsibilities of the Compensation Committee include:

 

 

 

 

In fiscal 2007, the Compensation Committee retained the services of an independent compensation consultant, Semler Brossy Consulting Group, LLC, or Semler Brossy, for investigation into and advice on total compensation for Cadence’s directors and executive officers. The Compensation Committee believes that having an independent evaluation of director compensation and executive officer salary, bonus and equity compensation is a valuable tool for the Committee and stockholders. Semler Brossy is not otherwise engaged to perform work for Cadence.

 

The Compensation Committee retained Semler Brossy for a number of purposes, including:

 

 

The Compensation Committee made a number of compensation decisions, including decisions with respect to the Named Executive Officers, based on the competitive assessments provided by and through consultation with Semler Brossy. The Compensation Committee’s decisions were made, however, solely by the Compensation Committee, in its sole discretion.

 

The Compensation Committee held six meetings during fiscal 2007. See “Compensation Discussion and Analysis” below for more information.

 

Corporate Governance and Nominating Committee

 

The Board has determined that all Corporate Governance and Nominating Committee members are independent as defined by the NASDAQ corporate governance listing standards.

 

The Corporate Governance and Nominating Committee charter was most recently amended in February 2007. The duties and responsibilities of the Corporate Governance and Nominating Committee include:

 

 

 

The Corporate Governance and Nominating Committee employs a variety of methods to identify and evaluate director nominees. The committee periodically assesses the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement of directors or otherwise, and the need for particular expertise on the Board. If vacancies are anticipated or otherwise arise, the committee considers potential candidates for director. Additionally, candidates may come to the attention of the committee through current Board members, officers, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the committee, and may be considered at any point during the year. In connection with this evaluation, the Corporate Governance and Nominating Committee determines whether to interview the prospective nominee and, as warranted, one or more members of the committee, and others as appropriate, interview prospective nominees in person or by telephone. After completing this evaluation and interview, the committee makes a recommendation to the full Board as to the persons who should be nominated or elected by the Board, and the Board determines whether to reject, elect or nominate the candidate, as the case may be, after considering the recommendation of the committee.

 

The Corporate Governance and Nominating Committee will consider individuals recommended by stockholders for nomination as a director pursuant to the provisions of Cadence’s Bylaws relating to stockholder nominations. A stockholder who wishes to recommend a prospective nominee for the Board should notify Cadence’s Corporate Secretary or the Corporate Governance and Nominating Committee in writing with the supporting material required by Cadence’s Bylaws as described under “Other Matters — Stockholder Proposals and Nominations” below, and any other material the stockholder considers necessary or appropriate.

 

Although the Board currently has no defined minimum criteria for consideration or continued service as a director, the Corporate Governance and Nominating Committee evaluates prospective nominees against the standards and qualifications set out in Cadence’s Corporate Governance Guidelines and other relevant factors as it deems appropriate. Among the factors the Board may consider are the current composition of the Board, the need for particular expertise, and the prospective nominee’s experience, judgment, understanding of electronic design and semiconductor technologies, and other relevant characteristics. At least a majority of directors on the Board must be “independent” as defined by the NASDAQ corporate governance listing standards and as determined by the Board.

 

The Corporate Governance and Nominating Committee held four meetings during fiscal 2007.

 

Finance Committee

 

The Finance Committee, on behalf of the Board, evaluates and approves financings, mergers, acquisitions, divestitures and other financial commitments of Cadence to unaffiliated third parties that involve amounts greater than $50 million and up to $125 million. The Finance Committee also monitors the liquidation of Telos Venture Partners III, L.P., which is a venture capital fund in which Cadence is a limited partner.

 

The Finance Committee held five meetings during fiscal 2007.

Technology Committee

 

The Technology Committee monitors trends in technology that may affect Cadence’s strategic plans, advises the Board regarding Cadence’s research and development activities and reviews and makes recommendations to management regarding Cadence’s leading technologists and researchers.

 

The Technology Committee held four meetings during fiscal 2007.

 

COMPENSATION OF DIRECTORS

 

Directors who are Cadence employees do not receive additional compensation for their service on the Board. The following table sets forth the compensation earned by Cadence’s non-employee directors for their service on the Board in 2007:

 

DIRECTOR COMPENSATION FOR FISCAL 2007

 

 

 

 

A “non-employee director” is a Cadence director who is not otherwise an employee of Cadence or an affiliate of Cadence. The annual retainer for non-employee directors is $80,000 per year. The annual retainer for a non-employee director serving as Chairman of the Board is $80,000, which is in addition to the annual retainer for non-employee directors. A non-employee director serving as Chairman of the Audit, Finance or Technology Committee receives an annual retainer of $40,000 per year and a non-employee director serving as Chairman of the Corporate Governance and Nominating Committee or the Compensation Committee receives an annual retainer of $20,000 per year. For a period between January 1, 2007 and May 8, 2007, a non-employee director serving as Chairman of the Board was not eligible to receive fees for service as the Chairman of these committees of the Board. Effective May 9, 2007, the Board changed this policy, making the Chairman of the Board eligible to receive a retainer for service as chairman of a committee of the Board.

 

As a result, each non-employee director of Cadence earned the $80,000 annual retainer for his service on the Board in 2007. In addition to the $80,000 retainer for his service as a non-employee director of the Board, Dr. Shoven earned the $80,000 retainer for his service as Chairman of the Board in 2007 and $12,900 as a pro-rated annual retainer of $20,000 for his service as Chairman of the Compensation Committee for the period from May 9,

2007 until December 31, 2007. In addition to the annual retainer, Mr. Siboni and Dr. Sangiovanni-Vincentelli each earned an annual retainer of $40,000 for his service as Chairman of the Audit Committee and Technology Committee, respectively. Mr. Lucas earned $7,100 as a pro-rated portion of the annual retainer of $20,000 for his service as the Chairman of the Compensation Committee for the period from January 1, 2007 until May 8, 2007, $12,900 as a pro-rated portion of the annual retainer of $20,000 for his service as the Chairman of the Corporate Governance and Nominating Committee for the period from May 9, 2007 until December 31, 2007 and an annual retainer of $40,000 for his service as the Chairman of the Finance Committee. Dr. Shoven and Messrs. Lucas, Scalise and Tan were members of a Special Committee formed in 2007 to evaluate various corporate transactions. Messrs. Lucas, Scalise and Tan, each, earned $14,286 as a pro-rated portion of the annual retainer of $40,000 for their services as members of the Special Committee and Dr. Shoven earned $21,429 as pro-rated portion of the annual retainer of $60,000 for his service as Chairman of the Special Committee. Non-employee directors were also paid $2,000 for each Board or committee meeting attended in person and $1,000 for each Board or committee meeting attended by telephone. No additional compensation was paid when the Board or a committee acted by unanimous written consent in lieu of a meeting. Non-employee members of the Board were also eligible for reimbursement of their expenses incurred in connection with attendance at Board meetings in accordance with Cadence policy.

 

Each non-employee director also receives stock option grants under Cadence’s 1995 Directors Stock Option Plan, as amended, which is referred to in this proxy statement as the Directors Plan. Only non-employee directors are eligible to receive options under the Directors Plan.

 

Under the Directors Plan, each non-employee director is automatically granted a one-time option upon joining the Board to purchase the number of shares of Cadence common stock equal to 6,250 multiplied by the number of full calendar quarters between the date the director’s service begins and the next April 1st. A director is considered to have served the entire calendar quarter if he or she becomes a director at any time during the first half of the quarter. These initial grants vest and become exercisable in full on the March 31st following the grant date and have an exercise price equal to the average closing price of Cadence common stock for the 20 trading days prior to the grant date.

 

In addition, every April 1st, each non-employee director is automatically granted an option to purchase 25,000 shares of Cadence common stock and a non-employee director serving as Chairman of the Board is automatically granted an additional option to purchase 25,000 shares of common stock. These annual option grants vest and become exercisable in full on the March 31st following the grant date and have an exercise price equal to the average closing price of Cadence common stock for the 20 trading days prior to the grant date.

 

Directors may elect to defer compensation payable to them under Cadence’s deferred compensation plan. These deferred compensation payments are held in accounts with values indexed to the performance of selected mutual funds, self-directed accounts or money market accounts.

 

In addition, a health care and prescription drug insurance coverage plan is available for active non-employee directors, eligible retired directors and their dependents. All non-employee directors and their dependents are eligible for insurance coverage under the plan during their term of service on the Board. Retired employee and non-employee directors and their dependents will be eligible for the coverage under the plan for a term not to exceed their term of service on the Board. Under the plan, Cadence reimburses 100% of the premium for participants and their dependents up to a maximum of $15,000 per year for 2007 and $20,000 for 2008, which maximum amount may be adjusted for future changes in health care costs. Benefits under the plan are fully taxable to the participants and Cadence does not defray any such taxes. Mr. Lucas, Dr. Sangiovanni-Vincentelli, Dr. Shoven, Mr. Siboni and Mr. Tan maintained health insurance coverage under this plan in 2007.

 

Dr. Sangiovanni-Vincentelli earned $55,000 for consulting services performed for Cadence in 2007. Cadence and Dr. Sangiovanni-Vincentelli have entered into a consulting agreement which provides for an annual consulting fee of $55,000 and reimbursement of reasonable costs and expenses incurred in the performance of work under the consulting agreement in accordance with Cadence policy. The consulting agreement also contains confidentiality and non-solicitation provisions in favor of Cadence. Dr. Sangiovanni-Vincentelli’s consulting services consisted of providing technical and strategic advice to Cadence’s CEO with respect to potential acquisitions and organizational and customer relations matters, serving as facilitator in customer and partner meetings to discuss industry trends,

collaboration on technology and business issues, representing Cadence at industry, technical and government events, and participating in setting the direction of the Cadence Research Laboratories at Berkeley and of Cadence’s research partnerships. Cadence does not have any comparable arrangements with other consultants and, as a result, has no basis for comparing the terms of Dr. Sangiovanni-Vincentelli’s arrangement with others. In addition, Dr. Sangiovanni-Vincentelli is the Scientific Director of PARADES-EEIG, an Italian not-for-profit entity engaged in research related to electronic systems engineering. By contract, a Cadence subsidiary contributes up to 50% of the annual funding needs of PARADES-EEIG. For his services to PARADES-EEIG in 2007, Dr. Sangiovanni-Vincentelli earned €92,400 (approximately $126,592 based on the average foreign currency exchange rate in 2007). Dr. Sangiovanni-Vincentelli is also a member of the board of directors of Accent S.p.a., an Italian company that provides microelectronics product design and realization services as well as semiconductor IP licensing. Cadence owns approximately 20% of the equity interests in Accent (on a fully-diluted basis). For his services as a director of Accent in 2007, Dr. Sangiovanni-Vincentelli earned €24,000 (approximately $32,881 based on the average foreign currency exchange rate in 2007). Dr. Sangiovanni-Vincentelli also had use of a car in Europe that was leased by Cadence for $18,254 in 2007.

 

The Corporate Governance and Nominating Committee of the Board has recommended, and the Board has nominated, the eight nominees named below for election to Cadence’s Board of Directors. Each director elected at the annual meeting will hold office until the 2009 Annual Meeting of Stockholders and until his successor is elected and qualified, or until the director’s earlier death, resignation or removal. Each nominee listed below is currently a Cadence director. All of the nominees have previously been elected by Cadence’s stockholders.

 

VOTE REQUIRED AND BOARD RECOMMENDATION

 

Shares represented by executed proxies will be voted FOR the election of the eight nominees named below, if authority to do so is not withheld.

 

The election of directors at the annual meeting requires that each director receive a majority of the votes cast with respect to that director at the annual meeting, which means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director, provided that in a contested election, the directors shall be elected by the affirmative vote of a plurality of the votes cast at the annual meeting. The election this year is not contested and the majority voting standard applies. If a nominee who is serving as a director is not elected at the annual meeting, the Corporate Governance and Nominating Committee will establish a procedure for such director to tender his resignation and will make a recommendation to the Board about whether to accept or reject the resignation, or whether to take other action. The Board will act on the Corporate Governance and Nominating Committee’s recommendation and publicly disclose its decision and the reasons behind it within 90 days from the date the election results are certified.

 

If any nominee should be unavailable for election as a result of unexpected circumstances, shares will be voted for the election of any substitute nominee named by the Board. Each person nominated for election has agreed to be named in this proxy statement and to serve if elected, and Cadence has no reason to believe that any nominee will be unable to serve.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
EACH NAMED NOMINEE.

 

NOMINEES

 

The names of the nominees and certain information about them, including term of service as a Cadence director and age as of the 2008 Annual Meeting of Stockholders, are set forth below:

 

 

VOTE REQUIRED AND BOARD RECOMMENDATION

 

The Board of Directors of Cadence recommends a vote FOR the election of each of the eight director nominees. The election of directors at the annual meeting requires that each director receive a majority of the votes cast with respect to that director, which means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director. Abstentions will be treated as being present and entitled to vote on the proposal, however, abstentions are not counted as votes “for” or “against” directors and will not have an effect on the election of directors. Unless marked to the contrary, proxies received will be voted FOR the election of each of the eight director nominees.

 

APPROVAL OF AMENDMENT TO THE AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN

 

In November 1998, Cadence’s Board adopted, and Cadence stockholders subsequently approved, Cadence’s Amended and Restated Employee Stock Purchase Plan, referred to in this proxy statement as the Employee Plan,

which amended and restated the 1990 Employee Stock Purchase Plan. Subsequent amendments approved by Cadence’s Board and stockholders increased the shares of common stock authorized for issuance under the Employee Plan to 46,500,000.

 

In February 2008, the Board approved an amendment to the Employee Plan to increase the number of shares of common stock authorized for issuance by 7,500,000 shares for a total of 54,000,000 shares authorized under the Employee Plan, subject to stockholder approval.

 

As of March 14, 2008, 1,915,101 shares of common stock remained available for issuance under the Employee Plan. The proposed increase in the number of shares authorized for issuance under the Employee Plan represents approximately 2.9% of Cadence’s outstanding stock as of the record date.

 

REASONS FOR THE PROPOSED AMENDMENT

 

The Board approved the amendment to the Employee Plan to ensure that Cadence can continue to grant purchase rights to its employees at levels determined appropriate by the Board. The Employee Plan helps to attract and retain employees because employee stock purchase plans are a common benefit offered by our competitors and other industry bellwethers. In addition, approximately 70% of Cadence’s eligible employees participate in the Employee Plan. As confirmed by the high level of employee participation, Cadence believes that the Employee Plan is a highly valued benefit that is necessary in order for Cadence to compete with other companies in attracting and retaining employees. The Employee Plan also provides eligible employees with the opportunity to become Cadence stockholders and participate in Cadence’s success, which aligns the interests of participating employees with those of stockholders.

 

VOTE REQUIRED AND BOARD RECOMMENDATION

 

The Board of Directors recommends a vote FOR approval of the amendment to the Employee Plan. The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal is required for approval of the proposal. Abstentions will be treated as being present and entitled to vote on the proposal and, therefore, will have the effect of votes against the proposal. Broker non-votes will be treated as not being entitled to vote on the proposal and, therefore, are not counted for purposes of determining whether the proposal has been approved. Unless marked to the contrary, proxies received will be voted FOR approval of the amendment to the Employee Plan.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.

 

SUMMARY OF THE EMPLOYEE PLAN

 

The following summary of the main features of the Employee Plan, as amended, is qualified in its entirety by the complete text of the Employee Plan, a copy of which is attached as Appendix A to this proxy statement.

 

PURPOSE

 

The purpose of the Employee Plan is to provide a means by which employees of Cadence, and any parent or subsidiary of Cadence designated by the Board, may be given an opportunity to purchase Cadence common stock, through payroll deductions, to assist Cadence in retaining the services of its employees, to secure and retain the services of new employees, and to provide incentives for these persons to exert maximum efforts for the success of Cadence.

 

The rights to purchase common stock granted under the Employee Plan are intended to qualify as options issued under an “employee stock purchase plan” as that term is defined in Section 423(b) of the Internal Revenue Code.

ADMINISTRATION

 

The Board administers the Employee Plan and has the final power to construe and interpret both the Employee Plan and the rights granted under it. The Board has the power, subject to the provisions of the Employee Plan, to determine when and how rights to purchase Cadence common stock will be granted, the provisions of each offering of these rights (which need not be identical), and whether employees of a parent or subsidiary of Cadence will be eligible to participate in the Employee Plan.

 

The Board may delegate administration of the Employee Plan to a committee comprised of not less than two Board members. The Board has delegated administration of the Employee Plan to the Compensation Committee. As used in this proxy statement solely with respect to the Employee Plan, the “Board” refers to any committee the Board appoints to administer the Employee Plan as well as to the Board itself.

 

STOCK SUBJECT TO EMPLOYEE PLAN

 

Upon stockholder approval of this Proposal, an additional 7,500,000 shares of common stock would be reserved for issuance under the Employee Plan for an aggregate of 9,415,101 reserved but unissued shares, representing approximately 3.6% of Cadence’s outstanding stock as of the record date. If rights granted under the Employee Plan expire, lapse or otherwise terminate without being exercised, the shares of common stock not purchased under the rights again become available for issuance under the Employee Plan.

 

Because benefits under the Employee Plan depend on employees’ voluntary elections to participate and the fair market value of Cadence’s common stock at various future dates, it is not possible as of the date of this proxy statement to determine future benefits that will be received by executive officers and other employees under the Employee Plan.

 

OFFERINGS

 

The Board implements the Employee Plan by offering participation rights to all eligible employees. Currently, the offering periods of the Employee Plan are six months long commencing on February 1 and August 1 of each year and ending on July 31 and January 31, respectively. The Board has the power to change the duration of offering periods with respect to future offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first offering period to be affected.

 

ELIGIBILITY

 

Any person who is employed at least 20 hours per week and five months per calendar year by Cadence, or any parent or subsidiary of Cadence designated by the Board, is eligible to participate in an offering if the employee was employed by Cadence or the designated affiliate on the 15th day of the month before the first day of the offering period. Almost all of Cadence’s and its subsidiaries’ approximately 5,300 employees, including all of Cadence’s executive officers, are eligible to participate in the Employee Plan. However, employees of certain international Cadence subsidiaries are not eligible to participate in the Employee Plan because of local tax or regulatory issues. Cadence’s non-employee directors are not eligible to participate in the Employee Plan.

 

No employee is eligible to participate in the Employee Plan if, immediately after the grant of purchase rights, the employee would, directly or indirectly, own stock or hold options possessing 5% or more of the total combined voting power or value of all classes of stock of Cadence or of any Cadence parent or subsidiary, including any stock which the employee may purchase under outstanding rights and options. In addition, no employee may accrue the right to purchase shares under the Employee Plan at a rate that exceeds $25,000 worth of common stock (determined at the fair market value of the shares at the time the right is granted, which fair market value is based upon the closing price of the shares) for each calendar year in which such right is outstanding at any time.

 

Rights granted in any offering under the Employee Plan terminate immediately upon cessation of an employee’s employment for any reason, and Cadence will distribute to a terminated employee all of his or her accumulated payroll deductions, without interest.

PARTICIPATION IN THE PLAN

 

Eligible employees enroll in the Employee Plan by delivering to Cadence, no later than the fifteenth (15th) day of the month before the offering period, an agreement authorizing payroll deductions of an amount between 2% to 12% of the employees’ gross earnings (before withholding of taxes and other amounts).

 

A participant will automatically participate in all future offerings unless such participant withdraws from the Employee Plan or subsequently becomes ineligible to participate in the Employee Plan. A participant may terminate payroll deductions and withdraw from a given offering under the Employee Plan by delivering a notice of withdrawal to Cadence at any time prior to the 15th day of month in which the offering period ends (i.e., by January 15th or July 15th).

 

Upon an employee’s withdrawal from an offering, Cadence will distribute to the employee his or her accumulated payroll deductions, without interest, less any accumulated deductions previously applied to the purchase of common stock on the employee’s behalf during the offering.

 

PURCHASE PRICE

 

The purchase price at which shares of common stock are sold in an offering under the Employee Plan is the lower of:

 

 

PURCHASE OF STOCK

 

A participant accumulates the purchase price of the shares by payroll deductions over the course of the offering period. One time during the offering, a participant may reduce or terminate his or her payroll deductions if the Board has provided for such reduction or termination for that offering. The Board may provide that an employee who first becomes eligible to participate in the Employee Plan after an offering has begun may participate in the Employee Plan, as of a date specified during the offering period. Cadence will credit all payroll deductions made for a participant to the participant’s account under the Employee Plan and will deposit the payroll deductions into a Cadence bank account, which also contains the general funds of Cadence. A participant may not make additional payments into his or her account.

 

In connection with offerings made under the Employee Plan, the Board may specify a maximum number of shares of common stock an employee may be granted the right to purchase and the maximum number of shares of common stock that may be purchased in that offering by all participants. If the total number of shares to be purchased upon exercise of rights granted in the offering exceeds the maximum aggregate number of shares of common stock available for the offering, the Board will make a pro rata allocation of available shares in a uniform and equitable manner. Unless the employee’s participation is discontinued, his or her right to purchase shares is exercised automatically at the end of the purchase period at the then applicable purchase price.

 

DURATION, AMENDMENT AND TERMINATION

 

The Board may suspend or terminate the Employee Plan at any time. Unless terminated earlier, the Employee Plan will terminate when all of the shares reserved shares for issuance under the Employee Plan, as increased or adjusted from time to time, have been issued.

 

The Board may amend the Employee Plan at any time. Any amendment of the Employee Plan must be approved by the stockholders within 12 months before or after its adoption by the Board to the extent stockholder approval is necessary for the Employee Plan to satisfy Section 423 of the Code, Rule 16b-3 under the Exchange Act or any NASDAQ or other applicable securities exchange listing requirements. Currently, under the Code, stockholder approval must be obtained if the amendment would, among other things:

 

 

Rights granted before any amendment or termination of the Employee Plan will not be altered or impaired by any amendment or termination of the Employee Plan without the consent of the employee to whom such rights were granted.

 

EFFECT OF CERTAIN CORPORATE EVENTS

 

In the event of a dissolution or liquidation of Cadence, all offerings will terminate prior to the consummation of the proposed transaction or, at the Board’s discretion, the purchase date of any offering will be accelerated so that the outstanding rights may be exercised before or concurrent with the proposed transaction. In the event of a proposed sale of all or substantially all of the assets of Cadence, or the merger of Cadence with or into another corporation where Cadence is not the surviving corporation, all offerings will terminate prior to the consummation of the proposed event, unless the surviving corporation assumes the rights under the Employee Plan or substitutes similar rights, or the Board, at its discretion, provides that participants may exercise outstanding rights. If the Board makes a right exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board must notify participants that their rights under the Employee Plan will be fully exercisable for a period of 20 days from the date of such notice, or other period of time as the Board determines.

 

FEDERAL INCOME TAX INFORMATION

 

The following is an overview, as of the date of this proxy statement, of the effect of federal income taxation upon the participants and Cadence with respect to the grant and exercise of rights granted under the Employee Plan, but is not complete, does not discuss the income tax laws of any state or foreign country in which a participant may reside, is subject to change and is not intended to be relied upon as tax advice. Participants in the Employee Plan should consult their own tax advisors regarding the specific tax consequences to them of participating in the Employee Plan.

 

Rights granted under the Employee Plan are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan that qualifies under Section 423 of the Code, which requires stockholder approval of the Employee Plan and certain amendments.

 

A participant will be taxed on amounts withheld for the purchase of shares of common stock under the Employee Plan as if such amounts were actually received. No other income will be taxable to a participant as a result of participating in the Employee Plan until the disposition of the acquired shares, and the effect of taxation will depend on the holding period of the acquired shares.

 

If the stock is disposed of more than two years after the beginning of the offering period and more than one year after the stock is transferred to the participant, then the participant will recognize ordinary income equal to the lesser of:

 

 

Any further gain or any loss will be taxed as a long-term capital gain or loss. Generally, long-term capital gains are currently subject to lower tax rates than ordinary income. The deductibility of capital losses is limited.

 

If the stock is sold or disposed of before the expiration of either of the two holding periods described above, then the amount by which the fair market value of the stock on the purchase date exceeds the purchase price will be treated as ordinary income at the time of disposition. The balance of any gain will be treated as capital gain. Even if the stock is later disposed of for less than its fair market value on the purchase date, the same amount of ordinary income is attributed to the participant, and a capital loss is recognized equal to the difference between the sales price and the fair market value of the stock on the purchase date. Any capital gain or loss will be short-term or long-term, depending on how long the stock has been held. As mentioned above, the deductibility of capital losses is limited, and thus a disposition of the stock, before the expiration of the one and two-year holding periods described above,

for an amount less than the fair market value of the stock on the purchase date could result in ordinary income (and a tax liability) and a non-deductible capital loss.

 

Cadence generally is entitled to a tax deduction to the extent amounts are taxed as ordinary income to a participant, subject to satisfying tax reporting obligations. In all other cases, no tax deduction is allowed to Cadence.

 

RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

 

The Audit Committee has selected KPMG LLP as Cadence’s independent registered public accounting firm for the fiscal year ending January 3, 2009. Pursuant to the Audit Committee charter, the Board has directed management to submit the selection of the independent registered public accounting firm for ratification by the stockholders at the annual meeting. KPMG LLP has audited Cadence’s financial statements since fiscal 2002. Representatives from KPMG LLP are expected to be present at the annual meeting, will have an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions.

 

Stockholder ratification of the selection of KPMG LLP as Cadence’s independent registered public accounting firm is not required by Cadence’s Bylaws or otherwise. However, the Board is submitting the selection of KPMG LLP to the stockholders for ratification as a matter of good corporate practice. If Cadence’s stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain KPMG LLP. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year, if it determines that such a change would be in the best interests of Cadence and its stockholders.

 

VOTE REQUIRED AND BOARD RECOMMENDATION

 

The Board of Directors of Cadence recommends a vote FOR ratification of the selection of KPMG LLP. The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal is required for approval of this proposal. Abstentions will be treated as being present and entitled to vote on the proposal and, therefore, will have the effect of votes against the proposal. Unless marked to the contrary, proxies received will be voted FOR ratification of the selection of KPMG LLP.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.

 

 

The Audit Committee of the Board is comprised of three non-employee directors of Cadence who are “independent” as defined by the corporate governance listing standards of NASDAQ and as defined under the Exchange Act. During fiscal 2007, the Audit Committee was comprised of Mr. Lucas, Dr. Shoven and Mr. Siboni as Chairman. The Audit Committee met nine times in fiscal 2007.

 

The Audit Committee operates under a charter, which was most recently amended by the Board in February 2006. The Audit Committee charter is posted on the investor relations page of Cadence’s website at www.cadence.com. As more fully described in its charter, the Audit Committee appoints and retains the independent registered public accounting firm and oversees the quality and integrity of Cadence’s financial statements, Cadence’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of Cadence’s internal audit function, the independent registered public accounting firm, Cadence’s accounting and financial reporting processes and the audits of Cadence’s financial statements on behalf of the Board.

 

In this context, the Audit Committee has reviewed and discussed the audited financial statements with Cadence’s management and our independent registered public accounting firm, KPMG LLP. The Audit Committee has also discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended. In addition, the Audit Committee has received from KPMG

LLP the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with KPMG LLP its independence from Cadence and its management. The Audit Committee has also considered whether the provision of other non-audit services by KPMG LLP to Cadence is compatible with the auditors’ independence.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited financial statements in Cadence’s Annual Report on Form 10-K for the year ended December 29, 2007 for filing with the SEC.

 

AUDIT COMMITTEE

 

Roger S. Siboni, Chairman
Donald L. Lucas
John B. Shoven

 

The foregoing Audit Committee report is not soliciting material, is not deemed filed with the SEC and is not to be incorporated by reference in any filing of Cadence under the Securities Act of 1933, as amended, which is referred to in this proxy statement as the Securities Act, or under the Exchange Act, whether made before or after the date of this proxy statement and irrespective of any general incorporation language in any such filing.

 

 

The following table presents fees incurred by Cadence for professional services rendered by KPMG LLP for the fiscal years ended December 29, 2007 and December 30, 2006.

 

 

 

 

AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee pre-approves all audit and permissible non-audit services provided by KPMG LLP prior to the engagement of KPMG LLP with respect to such services. Pursuant to its pre-approval policy, the Audit Committee has pre-approved tax compliance services, tax planning and related tax services, and the following audit-related services:

 

 

However, engagements for these pre-approved audit-related and tax services with an estimated cost of more than $250,000 or that exceed the applicable budgeted amount for the pre-approved services must be pre-approved on a case-by-case basis by the Audit Committee or the Chairman of the Audit Committee, or, if the Chairman is unavailable, another member of the Audit Committee. In addition, any proposed engagement of KPMG LLP for services that are not pre-approved audit-related and tax services as described above must also be pre-approved on a case-by-case basis by the Audit Committee or the Chairman of the Audit Committee, or, if the Chairman is unavailable, another member of the Audit Committee. The members to whom such authority is delegated must report any approval decisions to the full Audit Committee at its next scheduled meeting. None of the services described in the table above entitled “Fees Billed to Cadence by KPMG During Fiscal 2007 and 2006” were approved by the Audit Committee under the de minimis exception provided by Rule 2-01(c)(7)(i)(C) of Regulation S-X.

 

The following table sets forth certain information regarding the ownership of Cadence’s common stock as of March 14, 2008, the record date, unless otherwise indicated below, by:

 

 

 

 

 

 

 

OVERALL OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAM

 

Cadence’s compensation program for its Named Executive Officers is designed to attract, motivate and retain highly qualified individuals with the leadership skills necessary to achieve Cadence’s annual and long-term business objectives and to create stockholder value. Cadence’s executive compensation program is based on the following underlying principles:

 

 

The Compensation Committee assesses Cadence’s executive compensation program annually to monitor Cadence’s adherence to these principles.

 

DETERMINING EXECUTIVE COMPENSATION

 

Competitive Compensation Levels

 

Each year the Compensation Committee benchmarks the competitiveness of the elements of the Named Executive Officers’ total direct compensation previously listed. The Compensation Committee also periodically reviews the competitiveness of the Named Executive Officers’ severance and change in control arrangements and the broad-based employee benefit plans in which Named Executive Officers participate (as discussed in more detail below).

 

In 2007, the Compensation Committee developed two separate peer groups for benchmarking purposes. One peer group was used to understand market trends with respect to pay programs and practices among business and talent competitors and other industry bellwethers, which is referred to in this proxy statement as the Direct Practices Peer Group. The other was used to assess the competitiveness of the Named Executive Officers’ total direct compensation in light of the total direct compensation offered to executives with similar titles and responsibilities at companies with which Cadence competes for talent, which is referred to in this proxy statement as the Primary Compensation Peer Group.

 

Direct Practices Peer Group

 

This group was determined qualitatively by the Compensation Committee with the assistance of its compensation consultant and is comprised of technology bellwethers, companies in nearby or adjacent markets, and other business and talent competitors. While the Compensation Committee monitors the compensation practices of the companies in this group, it does not generally consider the level of compensation that they actually pay to their executive officers (other than those for companies that are also in the Primary Compensation Peer Group) because of differences in the scope of job responsibilities or the breadth of the organizations reporting to executives holding the same or similar titles.

 

The following companies (four of which were also included in the Primary Compensation Peer Group) comprised the Direct Practices Peer Group for 2007:

 

 

Primary Compensation Peer Group

 

In order to reflect more accurately the pool from which executive talent is drawn and to which it is lost, this peer group is not limited to Cadence’s direct business competitors. Rather, the Compensation Committee included companies that have a technology emphasis, are located in the San Francisco Bay Area, are similar in size to Cadence, and currently or prospectively compete in the same talent market as Cadence. The group was determined by applying the following criteria: technology companies primarily located in the Silicon Valley, where Cadence is headquartered, with revenue between .5 and 2.5 times that of Cadence’s fiscal year 2006 revenue, and market capitalizations between .25 and 4 times that of Cadence’s market capitalization as of July 2007. The resulting group of 31 companies was used to assess the competitiveness of the Named Executive Officers’ base salaries, target and actual annual incentive compensation, long-term equity incentive opportunities, and total direct compensation.

 

The following companies (four of which were also included in the Direct Practices Peer Group) comprised the Primary Compensation Peer Group for 2007 for determining competitive compensation levels:

 

 

Compensation Determinations

 

Consistent with the general principles outlined above, after the Compensation Committee has determined the market levels of compensation based on the compensation paid by the Primary Compensation Peer Group, the Compensation Committee assesses the appropriateness of each Named Executive Officer’s compensation level relative to similar executives at the comparator companies. Cadence does not target Named Executive Officer compensation at a specific level or percentage relative to compensation provided by the companies in the Primary Compensation Peer Group, whether for total direct compensation or any element of total direct compensation. Instead, when determining compensation levels for the Named Executive Officers, the Compensation Committee takes into account not only the information regarding compensation paid to executives with similar titles and responsibilities at the companies in the Primary Compensation Peer Group, but also each of the following factors, without prescribing particular weightings:

 

Cadence Factors

 

 

Individual Factors

 

 

 

For each Named Executive Officer other than the CEO, the CEO makes recommendations to the Compensation Committee for annual adjustments to base salary, annual cash incentive compensation, and long-term equity incentive compensation components based upon the CEO’s assessment of the factors described above. The Compensation Committee reviews with the CEO these assessments and recommendations for each Named Executive Officer other than the CEO and determines whether or not to approve and/or modify the CEO’s recommendations. The CEO’s performance with respect to these individual factors is evaluated by the Compensation Committee. Annual adjustments to the CEO’s compensation levels for these elements of total direct compensation are based on these assessments without input from management.

 

ELEMENTS OF EXECUTIVE COMPENSATION

 

The executive compensation program is comprised of the following elements, although not all the Named Executive Officers receive each element listed under “other compensation and benefits”:

 

 

 

 

 

 

Consistent with the principles outlined above, a substantial portion of total direct compensation varies based upon Cadence’s achievement of its financial and operational objectives, as well as an executive’s individual performance objectives. Cadence does not have a pre-established policy or target for allocating between fixed and variable compensation or among the different types of variable compensation, although this allocation is influenced by the Compensation Committee’s assessment of the compensation practices of the companies in the Primary Compensation Peer Group. Instead, the Compensation Committee aims to provide fixed pay (base salary) at levels sufficient, but not greater, to attract and retain qualified executives. The remaining portion of total direct compensation is comprised of variable compensation in the form of annual cash incentive compensation and long-term equity incentives. In 2007, approximately 80% to 90% of each Named Executive Officer’s total direct compensation was allocated to variable compensation. Cadence believes that executives should be rewarded for achieving annual performance goals, but that consistent and sustained performance is the single most important influence on long-term stockholder value. Accordingly, the Named Executive Officers’ variable compensation is weighted towards long-term equity incentives rather than annual cash incentive compensation. In 2007, approximately 70% to 85% of each Named Executive Officer’s variable compensation was allocated to long-term equity incentives compensation.

 

Base Salaries

 

Cadence offers all of its Named Executive Officers an annual base salary to compensate them for services rendered during the year. Base salaries are essential for the attraction and retention of talented executives and are determined consistent with the methodology outlined above under “Compensation Determinations.” Salaries are

reviewed annually by the Compensation Committee, but do not automatically increase. Changes to base salaries, if any, are typically made in the first quarter of the year. In February 2007, the Compensation Committee reviewed the base salaries of the Named Executive Officers, and decided not to increase base salaries for 2007.

 

Annual Cash Incentive Compensation

 

Cadence provides all Named Executive Officers the opportunity to earn variable cash compensation under the stockholder-approved Cadence Senior Executive Bonus Plan. The purpose of this plan is to reward the Named Executive Officers for performance during a single fiscal year and to provide incentives for them to achieve Cadence’s annual business and financial goals, as measured against specific performance criteria relative to their respective business groups and Cadence’s overall business results. Bonus payouts are made semi-annually, with 40% of the annual target payable for performance in the first half of the year and 60% payable for performance in the second half. Greater emphasis is placed on the second half of the year because a greater share of annual revenue and profits are typically earned during that half of the year. The annual bonus paid to each Named Executive Officer is determined based upon the Named Executive Officer’s target bonus multiplied by a Cadence group modifier and an individual performance modifier (each described in more detail below). For each Named Executive Officer other than the CEO, the Compensation Committee reviews and approves (with or without modification, in its sole discretion) the CEO’s recommendations as to the executive’s target bonus based on the methodology outlined above under “Compensation Determinations”. The Compensation Committee also assigns the CEO a target bonus based on the methodology outlined above under “Compensation Determinations”. Target bonuses for Named Executive Officers are expressed as either a dollar amount or a percent of salary. In February 2007, the Compensation Committee reviewed the target bonus amounts for the Named Executive Officers, and decided not to make any changes for 2007.

 

Cadence Group Modifier

 

The Cadence group modifier is a percentage that reflects Cadence’s overall performance (the company performance modifier) and, for all Named Executive Officers except the CEO, the performance of the business group for which the Named Executive Officer is responsible (the business objectives modifier). The weightings and performance measures used to determine the Cadence group modifier (including both the performance metrics for the company performance modifier and the business group objectives) are reviewed semi-annually by the Compensation Committee, in consultation with the CEO, to assure that they align with what the Compensation Committee and the CEO believe are the most important factors that influence both annual business and financial performance and long-term stockholder value.

 

For 2007, the performance metrics for the company performance modifier were total revenue (defined as the total dollar value of revenue as disclosed in Cadence’s periodic reports on Forms 10-Q and 10-K) and non-GAAP operating margin (defined as non-GAAP income from operations, as disclosed in Cadence’s current reports on Form 8-K, which incorporate quarterly announcement of financial results, represented as a percentage of total revenue). The achievement of the company performance modifier is determined based on a formula.

 

The business objectives modifier is based on the achievement of qualitative short-term and long-term performance goals that vary by business group. For each business group, these goals are related to one or more of the following: operational excellence and efficiencies, new product development, customer satisfaction, innovation and goals related to Cadence’s long-term business strategy. The business objectives for the Chief Financial Officer included increasing operational excellence and efficiency. The business objectives for the Executive Vice President, Worldwide Field Operations included bookings and revenue growth and increased customer satisfaction through delivery of world-class customer support. The business objectives for the Executive Vice President, Products and Technologies Organization and Executive Vice President and General Manager, Verification Division were centered on increased innovation, achievement of product milestones and increased customer satisfaction. The business objectives for the Senior Vice President and General Counsel were focused on strategic and commercial transaction support, identification and protection of Cadence’s intellectual property, regulatory compliance and mitigation of legal risk. The Compensation Committee reviews the achievement of these goals based upon the CEO’s assessment of each business group’s performance relative to its specific objectives. The business objectives modifier for the CEO is the average of the business objective modifiers for each of his direct

reports. The Compensation Committee intends for the achievement of the business group goals at the 100% level to present a significant challenge to the Named Executive Officers. Over the past three years (comprising six semi-annual performance periods from 2005 through 2007), each Named Executive Officer met or exceeded all of his overall business group objectives.

 

For 2007, the total revenue target represented 35%, the operating margin target represented 30% and the business objectives modifier represented 35% of the company performance modifier. Performance targets for the company performance modifier were based on achievement of Cadence’s 2007 business plan and were approved by the Compensation Committee. Performance on each measure was determined independently (e.g., it was possible to miss the performance target for one or more measures and still receive a payout based upon the achievement of the remaining performance targets). For the first half of 2007, the total revenue target was $742 million and the non-GAAP operating margin target was 25.8%. For the second half of 2007, the total revenue target was $858 million and the non-GAAP operating margin target was 33.5%. For 2007, achievement of 90% of target level of total revenue and operating margin was required before any payment with respect of each such measure pursuant to the plan could be made. Cadence achieved total revenue of $756 million and operating margin of 26.3% for the first half of 2007 and total revenue of $859 million and operating margin of 34.0% for the second half of 2007, which results, combined with the Named Executive Officers’ achievement with respect to their business group objectives and the Compensation Committee’s determination of their individual performance modifier (discussed in more detail below) yielded the bonus awards shown in the Summary Compensation Table.

 

Individual Performance Modifier

 

The individual performance modifier is derived from subjective assessments of individual performance during the performance period, based upon the individual factors listed above in the “Compensation Determinations” section. Together with the CEO, the Compensation Committee evaluates the performance of each Named Executive Officer (other than the CEO) during the performance period and, based in part upon the CEO’s recommendations, approves the individual performance modifiers for each of the Named Executive Officers, other than the CEO. The Compensation Committee evaluates the CEO’s performance based upon the CEO’s individual performance and contributions, and Cadence’s overall performance. This evaluation determines the CEO’s individual performance modifier.

 

In February 2008, the Compensation Committee, consistent with the terms of the Senior Executive Bonus Plan, changed the structure of annual cash incentive compensation program for the Named Executive Officers for the 2008 fiscal year to provide for one payout based on full year performance, rather than semi-annual bonus payouts based upon performance in each half of the fiscal year. The performance criteria established under the program for 2008 are based upon the same metrics as used in 2007 (namely, total revenue and non-GAAP operating margin, as well as business group objectives). The Compensation Committee changed the performance periods from semi-annual to annual in order to focus the Named Executive Officers on consistent performance throughout the fiscal year.

 

Long-Term Equity Incentive Compensation

 

Consistent with the principles outlined above, long-term incentives are designed to provide the Named Executive Officers with an equity stake in Cadence, promote stock ownership to align the Named Executive Officers’ interests with those of Cadence’s stockholders and create significant incentives for executive retention. In addition, the Compensation Committee approves individual equity grants based on the methodology outlined above under “Compensation Determinations”.

 

In 2007, Cadence made equity grants in the form of stock options and restricted stock to the Named Executive Officers. Stock options provide an opportunity for Cadence to reward its Named Executive Officers if Cadence’s share price increases and the Named Executive Officers remain employed by Cadence during the period required for the options to vest. Awards of restricted stock align the interests of Named Executive Officers with the interests of stockholders through stock ownership, and increase the reward to the Named Executive Officers when Cadence’s stock price increases. Stock options and awards of restricted stock serve as a retention tool for the Named Executive Officers. Stock options granted to Named Executive Officers in 2007 vest monthly over four years from the date of

grant and expire seven years from the date of grant. Awards of restricted stock granted to Named Executive Officers in 2007 vest 25% on each of the first four anniversaries of the grant date.

 

When allocating long-term incentive compensation opportunities for Named Executive Officers other than the CEO, the Compensation Committee currently targets between 60% and 80% of the total value of equity grants in the form of restricted stock, with the remainder comprised of stock options with an exercise price equal to the fair market value of Cadence common stock on the grant date. The Compensation Committee believes this mix of restricted stock and options creates an effective tool for incentivizing and retaining those executives who are most responsible for influencing stockholder value.

 

In 2007, the equity grants made to the CEO were more heavily weighted towards stock options than the grants made to the other Named Executive Officers, with one-third of the total value of the CEO’s equity grants in the form of restricted stock, one-third in the form of stock options with an exercise price equal to the closing price of Cadence common stock on the grant date, and the remaining one-third in fully vested out-of-the-money stock options. The exercise price for the “out-of-the-money” stock options was equal to 125% of the closing price of Cadence common stock on the grant date. The CEO will not realize any value from the out-of-the-money options until shareholders have realized a 25% gain in the stock price over the price on the grant date. The Compensation Committee chose this mix to further promote share ownership, strengthen shareholder alignment, and incentivize sustained stock price growth. The Compensation Committee granted out-of-the-money stock options to the Chief Executive Officer and not the other Named Executive Officers to focus strong incentives for substantial appreciation in the stock price on the senior executive most able to affect the stock price by his individual actions and decisions.

 

Grant Timing Policy

 

The Compensation Committee and senior management monitor Cadence’s stock option and restricted stock grant policies to ensure that they comply with governing regulations and are consistent with good corporate practice. In each of 2006 and 2007, grants to executive officers were made at Compensation Committee meetings held in February, after results for the preceding fiscal year became publicly available, enabling the Compensation Committee to consider both the prior year’s performance and expectations for the succeeding year in making grant decisions. However, the Compensation Committee may make grants at any time of the year it deems appropriate.

 

Deferred Compensation

 

The Named Executive Officers may elect to defer compensation payable to them under Cadence’s 1994 Deferred Compensation Plan. This plan is designed to allow for retirement savings above the limits imposed by the Code for 401(k) plans on an income tax-deferred basis for Cadence employees at the level of vice president (or its equivalent) and above who choose to participate. Amounts deferred into the plan are held in accounts with values indexed to the performance of selected mutual funds or money market accounts. On January 1, 2007, Cadence eliminated, with respect to new deferrals, a self-directed investment option previously available under the plan. With the elimination of this investment option, the investment options made available under the plan are substantially similar to those available under Cadence’s tax-qualified 401(k) plan. Cadence does not provide a match on executive deferrals under the deferred compensation plan. Cadence maintains this plan for the purposes of providing a competitive benefit and allowing all participants, including the Named Executive Officers, an opportunity to defer income tax payments on their cash compensation.

 

Other Employee Benefit Plans

 

The Named Executive Officers are eligible for the same benefits available to Cadence employees generally. These include participation in a tax-qualified 401(k) plan, employee stock purchase plan, and group life, health, dental, vision, and disability insurance plans. Cadence also routinely benchmarks its broad-based employee benefit plans based upon a review of the benefits survey conducted by the Silicon Valley Employers’ Forum. Cadence aims to provide benefits to its employees that are consistent with market practice.

 

Perquisites

 

Cadence has decided not to provide any material perquisites and other personal benefits to the Named Executive Officers as part of its overall compensation philosophy. However, Cadence will provide perquisites selectively in extraordinary situations and as incentives and rewards for exceptional efforts and time commitments.

 

In connection with his initial hire, Cadence agreed to provide Michael J. Fister, President and CEO, with financial reimbursement related to his relocation to and housing in the San Jose area. Similarly, Cadence has provided relocation and housing assistance to Kevin Bushby, Executive Vice President, Worldwide Field Operations, in connection with his relocation from England to the San Jose area. The Compensation Committee believes that these benefits are reasonable and necessary to attract and/or retain each of these executives.

 

Severance Benefits

 

Cadence has entered into agreements with all of its current Named Executive Officers that provide for benefits upon termination of employment under certain circumstances, including in connection with a change in control of Cadence. Cadence provides these benefits as a means of remaining competitive, retaining executives, focusing executives on stockholder interests when considering strategic alternatives, and providing income protection in the event of involuntary loss of employment. Please refer to the discussion under “Potential Payments upon Termination or Change in Control and Employment Contracts” below for a more detailed discussion of these arrangements. In general, these arrangements provide for severance benefits upon Cadence’s termination of the Named Executive Officer’s employment without cause or resignation by the executive for good reason. In the event of a change in control of Cadence, and if the executive is terminated without cause or resigns for good reason, the Named Executive Officer will receive enhanced severance benefits. Accordingly, Cadence provides for severance benefits only in the event of a “double trigger,” because it believes that executives are materially harmed only if a change in control results in reduced responsibilities or compensation or loss of employment.

 

In early 2006, the Compensation Committee engaged its compensation consultant to provide information on typical industry practices concerning employment, severance, and change in control agreements. Based on this review, the Compensation Committee believes that Cadence’s current arrangements with the Named Executive Officers are consistent with competitive practices. The Compensation Committee intends to review these arrangements every few years or to respond to changing circumstances.

 

STOCK OWNERSHIP GUIDELINES

 

Cadence maintains stock ownership guidelines for its Named Executive Officers. The guidelines are designed to promote alignment with the interests of stockholders and Cadence’s commitment to sound corporate governance. Before establishing these guidelines, Cadence reviewed industry standard practices. The Compensation Committee has established the guidelines below. Currently, all of Cadence’s Named Executive Officers satisfy Cadence’s ownership guidelines.

 

Stock Ownership Guidelines

 

 

 

 

TAX CONSIDERATIONS

 

Section 162(m) of the Internal Revenue Code of 1986

 

Section 162(m) of the Code limits deductions for certain executive compensation in excess of $1,000,000 in any fiscal year. Certain types of compensation are deductible only if performance criteria are specified in detail and payments are contingent on stockholder approval of the compensation arrangement. Cadence attempts to structure its compensation arrangements to achieve deductibility under Section 162(m), unless the benefit of such deductibility is outweighed by the need for flexibility or the attainment of other corporate objectives. The Compensation Committee will continue to monitor issues concerning the deductibility of executive compensation and will take appropriate action if and when it is warranted. Since corporate objectives may not always be consistent with the requirements for full deductibility, the Compensation Committee is prepared, if it deems appropriate, to enter into compensation arrangements under which payments may not be deductible under Section 162(m). Thus, deductibility will not be the sole factor used by the Compensation Committee in ascertaining appropriate levels or modes of compensation.

 

In 2007, all annual incentive plan payments, stock option grants, and restricted stock awards were structured with the intent to qualify them as performance-based compensation under Section 162(m), and should be fully deductible.

 

Section 280G of the Internal Revenue Code of 1986

 

Section 280G of the Code disallows a company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a 20% excise tax on certain persons who receive excess parachute payments. Named Executive Officers are not provided with tax gross-up payments in the event their payments become subject to this excise tax, but instead are entitled to the best after-tax alternative. In other words, the Named Executive Officers are entitled to whichever of the following payments results in the largest after-tax amount:

 

 

Cadence chose to provide the Named Executive Officers with the best after-tax alternative to maximize the benefits provided to each executive in connection with a change in control while allowing Cadence to avoid making any gross-up payments.

 

In the event that a portion of the payout would be classified as an excess parachute payment, Cadence’s tax deduction would be disallowed under Section 280G and an excise tax would be imposed on the Named Executive Officer under Section 4999. Please refer to the discussion below under “Potential Payments upon Termination or Change in Control and Employment Contracts” for more detail on the potential lost tax deductions.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis above with management. In reliance on the review and discussions referred to above, the Compensation Committee recommended to the Board, and the Board approved, the inclusion of the Compensation Discussion and Analysis in this proxy statement and incorporation by reference into Cadence’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007.

 

COMPENSATION COMMITTEE

 

John B. Shoven, Chairman

Donald L. Lucas

George M. Scalise

 

No member of the Compensation Committee is, or was during or prior to fiscal 2007, an officer or employee of Cadence or any of its subsidiaries. None of Cadence’s executive officers serves or served as a director or member of the compensation committee of another entity in a case where an executive officer of such other entity serves or served as a director or member of the Compensation Committee of Cadence.

 

The following table shows, for fiscal year 2007, compensation awarded or paid to, or earned by, Cadence’s CEO, CFO, the three most highly compensated executive officers other than the CEO and CFO, and an additional individual for whom disclosure would have been provided as one of the three most highly compensated executive officers but for the fact that he was not serving as an executive officer at the end of 2007 (collectively referred to herein as the Named Executive Officers):

 

SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

Certain of the elements of compensation set forth in the Summary Compensation Table above and in the Grants of Plan-Based Awards table below reflect the terms of employment agreements between Cadence and each of Messrs. Fister, Porter, Bushby, Miller and McKeithen.

 

Michael J. Fister.  Cadence is party to an employment agreement with Mr. Fister pursuant to which Mr. Fister serves as President and Chief Executive Officer. The agreement provides for an initial base salary of $800,000 per year and for Mr. Fister’s participation in Cadence’s Senior Executive Bonus Plan at an annual target bonus of 100% of his base salary, each subject to review by the Board or the Compensation Committee from time to time. In 2005, the Compensation Committee increased Mr. Fister’s base salary to $1,000,000. In 2005, Mr. Fister bought a house in California, but as of the date of this proxy statement, Mr. Fister has not sold his houses in Oregon. Pursuant to the agreement as amended in May 2005 and December 2007, Mr. Fister was entitled to a housing allowance of $17,000 per month from May 16, 2005 until December 31, 2007, and such housing allowance was further extended from January 1, 2008 until the earlier of (a) December 31, 2008, or (b) the later closing date of the sale of each of Mr. Fister’s two private residences in Oregon and reimbursement of such other reasonable and actual relocation expenses (including broker’s commissions and closing costs paid in connection with the sale of his Oregon house)

incurred by Mr. Fister as may be agreed to by Cadence. Under the agreement, to the extent that any of the relocation benefits provided by the agreement, including the housing allowance, are included in Mr. Fister’s gross income for tax purposes, Mr. Fister will receive additional tax gross-up payments with respect to such amounts.

 

William Porter.  Cadence is party to an employment agreement with Mr. Porter pursuant to which Mr. Porter serves as Executive Vice President and Chief Financial Officer. The agreement provides for an initial base salary of $400,000 per year and for Mr. Porter’s participation in Cadence’s Senior Executive Bonus Plan at an annual target bonus of $300,000, each subject to review by the Board or the Compensation Committee from time to time. In 2005, the Compensation Committee increased Mr. Porter’s base salary to $450,000 per year and annual target bonus to $375,000, which annual target bonus was increased by the Compensation Committee in 2006 to 100% of his base salary.

 

Kevin Bushby.  Cadence is party to an employment agreement with Mr. Bushby pursuant to which Mr. Bushby serves as Executive Vice President, Worldwide Field Operations. The agreement provides for an initial base salary of $450,000 per year and for Mr. Bushby’s participation in Cadence’s Senior Executive Bonus Plan at an annual target bonus of $650,000, each subject to review by the Board or the Compensation Committee from time to time. In 2005, the Compensation Committee increased Mr. Bushby’s base salary to $500,000. Under the agreement, Cadence was also required to pay Mr. Bushby cost of living adjustment payments of $6,600 per month, net of taxes, and tax equalization payments for 2003 through 2005. Effective in 2007, Mr. Bushby’s cost of living adjustment payments were increased to $9,200 per month, net of taxes. In addition, under the agreement Cadence will cause the landlord, which is a wholly-owned subsidiary of Cadence, not to terminate Mr. Bushby’s residential lease described below under “Transactions with Related Persons” during Mr. Bushby’s full-time employment with Cadence (except upon Mr. Bushby’s default under the lease) and negotiate in good faith to extend the term of the residential lease if it expires during Mr. Bushby’s employment with Cadence.

 

James S. Miller, Jr.  Cadence is party to an employment agreement with Mr. Miller pursuant to which Mr. Miller serves as Executive Vice President, Products and Technologies Organization. The agreement provides for an initial base salary of $400,000 per year and for Mr. Miller’s participation in Cadence’s Senior Executive Bonus Plan at an annual target bonus of 100% of his base salary, each subject to review by the Board or the Compensation Committee from time to time.

 

R. L. Smith McKeithen.  Cadence is party to an employment agreement with Mr. McKeithen pursuant to which Mr. McKeithen will serve as Executive Vice President, effective April 1, 2008. The agreement provides for an initial base salary of $400,000 per year and for Mr. McKeithen’s participation in Cadence’s Senior Executive Bonus Plan at an annual target bonus of 100% of his base salary, each subject to review by the Board or the Compensation Committee from time to time. For each fiscal year (or shorter period over which executive bonuses are measured and paid) beginning with the 2008 fiscal year, Mr. McKeithen is guaranteed to receive an annual bonus at least equal to his target bonus. The agreement expires on March 31, 2010, unless it is renewed for additional one year periods by mutual agreement of Mr. McKeithen and Cadence.

 

Cadence has also entered into an Executive Release and Transition Agreement with Mr. Gavrielov. See “Potential Payments Upon Termination or Change in Control and Employment Contracts” below.

 

The proportion of salary to total compensation of the Named Executive Officers is explained above under “Compensation, Discussion and Analysis — Elements of Executive Compensation.”

GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2007

 

 

The actual payouts under the non-equity incentive plan awards granted to the Named Executive Officers are made under the Senior Executive Bonus Plan and are determined as described above under “Compensation Discussion and Analysis — Elements of Executive Compensation — Annual Cash Incentive Compensation.”

 

The stock awards granted to the Named Executive Officers were granted under the 1987 Plan and vest over four years, with 1/4th of the shares subject to such stock award vesting on each anniversary after the date of grant, subject to the achievement of certain specified performance goals intended to ensure that the awards qualify as “performance-based compensation” under Section 162(m) of the Code. The stock options granted to the Named Executive Officers were granted under the 1987 Plan and, with the exception of Mr. Fister’s grant of out-of-the-money options, vest over four years, with 1/48th of the shares subject to such option vesting at the end of each month after the date of grant. Prior to January 1, 2007, the exercise price of options granted under the 1987 Plan was equal to or greater than the average of the high and low price of Cadence common stock on the date of grant. As of January 1, 2007, the exercise price of options granted under the 1987 Plan is equal to the closing price of Cadence common stock on the date of grant. Dividends, if any, are payable to the holders of restricted stock issued under Cadence’s plans.

OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR END

 

 

 

 

 

OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2007

 

 

 

 

NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2007