<PAGE>
555 River Oaks Parkway
San Jose, California 95134
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the
Stockholders of CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), will be held at 3:00 p.m., May
11, 1995, at Cadence Design Systems, Inc., 2655 Seely Road,
San Jose, California, for the following purposes:
1. To elect ten (10) directors of the Company to
serve for the ensuing year and until their successors are
elected or until such directors' earlier resignation or
removal.
2. To ratify the appointment of Arthur Andersen LLP
as independent public accountants for the Company for the
current fiscal year.
3. To transact any other business which may properly
come before the meeting.
The foregoing items of business are more fully
described in the Proxy Statement accompanying this Notice.
Stockholders of record at the close of business on
March 17, 1995 will be entitled to notice of and to vote at
the Annual Meeting and at any continuation or adjournment
thereof.
By Order of the Board of Directors
/s/ H. Raymond Bingham
H. Raymond Bingham
Secretary
San Jose, California
April 1, 1995
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENVELOPE PROVIDED.
<PAGE>
----------------------------
PROXY STATEMENT
----------------------------
April 1, 1995
The accompanying proxy is solicited on behalf of the
Board of Directors of Cadence Design Systems, Inc., a
Delaware corporation (the "Company"), for use at the Annual
Meeting of the Stockholders of the Company to be held at
3:00 p.m. on May 11, 1995 at Cadence Design Systems, Inc.,
2655 Seely Avenue, San Jose, California (the "Meeting").
All holders of record of Common Stock, $0.01 par value per
share, of the Company ("Common Stock") on March 17, 1995
will be entitled to vote. At the close of business on that
date, the Company had 38,080,695 shares of Common Stock
outstanding and entitled to vote. A majority, or 19,040,348
shares, of the Common Stock will constitute a quorum for the
transaction of business. This Proxy Statement was first
mailed to stockholders on or about April 1, 1995.
An annual report for the fiscal year ended December 31,
1994 is enclosed with this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Stockholders of Common Stock are entitled to one vote
for each share held. Shares of stock may not be voted
cumulatively. Abstentions and broker non-votes will be counted
for determining whether a quorum exists. Abstentions will be
counted for the purposes of determining whether a proposal is
approved, but broker non-votes will not. The effect of an
abstention or broker non-vote will be the same as a vote against
adoption of a proposal.
Any person signing a proxy in the form accompanying
this Proxy Statement has the power to revoke it prior to the
vote at the Meeting pursuant to the proxy. A proxy may be
revoked, for example, by a subsequent proxy that is signed
by the person who signed the earlier proxy, if presented at
the Meeting, or by attendance at the Meeting and voting in
person.
Directors will be elected by a plurality of the votes
of the shares of Common Stock present in person or by proxy
at the Meeting and entitled to vote on the election of
directors.
The expenses of soliciting proxies in the enclosed form
will be paid by the Company. The Company has retained
Corporate Investor Communications, Inc. to assist in the
solicitation of proxies for which it will receive a fee from
the Company of approximately $5,500 plus out-of-pocket
expenses. Following the original mailing of the proxies and
other soliciting materials, employees of the Company will
request brokers, custodians, nominees and other record
holders to forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of Common
Stock and to request authority for the exercise of proxies.
In such cases, the Company, upon the request of the record
holders, will reimburse such holders for their reasonable
expenses.
<PAGE>
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
At the Meeting stockholders will elect directors to
hold office until the next annual meeting of stockholders
and until their successors have been elected and qualified
or until such directors' earlier resignation or removal.
Shares represented by the accompanying proxy will be voted
for the election of the ten nominees recommended by the
Company's management, unless the proxy is marked in such a
manner as to withhold authority to so vote. In the election
of directors, each stockholder is entitled to one vote for
each share held. Shares of Common Stock may not be voted
cumulatively. If any nominee for any reason is unable to
serve or will not serve, the proxies may be voted for such
substitute nominee as the proxy holder may determine. The
Company is not aware of any nominee who will be unable to or
for good cause will not serve as a director.
Election of Directors
Directors/Nominees
The names of the nominees, and certain information
about them (including their term of service), are set forth below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- --------------------- --------
<S> <C> <C>
Carol Bartz 46 Chairman and Chief Executive 1994
Officer, Autodesk, Inc.
Joseph B. Costello 41 President and Chief Executive 1987
Officer of the Company
Henry E. Johnston 51 Chairman of the Board of 1994
Systems & Networks, Inc.
Raymond J. Lane 48 President, Worldwide Operations, 1993
Oracle Corporation
Dr. Leonard Y.W. Liu 53 Board Member of the Company 1989
Donald L. Lucas 65 Chairman of the Board of the 1983
Company and Private Venture
Capital Investor
Dr.Alberto Sangiovanni- 47 Professor of Electrical Engineering 1992
Vincentelli and Computer Sciences, University
of California, Berkeley
George M. Scalise 60 Senior Vice President of Planning 1989
and Development and Chief
Administrative Officer, National
Semiconductor Corporation
Dr. John B. Shoven 47 Professor of Economics, 1992
Stanford University
James E. Solomon 58 Senior Vice President and Principal 1983
Technologist of the Company
</TABLE>
<PAGE>
CAROL BARTZ has served as a director of the Company
since February 1994. Ms. Bartz has been the Chairman and
Chief Executive Officer of Autodesk, Inc. since April 1992.
From 1983 to April 1992, Ms. Bartz served in various
positions with Sun Microsystems, Inc., most recently as Vice
President of Worldwide Field Operations. Ms. Bartz is also
a director of AirTouch Communications, Cisco Systems, Inc.,
The School of Business at the University of Wisconsin, the
California Chamber of Commerce, the National Breast Cancer
Research Foundation and the Foundation for the National
Medals of Science and Technology. She is also a trustee for
the Committee for Economic Development, a member of the
Corporate Advisory Board of the National Association of
Securities Dealers, Inc. and a member of the Business School
Advisory Council of Stanford University.
JOSEPH B. COSTELLO has served as President and a
director of the Company since May 1988. In addition, Mr.
Costello has served as Chief Executive Officer of the
Company since June 1988. Previously he served as a director
of SDA Systems, Inc. ("SDA"), from May 1987 to May 1988.
From March 1986 to March 1987, he served as SDA's President
and Chief Operating Officer. He is also a director of
Oracle Corporation, Microelectronics and Computer Technology
Corporation and Pano Corporation Display Systems.
HENRY E. JOHNSTON has served as a director of the
Company since July 1994. From 1983 to January 1994 Mr.
Johnston was Corporate Vice President and from 1989 was also
Division President of the Manufacturing and Distribution
Business Unit of Electronic Data Systems Corporation. Since
January 1994 Mr. Johnston has been a private individual
investor. Mr. Johnston is Chairman of the Board of
Directors of Systems & Networks, Inc.
RAYMOND J. LANE has served as a director of the Company
since November 1993. Mr. Lane has been President, Worldwide
Operations for Oracle Corporation since 1993. From July
1992 to October 1993, Mr. Lane was President of Oracle USA.
From August 1981 to June 1992, Mr. Lane held various
positions at BoozoAllen & Hamilton, most recently as Senior
Partner.
DR. LEONARD Y.W. LIU has served as a director of the
Company since June 1989. Dr. Liu also served as Chief
Operating Officer of the Company from January 1993 until
March 1995. Before joining the Company, Dr. Liu was
Chairman and Chief Executive Officer of Acer America
Corporation and President of Acer, Inc., personal computer
suppliers, from 1989 until March 1992. From 1969 until
April 1989, Dr. Liu held various technical and general
management positions at IBM Corporation, most recently as
Manager of its Santa Teresa Laboratory. Dr. Liu is a
director of Omni Science Corporation and Trident
Microsystems, Inc.
DONALD L. LUCAS has served as Chairman of the Board of
the Company since May 1988. Prior to this, Mr. Lucas served
as Chairman of the Board and director of SDA from its
inception in July 1983 to March 1987. Mr. Lucas has been a
private venture capital investor since 1960. He is a
director of Delphi Information Systems, Inc., ICOT
Corporation, Kahler Corporation, Macromedia, Inc., Oracle
Corporation, Quantum Health Resources, Inc., Racotek, Inc.,
Tri Care, Incorporated and Tricord Systems, Incorporated.
DR. ALBERTO SANGIOVANNI-VINCENTELLI has served as a
director of the Company since December 1992. Dr.
Sangiovanni-Vincentelli has been Professor of Electrical
Engineering and Computer Sciences at the University of
California at Berkeley since 1979.
<PAGE>
GEORGE M. SCALISE has served as a director since June
1989. Mr. Scalise has been Senior Vice President of
Planning and Development and Chief Administrative Officer of
National Semiconductor Corporation since August 1991. From
July 1987 to January 1991, Mr. Scalise was President and
Chief Executive Officer of Maxtor Corporation, a disk drive
manufacturer. He is also a director of SEMATECH, Tower
Semiconductor, Ltd., and Integrated Information Technology
Inc. Mr. Scalise is the Chairman of the Secretary of Energy
Advisory Board, U.S. Department of Energy. He is a member
of the Joint High Level Advisory Panel of the United States-
Israel Science and Technology Commission-U.S. Department of
Commerce, the Bay Area Economic Forum and the Semiconductor
Industry Association.
DR. JOHN B. SHOVEN has served as a director of the
Company since April 1992. Dr. Shoven has been Dean of
Humanities and Sciences at Stanford University since
September 1993. From 1979 to August 1993, he served as
Professor of Economics at Stanford University. He has also
served as Director for the Center for Economics Policy
Research at Stanford University since 1988.
JAMES E. SOLOMON has served as a director of the
Company since May 1988. Mr. Solomon has also served as
Senior Vice President and Principal Technologist for the
Company since February 1994. Prior to that, he served as
Senior Vice President of the Company's Analog Division from
February 1993 to February 1994 and as President of the
Company's Analog Division from December 1988 to February
1993. Mr. Solomon also served as Co-Chairman of the Board
of Directors of the Company from May 1988 until May 1989.
As a founder of SDA, Mr. Solomon served as its Chief
Executive Officer from its inception in July 1983 to May
1988, as its President from July 1983 to March 1987, and as
its Chairman of the Board from March 1987 until its merger
with ECAD, Inc. in May 1988. Mr. Solomon is also the
Chairman of the Board of Smart Machines, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF EACH OF THE NOMINATED DIRECTORS
Director Compensation
In 1994 the Company paid Mr. Lucas an annual retainer
fee of $75,000 as Chairman of the Board of Directors and
paid Mr. Shoven an annual retainer fee of $35,000 as
Chairman of the Compensation Committee of the Board of
Directors. For 1995, the Compensation Committee has
recommended that these annual retainers be increased to
$100,000 and $40,000, respectively, and it is expected that
the Board of Directors will approve the recommendation. All
other outside directors receive an annual retainer fee of
$22,000 and also receive $1,600 for each Board of Directors
meeting attended and $1,000 for each committee meeting
attended if held on a date other than the date of a Board of
Directors meeting. Messrs. Lucas and Shoven are not paid
for attendance at Board of Directors or committee meetings.
The Company has also granted non-qualified stock options to
each outside director under the 1993 Directors Stock Option
Plan or its predecessor plan. Under the 1993 Directors
Stock Option Plan (the "Directors Plan"), each non-employee
director of the Company is eligible to receive options to
purchase a maximum of 50,000 shares of the Company's Common
Stock, while the Chairman of the Board of Directors is
eligible to receive options to purchase an additional 50,000
shares for a maximum of 100,000 shares. Non-employee
directors are initially granted options to purchase 20,000
shares upon appointment to the Board of Directors and are
eligible to receive a second grant of 15,000 options at such
time as the options originally granted have vested and a
third grant of 15,000 options at such time as the aggregate
35,000 of previously granted options have vested. The
additional options for the Chairman of the Board of
Directors were authorized upon shareholder approval of an
amendment to the Directors Plan in May 1994. During 1994,
Mr. Johnston received a grant in the amount of 20,000 shares
under the Directors Plan. In the event that any future
director becomes Chairman of the Board of Directors, such
additional options will be granted on the date of such
appointment. The options granted under the Directors Plan
vest over four years, becoming exercisable as to one-third
of the shares on the anniversary of the date of grant and as
to 1/36th of the remaining shares each month thereafter. In
addition, Messrs. Shoven and Scalise each received non-plan
option grants of 15,000 shares on May 4, 1993, and Mr.
Johnston received a non-plan option grant for 15,000 shares
on July 5, 1994 in consideration of consulting services.
The Company has consulting agreements with Mr.
Sangiovanni-Vincentelli and Mr. Johnston. Under Mr.
Sangiovanni-Vincentelli's agreement, he received cash
compensation of $115,000 in 1994 for consulting services
related to various product, marketing and sales projects.
Under Mr. Johnston's agreement, he received cash
compensation of $3,300 and an option grant of 15,000 shares
(described above) in 1994 for various executive consulting
services.
Board of Directors' Meetings and Committees
The Board of Directors met four times during the year
ended December 31, 1994. No director attended fewer than
75% of the aggregate of the total number of meetings of the
Board of Directors and of the committees of the Board on
which he or she served. Standing committees of the Board
include an Audit Committee, a Compensation Committee and a
Nominating Committee.
Messrs. Lucas and Scalise are currently the members of
the Audit Committee. The Audit Committee met four times
during 1994. The function of the Audit Committee is to
review financial and auditing issues of the Company,
including the Company's choice of independent public
accounting firms, and to make recommendations to the Board
of Directors.
Messrs. Lucas and Shoven are currently the members of
the Compensation Committee. The Compensation Committee met
four times during 1994. Until May 5, 1994, the Compensation
Committee consisted of Messrs. Lucas and Lane. The function
of the Compensation Committee is to review and approve
general compensation plans of the Company, including option,
purchase, and bonus plans, as well as additional specific
compensation matters for the Chief Executive Officer and all
executive staff who report directly to the Chief Executive
Officer, including salary, bonuses and other incentive
plans, stock options and other forms of compensation.
Messrs. Costello, Liu, Lucas and Sangiovanni-
Vincentelli are currently members of the Nominating
Committee. The Nominating Committee met once during 1994.
The function of the Nominating Committee is to make
recommendations to the Board of Directors regarding nominees
to serve on the Board. The Nominating Committee will
consider nominees to the Board of Directors of the Company
recommended by stockholders.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as
of February 28, 1995, with respect to the beneficial
ownership of the Company's Common Stock by: (i) each
stockholder known by the Company to be the beneficial owner
of more than five percent of the Company's Common Stock;
(ii) each director and nominee; (iii) each Executive Officer
named in the Summary Compensation Table below and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and
Nature of Beneficial Percent
Name of Beneficial Owner Ownership(1) of Class
------------------------ -------------------- ---------
<S> <C> <C>
Massachusetts Financial Services (2),(3) 3,596,800 9.3%
500 Boylston Street
Boston, MA 02116
Nicholas-Applegate Capital Management (2),(4) 2,051,400 5.3%
466 Lexington Avenue
New York, NY 10017
Joseph B. Costello (5) 917,283 2.4%
James E. Solomon (6) 383,215 1.0%
Leonard Y.W. Liu (7) 286,843 *
H. Raymond Bingham (8) 149,750 *
M. Robert Leach (9) 94,838 *
Donald L. Lucas (10) 76,323 *
Alberto Sangiovanni-Vincentelli (11) 43,438 *
John B. Shoven (12) 29,583 *
Henry E. Johnston (13) 17,300 *
George M. Scalise (14) 12,916 *
Raymond J. Lane (15) 9,230 *
Carol Bartz (16) 7,691 *
All officers and directors as
a group (17 persons) (17) 2,129,351 5.5%
</TABLE>
_______________________
* Less than 1%
<PAGE>
(1) Unless otherwise indicated below, each holder had sole
voting and sole investment power with respect to all
shares beneficially owned, subject to community property
laws where applicable.
(2) The number of shares shown as beneficially owned by
Nicholas-Applegate Capital Management and Massachusetts
Financial Services is based on their Schedule 13Gs for the
period ended December 31, 1994. As of February 28, 1995,
the Company has been notified that Massachusetts Financial Services
and Nicholas-Applegate Capital Management hold approximately
3,745,000 and 1,562,300 shares, respectively, of the Company's
common stock.
(3) Massachusetts Financial Services has sole dispositive
power with respect to all of the shares listed above, sole voting
power with respect to 3,427,400 shares and no shared voting
power.
(4) Nicholas-Applegate Capital Management has sole
dispositive power with respect to all of the shares
listed above, sole voting power with respect to 1,610,400
shares and no shared voting power.
(5) Includes 657,283 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(6) Includes 128,853 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(7) Includes 279,993 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(8) Includes 143,750 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(9) Includes 91,666 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(10) Represents 36,740 shares held under a trust agreement
for the benefit of Mr. Lucas and his wife and 39,583
shares subject to an option that is exercisable within 60
days of February 28, 1995.
(11) Includes 36,336 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(12) Represents 29,583 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(13) Includes 15,000 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(14) Represents 12,916 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(15) Represents 9,230 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(16) Represents 7,691 shares subject to an option that is
exercisable within 60 days of February 28, 1995.
(17) Includes all shares described in footnotes (5) - (16)
above plus 3,497 owned shares and 97,444 additional shares
subject to options exercisable within 60 days of February 28, 1995.
<PAGE>
PROPOSAL NO. 2 - RATIFICATION OF SELECTION OF INDEPENDENT
PUBLIC ACCOUNTANTS
The Company has selected Arthur Andersen LLP as its
principal independent accountants to perform the audit of
the Company's financial statements for fiscal year 1995, and
the stockholders are being asked to ratify such appointment.
Arthur Andersen LLP audited the Company's financial
statements for 1993 and 1994. Representatives of Arthur
Andersen LLP will be present at the Meeting, will be given
an opportunity to make a statement at the meeting if they
desire to do so, and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP
EXECUTIVE COMPENSATION
The following table sets forth all compensation
awarded, earned or paid for services rendered in all
capacities to the Company and its subsidiaries during each
of 1992, 1993 and 1994 to the Company's Chief Executive
Officer and the Company's four most highly compensated
executive officers other than the Chief Executive Officer
who were serving as executive officers at the end of 1994
(collectively, the "Named Officers"). This information
includes the dollar values of base salaries, bonus awards,
the number of stock options granted and certain other
compensation, if any, whether paid or deferred. The Company
does not grant SARs and has no other long-term compensation
benefits.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
------------------------------------------
Long Term
Compensation
Awards
Securities
Name and Other Under-
Principal Annual Com- lying
Position Year Salary $ Bonus $ pensation Options (#)
------------------------- ---- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Joseph B. Costello 1994 550,000 601,438 - -
President and Chief 1993 550,000 112,500 - 750,000(4)
Executive Officer 1992 500,165 400,000 - 400,000(5)
Leonard Y.W. Liu 1994 475,000 373,969 - -
Chief Operating Officer 1993 475,000(1) 68,750 - 800,000(4)
1992
H. Raymond Bingham 1994 300,000 269,875 19,582(3) -
Executive Vice President & 1993 165,111(2) 110,000 115,207(3) 300,000(4)
Chief Financial Officer 1992
M. Robert Leach 1994 300,000 205,875 4,077(3) -
Senior Vice President, 1993 164,772(2) 82,350 57,023(3) 200,000(4)
Spectrum Services 1992
James E. Solomon 1994 225,000 138,400 - -
Senior Vice President, 1993 225,000 25,000 - 80,000(4)
Principal Technologist 1992 213,029 80,000 - 25,000(5)
</TABLE>
<PAGE>
(1) Employment commenced in January 1993.
(2) Represents a partial year salary for 1993 (employment
commenced in May 1993 for Mr. Bingham and in June
1993 for Mr. Leach).
(3) Represents reimbursement of relocation and moving
expenses.
(4) Includes original option grants of 250,000 shares to
Mr. Costello, 400,000 shares to Mr. Liu, 300,000 shares
to Mr. Bingham, 200,000 shares to Mr. Leach and
35,000 shares to Mr. Solomon. All 400,000 of Mr. Liu's
options were repriced in 1993. The remaining options
for Mr. Costello and Mr. Solomon were granted prior to
January 1993 and were repriced in 1993.
(5) Includes original grants of 100,000 shares to Mr.
Costello and 25,000 shares to Mr. Solomon in 1992, all of
which were repriced in 1992. The remaining options for
Mr. Costello were granted prior to January 1, 1992 and
were repriced in 1992.
No options were granted to the Named Officers during 1994.
The following table sets forth certain information
concerning the number and value at December 31, 1994 of
unexercised "in the money" options held by the Named
Officers. The values set forth below have not been, and may
never be realized, and are based on the positive spread
between the respective exercise prices of outstanding stock
options and the average of the high and low price of the
Company's Common Stock. The average of the high and low
price of the Company's Common Stock on December 30, 1994 was
$20.63. None of the Named Officers exercised any options
during 1994.
AGGREGATE OPTION EXERCISES IN 1994
AND DECEMBER 31, 1994 OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
12/31/94 12/31/94
---------------- --------------------
Shares
Acquired
On Value Exercisable/ Exercisable/
Exercise Realized Unxercisable Unexercisable
-------- --------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph B. Costello -- -- 580,891 394,109 $6,743,416 $4,333,147
Leonard Y.W. Liu -- -- 233,879 181,121 $2,660,618 $2,110,319
H. Raymond Bingham -- -- 118,750 181,250 $1,283,984 $1,959,766
M. Robert Leach -- -- 75,000 125,000 $ 679,688 $1,132,813
James E. Solomon -- -- 135,935 44,065 $1,441,475 $ 475,400
</TABLE>
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee Report on Executive
Compensation shall not be deemed to be incorporated by
reference by any general statement incorporating by
reference this Proxy Statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
The Compensation Committee (the "Committee") of the
Board of Directors is composed of two non-employee
directors. The members of the Committee are Messrs. Lucas
and Shoven. Although Mr. Costello attends meetings of the
Committee, he does not participate in deliberations that
relate to his own compensation.
Compensation Committee Policy
The Committee typically establishes base salary levels
and target bonuses for the Chief Executive Officer ("CEO")
and other executive officers of the Company at or about the
beginning of each fiscal year. The Committee acts on behalf
of the Board of Directors to establish the general
compensation policy of the Company for all executive
officers of the Company. The Committee administers the
equity incentive plans, including the 1987 Stock Option Plan
(the "Option Plan") and the Bonus Plan for Executive
Officers (the "Bonus Plan"). The Committee believes that
the compensation of the CEO and the Company's other
executive officers should be greatly influenced by the
Company's performance. Consistent with this philosophy, a
designated portion of the compensation of each executive is
contingent upon corporate performance and adjusted where
appropriate, based on an executive's performance against
personal performance objectives. Long-term equity
incentives for executive officers are provided through the
granting of stock options under the Option Plan. Stock
options generally have value for the executive only if the
price of the Company's stock increases above the fair market
value on the grant date and the executive remains in the
Company's employ for the period required for the shares to
vest. During the formal Committee meetings in 1994, all
discussions regarding compensation of the CEO were held
without his attendance. Similarly, none of the other
executive officers of the Company were present during
discussions regarding their compensation.
The base salaries, incentive compensation and stock
option grants of the executive officers are determined in
part by the Committee in reliance on the Radford Survey of
the prevailing competitive salaries in the technology sector
for similar positions and by evaluating those salary
standards against the achievement by the Company of its
corporate goals. The compensation of the Company's
executive officers was compared to comparable survey
positions and competitive market compensation levels to
determine base salary, target bonuses and target total cash
compensation. Practices of such companies with respect to
stock option grants were also reviewed and compared. In
preparing the performance graph for its 1995 Proxy
Statement, the Company used the Standard & Poor's High
Technology Composite Index (the "S&P High Technology Index")
as its published line of business index.
The survey companies selected were intended to match
the Company closely in terms of such things as product or
industry, geography and revenue levels. A significant
percentage of the companies in the survey base, for
instance, had average sales that closely approximate the
Company's revenue level. A portion of the companies in the
S&P High Technology Index were included in this survey. The
balance of the S&P High Technology Index companies, however,
were too large or of a different business profile, and would
have incorrectly increased the market compensation
comparisons used to adjust executive officer salaries. The
additional companies in the survey base were felt to be
relevant by the Company's independent compensation
consultants because they compete for executive talent with
the Company notwithstanding the fact that they are not
included in the S&P High Technology Index.
1994 Executive Compensation
Base Compensation. The foregoing information along
with the CEO's recommendation of base salary and target
bonus for 1994 for each executive officer, other than the
CEO, was presented to the Committee in January 1994. The
Company sets its salaries for executive officers, including
the CEOs, at about the seventy-fifth percentile of the range
of salaries paid by the companies referred to above. This is
consistent with the corporate wide policy of setting salary levels
for all other employee classifications between the fiftieth the
seventy-fifth percentile. The Committee reviewed the
recommendation by the CEO and the performance and market
data outlined above and established a base salary level to
be effective January 1, 1994 for each executive officer and
the CEO (see specific report on CEO compensation below).
Incentive Compensation. As more fully discussed
below, the Committee also reviewed and approved the 1994
Company performance targets to be used for purposes of bonus
determination, which targets are included in the Company's
1994 operating plan as approved by the full Board of
Directors. The Bonus Plan is established by the Board of
Directors at the start of each year. The Committee in its
discretion assigns a target bonus to each executive officer
(expressed as a percentage of the executive officer's base
salary), approves Company performance objectives to be used
for bonus determination, approves the overall structure and
mechanics of the Bonus Plan, and after the end of the year,
in its discretion assigns an individual performance factor
for the CEO and approves individual performance factors for
other executive officers. As a general rule, provided that
such threshold Company performance levels are achieved, the
target bonus pool (the sum of participants' target bonuses)
and individual target bonuses are adjusted on the basis of
the percentage relationship of actual to targeted earnings
per share ("EPS"). In addition, in the Committee's
discretion, each executive officer's target bonus is further
adjusted to take account of individual performance. The
total of individual bonuses is controlled by the overall
bonus pool, as adjusted by the EPS performance factor and
individual performance. In January 1995, the Committee
determined bonus awards for 1994 for executive officers
covered by the Bonus Plan, including the CEO. Bonuses were
determined with reference to the EPS targets and individual
performance. The Committee determined that bonuses should
be paid to executive officers for all of the annual target
bonus established in January 1994. The executive officers
also participated in a company-wide performance bonus
program based on EPS results on a quarterly basis, and, like
other senior management, can elect to participate in the
Company's non-qualified deferred compensation plan.
Stock Options. Stock options typically have been
granted to executive officers when the executive first joins
the Company, in connection with a significant change in
responsibilities and, occasionally, to achieve equity within
a peer group. The Committee may grant additional stock
options to executives to continue to retain such executives
and provide incentives. The number of shares subject to
each stock option granted is based on anticipated future
contribution and ability to impact corporate and/or business
unit results, past performance or consistency within the
executive's peer group. The stock options generally become
exercisable over a four-year period and are granted at a
price that is equal to the fair market value of the
Company's Common Stock on the date of grant. In 1994, stock
options were granted, in the Committee's discretion to two executive
officers who were not Named Officers as incentives for them to become
employees and align their interests with those of the stockholders.
1994 CEO Compensation
Compensation for the CEO is determined through a
process similar to that discussed above for executive
officers in general.
In January 1994 the Committee established a base salary
for Mr. Costello which equaled his 1993 base salary. The
Committee also established a target bonus for Mr. Costello
under the 1994 Bonus Plan. The 1994 base salary level and
target bonus were based, in the Committee's discretion, upon
a number of factors, including a) the Company's EPS
objectives for 1994, b) individual performance objectives
established by the Committee for Mr. Costello for 1994, and
c) the market compensation data discussed above.
Following the process discussed above for other
executive officers of the Company, the Committee in January
1995 determined Mr. Costello's bonus for 1994 under the
Bonus Plan. The Committee concluded that Mr. Costello
should receive all of the annual bonus target established
for him in January 1994.
Compliance with Section 162(m) of the Internal Revenue
Code of 1986. The Omnibus Budget Reconciliation Act of 1993
added Section 162(m) to the Code, which limits deductions
for certain executive compensation in excess of $1 million.
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. The Company believes that it is in the best
interests of its stockholders to structure compensation
arrangements to achieve deductibility under Section 162(m),
except where the benefit of such deductibility is outweighed
by the need for flexibility or the attainment of other
corporate objectives. Due to the Company's excellent
performance in 1994, the Company paid Mr. Costello
nondeductible compensation of approximately $100,000
notwithstanding its indication in its 1994 proxy that it did
not expect to pay nondeductible compensation and intended to
comply with the requirements of Section 162(m). The Company
believes that this nondeductible compensation is justified
in light of the Company's 1994 performance. With respect to
1995, the Committee will continue to monitor issues
concerning the deductibility of executive compensation and
will take appropriate action if and when it is warranted.
To this end, the Company's 1987 Stock Option Plan meets the
transition rule requirements of Section 162(m). As such,
all awards under the 1987 Stock Option Plan will be
deductible under Section 162(m). With respect to
compensation other than stock options, since corporate
objectives may not always be consistent with the
requirements for full deductibility, the 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 Committee in ascertaining
appropriate levels or modes of compensation.
COMPENSATION COMMITTEE
John Shoven, Chairman
Donald L. Lucas
<PAGE>
Company Stock Price Performance
The stock price performance graph below includes
companies required by the Securities and Exchange Commission
and shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933,
as amended, or under the Securities Exchange Act of 1934, as
amended, except to the extent the Company specifically
incorporates this information by reference, and shall not
otherwise be deemed soliciting material or filed under such
Acts.
The graph below compares the cumulative total
shareholder return on the Common Stock of the Company from
January 1, 1990 to December 31, 1994 with the cumulative
total return on the S&P 500 Composite Index and the S&P High
Technology Index over the same period (assuming the
investment of $100 in the Company's Common Stock and in each
of the other Indexes on January 1, 1990, and reinvestment of
all dividends).
(STOCK PRICE PERFORMANCE GRAPH APPEARS HERE)
<TABLE>
MEASUREMENT PERIOD S&P High
Cadence Design S&P 500 Technology
(Fiscal Year Covered) Systems Inc. Index Composite
--------------------- --------------- ---------- -----------
<S> <C> <C> <C>
Measurement point-12/31/89 $100 $100 $100
Fiscal Year Ended 12/31/90 $112 $97 $102
Fiscal Year Ended 12/31/91 $118 $126 $117
Fiscal Year Ended 12/31/92 $101 $136 $121
Fiscal Year Ended 12/31/93 $55 $150 $149
Fiscal Year Ended 12/31/94 $97 $152 $174
</TABLE>
<PAGE>
Board of Directors and Compensation Committee Interlocks and
Insider Participation
Mr. Costello, the Chief Executive Officer and a member
of the Board of Directors of the Company, has been a member
of the board of directors of Oracle Corporation since April
1990. Mr. Lucas, Chairman of the Board of Directors and a
member of the Compensation Committee, has also been a member
of the board of directors of Oracle Corporation since March
1980. Mr. Lane, a member of the Compensation Committee
until May 1994, was an executive officer of Oracle
Corporation in 1994. The members of the Compensation Committee
are currently Messrs. Donald L. Lucas and John Shoven, who is
Chairman of the Compensation Committee.
Certain Transactions
From January 1, 1994 to the present, there have been no
transactions involving in excess of $60,000, between the
Company and any current executive officer, director, 5%
beneficial owner of the Common Stock or member of the
immediate family of any of the foregoing persons, in which
one of the foregoing individuals or entities had a material
interest, except for the transactions identified in this
section and certain transactions identified in "Executive
Compensation" and "Director Compensation" above.
In connection with the Company's stock repurchase program, in 1994
the Company repurchased 550,000 shares of common stock for $9,156,250
and in 1995 purchased 1,000,000 warrants to purchase the Company's
common stock for $12,125,000 from Comdisco, Inc., a 5% beneficial owner
as of December 31, 1993.
On February 9, 1995, the Board of Directors of the
Company approved a transaction without the participation of
Chairman Lucas and member Johnston, which will result in
additional forms of compensation to both Mr. Lucas and Mr.
Johnston. Pursuant to contract, the Company has transferred
its rights in a product referred to as BONeS (registered
trademark) (Block Oriented Network Simulator) along with related
assets and personnel to a new company in exchange for a 42.5% interest
in the new company. Third party investors have agreed to
contribute approximately $4 million for a 32.5% interest in
the new company. The 25% balance of the equity interest is
reserved for management of the new company. The new
company's purpose is to further develop and market BONeS (registered
trademark) to the broader commercial market, leaving the electronic
design automation market for the Company (through its Alta
division) for an initial restricted period. The new company
is expected to have the necessary focus to fully develop
this market and to generate returns for the Company's and
other investors' contributions.
Mr. Lucas has an interest in two of the third party
investors. He is chairman of the Richard M. Lucas Cancer
Foundation which has agreed to invest approximately $500,000
in the new company's Series B Preferred Stock. The Foundation is
a private family foundation organized in support of cancer
research from which Mr. Lucas derives no personal economic
benefit. Mr. Lucas also has various direct and indirect
non-controlling interests in Coral IV Limited Partnership,
which will invest approximately $2,000,000 in the new
company Series B Preferred Stock. In the aggregate, these
interest in Coral IV represent less than ten percent of the
total equity in Coral IV.
Mr. Johnston will initially serve as chairman of the
board of the new company, for which he will be remunerated
at the rate of $50,000 per year. For such services, Mr.
Johnston will also receive options or equivalent rights to
buy approximately 150,000 shares of the new company at $0.25
per share, such options or restricted stock vesting 25%
after 12 months and the remaining 75% vesting on a monthly
basis over the following 36 months. These shares represent
approximately three percent of the equity in the new
company. Other members of the initial management team will
also be awarded options on the same price and vesting terms.
The Company has agreed to provide various corporate
services (e.g., accounting, collections, employee benefits
administration) to the new company at cost through 1995.
All transactions from January 1, 1994 to the present
between the Company and any current executive officer or
director have been approved by a majority of the disinterested
members of the Company's Board of Directors. Any future transactions
with officers, directors or affiliates will be approved by a majority
of the disinterested members of the Board of
Directors and will be on terms that are no less favorable to
the Company than could be obtained from unaffiliated third
parties and that may reasonably be expected to benefit the
Company.
The Company's policy is to enter into agreements with
each of its directors and executive officers providing for
the indemnification of such persons to the fullest extent
permitted by law for any liability they may incur by reason
of their service as officers and/or directors to the
Company.
Compliance with Section 16(a) of The Securities Exchange Act
of 1934
The Company has reviewed all Forms 3, 4 and 5 filed
with respect to 1994 and based thereon has determined that
there has been no failure to timely file any reports
required by Section 16(a) of the Securities Exchange Act of
1934 for 1994 or prior years, except that one Form 3
initially filed for Mr. Johnston, a member of the Board of
Directors, was amended to reflect additional ownership of
300 shares of the Company's common stock. This amended Form
3 was filed in March 1995.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the Company's
Proxy Statement and form of proxy relating to the Company's
1996 Annual Meeting must be received by December 3, 1995.
OTHER BUSINESS
The Board of Directors does not presently intend to
bring any other business before the Meeting and, so far as
is known to the Board of Directors, no matters are to be
brought before the Meeting except as specified in the notice
of the Meeting. As to any business that may properly come
before the Meeting, however, it is intended that proxies, in
the form enclosed, will be voted in respect thereof in
accordance with the judgment of the persons voting such
proxies.
By Order of the Board of Directors
H. RAYMOND BINGHAM
Secretary
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. THANK YOU FOR YOUR
PROMPT ATTENTION TO THIS MATTER.
<PAGE>
Proxy Proxy
Cadence Design Systems, Inc.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 1995
The undersigned hereby appoints Joseph B. Costello and
Donald L. Lucas, or either of them, each with power of
substitution, to represent the undersigned at the Annual
Meeting of Stockholders of Cadence Design Systems, Inc. (the
"Company") to be held at Cadence Design Systems, Inc., 2655
Seely Road, San Jose, California, on May 11, 1995 at 3:00
p.m. and any continuation or adjournment thereof, and to
vote the number of shares the undersigned would be entitled
to vote if personally present at the meeting on the
following matters.
(Continued and to be signed on reverse side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
THE SHARES WILL BE VOTED AS DIRECTED ON REVERSE. IN THE ABSENCE OF
DIRECTION, THIS PROXY WILL BE VOTED FOR THE TEN NOMINEES FOR ELECTION
AND FOR PROPOSAL 2.
<PAGE>
Cadence Design Systems, Inc.
Please mark vote in oval in the following manner using dark ink only. [ ]
The Board of Directors recommends a vote FOR all nominees and FOR Proposal 2.
1. ELECTION OF DIRECTORS
For all
For Withheld Except
Nominees: Carol A. Bartz,
Joseph B. Costello, Henry E.
Johnston, Raymond J. Lane, [ ] [ ] [ ]
Leonard Y.W. Liu, Donald L. Lucas,
Alberto Sangiovanni-Vincentelli,
George M. Scalise, John B. Shoven, _____________________
and James E. Solomon. Nominee Exception
(INSTRUCTION: To withhold authority
to vote for any individual nominee,
write that nominee's name in the space
provided to the right).
2. RATIFICATION OF SELECTION OF ARTHUR For Withheld Abstain
ANDERSEN LLP, INDEPENDENT PUBLIC
ACCOUNTANTS. [ ] [ ] [ ]
3. In their discretion, upon such other For Withheld Abstain
business as may properly come before
the meeting or any adjournment thereof. [ ] [ ] [ ]
The undersigned hereby acknowledges receipt of: (a)
Notice of Annual Meeting of Stockholders of the Company, (b)
accompanying Proxy Statement, and (c) Annual Report to Stockholders
for the year ended December 31, 1994.
Dated: ___________________________, 1995
Signature(s): _______________________________
_______________________________
Sign exactly as your name(s) appears on your stock
certificate. If shares of stock stand of record in the
names of two or more persons or in the name of husband and
wife, whether as joint tenants or otherwise, both or all of
such persons should sign the above Proxy. If shares of
stock are held of record by a corporation, the Proxy should
be executed by the President or Vice President and the
Secretary or Assistant Secretary, and the corporate seal
should be affixed thereto. Executors or administrators or
other fiduciaries who execute the above Proxy for a deceased
stockholder should give their full title. Please date the
Proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU
ARE URGED TO SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN
ENVELOPE SO THAT YOUR STOCK MAY BE REPRESENTED AT THE
MEETING.
