Convertible Note Hedge Transaction

Hedge Agreement

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CADENCE DESIGN SYSTEMS INC

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Title: Convertible Note Hedge Transaction
Date: 2/23/2007
Industry: SOFTWR

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exv10w93

Exhibit 10.93

Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
Attention: Manager, Fixed Income Settlements
Facsimile: 44 207 995 2004
Telephone: 44 207 995 3769


	December 14, 2006

To: Cadence Design Systems, Inc.
Bldg. 5, MS 5B1
2655 Seely Avenue
San Jose, CA 95134
Attention: Legal Department
Telephone No.: (408) 943-1234
Facsimile No.: (408) 943-0513

Re: Convertible Note Hedge Transaction

Reference: 06824055

The purpose of this letter agreement is to confirm the terms and conditions of the Transaction entered into between Merrill Lynch International (“Dealer”), represented by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Agent”), as its agent, and Cadence Design Systems, Inc., a Delaware corporation (“Counterparty”), on the Trade Date specified below (the “Transaction”). This letter agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below. This Confirmation shall replace any previous letter and serve as the final documentation for the Transaction.

The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms used herein have the meanings assigned to them in the Offering Memorandum dated December 14, 2006 (the “Offering Memorandum”) relating to the USD 250,000,000 principal amount of Convertible Senior Notes due December 15, 2013 (the “Convertible Notes” and each USD 1,000 principal amount of Convertible Notes, a “Convertible Note”) issued by Counterparty pursuant to an Indenture to be dated on or about December 19, 2006 between Counterparty and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”). In the event of any inconsistency between the terms defined in the Offering Memorandum and this Confirmation, the Confirmation shall govern. For the avoidance of doubt, references herein to sections of the Indenture are based on the draft of the Indenture most recently reviewed by the parties at the time of execution of this Confirmation. If any relevant sections of the Indenture are changed, added or renumbered following execution of this Confirmation, the parties will amend this Confirmation in good faith to preserve the economic intent of the parties. The Transaction is subject to early unwind if the closing of the Convertible Notes is not consummated for any reason, as set forth below in Section 9(g).

Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.

1. This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form

a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the “Agreement”) as if Dealer and Counterparty had executed an agreement in such form (but without any Schedule except for the election of the laws of the State of New York as the governing law) on the Trade Date. In the event of any inconsistency between provisions of that Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement.

2. The terms of the particular Transaction to which this Confirmation relates are as follows:


General Terms:

	Trade Date:	December 14, 2006

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

	Option Type:	Call

	Buyer:	Counterparty

	Seller:	Dealer

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

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

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

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

	Applicable Percentage:	60%

	Strike Price:	USD 21.15

	Premium:	USD 40,590,000

	Premium Payment Date:	December 19, 2006 or such later date as agreed upon by the parties

	Exchange:	NASDAQ Global Select Market.

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


Exercise and Valuation:

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

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

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

	Expiration Time:	At the close of trading of the regular trading session on the Exchange

	Expiration Date:	Each Exercise Date.

	Final Expiration Date:	The earlier of (x) the last day on which any Convertible Notes remain outstanding and (y) December 15, 2013.

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

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


		Settlement Obligation (as defined below) as appropriate to reflect the additional costs (including, but not limited to, hedging mismatches and market losses) and reasonable expenses incurred by Dealer in connection with its hedging activities (including the unwinding of any hedge position) as a result of its not having received such notice prior to the Notice Deadline; provided further that Counterparty shall not be required to deliver any such notice of exercise with respect to any Exercise Date occurring on or after the 23rd scheduled “Trading Day”, as defined in the Indenture, prior to December 15, 2013.

	Dealer’s Telephone Number and Telex and/or Facsimile Number and Contact Details for purpose of Giving Notice:	To be provided by Dealer.

Settlement Terms:

	Method of Settlement:	Net Share Settlement

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

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

	Notice of Convertible Obligation:	No later than the Exchange Business Day immediately following the last day of any Observation Period, Counterparty shall give Dealer notice of the final number of Shares comprising the relevant Convertible Obligation for the relevant Exercise Date (or, for the Exercise Dates occurring on or after the 23^rd scheduled “Trading Day” prior to December 15, 2013, the


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

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

	Failure to Deliver:	Applicable

3. Additional Terms applicable to the Transaction:

Adjustments applicable to the Transaction:

	Method of Adjustment:	Notwithstanding Section 11.2 of the Equity Definitions, upon the occurrence of any “Adjustment Event” set forth in Sections 13.03(a), (b), (c), (d), (e) and (f) of the Indenture, the Calculation Agent shall make a corresponding adjustment, if necessary, to the terms relevant to the exercise, settlement or payment of the Transaction, to the extent an analogous adjustment is made under the Indenture. Immediately upon the occurrence of any Adjustment Event, Counterparty shall notify the Calculation Agent of such Adjustment Event; and once the adjustments to be made to the terms of the Indenture and the Convertible Notes in respect of such Adjustment Event have been determined, Counterparty shall immediately notify the Calculation Agent in writing of the details of such adjustments.

Extraordinary Events applicable to the Transaction:

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

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

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


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

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

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

Additional Disruption Events:

	(a) Change in Law:	Applicable

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

	Determining Party:	For all applicable Additional Disruption Events, Dealer


		Non-Reliance: