DEF 14A 1 c97801def14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )
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ALTERA CORPORATION
 
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(LOGO)
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 6, 2010
1:30 p.m.
The annual meeting of stockholders of Altera Corporation, a Delaware corporation, will be held on Thursday, May 6, 2010, at 1:30 p.m. local time, at Altera’s offices at 101 Innovation Drive, San Jose, California 95134, for the following purposes:
  (1)  
To elect directors named in the proxy statement to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
 
  (2)  
To reapprove the Internal Revenue Code Section 162(m) provisions of the 2005 Equity Incentive Plan to preserve our ability to deduct for corporate income tax purposes compensation that qualifies as performance-based compensation under Section 162(m).
 
  (3)  
To approve an amendment to the 2005 Equity Incentive Plan to increase by 5,000,000 the number of shares of common stock reserved for issuance under the plan.
 
  (4)  
To approve an amendment to the 1987 Employee Stock Purchase Plan to increase by 1,000,000 the number of shares of common stock reserved for issuance under the plan.
 
  (5)  
To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.
 
  (6)  
If properly presented at the annual meeting, to consider a stockholder proposal requesting that the board take the steps necessary so that each stockholder voting requirement in our certificate of incorporation and by-laws that calls for greater than a simple majority vote (including each 80% supermajority provision) be changed to a majority of the votes cast for and against the proposal in compliance with applicable laws.
 
  (7)  
To transact such other business as may properly come before the meeting or any postponement or adjournment of the meeting.
The foregoing items of business are more fully described in the attached proxy statement. Stockholders who owned shares of our common stock at the close of business on March 8, 2010 are entitled to notice of, and to vote at, the meeting.
All stockholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, you are urged to vote your shares as soon as possible.
Beginning this year, your vote is especially important because of a recent regulatory change. If your shares are held by your broker, your broker cannot vote your shares for the election of directors unless you provide voting instructions. Therefore, if your shares are held by a broker, please instruct your broker regarding how to vote your shares on the election of directors. This will ensure that your shares are counted with respect to the election of directors.
You may choose to vote your shares in one of the following ways: (1) via the Internet at Broadridge Investor Communication Solutions’ voting website (www.proxyvote.com); (2) telephonically by calling the telephone number shown on the proxy card; (3) by voting in person at the annual meeting; or (4) by requesting, completing and mailing in a paper proxy card, as outlined in the Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”).
For the Board of Directors
ALTERA CORPORATION
-s- Katherine E. Schuelke
Katherine E. Schuelke
Secretary
San Jose, California
March 23, 2010
YOUR VOTE IS IMPORTANT.
PLEASE CAST YOUR VOTE AS INSTRUCTED IN THE NOTICE OF INTERNET AVAILABILITY OF
PROXY MATERIALS, OVER THE INTERNET, OR BY TELEPHONE, AS PROMPTLY AS POSSIBLE.
YOU MAY ALSO REQUEST A PAPER PROXY CARD TO SUBMIT YOUR VOTE BY MAIL, IF YOU
PREFER. WE ENCOURAGE YOU TO VOTE VIA THE INTERNET.

 

 


 

ALTERA CORPORATION
 
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 2010
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the board of directors of Altera Corporation, a Delaware corporation, for use at our annual meeting of stockholders to be held on May 6, 2010, or at any adjournment(s), continuation(s), or postponement(s) of the meeting.
We use a number of abbreviations in this proxy statement. We refer to Altera Corporation as “Altera,” or “we,” “us,” or “our.” References to “2009” means the 2009 fiscal year, which began on January 1, 2009 and ended on December 31, 2009. The period beginning on January 1, 2010 and ending on December 31, 2010 is referred to as “2010”. Our 2010 annual meeting of stockholders is simply referred to as “the annual meeting” or “the meeting.”
Our principal executive offices are located at 101 Innovation Drive, San Jose, California 95134. Our telephone number is (408) 544-7000.
We anticipate that the Notice of Internet Availability will be mailed on or about March 23, 2010 to all stockholders entitled to vote at the annual meeting.
This proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (“Annual Report,” and collectively with our letter to stockholders, and this proxy statement the “Proxy Materials”) have been made available to all stockholders entitled to vote at the annual meeting and who received a Notice of Internet Availability.
Paper copies of the Proxy Materials may be obtained by following the instructions on the Notice of Internet Availability. Upon request, we will provide any exhibit listed in the Annual Report.
Internet Availability of Proxy Materials
Under rules adopted by the U.S. Securities and Exchange Commission (“SEC”), we furnish the Proxy Materials to our stockholders over the Internet, rather than mailing printed copies of those materials to each stockholder. Each stockholder who receives a Notice of Internet Availability has the right to vote on all matters presented at the meeting.
You will not receive a printed copy of the Proxy Materials unless you request one. Instead, the Notice of Internet Availability will provide instructions as to how you may: (1) access and review the Proxy Materials on the Internet and (2) access your proxy to vote on the Internet. If you received a Notice of Internet Availability by mail and would like to receive a printed copy of the Proxy Materials, please follow the instructions included in the Notice of Internet Availability. If you share an address with another stockholder and have received only one Notice of Internet Availability, you may write or call us to request a separate copy of these materials at no cost to you.
Record Date and Shares Outstanding
Stockholders who owned shares of our common stock at the close of business on March 8, 2010, referred to as the record date, are entitled to notice of, and to vote at, the annual meeting. On the record date, we had 300,253,307 shares of common stock issued and outstanding.
How Your Proxy Will Be Voted
If you submit your proxy — whether via the Internet, by telephone, in person or by mail — the shares represented by your proxy will be voted at the annual meeting in accordance with your instructions. If you submit a proxy by mail, but do not fill out the voting instructions on the proxy card, the shares represented by your proxy will be voted in favor of the director nominees and in favor of Proposals 2, 3, 4 and 5. In addition, if any other matters properly come before the annual meeting, it is the intention of the persons named on your voting form to vote the shares they represent as directed by the board of directors. We have not received notice of any other matters that may properly be presented at the annual meeting.

 

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Effect of Not Casting Your Vote
If you hold your shares in street name, it is critical that you cast your vote if you want it to count for Proposal 1, the election of directors, Proposal 2, the reapproval of the Internal Revenue Code Section 162(m) provisions of the 2005 Equity Incentive Plan, Proposal 3, the approval of the amendment to the 2005 Equity Incentive Plan to increase by 5,000,000 the number of shares of common stock reserved for issuance thereunder, and Proposal 4, the approval of the amendment to the 1987 Employee Stock Purchase Plan to increase by 1,000,000 the number of shares of common stock reserved for issuance thereunder. In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted on matters deemed routine by the New York Stock Exchange (the “NYSE”), your bank or broker was permitted to vote those shares on such matters as they felt appropriate. Pursuant to a newly-amended NYSE Rule 452, the uncontested election of directors is no longer a routine matter and, therefore, may not be voted upon by banks or brokers without instruction from beneficial owners. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote on non-routine matters such as those described in Proposals 1, 2, 3, 4, and 6, no votes will be cast on your behalf. If you are a stockholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the items of business at the annual meeting.
Revoking Your Proxy
You may revoke your proxy at any time prior to the annual meeting by: (1) submitting a later-dated vote, in person at the annual meeting, via the Internet, by telephone, or by mail, or (2) delivering instructions to us, care of our Secretary, at the address of our principal executive offices. Any notice of revocation sent to us must include the stockholder’s name and must be received prior to the meeting to be effective. Your attendance at the annual meeting after having submitted a valid proxy will not in and of itself constitute a revocation of your proxy. You will be required to give oral notice of your intention to vote in person to the inspector of elections at the annual meeting. If your shares are held in “street name,” you should follow the directions provided by your broker, bank or other nominee regarding how to revoke your proxy.
Voting
Tabulation; Quorum
Each share of common stock outstanding on the record date is entitled to one vote. Cumulative voting is not permitted. The inspector of elections appointed for the annual meeting tabulates the votes. A quorum, which is a majority of the outstanding shares as of the record date, must be present in order to hold the meeting and to conduct business. Your shares will be counted as being present at the meeting if you appear in person at the meeting, if you vote your shares by telephone or over the Internet, or if you submit a properly executed proxy card. Shares represented by proxies marked with abstentions or represented by broker “non-votes” (as described in further detail below) will be counted as shares that are present for purposes of determining whether a quorum exists. Votes against a particular proposal will be counted both to determine the presence or absence of a quorum and to determine whether the requisite majority of voting shares has been obtained.
Treatment of Abstentions; Broker Non-Votes
In the absence of controlling precedent to the contrary, we intend to treat abstentions and broker “non-votes” in the following manner. A broker “non-vote” occurs when a broker, bank or other nominee holding shares for your account does not vote on a particular proposal because the nominee does not have the discretionary authority to vote on that item and has not received voting instructions from you. Broker “non-votes” on a proposal are not counted or deemed to be present or represented for the purpose of determining whether stockholders have approved that proposal. As a result, broker “non-votes” do not have an effect on any of the proposals. For Proposal 1, each director must receive the majority of votes cast with respect to that director. Shares not present at the meeting and shares voting “abstain” have no effect on the election of directors. For Proposals 2, 3, 4, 5, and 6, which require the affirmative vote of the majority of the shares of common stock present or represented by proxy and entitled to vote, abstentions are treated as shares present or represented and entitled to vote, so abstaining has the same effect as a negative vote.

 

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Solicitation of Proxies
We pay for the cost of this solicitation. We have retained Laurel Hill Advisory Group, LLC to assist with the solicitation of proxies for a fee of $9,000, plus reimbursement for out-of-pocket expenses. We may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited personally or by telephone, telegram, or facsimile by certain of our directors, officers, and other employees, without additional compensation.
PROPOSAL ONE — ELECTION OF DIRECTORS
Our board of directors is currently comprised of eight members, seven of whom have been nominated for re-election at this year’s annual meeting; Gregory E. Myers has decided to retire and will not seek re-election. In accordance with our by-laws, the board of directors has voted to reduce the number of directors on the board from eight to seven effective as of 8:00 a.m. on May 6, 2010, the date of our annual meeting.
The nominating and governance committee of the board of directors has nominated the persons named below for election as directors at the annual meeting. Unless otherwise directed, the proxy holders will vote the proxies received by them for the nominees named below. If any nominee is unable or declines to serve as a director at the annual meeting, the proxies will be voted for any nominee who is designated by the present board of directors to fill the vacancy. It is not expected that any nominee will be unable or will decline to serve as a director. The directors elected at the annual meeting will hold office until the next annual meeting or until their successors are elected and qualified.
Directors are elected by a majority of the votes cast at the annual meeting except in the case of a contested election. A contested election occurs when the number of nominees exceeds the number of directors to be elected, in which case directors are elected by a plurality of the votes cast. A majority of votes cast means that the number of votes cast “for” a director exceeds the number of votes cast “against” that director. If a director nominee, who is serving as a director at the time of the election, does not receive a majority of the votes cast, such nominee will tender his/her resignation to the board of directors. The nominating and governance committee will then make a recommendation to the board of directors to either accept or reject the resignation. The board of directors will act on the nominating and governance committee’s recommendation and publicly disclose its reasons and decision within ninety days from when the election results are certified. The director who tenders his/her resignation does not participate in the board’s decision.
The names of the nominees and certain information about them are set forth below.
             
Name of Nominee   Age   Position(s) with Altera   Director Since
John P. Daane
  46   Chairman of the Board, President, and Chief Executive Officer   2000
Robert J. Finocchio, Jr.
  58   Lead Independent Director   2002
Kevin McGarity
  64   Director   2004
T. Michael Nevens
  60   Director   2009
Krish A. Prabhu
  55   Director   2008
John Shoemaker
  67   Director   2007
Susan Wang
  59   Director   2003
There is no family relationship between any of our directors or executive officers.
The nominating and governance committee is responsible for annually assessing the performance of individual directors and the board as a whole. This assessment includes an evaluation of the skills, relevant business experience and expertise, diversity, and ability and willingness of board members to devote the necessary time to board service on an ongoing basis. The assessment is done in the context of what the perceived needs of the board are at that time. The nominating and governance committee is then responsible for nominating candidates for election to the board of directors based on that assessment. Candidates nominated for election to the board are expected to have high personal and professional ethics, integrity, and an inquiring and independent mind, along with practical wisdom and mature judgment. Each of the following individuals who have been nominated for election to the board of directors has those characteristics. Additionally, as described below, each candidate has unique skills and experiences that contribute to the board’s decision making processes.
JOHN P. DAANE joined us as President and Chief Executive Officer in November 2000 and was elected as one of our directors in December 2000. He was elected Chairman of the Board in May 2003. Prior to joining us, Mr. Daane spent fifteen years at LSI Logic Corporation, a semiconductor manufacturer, most recently as Executive Vice President, Communications Products Group, with responsibility for ASIC technology development and the Computer, Consumer, and Communications divisions. We believe Mr. Daane’s qualifications to sit on our board of directors include his extensive knowledge of the company, its products, and

 

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strategies, his twenty-five years of experience in the semiconductor industry, his strong leadership skills, and his broad experience in executive management roles in sales, marketing, and engineering within the semiconductor industry.
ROBERT J. FINOCCHIO, JR. has served as one of our directors since January 2002. He has been a dean’s executive professor at Santa Clara University, Leavey School of Business, since September 2000. Prior to joining us, he served as Chief Executive Officer and President of Informix Corporation, an information management software company, from July 1997 to July 1999 and as Chairman of Informix from July 1997 to September 2000. From December 1988 to May 1997, Mr. Finocchio was employed by 3COM Corporation, a global data networking company. Mr. Finocchio also serves as a director of Echelon Corporation. He was previously a director of Palmsource Inc., Pinnacle Systems, Inc., and Sun Microsystems, Inc. We believe Mr. Finocchio’s qualifications to sit on our board of directors include his prior experience as a Chief Executive Officer of a technology company, his significant executive management and board experience at public and private companies within some of our end markets, including our largest market, the communications industry, his financial expertise, and his knowledge of the communications, software, and computer industries.
KEVIN MCGARITY has served as one of our directors since March 2004. From 1988 until 1999, he served as Senior Vice President of Worldwide Marketing and Sales for Texas Instruments, Inc. , a diversified semiconductor company. In addition, during his career with Texas Instruments, he also had responsibility for Global Semiconductor IT and Quality and spent five years living in Europe in a variety of managerial positions. He currently is a consultant to global companies in the semiconductor industry. Mr. McGarity also serves as a director of Fairchild Semiconductor International, Inc. We believe Mr. McGarity’s qualifications to sit on our board of directors include his thirty-eight years of experience in the semiconductor industry as a sales and marketing executive of Texas Instruments and a board member of Fairchild, his knowledge of our sales channels, competitors, and end markets, and his international work experience in Europe and Asia.
T. MICHAEL NEVENS has served as one of our directors since November 2009. From 1980 until 2002, Mr. Nevens held various management positions at McKinsey and Company, including managing partner of the Global Technology Practice. He also served on the board of the McKinsey Global Institute, which conducts research on economic and policy issues. Mr. Nevens is currently a Senior Advisor to Permira, an international private equity fund, and he serves as a director of NetApp, Inc. Mr. Nevens previously served as a director of Broadvision, Inc. and Borland Software, Inc. We believe Mr. Nevens’ qualifications to sit on our board of directors include his extensive experience as a consultant to many semiconductor and other high technology companies, his understanding of semiconductor industry business models, economics, segments, and competition, and his experience as a director of other public and private technology companies.
KRISH A. PRABHU has served as one of our directors since May 2008. From 2004 to 2008, Mr. Prabhu served as Chief Executive Officer and President of Tellabs, Inc., a global supplier to the telecommunications industry. He served as a Venture Partner with Morgenthaler Venture Partners, a venture capital buyout firm, from November 2001 to 2004. He also held various executive and senior management roles at Alcatel, an international telecommunications company, from 1991 to 2001. Currently, Mr. Prabhu is an advisor to various companies in the telecommunications and semiconductor industries, and he serves as a director of ADVA AG Optical Networking, Tekelec, Inc. and ADC Telecommunications, Inc. We believe Mr. Prabhu’s qualifications to sit on our board of directors include his experience as a Chief Executive Officer of a communications system company, his extensive knowledge of the communications industry, which is our largest end market, his experience in engineering and as a user of our technology, and his international experience.
JOHN SHOEMAKER has served as one of our directors since March 2007. From 1990 to 2004, Mr. Shoemaker held various executive and senior management roles at Sun Microsystems, Inc., a network computing company. Prior to joining Sun Microsystems, Mr. Shoemaker served in a number of senior executive positions with Xerox Corporation. Mr. Shoemaker also serves as chairman of the board of SonicWALL, Inc. and as a director of Extreme Networks, Inc. We believe Mr. Shoemaker’s qualifications to sit on our board of directors include his significant executive management and board experience at public and private companies within some of our end markets, his experience in engineering and as a user of semiconductor technology, and his experience in leadership development and succession management.
SUSAN WANG has served as one of our directors since October 2003. In 2002, Ms. Wang retired from her position as Executive Vice President and Chief Financial Officer of Solectron Corporation, a worldwide provider of electronics manufacturing services, where she worked from 1984. She is a certified public accountant. Ms. Wang also serves as a director of Nektar Therapeutics, RAE Systems, Inc. and Suntech Power Holdings Co., Ltd. She previously served as a director of Calpine Corporation and Avanex Corporation. We believe Ms. Wang’s qualifications to sit on our board of directors include her extensive executive management, board, and audit committee experience at public and private companies within the technology industry, her financial expertise, her knowledge of manufacturing and supply chains, her familiarity with acquisitions and integrations, and her international experience.

 

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Vote Required and Board of Directors’ Recommendation
Those nominees who receive a majority of the votes cast shall be elected as directors. Any nominee who does not receive a majority of the votes cast shall tender his/her resignation to the board of directors, and the board of directors shall act on such resignation as specified above. Our board of directors recommends that the stockholders vote “FOR” the nominees listed above.
Corporate Governance
We believe that good corporate governance is important to ensure that we are managed for the long-term benefit of our stockholders. Our board of directors has adopted corporate governance guidelines to assist it in fulfilling its responsibilities to stockholders and to our employees, customers, suppliers, and local communities in which we operate.
We have a code of business conduct and ethics that applies to our officers, directors, and employees, and is designed to promote compliance with the laws applicable to our business, accounting standards, and proper and ethical business methods and practices. Additionally, the audit committee has adopted a code of ethics for senior financial officers and certain other employees of the finance department. If we make any material amendments to the code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, or grant any waiver from any provision of the code to any such person, we will promptly disclose the nature of the amendment or waiver on our website at www.altera.com.
Our corporate governance guidelines, together with our current committee charters and the two codes described above, are available, free of charge, in the “Corporate Governance” section of our website at www.altera.com, or by calling our Investor Relations Department at (408) 544-7000, or by writing to us at Altera Corporation, 101 Innovation Drive, San Jose, California 95134, Attn: Investor Relations.
Our policies and practices reflect corporate governance initiatives that are in compliance with the listing requirements of the Nasdaq Global Select Market (“NASDAQ”) and the corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:
   
The board of directors has adopted clear corporate governance policies;
 
   
Six of the seven directors standing for re-election at the annual meeting are independent of us and our management;
 
   
The independent directors meet regularly, at least twice a year, without management present;
 
   
All members of the audit committee, compensation committee, and nominating and governance committee are independent directors;
 
   
The board of directors has elected a Lead Independent Director;
 
   
The charters of the board committees clearly establish each committee’s respective roles and responsibilities;
 
   
We have a code of business conduct and ethics that applies to all of our officers, directors, and employees;
 
   
We have a code of ethics for senior financial officers that applies to our principal executive officer, principal financial officer, all other officers in the finance department as well as certain other employees of the finance department; and
 
   
We have a hotline available to all employees, and our audit committee has procedures in place for the anonymous submission of any employee complaint, including those relating to accounting, internal controls, or auditing matters.

 

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Board Leadership Structure
The board believes it is currently in the best interests of the stockholders to have our Chief Executive Officer, John Daane, also serve as our Chairman of the Board and to have a Lead Independent Director. Mr. Finocchio, who was elected by the independent directors in executive session, currently serves as our Lead Independent Director. The board believes that having our CEO serve as Chairman of the Board and having a Lead Independent Director helps to foster open and timely communication between the board and management, ensures alignment between the board, management, and stockholders, and also provides significant independent oversight and direction to management. The board of directors also believes that Mr. Daane is in the best position to provide strategic leadership to the board based on his knowledge of the Company, our industry, our competitors, and our customers. Additionally, the board believes that Mr. Daane has established a culture of accountability and transparency at the company which helps to ensure that management is working in the best interests of stockholders.
The role of the Lead Independent Director is to assist the Chairman of the Board in establishing the strategic direction for board discussions and decision making and to act as a liaison between the Chairman of the Board and the other independent directors. In particular, the responsibilities of the Lead Independent Director are to:
   
Lead the independent directors in discussions during executive sessions of the independent directors;
 
   
Discuss with the Chairman of the Board, the full board, and/or members of management any issues or concerns raised by the other independent directors;
 
   
Approve, together with the Chairman of the Board, the agendas for board meetings;
 
   
As he or she deems appropriate, provide input regarding the content of board presentation materials to the Chairman of the Board and the Secretary to the board;
 
   
Recommend to the board the retention of consultants who report directly to the full board;
 
   
Call special meetings of the board of directors and of the stockholders as specified in the company’s by-laws;
 
   
Perform the duties of the Chairman of the Board in the Chairman’s absence; and
 
   
Perform such other duties as the board may from time to time delegate to the lead independent director.
Board Oversight of Risk
One of the board’s primary responsibilities, which it may execute through one or more of its committees, is to monitor the material risks facing the company and evaluate management’s plans for dealing with such risks. While the board has risk oversight responsibility, management is responsible for assessing and managing material risk exposures.
The board of directors provides risk oversight by: (1) discussing and developing a shared understanding with management of the company’s philosophy of risk management and appetite for risk; (2) understanding and assessing the company’s risk management processes; (3) understanding the company’s strategic goals and objectives and assessing how they may be affected by material risk exposures; and (4) receiving regular reports from management on various types of risks and management’s processes for managing such risks.
In general, the board of directors directly oversees strategic risks such as those relating to competitive dynamics, end markets trends and developments, and changes in macroeconomic conditions. The board also provides risk oversight relating to various operational risks such as risks relating to product development, marketing, sales, and supply chain management. The board has delegated oversight of certain categories of risk to various committees. This delegation is documented in the committees’ charters. In particular, the audit committee has risk oversight responsibility relating to financial reporting risk, legal compliance risk, risks relating to treasury operations, tax compliance risk, and risks relating to the security and back up of information systems. The compensation committee has risk oversight responsibility relating to the design and operation of compensation programs, policies, and practices. The nominating and governance committee has risk oversight responsibility relating to risks associated with the adequacy of succession planning for the CEO and other executive officers as well as for corporate governance risk.

 

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Director Diversity
The board does not have a formal policy requiring the nominating and governance committee to consider the diversity of directors in its nomination process. However, the nominating and governance committee seeks to have a slate of candidates for election that represents a diverse set of views, experiences, and backgrounds. Additionally, the nominating and governance committee considers as one factor in its selection of directors the diversity of the board as it relates to race, gender, and national origin.
Director Independence
In accordance with current NASDAQ listing standards, the board of directors, on an annual basis, affirmatively determines the independence of each director and nominee for election as a director, including all elements of independence set forth in the NASDAQ listing standards. The director independence standards are set forth in our corporate governance guidelines, which are available, free of charge, in the “Corporate Governance” section of our website at www.altera.com.
It is the policy of the board of directors that a significant majority of the directors be independent. A director is independent if he/she has no material relationship with us or our affiliates (either directly or indirectly as a partner, stockholder or officer of an organization that has a relationship with us or our affiliates) and meets the standards for independence as defined by applicable law and the rules of NASDAQ. Such relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others.
More specifically, a director is not considered independent if:
   
he/she is currently employed, or has been employed within the past three years, by us or any of our affiliates;
 
   
the director (or his/her immediate family member as defined by NASDAQ) accepted compensation from us or any of our affiliates in excess of $120,000 during any twelve month period within the past three years (other than compensation for board service, retirement plan benefits, or non-discretionary compensation, or compensation paid to a family member who is an employee (other than an executive officer));
 
   
the director has an immediate family member who is, or has been in the past three years, employed by us or any of our affiliates as an executive officer;
 
   
the director (or any immediate family member) is or has been a partner, controlling stockholder or an executive officer of any business to which we made, or from which we received, payments (other than those which arise solely from investments in our securities) that exceed five percent of such entity’s consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years;
 
   
the director (or his/her immediate family member) is or has been employed as an executive officer of another entity where any of our executive officers serve on that entity’s compensation committee;
 
   
he/she (or any immediate family member) is a current partner of our independent registered public accounting firm, PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”), or either the director (or an immediate family member) has been a partner or employee of PricewaterhouseCoopers in the past three years and worked on our audit during that time; or
 
   
the director participated in the preparation of our (or any of our current subsidiaries’) financial statements at any time during the past three fiscal years.
The determination of director independence is made during the annual review process; the board considers relationships that the board members (and those of their immediate family members) have with us and our affiliates and other potential conflicts of interest. Based on the most recent review, there were no transactions, arrangements or relationships between us (or our affiliates) and any board member that would impair the independence of any board member.
Currently, six of the seven directors nominated for re-election meet the standards for independence as defined by NASDAQ, with John P. Daane, our Chairman of the Board, President, and Chief Executive Officer , being the only director who is not independent. Robert J. Finocchio, Jr. is our Lead Independent Director.

 

7


 

Board of Directors and Committees
Board Meetings
During 2009, the board of directors held five meetings. Each director attended at least seventy-five percent of the aggregate number of meetings of the board of directors and meetings held by all committees of the board on which such director served. Our independent directors hold executive sessions without management present at most meetings of the board of directors. We expect each of our directors to attend the annual meeting every year, unless extenuating circumstances prevent their attendance. All of our then-current directors attended last year’s annual meeting.
Stockholder Communications with Board of Directors
Stockholders wishing to communicate with a board member, or the full board, may send a written communication to us, care of the Secretary of the company, at the address of our principal executive offices. Our Secretary will forward the communication to the board or to any individual director or directors to whom the communication is addressed unless the communication is unduly hostile, threatening, illegal, or harassing, in which case our Secretary has the authority to discard the communication or take appropriate legal action regarding the communication.
Committee Membership
Below is a summary of our committee structure and membership information as of March 23, 2010, the date this proxy statement is made available.
           
 
(GRAPHIC) = Chairman
  (GRAPHIC) = Member   (GRAPHIC) = Financial Expert
             
            Nominating and Governance
    Audit Committee   Compensation Committee   Committee
 
           
John P. Daane
           
 
           
Robert J. Finocchio, Jr.
  (GRAPHIC)(GRAPHIC)       (GRAPHIC)
 
           
Kevin McGarity
      (GRAPHIC)    
 
           
Gregory E. Myers(1)
  (GRAPHIC)(GRAPHIC)        
 
           
T. Michael Nevens
  (GRAPHIC)        
 
           
Krish A. Prabhu
      (GRAPHIC)    
 
           
John Shoemaker
      (GRAPHIC)   (GRAPHIC)
 
           
Susan Wang
  (GRAPHIC)(GRAPHIC)        
     
(1)  
Mr. Myers will be retiring from the board of directors effective May 6, 2010.
Audit Committee
The current members of the audit committee are Susan Wang (Chairman), Robert J. Finocchio, Jr., Gregory E. Myers, and T. Michael Nevens, each of whom is: (1) “independent” as that term is defined in Section 10A of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”); (2) “independent” as defined by current NASDAQ listing requirements; and (3) financially literate and has the requisite financial sophistication as required by NASDAQ rules applicable to issuers listed on NASDAQ. In addition, the board of directors has determined that Ms. Wang, Mr. Finocchio, and Mr. Myers each meet the criteria of an “audit committee financial expert” within the meaning of the SEC’s regulations. Mr. Myers will be retiring from the board of directors effective May 6, 2010. The audit committee held nine meetings during 2009.

 

8


 

The duties of the audit committee are to oversee: (1) the integrity of reported financial results; (2) the quality and adequacy of disclosures; (3) the soundness and effectiveness of our accounting policies and internal control over financial reporting; (4) our compliance with significant applicable financial, legal, and ethical requirements; (5) the independence and performance of our independent registered public accounting firm (“external auditor”) and internal auditors; and (6) communications among the external auditor, internal auditors, financial and senior management, and the board of directors. The audit committee has ultimate authority and responsibility to select, approve the compensation of, evaluate and, when appropriate, replace our external auditor. The audit committee also has the sole authority to hire and review the performance of our Senior Director of Internal Audit and Compliance and to review and approve the scope of internal audit plans. The audit committee has established procedures for: (a) the receipt, retention, and treatment of complaints received by us regarding accounting, internal controls, or auditing matters; and (b) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. Additional information regarding the audit committee and its members is contained in the “Audit Committee Report” on page 35.
Compensation Committee
The current members of the compensation committee are John Shoemaker (Chairman), Kevin McGarity, and Krish A. Prabhu, each of whom is “independent” as defined by current NASDAQ listing requirements. The compensation committee held five meetings during 2009.
The duties of the compensation committee are to: (1) lead the independent members of the board of directors in a discussion and evaluation of the performance of the CEO on at least an annual basis, (2) evaluate and establish the compensation of the CEO and other executive officers, and (3) evaluate and make recommendations to the board of directors regarding the compensation of directors. In addition, the compensation committee has the sole authority to engage outside advisers to assist in its work, such as compensation consultants. Additional information regarding the compensation committee and its members is contained in the “Compensation Committee Report” on page 34.
Compensation Committee Interlocks and Insider Participation
None of Mr. Shoemaker, Mr. McGarity, or Mr. Prabhu was at any time an officer or employee of the company. In addition, none of our executive officers serves as a member of the board of directors or compensation committee of any company that has one or more of its executive officers serving as a member of our board of directors or compensation committee.
Nominating and Governance Committee
The current members of the nominating and governance committee are Robert J. Finocchio, Jr. (Chairman) and John Shoemaker, both of whom are “independent” as defined by current NASDAQ listing requirements. The nominating and governance committee held one meeting in 2009.
The duties of the nominating and governance committee are to: (1) identify individuals qualified to become board members and to nominate directors for election; (2) lead the board in its annual review of the performance, size, and membership of the board and its committees; (3) nominate for election by the board the members of each board committee, including the chair of each committee; (4) lead the board of directors in a regular review of succession plans for members of executive management and ensure that the board has in place a succession plan for the CEO; and (5) review and make recommendations to the board concerning corporate governance matters. As part of its annual performance review process, the nominating and governance committee seeks input from each board member regarding the performance of individual directors, each committee, and the board as a whole. The committee reports this information to the board and also takes into account the results of this annual performance review in its decisions regarding director nominations. Additional information regarding the nominating and governance committee and its members is contained in the “Nominating and Governance Committee Report” on page 13.

 

9


 

Director Compensation
We pay our non-employee directors an annual retainer for board and committee service. The annual retainers are targeted so that total cash compensation approximates the 50th percentile of the peer companies listed in the “Peer Group and Benchmarking” section on page 18. The payment schedule applicable to board and committee service is described more fully in the chart below. The retainer payments are made on the date of each year’s annual meeting of stockholders and are pro-rated if a director’s service begins subsequent to the date of the annual meeting.
     
Annual Retainer
   
Board Membership
  $50,000
Audit Committee
  $20,000 Chair
 
  $12,000 Member
Compensation Committee
  $13,000 Chair
 
  $10,000 Member
Nominating and Governance Committee
  $10,000 Chair
 
  $6,000 Member
Lead Independent Director
  $5,000
Other Director Benefits
   
Equity Compensation
  Described in further detail below
Pursuant to our 2005 Equity Incentive Plan (“2005 Plan”), at the discretion of the compensation committee, when a non-employee director joins the board, he/she may be granted either: (i) up to a maximum number of restricted stock units (“RSUs”) and/or a restricted stock grant having an aggregate fair market value (i.e., the closing price of our common stock on the date of grant, as reported on NASDAQ) equal to $300,000, as measured on the date of grant, or (ii) up to a maximum aggregate number of 40,000 stock option shares and/or stock appreciation rights (“SARs”).
Following the date of each annual stockholders meeting, each non-employee director who is re-elected may be granted, at the discretion of the compensation committee, either: (i) up to a maximum number of RSUs and/or a restricted stock grant having an aggregate fair market value equal to $150,000, as measured on the date of grant, or (ii) up to a maximum aggregate number of 20,000 stock option shares and/or SARs.
RSUs and restricted stock grants vest and are exercisable as determined by the compensation committee, provided that RSUs and restricted stock vest over a minimum of three years as measured from the date of grant. The term of any stock option and/or SAR grant is ten years. The exercise price of any stock option and/or SAR grant is equal to the fair market value of our stock on the grant date. Non-employee directors are also eligible to receive other types of awards under the 2005 Plan (including bonus stock), but such awards are discretionary and are not automatic.
In February 2008, the board adopted stock ownership guidelines that provide that each director should own, within five years of the institution of the requirement, 5,500 shares of our common stock. The guidelines provide that an individual may request that the compensation committee suspend the ownership guidelines based on personal hardship.

 

10


 

The following table summarizes the total compensation received by each of our directors in 2009. Our directors do not receive any fringe or other benefits.
DIRECTOR COMPENSATION
                                                 
            Restricted             Non-Equity              
    Fees Earned or     Stock Unit     Option     Incentive Plan     All Other        
Name   Paid in Cash     Awards     Awards     Compensation     Compensation     Total  
(1)   ($)     ($) (2)     ($) (2)     ($)     ($)     ($)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)  
Robert J. Finocchio, Jr.
    77,000       74,300                         151,300  
Kevin McGarity
    60,000       74,300                         134,300  
Gregory E. Myers
    62,000       74,300                         136,300  
T. Michael Nevens (3)
    31,000             240,416                   271,416  
Krish A. Prabhu
    60,000       74,300                         134,300  
John Shoemaker
    69,000       74,300                         143,300  
Susan Wang
    70,000       74,300                         144,300  
(1)  
Mr. Daane, our Chairman of the Board, President, and Chief Executive Officer, does not receive any compensation for his service as a member of the board of directors.
(2)  
The amounts in columns (c) and (d) reflect the grant date fair value of RSU and stock option awards, respectively. These amounts reflect the value determined by the company in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, for accounting purposes, and do not reflect whether the recipient has actually realized a financial benefit from the award. Pursuant to SEC rules, these amounts exclude the impact of estimated forfeitures related to service-based vesting conditions.
 
(3)  
Mr. Nevens joined our board of directors and became a member of the audit committee on November 10, 2009.

 

11


 

The following table sets forth information with respect to stock option grants and RSU awards made during 2009 to our directors. The vesting schedule and grant term is described in further detail in the “Director Compensation” section on page 10.
                                         
                    Option              
            Restricted Stock     Awards: Number              
            Unit Awards:     of Securities     Exercise or Base     Grant Date Fair  
            Number of Shares     Underlying     Price of Option     Value of Stock and  
            of Stock or Units     Options     Awards     Option Awards  
Name   Grant Date     (#) (1)     (#) (2)     ($/Sh) (3)     ($) (4)  
(a)   (b)     (c)     (d)     (e)     (f)  
Robert J. Finocchio, Jr.
    05/12/2009       5,000                   74,300  
Kevin McGarity
    05/12/2009       5,000                   74,300  
Gregory E. Myers
    05/12/2009       5,000                   74,300  
T. Michael Nevens
    11/10/2009             40,000       20.47       240,416  
Krish A. Prabhu
    05/12/2009       5,000                   74,300  
John Shoemaker
    05/12/2009       5,000                   74,300  
Susan Wang
    05/12/2009       5,000                   74,300  
(1)  
Represents the number of RSUs awarded to each director pursuant to our 2005 Plan.
 
(2)  
Represents the number of non-statutory stock options granted under our 2005 Plan.
 
(3)  
The exercise price for the stock option grant shown here is the fair market value (i.e., the closing price) of our common stock on the date of grant, as reported on NASDAQ.
 
(4)  
Represents the aggregate grant date fair value of each stock option grant and/or RSU award, as applicable, computed in accordance with FASB ASC Topic 718. Pursuant to SEC rules, these amounts exclude the impact of estimated forfeitures related to service-based vesting conditions. For information on valuation assumptions, see Note 10 to our 2009 Consolidated Financial Statements included in our Annual Report.

 

12


 

The following table provides information regarding outstanding equity awards, including stock options and RSUs, and applicable market values at the end of 2009.
                                                                                 
                                                    Stock Awards  
                                                                    Equity        
                                                                    Incentive     Equity  
            Option Awards                     Plan     Incentive  
                            Equity                                     Awards:     Plan  
                            Incentive                                     Number     Awards:  
                            Plan                     Number             of     Market or  
                            Awards:                     of             Unearned     Payout  
            Number     Number     Number                     Shares     Market     Shares,     Value of  
            of     of     of                     or Units     Value of     Units or     Unearned  
            Securities     Securities     Securities                     of Stock     Shares or     Other     Shares,  
            Underlying     Underlying     Underlying                     That     Units of     Rights     Units or  
            Unexercised     Unexercised     Unexercised     Option             Have     Stock That     That     Other Rights  
            Options     Options     Unearned     Exercise     Option     Not     Have Not     Have Not     That Have  
    Grant     (#)     (#)     Options     Price     Expiration     Vested     Vested     Vested     Not Vested  
Name   Date     Exercisable     Unexercisable     (#)     ($)     Date     (#)     ($) (1)     (#)     ($)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)  
Robert J. Finocchio, Jr.
    01/08/2002       40,000                   24.92       01/08/2012                          
 
    04/30/2002       3,333                   20.56       04/30/2012                          
 
    05/06/2003       10,000                   17.24       05/06/2013                          
 
    05/11/2004       10,000                   22.03       05/11/2014                          
 
    05/10/2005       10,000                   20.73       05/10/2015                          
 
    05/09/2006       10,000                   21.07       05/09/2016                          
 
    05/08/2007       10,000                   23.52       05/08/2017                          
 
    05/13/2008                                     3,333       75,426              
 
    05/12/2009                                     5,000       113,150              
Kevin McGarity
    03/09/2004       40,000                   21.20       03/09/2014                          
 
    05/11/2004       1,667                   22.03       05/11/2014                          
 
    05/10/2005       10,000                   20.73       05/10/2015                          
 
    05/09/2006       10,000                   21.07       05/09/2016                          
 
    05/08/2007       10,000                   23.52       05/08/2017                          
 
    05/13/2008                                     3,333       75,426              
 
    05/12/2009                                     5,000       113,150              
Gregory E. Myers
    10/15/2007       21,667       18,333             23.60       10/15/2017                          
 
    05/13/2008                                     3,333       75,426              
 
    05/12/2009                                     5,000       113,150              
T. Michael Nevens
    11/10/2009             40,000             20.47       11/10/2019                          
Krish A. Prabhu
    05/13/2008       15,833       24,167             22.78       05/13/2018                              
 
    05/12/2009                                     5,000       113,150              
John Shoemaker
    03/19/2007       27,500       12,500             20.64       03/19/2017                          
 
    05/08/2007       1,667                   23.52       05/08/2017                          
 
    05/13/2008                                     3,333       75,426              
 
    05/12/2009                                     5,000       113,150              
Susan Wang
    10/07/2003       40,000                   19.00       10/07/2013                              
 
    05/11/2004       5,833                   22.03       05/11/2014                          
 
    05/10/2005       10,000                   20.73       05/10/2015                          
 
    05/09/2006       10,000                   21.07       05/09/2016                          
 
    05/08/2007       10,000                   23.52       05/08/2017                          
 
    05/13/2008                                     3,333       75,426              
 
    05/12/2009                                     5,000       113,150              
(1)  
Amounts reflecting market value of RSUs are based on the price of $22.63 per share, which was the closing price of our common stock as reported on NASDAQ on December 31, 2009.
Nominating and Governance Committee Report
The nominating and governance committee operates under a written charter adopted by our board of directors. The charter is available in the “Corporate Governance” section of our website at www.altera.com, or by calling our Investor Relations Department at (408) 544-7000, or by writing us at Altera Corporation, 101 Innovation Drive, San Jose, California 95134, Attn: Investor Relations.

 

13


 

    Nomination of Directors
The nominating and governance committee nominates candidates for election to the board based on an evaluation of the candidate’s decision-making ability, business experience and expertise, technological background, personal integrity, reputation, ability and willingness to devote the necessary time to board service on an ongoing basis, and independence as defined by NASDAQ listing standards. The nominating and governance committee also seeks to have a slate of candidates for election that represents a diverse set of views, experiences, and backgrounds. Additionally, the nominating and governance committee considers as one factor in its selection of directors the diversity of the board as it relates to race, gender, and national origin. The nominating and governance committee also reviews the activities and associations of potential candidates to ensure that there is no legal impediment, conflict of interest, or other consideration that might hinder or prevent a potential candidate from fulfilling the duties of a director. When the nominating and governance committee considers nominating current members of the board of directors for re-election, it reviews each member’s contributions to the board, knowledge of the company and issues presented to the board, and preparation for and participation in meetings. This review is part of the board evaluation process discussed on page 9.
The nominating and governance committee has retained Russell Reynolds Associates, Inc. since August 2006 to assist in identifying and evaluating potential director candidates, including Mr. Nevens, who was elected to the board of directors in November 2009.
The nominating and governance committee will consider prospective nominees proposed by stockholders based on the same criteria it uses for all director candidates. Any stockholder who wants to recommend a prospective nominee should submit the following information to the nominating and governance committee, care of our Secretary, at the address of our principal executive offices, within the timeframe described below under the caption “Stockholder Proposals”:
   
Biographical information about the candidate and a statement about his/her qualifications;
 
   
Any other information required to be disclosed about the candidate under SEC proxy rules (including the candidate’s written consent to being named in the proxy statement and to serve as a director, if nominated and elected);
 
   
The names and addresses of the stockholder(s) recommending the candidate for consideration and the number of shares of our common stock beneficially owned by each and the length of ownership; and
 
   
Any affiliation between the candidate and the stockholder(s) recommending the candidate.
Greater detail about the submission process for stockholder proposals is set forth in our by-laws, a copy of which may be obtained by making a written request to our Secretary at the address of our principal executive offices.
We have not received a qualifying director nominee recommendation from any stockholder (or group of stockholders) that beneficially owns more than five percent of our common stock.
Robert J. Finocchio, Jr., Chairman
John Shoemaker, Member
NOMINATING AND GOVERNANCE COMMITTEE

 

14


 

Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the shares of our common stock beneficially owned by: (1) persons known by us to beneficially own greater than five percent of our outstanding stock; (2) each individual who served as one of our directors during 2009; (3) our CEO, the three individuals who served as our Chief Financial Officer during 2009, and our three other most highly compensated executive officers; and (4) all of our directors and executive officers as a group as of the record date. Except as otherwise indicated in the accompanying footnotes, beneficial ownership is shown as of the record date.
                 
    Shares of Common Stock  
    Number of        
    Shares        
    Beneficially     Percent of  
Name and Address of Beneficial Owner (1)   Owned     Class (2)  
Greater Than Five-Percent Stockholders:
               
BlackRock, Inc. (3)
    19,390,628       6.46 %
PRIMECAP Management Company (4)
    15,504,700       5.16 %
T. Rowe Price Associates, Inc. (5)
    19,304,509       6.43 %
Directors and Executive Officers:
               
John P. Daane (6)
    3,575,540       1.19 %
Robert J. Finocchio, Jr. (7)
    116,667       *  
Kevin McGarity (8)
    75,001       *  
Gregory E. Myers (9)
    31,668       *  
T. Michael Nevens
           
Krish A. Prabhu (10)
    19,167       *  
John Shoemaker (11)
    35,834       *  
Susan Wang (12)
    79,167       *  
Misha Burich (13)
    581,613       *  
James W. Callas (14)
    73,025       *  
Timothy R. Morse (15)
    1,467       *  
George Papa (16)
    743,508       *  
Ronald J. Pasek
           
Jordan S. Plofsky (17)
    1,090,130       *  
All directors and executive officers as a group (19 persons) (18)
    7,868,934       2.62 %
 
     
*  
Less than 1%.
(1)  
The persons named in the table above have sole voting and investment power with respect to all shares of common stock beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated in a corresponding footnote, the business address of each beneficial owner is 101 Innovation Drive, San Jose, California 95134.
 
(2)  
All percentages are calculated based on 300,253,307 shares of common stock outstanding as of the record date, together with applicable stock options and RSUs for each stockholder. Beneficial ownership is determined in accordance with SEC rules and includes voting and investment power with respect to shares. Shares of common stock subject to stock options currently exercisable or exercisable, and RSUs that vest, within sixty days after the record date, as well as RSUs that are subject to further vesting requirements, are deemed outstanding for purposes of computing the percentage ownership of the person holding such options and/or RSUs, but are not deemed outstanding for computing the percentage of any other person.
 
(3)  
Based on a filing with the SEC on January 29, 2010, indicating beneficial ownership as of December 31, 2009. BlackRock, Inc. (“BlackRock”) beneficially owns these shares as a result of being the parent holding company or control person of Barclays Global Investors, NA and certain of its affiliates. The address for BlackRock is 40 East 52nd Street, New York, New York 10022.
 
(4)  
Based on a filing with the SEC on March 8, 2010, indicating beneficial ownership as of February 28, 2010. PRIMECAP Management Company “PRIMECAP”) serves as an investment advisor with power to direct investments and/or sole power to vote securities owned by various individual and institutional investors. The address for PRIMECAP is 225 South Lake Ave., #400, Pasadena, California 91101.

 

15


 

     
(5)  
Based on a filing with the SEC on February 12, 2010, indicating beneficial ownership as of December 31, 2009. T. Rowe Price Associates, Inc. (“TRPA”) serves as an investment advisor with power to direct investments and/or sole power to vote securities owned by various individual and institutional investors. TRPA is deemed to be a beneficial owner of such securities for purposes of the reporting requirements of the Exchange Act; however, TRPA expressly disclaims that it is, in fact, the beneficial owner of such securities. The address for TRPA is 100 East Pratt Street, Baltimore, Maryland 21202.
 
(6)  
Includes (i) 3,250,000 shares that Mr. Daane has a right to acquire within 60 days of the record date through exercise of options and/or vesting of RSUs, and (ii) 270,000 shares held indirectly by Mr. Daane through a trust.
 
(7)  
Includes 93,333 shares that Mr. Finocchio has the right to acquire within 60 days of the record date through exercise of options.
 
(8)  
Represents 71,667 shares that Mr. McGarity has the right to acquire within 60 days of the record date through exercise of options.
 
(9)  
Represents 28,334 shares that Mr. Myers has the right to acquire within 60 days of the record date through exercise of options.
 
(10)  
Represents 19,167 shares that Mr. Prabhu has the right to acquire within 60 days of the record date through exercise of options.
 
(11)  
Represents 32,500 shares that Mr. Shoemaker has the right to acquire within 60 days of the record date through exercise of options.
 
(12)  
Represents 75,833 shares that Ms. Wang has the right to acquire within 60 days of the record date through exercise of options.
 
(13)  
Includes 552,500 shares that Mr. Burich has the right to acquire within 60 days of the record date through exercise of options and/or vesting of RSUs.
 
(14)  
Includes 70,834 shares that Mr. Callas has the right to acquire within 60 days of the record date through exercise of options and/or vesting of RSUs.
 
(15)  
Mr. Morse resigned on June 12, 2009.
 
(16)  
Includes 742,500 shares that Mr. Papa has the right to acquire within 60 days of the record date through exercise of options and/or vesting of RSUs.
 
(17)  
Includes 1,025,000 shares that Mr. Plofsky has the right to acquire within 60 days of the record date through exercise of options and/or vesting of RSUs.
 
(18)  
Includes shares in the aggregate that our executive officers and directors have the right to acquire within 60 days of the record date through exercise of stock options and/or vesting of RSUs.

 

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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of Compensation Program
The primary objectives of our executive compensation program are to:
   
attract, motivate, and retain highly qualified executives;
 
   
align management and stockholder interests by tying a substantial percentage of executives’ compensation, in the form of cash and long-term equity incentives, to financial performance of the company (i.e., “pay for performance”);
 
   
reward superior performance by basing decisions regarding cash incentive compensation on the overall performance of executives, including performance against individual and group goals; and
 
   
compensate executives at levels competitive with peer companies.
In general, the types of compensation and benefits provided to our CEO, CFO, and our three other most highly compensated executive officers (collectively, our named executive officers, or “NEOs”) are equivalent to those provided to most other employees, and include salary, cash bonuses, RSUs, stock options, and other benefits. The amount and mix of compensation differs, however, depending on an employee’s position, level of responsibility, experience, and performance.
The compensation committee is responsible for implementing our executive compensation program. The committee does not have a pre-established policy or target for allocating between either cash and equity or short-term and long-term incentive compensation, nor do its decisions regarding one component of compensation necessarily influence decisions regarding other components. However, as an executive’s level of responsibility increases, the percentage of total compensation represented by variable, incentive compensation increases; the CEO’s percentage is the highest. Additionally, while the compensation committee considers internal equity in setting compensation, the company did not have formal internal equity guidelines applicable to 2009. The majority of executives’ total compensation historically has been provided in the form of long-term equity incentives because the compensation committee believes that this is the most effective way to align executives’ interests with those of our stockholders.
Process
On an annual basis, the compensation committee: (1) leads the independent members of the board of directors in a discussion and evaluation of the performance of the CEO, (2) evaluates and establishes the compensation of the CEO based on the CEO’s self-assessment and the independent directors’ assessment of the CEO’s performance, and (3) evaluates and establishes the compensation of each executive officer based on his or her self-assessment, the recommendation of the CEO, and the committee’s own assessment of the performance of each executive officer. The compensation committee makes compensation decisions for the other executive officers in the same way and using similar factors as with respect to the CEO.
Compensation decisions related to our annual performance review process are made based in part on an evaluation of the executive’s contributions and performance, including achievement of individual and group goals that are established by each executive officer and reviewed with the board of directors prior to the start of the fiscal year. At the end of the year, each executive officer prepares a self-assessment of his or her performance against goals and on other accomplishments, which is presented to the board of directors. Additionally, the CEO provides input to the compensation committee on the performance of each executive officer.
The compensation committee benchmarks each component of compensation as well as the total compensation paid to each executive officer against the compensation paid to executives in similar positions at the peer companies listed below. The CEO’s recommendations regarding compensation for the other executive officers take into account these benchmarking results along with the individual and relative performance of executive officers, the individual’s scope of responsibility at, and contributions to, the company, the executive officer’s experience, and the similarity or dissimilarity of responsibility between the company’s executive officer and peer company executives. The CEO’s recommendations are generally approved by the compensation committee with minor adjustments.

 

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Peer Group and Benchmarking
The compensation committee seeks to maintain executives’ total compensation at a level competitive with peer companies in the semiconductor industry or related industries that approximate our size in terms of employees, revenue, and capitalization (the “Peer Group”). In addition to reviewing compensation data from our Peer Group, the compensation committee also considers data compiled from surveys such as the Radford U.S. Executive Survey and data gathered from annual reports and proxy statements of: (a) semiconductor companies with revenues in excess of $1 billion; and (b) companies with revenues between $1 billion and $3 billion with which we compete for executive talent. The compensation committee generally targets total cash compensation to fall between the 50th and 75th percentile of our Peer Group, although deviations from this may occur as described further in the “Summary of Officer Compensation” section on page 25. In evaluating compensation benchmarking data, the compensation committee considers the company’s performance relative to its Peer Group with regard to financial results such as revenue, earnings, and shareholder return.
The companies that comprise our Peer Group are:
   
Atmel Corporation
 
   
Broadcom Corporation
 
   
Cadence Design Systems, Inc.
 
   
Cypress Semiconductor Corporation
 
   
Intersil Corporation
 
   
Linear Technology Corp.
 
   
LSI Logic Corporation
 
   
Marvell Semiconductor, Inc.
 
   
Maxim Integrated Products
 
   
Mentor Graphics Corporation
 
   
Microchip Technology, Inc.
 
   
National Semiconductor Corporation
 
   
NVIDIA Corporation
 
   
Synopsys, Inc.
 
   
Xilinx, Inc.
The compensation committee reviews the composition of the Peer Group annually to ensure that the companies remain relevant for comparative purposes. As a result of the 2009 review, the compensation committee again included Maxim Integrated Products in the Peer Group as a result of the relisting of Maxim’s stock in October 2008.
Compensation Consultant
In 2009, the compensation committee directly engaged Compensia, Inc. (“Compensia”) as its outside compensation consultant to provide independent advice on executive compensation matters. Compensia provided insight into a wide range of external market factors, including: (1) current compensation trends; (2) market survey data and peer group practices; and (3) general observations on our executive compensation program, including program design alternatives. No member of the compensation committee has any affiliation with Compensia.
Components of Compensation
Base Salary
Salaries are intended to provide predictable, competitive compensation that aligns with our policy of attracting, motivating, and retaining highly qualified executives. Base salaries for our executives are established by considering the scope of their responsibilities, performance and accomplishments, as well as compensation benchmarking data. The compensation committee may also take into account an individual’s experience level, market factors and internal equity considerations. Base salaries are reviewed on an annual basis as part of our performance and compensation review process, and are increased as necessary to realign salaries with levels competitive to our peers.

 

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Cash Incentive Compensation
The compensation committee has the authority to annually award cash incentives to our executive officers. The cash incentive plan is designed to significantly affect total compensation depending on our success in meeting annual financial and strategic goals, thereby tying individual compensation to company performance as well as individual performance. The compensation committee determines the CEO’s payout after consulting with the independent members of the board of directors and determines the amounts with respect to our other executive officers based on our CEO’s recommendations.
Discretionary Bonus
The board of directors has discretion to award cash bonuses to our NEOs beyond those awarded pursuant to our cash incentive plan (which are referred to as the 2009 Bonus Plan and 2010 Bonus Plan in this proxy). For instance, the board awarded such a bonus to James W. Callas in recognition of his service as Principal Accounting Officer and acting CFO during the second half of 2009. Furthermore, the compensation committee authorized a hire-on bonus for Ronald J. Pasek, in connection with his commencement of employment as our CFO in December 2009, as further described in the “Summary of Officer Compensation” section on page 25.
Overview of 2009 Bonus Plan
In March 2009, the compensation committee adopted a bonus plan applicable to 2009 (the “2009 Bonus Plan”). The purpose of the 2009 Bonus Plan was to promote the interests of the company and stockholders by providing financial rewards upon achievement of specified business objectives, as well as to help us attract and retain key employees by providing compensation opportunities linked to performance results.
Except for Mr. Pasek, who joined the company on December 21, 2009, all of our executive officers were eligible to participate in the 2009 Bonus Plan. 2009 Bonus Plan payouts were determined at the sole discretion of the compensation committee. In exercising its discretion, the compensation committee took into account (1) the company’s operating income as a percentage of revenue for 2009 (the “Financial Performance Metric”), (2) the individual’s target bonus percentage, and (3) the individual’s performance during the year. Operating income was defined as earnings before income, interest expense, and taxes.
The Financial Performance Metric determined a Potential Payout percentage, as specified in the table below.
         
Operating Income as a
 
Potential Payout
 
Percentage of Revenue
 
Percentage
 
Less than 22
 
0
 
22
 
10
 
23
 
30
 
24
 
50
 
25
 
70
 
26
 
95
 
27
 
100
 
28
 
125
 
29
 
150
 
30
 
175
 
31 or higher
 
200
 
In February 2010, the compensation committee certified that the Financial Performance Metric for 2009 was 25.5%, which resulted in a Potential Payout Percentage of 82.5%. The compensation committee did not exclude from the calculation of the Financial Performance Metric any significant, non-recurring items, other than amounts attributable to our non-qualified deferred compensation plan.
The compensation committee multiplied the Potential Payout percentage by the individual’s target bonus percentage and then increased or decreased that bonus percentage based on an evaluation of the individual’s performance, as described further below. The target bonus percentages varied depending on the executive’s position and level of responsibility within the company. Payouts under the plan were capped at two times the applicable target bonus percentage. The target and maximum bonus percentages in 2009 were: (1) 100% and 200%, respectively, in the case of our CEO; (2) 60% and 120%, respectively, in the case of our other NEOs (with the exception of Mr. Callas); and (3) 50% and 100%, respectively, in the case of Mr. Callas. The final bonus percentage was then multiplied by the individual’s 2009 salary and rounded up or down slightly to arrive at a 2009 Bonus Plan payout.

 

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As described in the “Compensation Discussion and Analysis — Process” section on page 17, the compensation committee evaluated the performance of the CEO and each executive officer in order to determine a 2009 Bonus Plan payout. In evaluating performance, the compensation committee considered, among other factors, performance against individual and group goals that were generally established prior to the start of the fiscal year. However, in some cases, non-financial goals were added or eliminated after the start of the fiscal year due to changes in responsibilities or changes in corporate goals or priorities. Goals were not modified after the start of the fiscal year to compensate for unexpected changes in the company’s financial performance. Our NEOs’ 2009 goals fell within the following categories:
  (1)  
Market share and revenue goals. The goals in this category identified matters such as specific customers, categories of customers, and end market sub-segments we were targeting in order to increase revenue and market share vis-à-vis our competitors.
  (2)  
Sales and marketing plans, strategies and campaigns. Many of the goals within this category related to our plans and strategies for increasing design wins that would result in future revenues.
  (3)  
Planned improvements in business processes, compliance and profitability. The goals represented by this category included efficiency improvements in a broad range of business processes as well as financial compliance and controllership.
  (4)  
Product development plans and schedules. The goals within this category related to the timing of and contingencies for the development and release of future products.
  (5)  
Personnel and organizational matters. The goals within this category related to the individuals and departments that comprised our internal organization, including but not limited to succession planning, retention, and employee-development plans.
We are not disclosing the specific goals and objectives within the above categories because we believe such disclosure would cause us competitive harm. Nor are we disclosing the weightings that applied to the goals; such information is confidential and would cause future competitive harm since the weightings indicate the priority we place on certain activities or programs. Moreover, such information is potentially misleading because an executive may have more than one goal within the above categories; as a result, the weighting applied to a particular category of goals would in fact be an accumulation of the weightings applied to individual goals.
The degree of difficulty for a NEO to achieve his target bonus can be seen by looking at historical results. The Financial Performance Metric, which was the primary driver of payouts to our NEOs under the 2009 Bonus Plan, was very challenging. In the past three fiscal years, our operating income as a percentage of revenue (including equity expense and excluding amounts attributable to our non-qualified deferred compensation plan) was 22.3% in 2007, 29.6% in 2008, and 25.5% in 2009. Operating income in 2009 decreased substantially from 2008 as a result of substantially lower revenues due to the world wide economic downturn. As a consequence, bonus payouts were substantially lower in 2009 than in 2010, which is in line with our pay for performance philosophy. Additionally, individual goals were very challenging — no NEO achieved 100% of his goals in 2009. The table below indicates the actual payouts received (as a percentage of base salary) under the 2009 Bonus Plan and under prior non-equity incentive plans that had financial and individual performance metrics comparable to those in the 2009 Bonus Plan. The large variation in payouts from year to year is consistent with the board’s policy of tying variable, incentive compensation to the company’s financial performance as well as individual performance.

 

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                                    Actual Payout  
            Target     Performance             Under Non-Equity  
            Percentage     Against Financial     Individual     Incentive Plan  
            (% of Base     Goals     Performance     Awards  
Name   Year     Salary)     (% of Target)     Percentage     (% of Base Salary)  
John P. Daane
    2009       100       82.5       90       74  
 
    2008       100       178       100.5       179  
 
    2007       100       48       96       46  
 
                                       
Ronald J. Pasek (1)
    2009       N/A       N/A       N/A       N/A  
 
    2008       N/A       N/A       N/A       N/A  
 
    2007       N/A       N/A       N/A       N/A  
 
                                       
James W. Callas (2)
    2009       50       82.5       90 (4)     38  
 
    2008       N/A       N/A       N/A       N/A  
 
    2007       50       48       70       18  
 
                                       
Timothy R. Morse (3)
    2009                          
 
    2008       60       178       100.9       108  
 
    2007       60       48       90       24  
 
                                       
Misha Burich
    2009       60       82.5       95       47  
 
    2008       60       178       96.7       103  
 
    2007       60       48       95       27  
 
                                       
Jordan S. Plofsky
    2009       60       82.5       85       41  
 
    2008       60       178       96.4       103  
 
    2007       60       48       85       44  
 
                                       
George Papa
    2009       60       82.5       85       41  
 
    2008       60       178       97.6       104  
 
    2007       60       48       80       23  
     
(1)  
Mr. Pasek was not eligible to participate in the 2009 Bonus Plan since he was appointed Senior Vice President, Finance and CFO on December 21, 2009.
     
(2)  
Mr. Callas, our Vice President, Finance and Controller, was our Principal Financial and Accounting Officer and acting CFO for the first two weeks of 2007 and from June 12, 2009 through December 20, 2009.
 
(3)  
Effective June 12, 2009, Mr. Morse, our CFO, resigned and therefore did not receive any payout under the 2009 Bonus Plan.
The following table shows the actual payouts received by our NEOs under the 2009 Bonus Plan.
                                         
                    Potential Payout                
            Bonus Target     Percentage             Actual Payout  
            Percentage     (based on Financial     Individual     Under 2009  
    Base Salary     (% of Base     Performance     Performance     Bonus Plan  
    ($)     Salary)     Metric) (1)     Percentage     ($) (2) (3)  
Name   (A)     (B)     (C)     (D)     A*B*C*D = (E)  
John P. Daane
    700,000       100       82.5       90       520,000  
Ronald J. Pasek (4)
    400,000       N/A       N/A       N/A       N/A  
James W. Callas
    240,000       50       82.5       90       90,000  
Timothy R. Morse (5)
    375,000                          
Misha Burich
    375,000       60       82.5       95       175,000  
Jordan S. Plofsky
    350,000       60       82.5       85       145,000  
George Papa
    350,000       60       82.5       85       145,000  
     
(1)  
Based on operating income as a percentage of revenue (including equity expense and excluding amounts attributable to our non-qualified deferred compensation plan) of 25.5%.

 

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(2)  
Subject to Maximum Payout Percentage of 200% of base salary, in the case of our CEO, and 120% in the case of our other NEOs (with the exception of Mr. Callas), and 100% in the case of Mr. Callas.
 
(3)  
Amounts are rounded and are reflected in column (g) of the “Summary Compensation Table” on page 26.
 
(4)  
Mr. Pasek was not eligible to participate in the 2009 Bonus Plan since he was appointed Senior Vice President, Finance and CFO on December 21, 2009.
 
(5)  
Effective June 12, 2009, Mr. Morse, our CFO, resigned and therefore did not receive any payout under the 2009 Bonus Plan.
Overview of 2010 Bonus Plan
In February 2010, the compensation committee adopted a bonus plan applicable to 2010 (the “2010 Bonus Plan”). The purpose of the 2010 Bonus Plan is to promote the interests of the company and its stockholders by providing financial rewards upon achievement of specified business objectives, as well as to help the company attract and retain key employees. The actual payouts will be determined in the sole discretion of the compensation committee. In exercising this discretion, the committee will take into account: (1) the company’s operating income as a percentage of revenue for 2010 (the “Financial Performance Metric”), (2) the individual’s target bonus percentage, and (3) the individual’s performance during the year. Operating income is defined as earnings before interest and other income, interest expense, and taxes (including the expense associated with the payout under the 2010 Bonus Plan) divided by net sales. The compensation committee has discretion to exclude significant, non-recurring items, as well as amounts attributable to Altera’s non-qualified deferred compensation plan, from the calculation of the Financial Performance Metric. Significant non-recurring transactions are defined as items that could have a material effect on the outcome of the calculated bonus, are unusual in nature and occur infrequently. For purposes of the calculation, items are deemed to have a material effect if they have a positive or negative impact on operating margin income of greater than 1% of net sales or $10 million for the full year impact (net of any resulting dollar savings) of each type of unusual or infrequently occurring item (whether they occur in one or more transactions). Unusual in nature refers to those transactions or events that possess a high degree of abnormality and are of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of Altera and the industry. Examples of significant, non-recurring items that the compensation committee may elect to exclude from the calculation of the Financial Performance Metric include, but are not limited to, the following: (1) restructuring charges as defined by United States Generally Accepted Accounting Provisions (“US GAAP”); (2) business combinations as defined by US GAAP; (3) asset impairment or discontinuation of operations recognized under US GAAP; (4) earthquake, tsunami, flood, hurricane, typhoon, or fire resulting in an expense recognized under US GAAP; and (5) other significant non-recurring transactions as appropriate.
As with the 2009 Bonus Plan, each NEO’s payout is determined based in part on his or her target bonus percentage, which varies depending on the executive officer’s position and level of responsibility within the company, and is subject to a cap of two times the target percentage. The target and maximum payout percentages are: (1) 125% and 250%, respectively, in the case of our CEO; (2) 60% and 120%, respectively, in the case of our Senior Vice Presidents; and (3) 50% and 100%, respectively, in the case of our Vice Presidents. The CEO’s target bonus percentage was changed from 2009 to 2010 in order to bring this target total cash compensation within the 50th to 75th percentile of the Peer Group companies.

 

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The Potential Payout Percentages are shown in the table below (if the results of the Financial Performance Metric fall between the amounts indicated, the Potential Payout Percentage will be calculated on a proportional basis).
         
Operating Income as a   Potential Payout  
Percentage of Revenue   Percentage  
Less than 22
   
0
 
22
   
10
 
23
   
30
 
24
   
50
 
25
   
70
 
26
   
95
 
27
   
100
 
28
   
110
 
29
   
120
 
30
   
140
 
31
   
170
 
32 or higher
   
200
 
Equity Incentive Compensation
The compensation committee believes that performance-based RSUs can effectively align executives’ interests with those of our stockholders because they are subject to both time-based and performance-based vesting requirements. The compensation committee bases equity awards to the CEO and executive officers on the following factors: (1) the individual’s ability to influence our long-term growth and profitability; (2) an estimate of the equity incentive value of unvested equity awards; and (3) the competitiveness of equity grants vis-à-vis those made to similar executives at peer companies.
Overview of Equity Compensation for 2009
RSUs were granted to each of our NEOs in 2009 in recognition of the value of their significant contributions to the company. The number of shares covered by the grant was based on performance, benchmarking data, and the compensation committee’s assessment of the retention value of existing equity grants. The difference in the value of the equity grants made to the CEO and NEOs was based on competitive benchmarking data for their respective positions. Vesting as to 70% of the total RSUs granted (the “Performance-Based RSUs”) was contingent on (i) the company achieving net income (including equity compensation expense) from continuing operations as a percentage of net sales of 17% or greater in 2009 (the “Financial Performance Metric”) and (ii) the NEO satisfying certain service requirements (i.e., continued employment with the company over a four-year vesting period). Vesting of the remaining 30% of the total RSUs granted (the “Service-Only RSUs”) is contingent on the NEO’s continued employment with the company over a four-year vesting period. In February 2010, the compensation committee certified that the financial performance metric had been met. By having both Performance-Based RSUs and Service-Only RSUs, the compensation committee sought to establish a challenging financial performance metric while also promoting each NEO’s retention by the company in order to influence our long-term growth.
Overview of Equity Compensation for 2010
For 2010, the compensation committee benchmarked the equity compensation paid to the CEOs and executive officers of our peers, and considered the retention value of the equity grants previously made to our NEOs. The compensation committee analyzed the dollar value of RSUs (or Black-Scholes value in the case of options), and concluded that those previous grants currently have adequate retention value. Consequently, the committee decided to decrease the number of RSUs granted to each NEO in 2010 as compared to the number granted in 2009.
Vesting as to 70% of the total RSUs granted (the “Performance-Based RSUs”) is contingent on: (1) the company achieving net income (including equity compensation expense) from continuing operations as a percentage of net sales of 17% or greater in 2010; and (2) the NEO satisfying certain service requirements (i.e. continued employment with the company over a four-year vesting period). In calculating whether the Performance-Based RSUs have vested, the compensation committee will exclude the following items to the

 

23


 

extent that they individually affect the calculation of net income by greater than 1% or $10 million: (1) restructuring as defined by US GAAP and accounted for under FASB ASC Topic 420; (2) business combinations as defined by US GAAP and accounted for under FASB ASC Topic 820; (3) asset impairments accounted for under FASB ASC Topic 360 or discontinuation of operations accounted for under FASB ASC Topic 230; (4) earthquake, tsunami, flood, hurricane, typhoon, or fire resulting in an expense recognized under US GAAP; and (5) tax law changes.
Vesting of the remaining 30% of the total RSUs granted (the “Service-Only RSUs”) is contingent on the NEO’s continued employment with the company over a four-year vesting period. By having both Performance-Based RSUs and Service-Only RSUs, the compensation committee sought to establish a challenging financial performance metric while also promoting each NEO’s retention by the company in order to influence our long-term growth.
The compensation committee authorized the following RSU grants for 2010. The grant date of the RSUs was February 19, 2010; the first vesting date is July 31, 2011.
                         
Name   Total RSUs Granted     Performance-Based RSUs     Service-Only RSUs  
John P. Daane
    175,000       122,500       52,500  
Misha Burich
    42,000       29,400       12,600  
Jordan S. Plofsky
    37,000       25,900       11,100  
George Papa
    35,000       24,500       10,500  
Other Benefits
Executive officers are eligible to receive benefits at the same level generally available to our U.S.-based employees. These benefits include: employee stock purchase plan, non-qualified deferred compensation plan, medical benefits, life and accident insurance, and an annual 401(k) plan matching contribution of $4,000. We do not provide any other perquisites to our executive officers that are not made available to other employees.
Stock Ownership Guidelines
In February 2008, the board of directors adopted stock ownership guidelines that provide that the CEO and CFO should own, within five years of the institution of the guideline or five years of beginning employment, 100,000 and 15,000 shares, respectively, of common stock in the company. An individual may request that the compensation committee suspend the ownership guidelines based on personal hardship. The board put the guidelines in place to align the interests of management with those of our stockholders, with the belief that the CEO and CFO positions have the greatest ability to influence our long-term growth and profitability. As of the record date, our CEO owned 325,540 shares (not including shares that he has the right to acquire within sixty days of the record date or shares that are subject to further vesting requirements), thereby meeting the guidelines. Our CFO joined us in late December 2009, and as of the record date, he did not own any shares of common stock in the company.
Other Compensation Considerations
Deductibility of Executive Compensation
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), we may not receive a federal income tax deduction for compensation paid to our CEO and our three most highly compensated employees (referred to in the Code as “covered persons”) to the extent that any of these persons receive more than $1,000,000 in compensation in any one year. However, if we pay compensation that is “performance-based” under Section 162(m), we can receive a federal income tax deduction even if such compensation exceeds $1,000,000 in a single year, subject to certain conditions. Our 2005 Equity Plan is structured so that performance-based equity compensation deemed paid to a covered persons in connection with the exercise of stock option grants and performance-based RSUs made under the plan will qualify as performance-based compensation which will not be subject to the $1,000,000 limitation. Although the compensation committee generally seeks to structure compensation payable to covered persons to meet the deductibility requirements under Section 162(m), in order to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the compensation committee has not adopted a policy that all compensation payable to covered persons must be deductible on our federal income tax returns. In addition, the committee cannot ensure that compensation intended to qualify for deductibility under Section 162(m) will in fact be deductible because: (1) a

 

24


 

number of requirements must be satisfied in order for the compensation to qualify; and (2) uncertainties as to the application and interpretation surrounding this section currently exist.
Accounting for Stock-Based Compensation
We account for stock-based awards made to all employees and non-employee directors, including stock options, RSUs, and stock purchase rights granted pursuant to our equity compensation and stock purchase plans, in accordance with the requirements of FASB ASC Topic No. 718.
Summary of Officer Compensation
On December 21, 2009, Ronald J. Pasek was appointed to serve as our Senior Vice President, Finance and CFO. Mr. Pasek received an employment package consisting of the following key components of compensation: (1) annual base salary of $400,000; (2) cash incentive compensation pursuant to our Bonus Plan; (3) a hire-on bonus of $250,000; (4) a grant of 75,000 stock options; and (5) a grant of 80,000 RSUs. The total compensation package was determined by the compensation committee and based on the following considerations: (1) Mr. Pasek’s compensation with his former employer; (2) the compensation paid to CFOs at companies in our Peer Group; (3) the compensation paid to our previous CFO; and (4) the entire compensation package that would be payable to Mr. Pasek if he accepted our employment offer.
Base salaries for our NEOs, as reflected in column (c) of the “Summary Compensation Table” below, did not increase from 2008 to 2009 because the compensation committee concluded that the amounts were competitive with our peers. Mr. Pasek’s annual base salary is $400,000; the amount shown for 2009 is less than his annual salary because he became Senior Vice President, Finance and CFO in late December 2009.
As noted above, the compensation committee generally targets total cash compensation to fall between the 50th and 75th percentile of our peer group. Actual total cash compensation paid to our NEOs for 2009 (2009 salary and payouts under the 2009 Bonus Plan) was below this target range in most cases because 2009 Bonus Plan payouts were below target levels. In the remaining cases, it was within the target range.
The amounts shown in column (d) in the below table reflect discretionary bonuses. With respect to Mr. Pasek, the bonus was made in connection with his hiring in December 2009. Mr. Callas’ bonus was made in connection with his role as Principal Financial and Accounting Officer and acting CFO.
The amounts shown in columns (e) and (f) are for RSUs and stock options. All equity grants are described in further detail in the “Grants of Plan-Based Awards During 2009” table on page 28.
Amounts listed in column (g) represent cash incentive awards pursuant to our 2009 Bonus Plan (described in further detail in the “Grants of Plan-Based Awards During 2009” table on page 28) that our NEOs received for 2009 performance.

 

25


 

The following table summarizes the total compensation paid to each of our NEOs, comprised of all individuals who served as our CEO or CFO at any time during fiscal 2009, and our three other most highly compensated executive officers who were serving as executive officers at the end of 2009.
SUMMARY COMPENSATION TABLE
                                                                 
                            Restricted             Non-Equity              
                            Stock Unit     Option     Incentive Plan     All Other     Total  
            Salary     Bonus     Awards     Awards     Compensation     Compensation     Compensation  
Name and Principal Position   Year     ($)     ($)     ($) (1)     ($) (1)     ($)     ($)     ($)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)  
John P. Daane 
    2009       700,027             3,517,500             520,000             4,737,527  
President and
    2008       700,027             2,104,740             1,252,230             4,056,997  
Chief Executive Officer
    2007       700,027             2,216,490             324,000             3,240,517  
 
                                                               
Ronald J. Pasek (2) (3)
Senior Vice President, Finance and Chief Financial Officer
    2009       13,846  (4)     250,000  (5)     1,714,800       466,778        (6)           2,445,424  
 
                                                               
James W. Callas (2) (7) (8)
    2009       240,009       40,000  (9)     92,496             90,000             462,505  
Vice President Finance and
    2008       240,009             91,664             164,000             495,673  
Controller and Former Acting Chief Financial Officer
    2007       240,009             221,649             43,450       9,231       514,339  
 
                                                               
Timothy R. Morse (10)
    2009       177,651             1,266,300                   8,894  (11)     1,452,845  
Former Senior Vice
    2008       375,014             631,422             404,105             1,410,541  
President and Chief Financial Officer
    2007       360,831       301,236       1,002,500       3,240,760       90,000       16,626       5,011,953  
 
                                                               
Misha Burich
    2009       375,014             1,125,600             175,000             1,675,614  
Senior Vice President,
    2008       375,014             631,422             387,284             1,393,720  
Research and Development
    2007       375,014             601,500             100,000             1,076,514  
 
                                                               
Jordan S. Plofsky
    2009       350,013             1,125,600             145,000       145,687  (12)     1,766,300  
Senior Vice President
    2008       350,013             841,896             360,343             1,552,252  
and General Manager, Altera Penang
    2007       350,013       70,000       886,596             85,000             1,391,609  
 
                                                               
George Papa
    2009       350,013             1,125,600             145,000             1,620,613  
Senior Vice President,
    2008       350,013             631,422             364,829             1,346,264  
WorldWide Sales
    2007       350,013             886,596             80,000             1,316,609  
     
(1)  
Amounts shown in columns (e) and (f) reflect the grant date fair value of awards granted in accordance with FASB ASC Topic 718. These amounts do not represent the actual amounts paid to or realized by the NEOs during fiscal 2009. The grant date fair value of the performance-based RSUs included in these amounts also represents the maximum fair value (assuming that all performance conditions will be achieved). See Note 10 of our footnotes to the Consolidated Financial Statements in the company’s Annual Report on Form 10-K for additional information. Details of 2009 stock awards can be found in the table “Grants of Plan-Based Awards.” Details regarding the 2009, 2008 and 2007 stock awards that are still outstanding can be found in the table “Outstanding Equity Awards at Fiscal Year End.”
     
(2)  
On December 21, 2009, Mr. Pasek was appointed Senior Vice President, Finance and CFO and Mr. Callas, our then-acting CFO, resumed his role as Vice President Finance and Controller.
 
(3)  
Mr. Pasek became CFO in fiscal 2009, and, consequently, no fiscal 2007 or 2008 compensation amounts are provided.
 
(4)  
Mr. Pasek’s annual base salary is $400,000. The amount shown in column (c) is less than his annual salary because he became Senior Vice President, Finance and CFO in late December 2009.
 
(5)  
Represents a hire-on bonus.
 
(6)  
Mr. Pasek joined the company in late December 2009 and was not eligible to participate in the 2009 Bonus Plan.
 
(7)  
Effective June 12, 2009, Mr. Morse, our then-current CFO, resigned and Mr. Callas assumed the role of Principal Financial and Accounting Officer and acting CFO.
 
(8)  
Mr. Callas was not an NEO in fiscal 2008.

 

26


 

     
(9)  
Reflects a $40,000 discretionary bonus payment in connection with Mr. Callas’ role as Principal Financial and Accounting Officer and acting CFO.
 
(10)  
Mr. Morse resigned effective June 12, 2009. In accordance with our standard equity plan provisions, (a) all stock options and RSUs ceased vesting on that date, (b) options that were unvested at that time were forfeited, and (3) all vested options terminated 60 days after the resignation date, as specified in the applicable stock option agreement previously entered into between us and Mr. Morse.
 
(11)  
Amount reflects vacation pay-out at termination.
 
(12)  
Amount reflects reimbursement of costs relating to Mr. Plofsky’s relocation to the company’s office in Penang, Malaysia, including a settle-in allowance of $29,168; housing costs of $26,012; a housing deposit of $14,176; and foreign tax payments of $57,026.

 

27


 

Grants of Plan-Based Awards During 2009
The following table sets forth information with respect to our 2009 Bonus Plan as well as RSU awards made during 2009 to our NEOs. To the extent that amounts paid pursuant to our 2009 Bonus Plan were not deferred by the NEO into our Deferred Compensation Plan, the amounts were paid out in 2010.
GRANTS OF PLAN-BASED AWARDS
                                                                         
                                            All Other     All Other              
                                            Stock     Option              
                                            Awards:     Awards:     Exercise or     Grant Date  
                    Estimated Possible     Number of     Number     Base     Fair Value  
                    Payouts Under Non-Equity     Shares of     of Securities     Price of     of Stock and  
                    Incentive Plan Awards (2)     Stock     Underlying     Option     Option  
    Grant     Approval     Threshold     Target     Maximum     or Units     Options     Awards     Awards  
Name   Date     Date (1)     ($)     ($)     ($)     (#) (3)     (#)     ($/Sh)     ($) (4)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  
John P. Daane
    03/02/09       03/02/09                         250,000                   3,517,500  
 
    N/A       N/A             700,000       1,400,000                         N/A  
Ronald J. Pasek
    02/01/10       11/24/09                         80,000       75,000       21.88       2,181,578  
James W. Callas
    07/27/09       07/27/09                         5,000                   92,496  
 
    N/A       N/A             120,000       240,000                         N/A  
Timothy R. Morse
    03/02/09       03/02/09                         90,000                   1,266,300  
 
    N/A       N/A             225,000       450,000                         N/A  
Misha Burich
    03/02/09       03/02/09                         80,000                   1,125,600  
 
    N/A       N/A             225,000       450,000                         N/A  
Jordan S. Plofsky
    03/02/09       03/02/09                         80,000                   1,125,600  
 
    N/A       N/A             210,000       420,000                         N/A  
George Papa
    03/02/09       03/02/09                         80,000                   1,125,600  
 
    N/A       N/A             210,000       420,000                         N/A  
     
(1)  
In 2009, the compensation committee approved all equity-based awards to NEOs (except as described below) by written resolution effective March 2, 2009. In the case of Mr. Pasek, who joined the company on December 21, 2009, the compensation committee approved his compensation package on November 24, 2009 and his grant date was February 1, 2010 (further detail regarding Mr. Pasek’s employment package can be found in the “Summary of Officer Compensation” section on page 25). In the case of Mr. Callas, who was an NEO from June 12, 2009 through December 21, 2009, his July 27, 2009 grant date coincided with the grant date of equity grants to all other employees who were not executive officers and who were participating in our annual performance and compensation review process. The RSUs granted on July 27, 2009 were valued at $18.99, the RSUs granted on February 1, 2010 were valued at $21.88 and the RSUs granted on March 2, 2009 were valued at $14.56 (the closing price of our common stock as reported on NASDAQ on the respective date).
 
(2)  
The amounts shown in columns (d)-(f) reflect the minimum, target and maximum payment amounts that NEOs could have received under the 2009 Bonus Plan, depending on performance against the metrics described in further detail in the “Cash Incentive Compensation” section on page 19. The amounts range from zero to a cap based on a certain percentage of the individual’s base salary. The applicable caps are as follows: 200% for Mr. Daane; 120% for Messrs. Morse, Burich, Plofsky and Papa; and 100% for Mr. Callas. Mr. Pasek joined the company in late December 2009 and was not eligible to participate in the 2009 Bonus Plan. Mr. Morse left the company before the end of the year and was therefore ineligible for a 2009 bonus.
 
(3)  
Represents the number of RSUs awarded to each NEO pursuant to our 2005 Plan, as described in further detail in the “Equity Incentive Compensation” section on page 23.
 
(4)  
Represents the full grant date fair value of each RSU award computed in accordance with ASC No. 718-10. These amounts do not represent the actual amounts paid to or realized by the NEOs during fiscal 2009. The grant date fair value of the performance-based RSUs included in these amounts also represents the maximum fair value (assuming that all performance conditions will be achieved). See Note 10 of our footnotes to the Consolidated Financial Statements in the company’s Annual Report on Form 10-K.

 

28


 

Option Exercises and Stock Vested In 2009
The following table provides information regarding stock option exercises and RSUs that vested in 2009.
OPTION EXERCISES AND STOCK VESTED
                                 
    Option Awards (1)     Stock Awards  
    Number of Shares     Value Realized on     Number of Shares     Value Realized on  
    Acquired on Exercise     Exercise     Acquired on Vesting     Vesting  
Name   (#)     ($)     (#)     ($)  
(a)   (b)     (c)     (d)     (e)  
John P. Daane
    100,000       868,190       50,000       815,500  
Ronald J. Pasek
                       
James W. Callas
    2,729       5,568       5,250       83,070  
Timothy R. Morse
                20,000       314,575  
Misha Burich
                21,250       333,800  
Jordan S. Plofsky
    40,000       343,600       30,000       480,000  
George Papa
                27,500       439,225  
     
(1)  
Reflects exercise of stock options received pursuant to our 1996 Stock Option Plan (which was replaced by the 2005 Plan in May 2005). The value realized on exercise represents the difference between the exercise price and the fair market value of our common stock on the date of exercise.

 

29


 

Outstanding Equity Awards
The following table provides information regarding outstanding equity awards, including stock options and RSUs, and applicable market values at the end of 2009.
OUTSTANDING EQUITY AWARDS AT 2009 YEAR-END
                                                                                 
                                                    Stock Awards  
                                                                    Equity        
                                                                    Incentive     Equity  
            Option Awards                     Plan     Incentive  
                            Equity                                     Awards:     Plan  
                            Incentive                                     Number     Awards:  
                            Plan                     Number             of     Market or  
                    Number     Awards:                     of             Unearned     Payout  
            Number     of     Number                     Shares     Market     Shares,     Value of  
            of     Securities     of                     or Units     Value of     Units or     Unearned  
            Securities     Underlying     Securities                     of Stock     Shares or     Other     Shares,  
            Underlying     Unexercised     Underlying                     That     Units of     Rights     Units or  
            Unexercised     Options     Unexercised     Option             Have     Stock That     That     Other Rights  
            Options     (#)     Unearned     Exercise     Option     Not     Have Not     Have Not     That Have  
            (#)     Unexercisable     Options     Price     Expiration     Vested     Vested     Vested     Not Vested  
Name   Grant Date     Exercisable     (1)     (#)     ($)     Date     (#) (2)     ($) (3)     (#)     ($)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)  
John P. Daane
    11/30/2000       1,500,000                   23.94       11/30/2010                          
 
    12/03/2001       500,000                   22.49       12/03/2011                          
 
    12/03/2002       200,000                   13.91       12/03/2012                          
 
    01/05/2004       500,000                   23.47       01/05/2014                          
 
    03/02/2005       300,000                   21.06       03/02/2015                          
 
    01/10/2006       293,750       6,250             19.55       01/10/2016                          
 
    04/30/2007                                     50,000       1,131,500              
 
    04/28/2008                                     75,000       1,697,250              
 
    03/02/2009                                     75,000       1,697,250              
 
    03/02/2009                                     175,000       3,960,250              
Ronald J. Pasek
    02/01/2010             75,000             21.88       02/01/2020       80,000       1,810,400              
James W. Callas 
    12/20/2000       36,667                   24.63       12/20/2010                          
 
    12/03/2001       55,000                   22.49       12/03/2011                          
 
    01/05/2004       45,000                 $ 23.47       01/05/2014                          
 
    01/03/2005       13,000                 $ 20.04       01/03/2015                          
 
    01/30/2006                                     1,500       33,945              
 
    04/30/2007                                     5,000       113,150              
 
    01/28/2008                                     3,750       84,863              
 
    07/27/2009                                     5,000       113,150              
Timothy R. Morse (4)
                                                           
Misha Burich 
    12/03/2001       75,000                   22.49       12/03/2011                          
 
    12/03/2002       110,000                   13.91       12/03/2012                          
 
    01/05/2004       160,000                   23.47       01/05/2011                          
 
    01/05/2004       120,000                   23.47       01/05/2014                          
 
    01/03/2005       120,000                   20.04       01/03/2015                          
 
    01/30/2006                                     6,250       141,438              
 
    01/29/2007                                     15,000       339,450              
 
    04/28/2008                                     22,500       509,175              
 
    03/02/2009                                     24,000       543,120              
 
    03/02/2009                                     56,000       1,267,280              
Jordan S. Plofsky 
    05/01/2001       400,000                   26.65       05/01/2011                          
 
    12/03/2001       220,000                   22.49       12/03/2011                          
 
    12/03/2002       100,000                   13.91       12/03/2012                          
 
    01/05/2004       200,000                   23.47       01/05/2014                          
 
    03/02/2005       125,000                   21.06       03/02/2015                          
 
    01/30/2006                                     10,000       226,300              
 
    04/30/2007                                     20,000       452,600              
 
    04/28/2008                                     30,000       678,900              
 
    03/02/2009                                     24,000       543,120              
 
    03/02/2009                                     56,000       1,267,280              
George Papa 
    02/19/2002       400,000                     22.10       02/19/2012                          
 
    01/05/2004       200,000                   23.47       01/05/2014                          
 
    03/02/2005       125,000                   21.06       03/02/2015                          
 
    01/30/2006                                     10,000       226,300              
 
    04/30/2007                                     20,000       452,600              
 
    04/28/2008                                     22,500       509,175              
 
    03/02/2009                                     24,000       543,120              
    03/02/2009                                     56,000       1,267,280              

 

30


 

(1)  
Stock options are exercisable in accordance with the vesting schedule below:
         
Name   Grant Date   Vesting
John P. Daane
  01/10/2006   75,000 options vested on 01/10/2007. The remaining 225,000 options vest 1/36 per month thereafter (i.e. 6,250 per month).
 
       
Ronald J. Pasek
  02/01/2010   18,750 options will vest on 02/01/2011. The remaining 56,250 options vest 1/36 per month thereafter (i.e. 1,562 per month).
(2)  
RSUs vest as follows:
         
Name   Grant Date (A)   Vesting
 John P. Daane
  04/30/2007   25,000 RSUs each vested on 04/30/2008 and 04/30/2009, and 25,000 RSUs each will
      vest on 04/30/2010 and 04/30/2011.
 
  04/28/2008   25,000 RSUs vested on 4/30/2009 and 25,000 RSUs each will vest on 04/30/2010,
 
      04/30/2011, and 04/30/2012.
 
  03/02/2009   18,750 RSUs each will vest on 07/31/2010, 07/31/2011, 07/31/2012 and
 
      07/31/2013. No performance-based vesting requirement applies.
 
  03/02/2009   43,750 RSUs each will vest on 07/31/2010, 07/31/2011, 07/31/2012 and 07/31/2013.
 
 Ronald J. Pasek
  02/01/2010   18,750 RSUs each will vest on 02/01/2011, 02/01/2012, 02/01/2013 and
 
      02/01/2014. 23,333 RSUs each will vest on 01/30/2011 and 01/29/2012. 23,334
 
      RSUs will vest on 01/30/2013. 10,000 RSUs will vest on 01/30/2014. No
      performance-based vesting requirement applies.
 
 James W. Callas
  01/30/2006   1,500 RSUs each vested on 01/30/2007, 01/30/2008, 01/30/2009 and 01/30/2010.
      No performance-based vesting requirement applied.
 
  04/30/2007   2,500 RSUs each vested on 04/30/2007, 04/30/2008 and 04/30/2009 and 2,500 RSUs
 
      will vest on 04/30/2010. No performance-based vesting requirement applies.
 
  01/28/2008   1,250 RSUs each vested on 01/28/2009 and 01/28/2010 and 1,250 RSUs each will
 
      vest on 01/28/2011 and 01/28/2012. No performance-based vesting requirement
 
      applies.
 
  07/27/2009   1,250 RSUs will each vest on 07/27/2010, 07/27/2011, 07/27/2012 and 07/27/2013.
 
      No performance-based vesting requirement applies.
 
 Misha Burich
  01/30/2006   6,250 RSUs each vested on 01/30/2007, 01/30/2008, 01/30/2009, and 01/29/2010.
      No performance-based vesting requirement applies.
 
  01/29/2007    7,500 RSUs each vested on 01/30/2008, 01/30/2009, and 01/29/2010 and 7,500 RSUs
 
      each will vest on 01/30/2011. No performance-based vesting requirement
 
      applies.
 
  04/28/2008   7,500 RSUs vested on 04/30/2009 and 7,500 RSUs each will vest on 04/30/2010,
 
      04/30/2011, and 04/30/2012.
 
  03/02/2009   6,000 RSUs each will vest on 07/31/2010, 07/31/2011, 07/31/2012 and 07/31/2013.
 
      No performance-based vesting requirement applies.
 
  03/02/2009   14,000 RSUs each will vest on 07/31/2010, 07/31/2011, 07/31/2012 and 07/31/2013.
 
 Jordan S. Plofsky
  01/30/2006   10,000 RSUs each vested on 01/30/2007, 01/30/2008, 01/30/2009, and 01/30/2010.
      No performance-based vesting requirement applies.
 
  04/30/2007   10,000 RSUs each vested on 04/30/2008 and 04/30/2009, and 10,000 RSUs each will
 
      vest on 04/30/2010 and 04/30/2011.
 
  04/28/2008   10,000 RSUs vested on 04/30/2009 and 10,000 RSUs each will vest on 04/30/2010,
 
      04/30/2011, and 04/30/2012.
 
  03/02/2009   6,000 RSUs each will vest on 07/31/2010, 07/31/2011, 07/31/2012 and 07/31/2013.
 
      No performance-based vesting requirement applies.
 
  03/02/2009   14,000 RSUs each will vest on 07/31/2010, 07/31/2011, 07/31/2012 and 07/31/2013.

 

31


 

         
Name   Grant Date (A)   Vesting
 George Papa
  01/30/2006   10,000 RSUs each vested on 01/30/2007, 01/30/2008, 01/30/2009, and 01/30/2010.
      No performance-based vesting requirement applies.
 
  04/30/2007   10,000 RSUs each vested on 04/30/2008 and 04/30/2009, and 10,000 RSUs each will
 
      vest on 04/30/2010 and 04/30/2011.
 
  04/28/2008   7,500 RSUs vested on 04/30/2009 and 7,500 RSUs each will vest on 04/30/2010,
 
      04/30/2011, and 04/30/2012.
 
  03/02/2009   6,000 RSUs each will vest on 07/31/2010, 07/31/2011, 07/31/2012 and 07/31/2013.
 
      No performance-based vesting requirement applies.
 
  03/02/2009   14,000 RSUs each will vest on 07/31/2010, 07/31/2011, 07/31/2012 and 07/31/2013.
       
  (A)  
RSUs are subject to a performance-based vesting requirement, as described in further detail in the “Equity Incentive Compensation” section on page 23, except as specifically noted.
(3)  
Amounts reflecting market value of RSUs are based on the price of $22.63 per share, which was the closing price of our common stock as reported on NASDAQ on December 31, 2009.
(4)  
Mr. Morse resigned effective June 12, 2009. In accordance with our standard equity plan provisions, (a) all stock options and RSUs ceased vesting on that date, (b) options that were unvested at that time were forfeited, and (3) all vested options terminated 60 days after the resignation date.

 

32


 

Non-Qualified Deferred Compensation
All of our employees in director-level and above positions, including our NEOs, are eligible to defer a portion of their base salary, cash incentive compensation, and/or sales incentives into our Non-Qualified Deferred Compensation Plan (“Deferred Compensation Plan”). We do not pay any additional compensation or guarantee minimum returns to any participant in the Deferred Compensation Plan. We incur only incidental expenses to administer the Deferred Compensation Plan. We might obtain a tax benefit based on payment of a participant’s compensation, but any benefit is delayed until funds (including earnings or losses on the amounts invested pursuant to the plan) are eventually distributed.
Pursuant to the Deferred Compensation Plan, eligible employees can defer: (1) up to 100% of their base salary, cash incentive compensation and/or sales incentives if the employee does not participate in our 401(k) plan, and (2) up to 65% of their base salary and cash incentive compensation and up to 80% of their sales incentives if the employee participates in our 401(k) plan. In general, deferral elections are made in November of each year for amounts to be earned in the upcoming year. Participants may invest amounts in individual stocks or funds available under the Deferred Compensation Plan (in general, those traded on a nationally recognized exchange), with the exception of investing in securities of Altera, Xilinx, Inc., or Lattice Semiconductor Corporation. Plan earnings are calculated by reference to actual earnings of mutual funds or other securities chosen by individual participants.
Except for a change in control or certain unforeseeable emergencies (as defined in the Deferred Compensation Plan), benefits are not distributed until a “distribution event” has occurred. At the election of each participant, the distribution event may be: (1) the attainment of a specified date or age; (2) the earlier of a specified date or age, or termination; or (3) termination of employment. Distributions can be made in the form of cash or in kind, and the method of distribution can be a lump sum payment or annual installments (not to exceed ten years).
The following table provides information regarding contributions, earnings and the aggregate balance of non-qualified deferred compensation for our NEOs in 2009.
NON-QUALIFED DEFERRED COMPENSATION
                                         
    Executive     Registrant             Aggregate        
    Contributions in     Contributions in     Aggregate Earnings     Withdrawals/     Aggregate Balance  
    Last FY     Last FY     in Last FY     Distributions     at Last FYE  
Name   ($) (1)     ($)     ($)     ($)     ($) (2)  
(a)   (b)     (c)     (d)     (e)     (f)  
John P. Daane
                871             854,740  
Ronald J. Pasek
                             
James W. Callas
                (13,637 )           373,920  
Timothy R. Morse
                             
Misha Burich
    78,128             648,507             2,468,781  
Jordan S. Plofsky
                             
George Papa
    2,333             3,411       (130,929 )     275,127  
     
(1)  
To the extent that a contribution was made from base salary, that amount is also included in the 2009 amounts shown in column (c) of the “Summary Compensation Table” on page 26. Contributions made from cash incentive compensation and/or sales incentives are reflected in the fiscal 2008 amounts shown in column (g) of the “Summary Compensation Table” because such amounts were earned in fiscal 2008 but paid, and therefore contributed, in 2009.
 
(2)  
Amounts shown in column (f) were previously reported as salary, cash incentive compensation and/or sales incentives in 2009 and prior fiscal years, as applicable.

 

33


 

Equity Compensation Plan Information
The following table provides information as of December 31, 2009 regarding equity compensation plans approved and not approved by our security holders.
EQUITY COMPENSATION PLAN INFORMATION
                         
                    Number of Securities  
                    Remaining Available for  
    Number of Securities to be             Future Issuance Under Equity  
    Issued Upon Exercise of     Weighted-Average Exercise     Compensation Plans  
    Outstanding Options,     Price of Outstanding Options,     (Excluding Securities Reflected  
    Warrants, and Rights     Warrants, and Rights ($/Sh)     in Column (a))  
Plan Category   (a)     (b)     (c)  
Equity Compensation Plans Approved by Security Holders
    37,786,055 (1 ) (2)   $ 21.89  (3)     20,603,299  (4)
Equity Compensation Plans Not Approved by Security Holders
                 
Total
    37,786,055     $ 21.89       20,603,299  
     
(1)  
Includes shares subject to outstanding options granted under our 2005 Plan and prior equity incentive plans.
 
(2)  
Includes 6,951,715 RSUs granted under our 2005 Plan.
 
(3)  
This weighted-average exercise price does not include outstanding RSUs.
 
(4)  
Consists of 18,407,880 shares available for future issuance under our 2005 Plan (for options and RSUs), and 2,195,419 shares available for future issuance under our 1987 Employee Stock Purchase Plan.
Employment Contracts and Change of Control Arrangements
We have no severance or change in control agreements with any of our NEOs.
Compensation Committee Report
The compensation committee operates under a written charter adopted by our board of directors. The charter is available in the “Corporate Governance” section of our website at www.altera.com, or by calling our Investor Relations Department at (408) 544-7000, or by writing us at Altera Corporation, 101 Innovation Drive, San Jose, California 95134, Attn: Investor Relations.
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the compensation committee recommended to our board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
John Shoemaker, Chairman
Kevin McGarity, Member
Krish A. Prabhu, Member
COMPENSATION COMMITTEE
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such officers, directors, and ten percent stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) reports they file.

 

34


 

Based solely on our review of the copies of such forms received by us or written representations from certain reporting persons that no Forms 5 were required for such persons, we believe that, during the year ended December 31, 2009, all Section 16(a) filing requirements applicable to our officers, directors, and ten percent stockholders were complied with, except that the Form 4 associated with the company’s annual RSU grant to its directors for Mr. Myers, our director, was filed late and the Form 4 associated with the sale of 5,500 shares by Mr. Burich, our Senior Vice President, Research and Development, was filed late.
Audit Committee Report
The audit committee operates under a written charter adopted by our board of directors. The charter is available in the “Corporate Governance” section of our website at www.altera.com, or by calling our Investor Relations Department at (408) 544-7000, or by writing us at Altera Corporation, 101 Innovation Drive, San Jose, California 95134, Attn: Investor Relations.
In general, the audit committee charter sets forth:
   
the scope of the audit committee’s responsibilities and the means by which it carries out those responsibilities;
 
   
the external auditor’s accountability to the board of directors and the audit committee; and
 
   
the audit committee’s responsibility to monitor the independence of the external auditor.
Management is responsible for: (1) preparation, presentation, and integrity of our consolidated financial statements; (2) selection of accounting and financial reporting principles; and (3) maintenance of effective internal control over financial reporting and procedures designed to ensure compliance with accounting standards, applicable laws, and regulations. PricewaterhouseCoopers, our external auditor, is responsible for performing an independent audit of our consolidated financial statements and internal control over financial reporting in accordance with auditing standards generally accepted in the U.S.
The audit committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management or the external auditor. Rather, the audit committee serves a board-level oversight role, providing advice, counsel, and direction to management and the external auditor on the basis of the information it receives, discussions with management and the external auditor, and the experience of the audit committee’s members in business, financial, and accounting matters.
The audit committee members have relied, without independent verification, on management’s representation that the consolidated financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the U.S., and that the company maintained effective internal control over financial reporting as of December 31, 2009. The audit committee’s oversight role does not provide it with an independent basis to determine whether management has maintained appropriate accounting and financial reporting principles or policies, or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the audit committee’s considerations and discussions with management and the internal and external auditor do not assure that our consolidated financial statements are presented in accordance with accounting principles generally accepted in the U.S., nor that the audit of our financial statements has been carried out in accordance with auditing standards generally accepted in the U.S.
Among other matters, the audit committee monitors the activities and performance of our external auditor, including the audit scope, external audit fees, auditor independence, and the extent to which the external auditor may be retained to perform non-audit services. The audit committee has sole responsibility to retain and replace our external auditor. The audit committee formally reviews the performance of the external auditor on an annual basis to determine whether rotation of audit firms is appropriate. The audit committee also reviews the results of the external auditor’s work with regard to the adequacy and appropriateness of our financial reporting, accounting, and internal controls.

 

35


 

Audit Fees Pre-Approval Policy
The audit committee has adopted a policy that requires the audit committee to pre-approve all audit, audit-related, and permissible non-audit services performed by the external auditor. At the beginning of each fiscal year, management and the external auditor seek the audit committee’s approval of the services the external auditor intends to perform. The chairman of the audit committee, or any other committee member in the chairman’s absence, may approve additional services and/or an increase in the amount of fees for services to be performed by the external auditor.
Unless otherwise performed by a comparable body of the board of directors, the audit committee must review and approve all related-person transactions as such term is defined by the SEC and NASDAQ. The policies and procedures for reviewing, approving and monitoring such related-person transactions are discussed in further detail in the “Certain Relationships and Related-Party Transactions” section on page 37.
Review with Management
The audit committee reviewed and discussed our audited consolidated financial statements with management. Management represented to the audit committee that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the U.S.
Review and Discussions with Independent Registered Public Accounting Firm
During 2009, the audit committee held meetings with management and the external auditor to discuss the overall scope and plan for the audit. The audit committee also met with our internal and external auditor, with and without management present, to discuss the results of its independent audit and evaluation of the effectiveness of our internal control over financial reporting. In addition, the audit committee reviewed and discussed the audited consolidated financial statements for the year ended December 31, 2009 and held discussions with management and the external auditor on the quality, not just the acceptability, of our accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in our consolidated financial statements. The audit committee reviewed and discussed with management and the internal and external auditor, management’s report on the company’s internal control over financial reporting and PricewaterhouseCoopers’ audit report on the effectiveness of the company’s internal control over financial reporting.
The audit committee and PricewaterhouseCoopers have discussed the matters required by “Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380, as adopted by the Public Company Accounting Oversight Board in Rule 3200T), which includes, among other items, matters related to the conduct of the audit of our consolidated financial statements and other matters relating to the external auditor’s judgments about the acceptability and quality of our accounting principles.
The audit committee has discussed with PricewaterhouseCoopers its independence from us and our related entities, including the matters in the written disclosures from PricewaterhouseCoopers required by the Public Company Accounting Oversight Board Rule 3526. In addition, the audit committee also determined that the provision of those services set forth in the table below is compatible with maintaining the independence of PricewaterhouseCoopers.
Conclusion
Based on its review and discussions with management as well as our internal and external auditor, the audit committee recommended to our board of directors that our audited consolidated financial statements and management’s report on internal control over financial reporting be included in our Annual Report.
Susan Wang, Chairman
Robert J. Finocchio, Jr., Member
Gregory E. Myers, Member
T. Michael Nevens, Member
AUDIT COMMITTEE

 

36


 

No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, through any general statement incorporating by reference in its entirety the proxy statement in which this report appears, except to the extent that we specifically incorporate this report or a portion of it by reference. In addition, this report shall not be deemed to be filed under either the Securities Act or the Exchange Act.
Audit, Audit-Related and Tax Fees
The following table sets forth the types of services and aggregate fees billed or to be billed by PricewaterhouseCoopers for 2009 and 2008:
                 
Description of Services   2009     2008  
Audit Fees (1)
  $ 1,595,000     $ 1,603,000  
Tax Fees (2)
  $ 352,000     $ 322,000  
Total
  $ 1,947,000     $ 1,925,000  
     
(1)  
The services relate to the audit of our annual financial statements, the review of the financial statements included in our quarterly reports, review of documents provided in connection with statutory or regulatory filings, and Section 404 attestation.
 
(2)  
Relates to services for tax return compliance and examination services, including worldwide tax planning and consulting services of $148,000 for 2009 and $148,000 for 2008.
Certain Relationships and Related-Party Transactions
The board of directors has adopted written policies and procedures for reviewing, approving and monitoring transactions involving us and “related persons.” The policy covers: (1) any transaction or series of transactions in which we or any of our subsidiaries was or is to be a participant; (2) in which the amount involved exceeds $120,000; and (3) in which a “related person” had or will have any material interest. “Related persons” include directors and executive officers (or their immediate family members), or stockholders who own more than five percent of our outstanding common stock (or their immediate family members).
On an annual basis, all directors and executive officers must respond to a questionnaire requiring disclosure of any related person transactions, arrangements or relationships (including indebtedness). In addition to these annual reviews, the affected director, executive officer, and our management are required to bring these matters to the attention of the Chairman of the Board, the Lead Independent Director, or the Secretary of the company in advance (or, if not practicable, as promptly as possible). Those persons subsequently decide whether the matter should be brought to the board of directors or to a committee of the board; the board or a committee consisting solely of independent members then reviews the particular transaction.
In performing its review, the board (or applicable committee) considers all relevant standards in determining whether the transaction is in the best interests of the company, including, as applicable: (1) our business interest in entering into the transaction; (2) whether the transaction is made or entered into in the ordinary course of business; (3) whether the transaction is made on substantially the same terms as other comparable transactions involving us and unrelated third parties; (4) the potential for the transaction to lead to an actual or apparent conflict of interest; and (5) alternatives to entering into the transaction with the related person.

 

37


 

PROPOSAL TWO — REAPPROVAL OF INTERNAL REVENUE CODE SECTION 162(m)
PROVISIONS OF THE 2005 EQUITY INCENTIVE PLAN
At the annual meeting, stockholders are requested to reapprove the Internal Revenue Code Section 162(m) provisions of the 2005 Equity Incentive Plan to preserve our ability to deduct for corporate income tax purposes compensation that qualifies as performance-based compensation under Section 162(m).
Summary
The 2005 Plan was adopted by our board of directors in March 2005 and approved by our stockholders on May 10, 2005. The 2005 Plan replaced the 1987 Stock Option Plan and the 1996 Stock Option Plan (collectively, the “Prior Plans”). As originally adopted, the 2005 Plan had 3,000,000 shares of common stock reserved for issuance plus all available but unissued shares under the Prior Plans. In addition, shares subject to awards granted under the Prior Plans that were outstanding on the effective date of the 2005 Plan and that were subsequently cancelled, forfeited, settled in cash or that expired by their terms were returned to the pool of shares available for grant and issuance under the 2005 Plan. As of the record date, 7,953,306 stock options were granted, 13,169,067 RSUs were granted (equivalent to 29,630,401 options at a ratio of one RSU for every 2.25 options), options to purchase an aggregate of 3,771,248 shares were outstanding, an aggregate of 6,794,952 unvested RSUs were outstanding and 17,353,130 shares were available for future grant under the 2005 Plan.
The 2005 Plan authorizes the board of directors or a committee of the board to grant the following types of equity to eligible employees, directors and consultants of the company: non-qualified and incentive stock options, SARs, restricted stock, RSUs, and stock bonus awards. In February 2010, the board of directors directed us to submit the material terms of the 2005 Plan to our stockholders for reapproval for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The material terms of the 2005 Plan are described below. No changes are being proposed with regard to the terms of the 2005 Plan at this time.
We are asking our stockholders to approve the material terms of the 2005 Plan as they relate to Section 162(m) to preserve corporate income tax deductions that may become available to us pursuant to Section 162(m). Pursuant to Section 162(m), we generally may not deduct for federal income tax purposes compensation paid to our Chief Executive Officer and our three most highly compensated employees (referred to in the Code as “covered persons”) to the extent that any of these persons receive more than $1,000,000 in compensation in any single year. However, if compensation qualifies as “performance-based” for Section 162(m) purposes, we may deduct it for federal income tax purposes, even if it exceeds $1,000,000 in a single year. In order for future awards under the 2005 Plan to qualify as performance-based compensation, our stockholders must approve the provisions to the 2005 Plan that specify the types of performance criteria that may be used as performance factors under the 2005 Plan and limit the number of securities that may be granted to any individual in any single year.
We believe that we must retain the flexibility to respond to changes in the market for top executive officers and offer compensation packages that are competitive with those offered by others in our industry. In the event we are motivated by competitive forces to offer compensation in excess of $1,000,000 to covered persons, our board of directors believes it would be in our best interests and those of our stockholders to be able to deduct such compensation for federal income tax purposes.
In order to comply with the stockholder approval requirements of Section 162(m), if stockholder approval of this proposal is not obtained, we will not make any further grants of restricted stock or restricted stock units under the Plan to covered persons, until such time, if any, as stockholder approval of a subsequent similar proposal is obtained.
Vote Required and Board of Directors’ Recommendation
The affirmative vote of the holders of a majority of the shares of our common stock present or represented and voting at the annual meeting is required to reapprove these provisions of the 2005 Plan. To provide incentives to eligible employees and to align their interests directly with those of our stockholders, our board of directors has unanimously approved the proposed reapproval of these provisions of the 2005 Plan and recommends that stockholders vote “FOR” such reapproval.

 

38


 

Key Terms of the 2005 Plan
The following is a summary of the key provisions of the 2005 Plan.
     
Plan Term:
 
May 10, 2005 to May 10, 2015
 
   
Eligible Participants:
 
Employees of the company and its subsidiaries, non-employee directors, and consultants are eligible to receive awards. As of the record date, there were approximately 2,417 employees and seven non-employee directors eligible to participate.
 
   
Shares Authorized:
 
48,580,880 (as of the record date), which includes 3,000,000 shares authorized for issuance by stockholders upon approval of the plan, plus shares that were available for future grants under the Prior Plans as of May 10, 2005, subject to adjustment only to reflect stock splits and similar events. Shares subject to awards granted under the Prior Plans that were outstanding on May 10, 2005 and that are subsequently cancelled, forfeited, settled in cash or that expired by their terms are returned to the pool of shares available for grant and issuance under the 2005 Plan.
 
   
Award Types:
  (1) Non-qualified and incentive stock options
 
  (2) Restricted stock awards
 
  (3) Restricted stock units
 
  (4) Stock appreciation rights
 
  (5) Stock bonus awards
 
   
Dividends:
  No dividends on outstanding awards.
 
   
Share Limit on Awards:
 
No more than 2,000,000 shares may be granted to any individual under the 2005 Plan during any calendar year, other than new employees who are eligible to receive up to 2,000,000 additional shares in the calendar year during which they begin employment. These limits are intended to ensure that awards will qualify under Section 162(m), if applicable. Failure to qualify under this section might result in the company’s inability to take a tax deduction for part of its performance-based compensation to certain senior executives.
 
   
Determining the Number of Shares Available for Grant:
 
For purposes of determining the number of shares available for grant under the 2005 Plan against the maximum number of shares authorized, any full-value award (i.e., anything other than a stock option or SAR) reduces the number of shares available for issuance by 2.25 shares.
 
   
Vesting:
 
Determined by the stock option committee (other than for grants to executive officers and directors, which are determined by the compensation committee). Options and SARs generally vest over four years (25% cliff vesting after one year and monthly thereafter). Restricted stock and RSUs vest over a minimum of three years, including any performance period.
 
   
Term of Awards:
  Stock options and SARs have a term of no longer than ten years.
 
   
Exercise Price:
 
The exercise price of stock options or SARs granted may not be less than 100% of the fair market value (i.e., the closing price) of our common stock on the date of grant. On December 31, 2009, the closing price of our stock was $22.63 per share.
 
   
Repricing Prohibited:
  Repricing a stock option or SAR is prohibited without prior stockholder approval.

 

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Administration
The compensation committee administers the 2005 Plan with respect to awards to executive officers and non-employee directors, and the stock option committee administers the 2005 Plan with respect to all other awards. The applicable committee selects the individuals who receive awards, determines the number of shares covered by awards and, subject to the terms and limitations expressly set forth in the 2005 Plan, establishes the terms, conditions and other provisions of any awards granted under the 2005 Plan. The applicable committee interprets the 2005 Plan and establishes, amends and rescinds any rules relating to the 2005 Plan. The compensation committee may delegate to a committee of one or more directors the ability to grant awards and take certain other actions with respect to participants who are not executive officers or non-employee directors.
Non-Employee Director Awards
The board of directors approved amendments to the 2005 Plan regarding non-employee director equity awards in February 2008, and stockholders approved the amendments in May 2008 at the annual meeting. Currently, the 2005 Plan permits the compensation committee to exercise limited discretion in deciding the type and amount of equity awards to be granted to a non-employee director upon joining the board of directors and upon re-election at the annual meeting of stockholders.
More specifically, at the discretion of the compensation committee, when a non-employee director joins the board, he/she may be granted either: (i) up to a maximum number of RSUs and/or a restricted stock grant having an aggregate fair market value (i.e., the closing price of our common stock on the date of grant, as reported on NASDAQ) equal to $300,000, as measured on the date of grant, or (ii) up to a maximum aggregate number of 40,000 stock option shares and/or SARs.
Following the date of each annual stockholders meeting, each non-employee director who is re-elected may be granted, at the discretion of the compensation committee, either: (i) up to a maximum number of RSUs and/or a restricted stock grant having an aggregate fair market value equal to $150,000, as measured on the date of grant, or (ii) up to a maximum aggregate number of 20,000 stock option shares and/or SARs.
RSUs and restricted stock grants vest and are exercisable as determined by the compensation committee, provided that RSUs and restricted stock vest over a minimum of three years as measured from the date of grant. The term of any stock option and/or SAR grant is ten years. The exercise price of any stock option and/or SAR grant is equal to the fair market value of our stock on the grant date. Non-employee directors are also eligible to receive other types of awards under the 2005 Plan (including bonus stock).
Terms Applicable to Stock Options and Stock Appreciation Rights
The exercise price of stock options or SARs granted under the 2005 Plan may not be less than 100% of the fair market value (i.e., the closing price) of our common stock on the date of grant. The term may not exceed ten years. Subject to the limitations of the 2005 Plan, the compensation committee in the case of executive officers and directors (and the stock option committee in the case of other eligible participants) determines the terms and conditions applicable to stock option grants and grants of SARs (including vesting and exercisability). The terms and conditions applicable to stock options and SARs may include, among other things, continued employment with the company, the passage of time, or such performance criteria and level of achievement versus such criteria as the compensation committee deems appropriate.
Terms Applicable to Restricted Stock Awards, Restricted Stock Unit Awards and Stock Bonus Awards
Restricted stock and RSUs vest over a minimum of three years, including any applicable performance period. Subject to the limitations of the 2005 Plan, the compensation committee in the case of executive officers and directors (and the stock option committee in the case of other eligible participants) determines the terms and conditions applicable to the granting of restricted stock, RSUs, and stock bonuses. The terms and conditions may include, among other things, continued employment with the company, the passage of time, or such performance criteria and level of achievement versus such criteria as the respective committee deems appropriate.

 

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Eligibility Under Section 162(m)
Section 162(m) of the Code permits performance-based compensation that meets the requirements established by the U.S. Internal Revenue Service to be excluded from the limitation on deductibility of compensation in excess of $1,000,000 paid to certain specified senior executives. In order to meet the requirements of Section 162(m), the 2005 Plan limits awards to individual participants as follows: no person may receive more than 2,000,000 shares issuable as awards in any fiscal year, other than new employees, who may receive up to a maximum of 2,000,000 additional shares issuable as awards granted in the fiscal year in which they first commence employment. The foregoing limits are greater than the number of options or RSUs that we have granted to any individual in the past. We do not currently intend to significantly increase our equity awards to executive officers.
Awards may, but need not, include performance criteria that satisfy Section 162(m). To the extent that awards are intended to qualify as performance-based compensation under Section 162(m), the performance criteria will be one of the following criteria, either individually, alternatively, or in any combination, applied to either the company as a whole or to a business unit or subsidiary, either individually, alternatively, or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the compensation committee in the award:
 
Net revenue and/or net revenue growth
 
 
Operating income and/or operating income growth
 
 
Net income and/or net income growth
 
 
Earnings per share and/or earnings per share growth
 
 
Adjusted operating cash flow return on income
 
 
Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth
 
 
Individual business objectives
 
 
Operating cash flow return on income
 
 
Economic value added
 
 
Return on equity
 
 
Total stockholder return and/or total stockholder return growth
To the extent that an award under the 2005 Plan is designated as a “performance award,” but is not intended to qualify as performance-based compensation under Section 162(m), the performance criteria can include the achievement of strategic objectives as determined by the compensation committee.
Notwithstanding satisfaction of any performance criteria described above, to the extent specified at the time an award is granted, the number of shares of common stock, stock options or other benefits granted, issued, retainable and/or vested under an award on account of satisfaction of performance criteria may be reduced by the compensation committee on the basis of such further considerations as the compensation committee in its sole discretion determines.
Consistent with Section 162(m), the compensation committee may adjust performance criteria applicable to awards to take into account changes in law and accounting and to make such adjustments as the compensation committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances.

 

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Transferability
The committee has the discretion to permit an award recipient to transfer his/her award to an authorized transferee (as defined in the 2005 Plan). Without such permission, an award may not be transferred, sold, pledged, assigned, hypothecated or disposed of in any manner other than by will or by the laws of descent and distribution. No award may be made subject to execution, attachment or other similar process.
Amendments
The board may terminate, amend or suspend the 2005 Plan, provided that no action may be taken by the board (except those described in “Adjustments”) without stockholder approval to:
(1)  
Increase the number of shares that may be issued under the 2005 Plan;
 
(2)  
Permit the repricing of outstanding stock options or SARs under the 2005 Plan;
 
(3)  
Extend the term of the 2005 Plan;
 
(4)  
Expand the class of persons eligible to participate in the 2005 Plan; or
 
(5)  
Otherwise implement any amendment to the 2005 Plan required to be approved by stockholders under NASDAQ rules.
Adjustments
In the event of a stock dividend, recapitalization, stock split, combination of shares, extraordinary dividend of cash or assets, reorganization, or exchange of our common stock, or any similar event affecting our common stock, the compensation committee will adjust the number and kind of shares available for grant under the 2005 Plan, and subject to the various limitations set forth in the 2005 Plan, the number and kind of shares subject to outstanding awards under the 2005 Plan, and the exercise or settlement price of outstanding stock options and other awards.
Corporate Transactions
In the event of a corporate transaction (as defined in the 2005 Plan), any or all outstanding awards may be assumed or replaced by a successor corporation, which assumption or replacement shall be binding on all award recipients. In the alternative, a successor corporation may substitute equivalent awards or provide substantially similar consideration to award recipients as was provided to our stockholders (after taking into account the existing provisions of outstanding awards). The successor corporation may also issue, in place of our outstanding shares held by award recipients, substantially similar shares or other property subject to repurchase restrictions no less favorable to such award recipient. In the event such successor corporation, if any, refuses to assume or replace the awards outstanding under the 2005 Plan pursuant to a corporate transaction or if there is no successor corporation due to a dissolution or liquidation of the company, outstanding awards shall immediately vest as to 100% of the shares subject thereto at such time and on such conditions as our board of directors determines, and outstanding awards shall expire at the closing of the transaction or at the time of dissolution or liquidation.
Tax Information
The following is a general summary as of the date of this proxy statement of the federal income tax consequences to the company and the participants in the 2005 Plan. This summary deals with the general tax principles that apply and is provided only for general information. Some kinds of taxes, such as foreign, state and local income taxes, are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. The summary does not discuss all aspects of income taxation that may be relevant in light of a holder’s personal investment circumstances. This summarized tax information is not tax advice.
Non-Qualified Stock Options. Non-qualified stock options do not qualify for any special tax benefits to the optionee. An optionee will not recognize any taxable income at the time he/she is granted a non-statutory option. Upon exercise of the stock option, the optionee will generally recognize ordinary income for federal tax purposes measured by the excess, if any, of the then fair market value of the shares at the time of exercise over the exercise price. We are generally entitled to a tax deduction equal to the ordinary income recognized by the participant in connection with such exercise. The participant’s basis in the stock issued upon exercise of the option, referred to

 

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as the “option stock,” will be increased by the amount of the ordinary income recognized. Upon the sale of the shares issued upon exercise of a non-statutory stock option, any further gain or loss recognized will be treated as capital gain or loss and will be treated as short-term capital gain or loss if the shares have been held for less than one year.
Incentive Stock Options. The Code provides optionees with favorable federal income tax treatment of stock options that qualify as incentive stock options. If a stock option is treated as an incentive stock option, the optionee will not recognize income upon grant or exercise of the stock option (unless the alternative minimum tax rules apply). The company will not be allowed a tax deduction in connection with the exercise of an incentive stock option.
Upon the sale of the shares issued upon exercise of an incentive stock option at least: (1) two years after the grant of the stock option; and (2) one year after exercise of the stock option, referred to as the “statutory holding periods,” any gain will be taxed to the optionee as long-term capital gain and no deduction will be available to the Company. If the statutory holding periods are not satisfied (i.e., the optionee makes a “disqualifying disposition”), the optionee will recognize ordinary income equal to the excess, if any, of the lower of: (1) the fair market value of the stock at the date of the stock option exercise; or (2) the sale price of the stock, over the option price and we will generally be entitled to a tax deduction equal to the ordinary income recognized by the participant in connection with such sale or disposition. The participant’s basis in the option stock will be increased by the amount of ordinary income recognized. Any further gain or loss recognized on a disqualifying disposition of the shares will be characterized as capital gain or loss. Different rules may apply if shares are purchased by an optionee who is subject to Section 16(b) of the Exchange Act, and who subsequently disposes of such shares prior to the expiration of the statutory holding periods.
Stock Appreciation Rights. A grant of a SAR (which can only be settled in our common stock) has no federal income tax consequences at the time of grant. Upon exercise of SARs, the value of the shares received as determined on the date of exercise is generally taxable to the recipient as ordinary income, and the company generally will be entitled to a corresponding tax deduction. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock. A participant receiving restricted stock may be taxed in one of two ways: the participant (1) pays tax when the restrictions lapse (i.e., they become vested) or (2) makes a special election to pay tax in the year the grant is made. At either time, the value of the award for tax purposes is the excess of the fair market value of the shares at that time over the amount (if any) paid for the shares. This value is taxed as ordinary income and is subject to income tax withholding. We receive a tax deduction at the same time and for the same amount taxable to the participant. If a participant elects to be taxed at grant, then, when the restrictions lapse, there will be no further tax consequences attributable to the awarded stock until disposition of the stock.
Restricted Stock Units. In general, no taxable income is realized upon the grant of a RSU. The participant will generally include in ordinary income the fair market value of the award of stock at the time shares of stock are delivered to the participant or at the time the RSU vests and is otherwise settled. We generally will be entitled to a tax deduction at the time and in the amount that the participant recognizes ordinary income.
Plan Benefits
The benefits to be received pursuant to the 2005 Plan are not determinable at this time.

 

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The following table sets forth information with respect to equity-based grants under the 2005 Plan during the fiscal year ended December 31, 2009.
                                                 
                                            Weighted  
                    Weighted                     Average  
            % of Total     Average                     Exercise  
            Options     Exercise Price             % of Total     Price Per  
    Options/ Granted     Granted     Per Share     RSUs Granted     RSUs Granted     Share  
Identity of Group   (#)     (1)     ($/Sh)     (#)     (2)     ($/Sh)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)  
John P. Daane
                      250,000       7.93 %     N/A  
President and Chief Executive Officer
                                               
Ronald J. Pasek
    75,000       60.62 %     21.88       80,000       2.54 %     N/A  
Senior Vice President, Finance and Chief Financial Officer
                                               
James W. Callas
                      5,000       0.16 %     N/A  
Vice President Finance and Controller and Former Acting Chief Financial Officer
                                               
Timothy R. Morse
                      90,000       2.85 %     N/A  
Former Senior Vice President and Chief Financial Officer
                                               
Misha Burich
                      80,000       2.54 %     N/A  
Senior Vice President, Research and Development
                                               
Jordan S. Plofsky
                      80,000       2.54 %     N/A  
Senior Vice President and General Manager, Altera Penang
                                               
George Papa
                      80,000       2.54 %     N/A  
Senior Vice President, WorldWide Sales
                                               
Executive group (10 persons)
    75,000       60.62 %     21.88       870,000       27.60 %     N/A  
Non-executive director group (6 persons)
    40,000       32.33 %     20.47       30,000       0.95 %     N/A  
Non-executive employee group
    8,724       7.05 %     15.99       2,252,675       71.45 %     N/A  
     
(1)  
Based on a total of 123,724 shares of common stock granted pursuant to stock option grants under the 2005 Plan during the fiscal year ended December 31, 2009.
 
(2)  
Based on a total of 3,152,675 shares of common stock granted pursuant to RSU grants under the 2005 Plan during the fiscal year ended December 31, 2009.
PROPOSAL THREE — APPROVAL OF AMENDMENT
TO 2005 EQUITY INCENTIVE PLAN
At the annual meeting, stockholders are requested to approve an amendment to the 2005 Plan to increase by 5,000,000 the number of shares reserved for issuance.
Summary
The 2005 Plan was adopted by our board of directors in March 2005 and approved by our stockholders on May 10, 2005. The 2005 Plan replaced the 1987 Stock Option Plan and the 1996 Stock Option Plan (collectively, the “Prior Plans”). As originally adopted, the 2005 Plan had 3,000,000 shares of common stock reserved for issuance, plus all available but unissued shares under the Prior Plans. In addition, shares subject to awards granted under the Prior Plans that were outstanding on the effective date of the 2005 Plan and that were subsequently cancelled, forfeited, settled in cash or that expired by their terms were returned to the pool of shares available for grant and issuance under the 2005 Plan. As of the record date, 7,953,306 stock options were granted, 13,169,067 RSUs were granted (equivalent to 29,630,401 options at a ratio of one RSU for every 2.25 options),

 

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options to purchase an aggregate of 3,771,248 shares were outstanding, an aggregate of 6,794,952 unvested RSUs were outstanding and 17,353,130 shares were available for future grant under the 2005 Plan.
The 2005 Plan authorizes the board of directors or a committee of the board to grant the following types of equity to eligible employees, directors and consultants of the company: non-qualified and incentive stock options, SARs, restricted stock, RSUs, and stock bonus awards. The 2005 Plan is structured to provide the board of directors with broad discretion in creating equity incentives to assist us in attracting, retaining, and motivating the best available personnel for the successful conduct of our business. The board of directors believes that an increase in the number of shares reserved for issuance under the 2005 Plan is necessary to attract and hire new employees, to motivate and retain existing employees, and to ensure that a sufficient number of shares are available for equity grants assumed or granted in connection with acquisitions we may undertake.
In January 2010, the board of directors approved an amendment to the 2005 Plan, subject to stockholder approval, to increase the number of shares reserved for issuance by 5,000,000, thereby increasing the total number of shares issuable under the 2005 Plan from 35,991,502 to 40,991,502. Subject to stockholder approval, we plan to register the additional 5,000,000 shares reserved under the 2005 Plan on a Registration Statement on Form S-8.
Vote Required and Board of Directors’ Recommendation
The affirmative vote of the holders of a majority of the shares of our common stock present or represented and voting at the annual meeting is required to approve this amendment to the 2005 Plan. To provide incentives to eligible employees, non-employee directors, and consultants and to align their interests directly with those of our stockholders, our board of directors has unanimously approved the proposed amendment to the 2005 Plan and recommends that stockholders vote “FOR” such amendment.
Employees of the company and its subsidiaries, non-employee directors, and consultants
Essential Features of the 2005 Plan
The key provisions of the 2005 Plan are described in further detail in “Proposal Two — Reapproval of Internal Revenue Code Section 162(m) Provisions of the 2005 Equity Incentive Plan” on page 38.
PROPOSAL FOUR APPROVAL OF AMENDMENT TO
1987 EMPLOYEE STOCK PURCHASE PLAN
At the annual meeting, stockholders are requested to approve an amendment to the 1987 Employee Stock Purchase Plan, referred to as the “1987 Purchase Plan,” to increase by 1,000,000 the number of shares reserved for issuance.
Summary
The 1987 Purchase Plan was adopted by our board of directors in August 1987 and approved by our stockholders in September 1987. As originally adopted, the 1987 Purchase Plan had 200,000 shares of common stock reserved for issuance. Through the years, the board of directors has authorized, and stockholders have approved, amendments to the 1987 Purchase Plan to increase the number of shares reserved for issuance. Most recently, at the annual meeting in 2009, stockholders approved an amendment increasing the number of shares reserved for issuance under the 1987 Purchase Plan by an aggregate of 1,000,000 shares to 24,700,000. Subject to stockholder approval, we plan to register the additional 1,000,000 shares reserved under the 1987 Purchase Plan on a Registration Statement on Form S-8.
As of the record date, 21,504,581 shares were issued pursuant to the exercise of options to purchase shares under the 1987 Purchase Plan, and 2,195,419 shares were available for future grant.

 

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Vote Required and Board of Directors’ Recommendation
The affirmative vote of the holders of a majority of the shares of our common stock present or represented and voting at the annual meeting is required to approve the amendment to the 1987 Purchase Plan. Our board of directors has unanimously approved the proposed amendment and recommends that the stockholders vote “FOR” such amendment.
Essential Features of the 1987 Purchase Plan
General
The 1987 Purchase Plan, and the right of participants to make purchases under the 1987 Purchase Plan, is intended to qualify as an “Employee Stock Purchase Plan” under the provisions of Sections 421 and 423 of the Code. The provisions of the 1987 Purchase Plan are, accordingly, construed so as to extend and limit participation in a manner consistent with the requirements of those Code sections.
The 1987 Purchase Plan is not a qualified deferred compensation plan under Section 401(a) of the Code, and is not subject to the provisions of ERISA.
Purpose
The purpose of the 1987 Purchase Plan is to provide our employees, including employees of certain subsidiaries, with an opportunity to purchase our common stock through accumulated payroll deductions.
Administration
The 1987 Purchase Plan may be administered by our board of directors or a committee of board members appointed by the board of directors. Once appointed, committee members serve until directed otherwise by the board. The administration, interpretation, or application of the 1987 Purchase Plan by the board or committee is final, conclusive, and binding upon all participants to the full extent provided by law. No charges for administrative or other costs may be made against the payroll deductions of a participant in the 1987 Purchase Plan. Members of the board of directors receive no additional compensation for administering the 1987 Purchase Plan. Currently, Mr. Daane is the sole member of the committee that administers the 1987 Purchase Plan.
Eligibility
Any person, including an executive officer, who is customarily employed for at least twenty hours per week and more than five months in a calendar year by us or any of our designated subsidiaries, as of an offering date, is eligible to participate in the 1987 Purchase Plan. The offering date is the first trading day of a given offering period. Notwithstanding the foregoing, no participant shall be granted an option to purchase shares under the 1987 Purchase Plan:
 
that would permit the participant’s rights to purchase stock under all of our employee stock purchase plans and those of our subsidiaries to accrue at a rate that exceeds $21,250 (which is eighty-five percent of $25,000 of the fair market value of such stock determined at the time such stock option is granted) for each calendar year in which such option is outstanding at any time; or
 
 
if, after the grant of an option, the participant would own common stock or options to purchase common stock equal to five percent or more of the total combined voting power or value of all classes of our capital stock or capital stock of any of our subsidiaries.
For purposes of the 1987 Purchase Plan, the employment relationship is treated as continuing intact while a participant is on sick leave or other leave of absence approved by us. However, if the period of leave exceeds ninety days and the participant’s right to re-employment is not guaranteed either by statute or by contract, the participant will be deemed to have withdrawn from the 1987 Purchase Plan on the ninety-first day of such leave.

 

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Furthermore, if, on a purchase date, the number of shares that would otherwise be subject to stock options under the 1987 Purchase Plan exceeds the number of shares available for sale as of the beginning of the applicable offering period, a pro-rata allocation of the available shares is made in as uniform and as equitable a manner as is practicable.
As of the record date, approximately 2,446 employees were eligible to participate in the 1987 Purchase Plan.
Enrollment in the Plan
Eligible employees become participants in the 1987 Purchase Plan by completing a subscription agreement authorizing payroll deductions prior to the applicable offering date. A person who becomes employed after the commencement of an offering period may not participate in the 1987 Purchase Plan until the commencement of the next offering period.
Offering Periods; Purchase Periods
Typically, the 1987 Purchase Plan is implemented by consecutive, overlapping twelve-month offering periods, with a new offering period commencing on the first trading day on or after May 1 and November 1 of each year and terminating on the trading day on or before April 30 and October 31. Each twelve-month offering period generally includes two six-month purchase periods. In the future, the board of directors may alter the duration of the offering periods, including the commencement dates, with respect to future offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first offering period to be affected.
Purchase Price
The purchase price at which shares are sold under the 1987 Purchase Plan is eighty-five percent of the lower of the fair market value of a share of our common stock on: (1) the first trading day of the offering period; or (2) the last trading day of the purchase period. If the fair market value at the end of any purchase period is less than the fair market value at the beginning of the offering period, each participant is: (1) automatically withdrawn from the current offering period following the purchase of shares on the purchase date; and (2) automatically re-enrolled in the immediately following offering period. The 1987 Purchase Plan provides that, because our common stock is currently traded on NASDAQ, the fair market value of a share of our common stock on a given date is the closing price on NASDAQ on such date.
Payment of the Purchase Price; Payroll Deductions
The payroll deductions accumulated during the offering period are applied to the purchase of the shares. The deductions may not exceed ten percent of a participant’s eligible compensation received on each payday. The aggregate of such payroll deductions during the offering period cannot exceed ten percent of a participant’s aggregate eligible compensation during such offering period up to a maximum of $21,250 (which is eighty-five percent of $25,000 of the fair market value of such stock determined at the time such stock option is granted) for each calendar year. Eligible compensation is defined as all regular straight time gross earnings, plus sales commissions and sales incentives earned during the entire offering period, but exclusive of payments for overtime, shift premium, other incentive payments, bonuses, or other compensation.
Payroll deductions commence on the first payday following the first day of the offering period and continue at the same percentage rate until the end of the offering period unless sooner terminated. No interest accrues on a participant’s payroll deductions. At any time during the offering period, a participant may discontinue or decrease his/her payroll deductions without withdrawing amounts previously contributed. A participant may increase his/her rate of payroll deductions only for a subsequent offering period and may not increase his/her rate of payroll deductions during an outstanding offering period in which such participant is currently participating.
All payroll deductions received or held by us under the 1987 Purchase Plan may be used by us for any corporate purpose; we are not obligated to segregate such payroll deductions. Until the shares are issued, participants only have the rights of an unsecured creditor.

 

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Purchase of Stock; Grant of Options
On the first day of each offering period, each eligible employee participating in the 1987 Purchase Plan is granted an option to purchase up to a maximum of 10,000 shares of our common stock during each purchase period. The exact number of shares is determined by dividing such employee’s accumulated payroll deductions at the end of the purchase period by the option purchase price determined as described above, subject to the limitations set forth in the 1987 Purchase Plan. For future offering periods, the board of directors may increase or decrease, in its absolute discretion, the maximum number of shares of our common stock that may be purchased during each purchase period of the offering period.
Exercise of Options
Unless the participant’s participation is discontinued, each participant’s option for the purchase of the maximum number of full shares is exercised automatically at the end of the purchase period at the applicable price.
Withdrawal
A participant may withdraw all, but no less than all, the payroll deductions credited to his/her account under the 1987 Purchase Plan at any time prior to the last day of the offering period by giving written notice to us. After receipt of a notice of withdrawal: (1) all of the participant’s payroll deductions credited to his/her account are promptly refunded; (2) the participant’s option for the current period automatically terminates; and (3) no further payroll deductions for the purchase of shares are made during the offering period.
A participant’s withdrawal from an offering does not have any effect upon such participant’s eligibility to participate in subsequent offerings under the 1987 Purchase Plan or in any similar plan that we may adopt.
Termination or Interruption of Employment
Upon termination or interruption of a participant’s employment for any reason, including retirement or death, prior to the last day of the offering period, the payroll deductions credited to the participant’s account will be returned to such participant, or, in the case of a participant’s death, to the person or persons entitled thereto as specified in the participant’s subscription agreement, and his/her option will automatically terminate.
Adjustments upon Changes in Capitalization or Merger
In the event any change, such as a stock split or payment of a stock dividend, is made in our capitalization that increases or decreases the number of outstanding shares of common stock without our receipt of additional consideration, an appropriate adjustment will be made in the shares subject to purchase and in the purchase price per share, subject to any required action by our stockholders. In the event of our proposed dissolution or liquidation, the offering period then in progress will be shortened and a new exercise date will be set. At least ten days prior to the new exercise date, the board of directors will notify the participant that the exercise date has been changed and that the participant’s option will be exercised automatically, unless the participant has withdrawn from the offering period prior to the new exercise date. In the event of our merger with or into another corporation, or the sale of substantially all of our assets, the participant’s outstanding option will be assumed or substituted for or by the successor corporation, or a parent or subsidiary of such successor corporation. If the successor corporation refuses to assume or provide a substitute for the participant’s outstanding options, we will take the same actions under the plan as previously described with respect to a proposed dissolution or liquidation.
Nonassignability
Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the 1987 Purchase Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the participant, other than by will, the laws of descent and distribution, or as provided in the 1987 Purchase Plan. Any such attempt at assignment, transfer, pledge, or other disposition shall be without effect, except that we may treat such act as an election to withdraw from the 1987 Purchase Plan.

 

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Amendment and Termination of the Plan
The board of directors may, at any time or from time to time, amend or terminate the 1987 Purchase Plan, except that such termination shall not affect options previously granted nor, generally, may any amendment make any change in an option previously granted that adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code, we shall obtain stockholder approval in such a manner and to such a degree as required.
Without stockholder approval and without regard to whether any participant rights may be adversely affected, the board of directors may:
(1)  
change the offering periods;
 
(2)  
limit the frequency and/or number of changes in the amount withheld during an offering period;
 
(3)  
establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars;
 
(4)  
permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in our processing of properly completed withholding elections;
 
(5)  
establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of our common stock for each participant properly correspond with amounts withheld from the participant’s compensation; and
 
(6)  
establish such other limitations or procedures that the board of directors determines, in its sole discretion, are advisable and that are consistent with the 1987 Purchase Plan.
 
   
The 1987 Purchase Plan continues in effect until terminated as described above.
Tax Information
The following is a general summary as of the date of this proxy statement of the federal income tax consequences to the company and participants in the 1987 Purchase Plan. This summary deals with the general tax principles that apply and is provided only for general information. Some kinds of taxes, such as foreign, state and local income taxes, are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. The summary does not discuss all aspects of income taxation that may be relevant in light of a holder’s personal investment circumstances. This summarized tax information is not tax advice.
The 1987 Purchase Plan and the right of participants to make purchases under the 1987 Purchase Plan are intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant at the time of grant of the option or the purchase of shares. A participant may become liable for tax upon disposition of the shares acquired, as follows.
If the shares are sold or disposed of, including by way of gift: (1) at least two years after the offering date (the first day of the offering period during which shares were purchased); and (2) more than one year after the date on which shares were transferred to the employee, then the lesser of: (a) the excess of the fair market value of the shares at the time of such disposition over the purchase price of the shares subject to the option, referred to as the “option price;” or (b) fifteen percent of the fair market value of the shares on the offering date, will be treated as ordinary income to the participant. The employee’s basis of the option stock will be increased by the amount of the ordinary income recognized. Any further gain or loss upon such disposition will be treated as long-term capital gain or loss. If the shares are sold and the sales price is less than the option price, there is no ordinary income and the participant has a capital loss for the difference.
If the shares are sold or disposed of, including by way of gift or by exchange in connection with the exercise of an incentive stock option, before the expiration of the holding periods described above, then the excess of the fair market value of the shares on the date of option exercise over the option price will be treated as ordinary income to the participant. This excess will constitute ordinary income in the year of sale or other disposition even if no gain is realized on the sale or a gratuitous transfer of the shares is made. The basis of the option stock will be increased by the amount of the ordinary income recognized. Any further gain or loss recognized in connection with any such sale or exchange will be treated as capital gain or loss and will be treated as short-term capital gain or loss if the shares have been held less than one year.

 

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If shares are sold or disposed of before the expiration of the statutory holding periods, we are generally entitled to a tax deduction equal to the ordinary income recognized by the participant in connection with such sale or disposition.
The foregoing summary of the effect of federal income taxation upon the participant and us with respect to the shares purchased under the 1987 Purchase Plan does not purport to be complete. Reference should be made to the applicable provisions of the Code. In addition, the summary does not discuss the tax implications of a participant’s death or the provisions of the income tax laws of any municipality, state, or foreign country in which the participant may reside.
Participation in the 1987 Purchase Plan
Eligible employees participate in the 1987 Purchase Plan voluntarily and each such employee determines his/her level of payroll deductions within the guidelines fixed by the 1987 Purchase Plan. Accordingly, future purchases under the 1987 Purchase Plan are not determinable at this time.
The following table sets forth information with respect to purchases under the 1987 Purchase Plan during the fiscal year ended December 31, 2009. Non-employee directors are not allowed to participate in the 1987 Purchase Plan.
                         
                    Weighted Average Purchase  
    Purchases     % of Total Purchases     Price Per Share  
Identity of Group   (#)     (1)     ($/Sh)  
(a)   (b)     (c)     (d)  
John P. Daane
President and Chief Executive Officer
    1,510       0.13 %     13.82  
Ronald J. Pasek
Senior Vice President, Finance and Chief Financial Officer
          0.00 %      
James W. Callas
Vice President Finance and Controller and Former Acting Chief Financial Officer
    1,516       0.13 %     13.81  
Timothy R. Morse
Former Senior Vice President and Chief Financial Officer
    405       0.03 %     13.86  
Misha Burich
Senior Vice President, Research and Development
          0.00 %      
Jordan S. Plofsky
Senior Vice President and General Manager, Altera Penang
    1,501       0.13 %     13.84  
George Papa
Senior Vice President, WorldWide Sales
    1,510       0.13 %     13.82  
Executive group (10 persons)
    11,208       1.00 %     13.82  
Non-executive director group (6 persons)
                 
Non-executive employee group
    1,108,317       93.43 %     13.80  
     
(1)  
Based on a total of 1,186,256 shares of common stock purchased under the 1987 Purchase Plan during the fiscal year ended December 31, 2009 (includes 66,731 shares purchased by employees terminated after such date).

 

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PROPOSAL FIVE — RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
At the annual meeting, stockholders are requested to ratify the audit committee’s appointment of PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending December 31, 2010. We expect that a representative of PricewaterhouseCoopers will be present at the annual meeting, will have the opportunity to make a statement if he/she desires to do so, and will be available to answer any appropriate questions.
Vote Required and Board of Directors’ Recommendation
Although not required, the board of directors submits its selection of our independent registered public accounting firm for ratification by stockholders to ascertain the view of stockholders regarding such selection. The affirmative vote of the holders of a majority of the shares of our common stock present or represented and voting at the annual meeting are required to ratify this proposal. Whether the proposal is approved or defeated, the audit committee may reconsider its selection. The board of directors has unanimously approved this proposal and recommends that stockholders vote “FOR” the ratification of the selection of PricewaterhouseCoopers LLP.
PROPOSAL SIX — STOCKHOLDER PROPOSAL REGARDING
ADOPTION OF SIMPLE MAJORITY STOCKHOLDER VOTING REQUIREMENTS
IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
John Chevedden, whose address is 2215 Nelson Ave., No. 205, Redondo Beach, California 90278, is the owner of shares of the company’s common stock valued at $2,000 or greater and has submitted a stockholder proposal and requested that it be included, along with Mr. Chevedden’s supporting statement, in this proxy statement. The board accepts no responsibility for the content and accuracy of the proposed resolution and supporting statement. As required by federal regulations, the resolution and supporting statement are printed verbatim below.
Our board recommends a vote “AGAINST” Proposal No. 6.
Mr. Chevedden’s Proposal:
6 — Adopt Simple Majority Vote
RESOLVED, Shareholders request that our board take the steps necessary so that each shareholder voting requirement in our charter and bylaws, that calls for a greater than simple majority vote, be changed to a majority of the votes cast for and against the proposal in compliance with applicable laws. This includes each 80% supermajority provision in our charter and bylaws.
Supporting Statement:
Currently a 1%-minority can frustrate our 79%-shareholder majority. Also our supermajority vote requirement(s) can be almost impossible to obtain when one considers abstentions and broker non-votes. Supermajority requirements are arguably most often used to block initiatives supported by most shareowners but opposed by management. For example, a Goodyear (GT) management proposal for annual election of each director failed to pass even though 90% of votes cast were yes-votes.
This proposal topic won 74% to 88% support at the following companies in 2009: Weyerhaeuser (WY), Alcoa (AA), Waste Management (WM), Goldman Sachs (GS), FirstEnergy (FE), McGraw-Hill (MHP) and Macy’s (M). The proponents of these proposals included Nick Rossi, William Steiner, James McRitchie and Ray T. Chevedden.
The merits of this Simple Majority Vote proposal should also be considered in the context of the need for improvements in our company’s 2009 reported corporate governance status:

 

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The Corporate Library www.thecorporatelibrary.com, an independent investment research firm, rated our company “Moderate Concern” regarding executive pay. The equity ownership guideline for our CEO John Daane was only 2X base salary. In order to best align our CEO’s interests with shareholders, the minimum stockholding requirement should be at least 10X bases salary. There was also very little description of our company’s long-term incentive awards. Plus performance goals for annual bonuses were not disclosed due to our company’s potentially specious belief that doing so would case “competitive harm.”
Our directors served on boards rated “D” by the Corporate Library: Robert Finocchio, our Lead Director, Echelon Corporation (ELON) and Susan Wang, Nektar Therapeutics (NKTR). Director Krish Prabhu did not own any stock.
We also had no shareholder right to call a special meeting, act by written consent, cumulative voting or an independent board chairman. Shareholder proposals to address all or some of these topics have received majority votes at other companies and would be excellent topics for our next annual meeting.
The above concerns show there is a need for improvement. Please encourage our board to respond positively to this proposal: Adopt Simple Majority Vote — Yes on 6.
Altera’s Statement of Opposition
The board of directors has carefully considered the proposal submitted by Mr. Chevedden and, for the reasons set forth below, does not believe that it is in the best interests of the company and our stockholders to eliminate all supermajority stockholder voting requirements in our charter documents. The company’s by-laws do not contain any supermajority voting requirements. The company’s certificate of incorporation contains a single supermajority voting requirement: No action that is required or permitted to be taken by the stockholders at an annual or special meeting may be taken by written consent of the stockholders. Approval of at least 80 percent of the outstanding stock of the company is required to repeal this provision.
The board believes that a higher voting threshold for significant changes to the company’s corporate structure or governance is in the best long-term interests of the company and its stockholders. The provision requiring stockholders to act at an annual or special meeting as opposed to acting by written consent in lieu of a meeting of stockholders is meant to protect the interests of all stockholders and help create long-term stockholder value under all circumstances. This provision encourages potential acquirers to deal directly with the board, which in turn provides the board greater leverage to negotiate the best possible return for all stockholders. In addition, the board is subject to fiduciary duties under the law to act in a manner that it believes to be in the best interests of the company and all of its stockholders. Stockholders, on the other hand, do not have the same fiduciary duty. As a result, a single stockholder or a group of stockholders acting in concert may act in their own self-interest to the detriment of other stockholders.
It is important to note that stockholder approval of this proposal would not in itself remove the supermajority stockholder voting requirement from the certificate of incorporation. In Delaware, the jurisdiction where the company is incorporated, the law requires that the board change the supermajority standard by authorizing an amendment to the company’s certificate of incorporation. Stockholders would then have to approve the amendment with an affirmative vote of at least 80 percent in voting power of the then outstanding voting stock of the company.
For the reasons described above, the board of directors recommends that stockholders vote “AGAINST” this proposal.

 

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STOCKHOLDER PROPOSALS
In accordance with Rule 14a-8 under the Exchange Act and our by-laws, any stockholder who intends to submit a proposal at our 2010 annual meeting of stockholders and who wishes to have the proposal considered for inclusion in the proxy statement for that meeting must, in addition to complying with applicable laws and regulations governing submission of such proposals, deliver the proposal to us for consideration no earlier than October 1, 2010 and no later than November 30, 2010. Such proposal should be sent to us, care of our Secretary, Altera Corporation, 101 Innovation Drive, San Jose, California 95134. Each proposal must set forth: (1) a brief description of the business the stockholder desires to bring before the annual meeting and the reasons for conducting such business at the annual meeting; (2) the name and record address of the stockholder proposing such business; (3) the class and number of shares of the company that are beneficially owned by the stockholder; and (4) any material interest of the stockholder in such business.
If a stockholder wishes to present a proposal before the 2011 annual meeting of stockholders, but does not wish to have the proposal considered for inclusion in the proxy statement, the stockholder must give written notice to us at the address noted above. The notice must be submitted by February 13, 2011 (45 calendar days prior to the anniversary of the mailing date of the Notice of Internet Availability of Proxy Materials). If a stockholder submits a proposal after February 13, 2011, our proxy holders will be allowed to use their discretionary voting authority to vote against the stockholder proposal when and if the proposal is raised at our 2011 annual meeting.
It is important that proxies be cast promptly. Therefore, stockholders, whether or not they expect to attend the meeting in person, are requested to cast their proxy as instructed in the Notice of Internet Availability of Proxy Materials, over the Internet, or by telephone, or by requesting a paper proxy card. If you request a paper proxy card, please complete, date, and sign the enclosed form of proxy and return it promptly in the envelope provided. By returning your proxy promptly, you can help us avoid the expense of follow-up mailings to ensure a quorum so that the meeting can be held. We encourage you to vote via the Internet.
     
Dated: March 23, 2010
  For the Board of Directors
ALTERA CORPORATION

 
  -s- Katherine E. Schuelke
Katherine E. Schuelke
Secretary

 

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(ALTERA LOGO)

ALTERA CORPORATION
101 INNOVATION DR
SAN JOSE, CA 95134
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by Altera in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.

VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Altera Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.


TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
         M20398- P89532               KEEP THIS PORTION FOR YOUR RECORDS
 
        DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
                                         
ALTERA CORPORATION                
 

The Board of Directors recommends you vote FOR the following proposals:
                       
 
                         
 
1. Election of Directors                          
 
      For   Against   Abstain            
 
  Nominees:                              
 
                           For    Against   Abstain  
 
  1a.     John P. Daane     o   o   o                  
 
                      2.  
To reapprove the Internal Revenue Code Section 162(m) provisions of the 2005 Equity Incentive Plan to preserve our ability to deduct for corporate income tax purposes compensation that qualifies as performance-based compensation under Section 162(m).
o o o  
 
  1b.     Robert J. Finocchio, Jr.     o   o o          
 
                               
 
  1c.     Kevin McGarity     o   o   o                
 
 
  1d.     T. Michael Nevens     o   o   o   3.  
To approve an amendment to the 2005 Equity Incentive Plan to increase by 5,000,000 the number of shares of common stock reserved for issuance under the plan.
o o o  
 
                            
 
  1e.     Krish A. Prabhu     o   o   o            
 
                                    
 
  1f.     John Shoemaker     o   o   o   4.  
To approve an amendment to the 1987 Employee Stock Purchase Plan to increase by 1,000,000 the number of shares of common stock reserved for issuance under the plan.  
o o o  
 
                                  
 
  1g.     Susan Wang     o   o   o            
 
                                    
 
                         5.  
To ratify the appointment of Pricewaterhouse Coopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.
o o o  
 
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.

     
 
 
For address changes and/or comments, please check this box and write them on the back where indicated.
  o   The Board of Directors recommends you vote AGAINST the following proposal:        
 
                           
                              6.  
If properly presented at the annual meeting, to consider a stockholder proposal requesting that the board take the steps necessary so that each stockholder voting requirement in Altera’s certificate of incorporation and by-laws that calls for greater than a simple majority vote (including each 80% supermajority provision) be changed to a majority of the votes cast for and against the proposal in compliance with applicable laws.
o o o  
 
 
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
           
                         
                     
                     
Signature [PLEASE SIGN WITHIN BOX]      Date           Signature (Joint Owners) Date    

 

 


 

Important Notice Regarding the Availability of Proxy Materials for the 2010 Annual Meeting:
The Notice and Proxy Statement, Annual Report and Letter to Stockholders are available at
www.proxyvote.com.
 
 
M20399-P89532     

 
 
ALTERA CORPORATION
PROXY FOR 2010 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The stockholder(s) hereby appoint(s) John P. Daane and Ronald J. Pasek, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of Altera Corporation that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held on Thursday, May 6, 2010 at 1:30 p.m., Pacific Time at 101 Innovation Drive, San Jose, California 95134, and any adjournment(s) or postponement(s) thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS, FOR ITEMS 2, 3, 4 AND 5 AND AGAINST ITEM 6.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE.

           
 
  Address Changes/Comments:      
 
     
 
 
 
 
 
 
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side