Definitive Proxy Statement
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant To Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant þ

Filed by a Party other than the Registrant ¨

Check the appropriate box:

¨ Preliminary Proxy Statement

¨ Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ Definitive Proxy Statement

¨ Definitive Additional Materials

¨ Soliciting Material Pursuant to § 240.14a-12

CADENCE DESIGN SYSTEMS, INC.

 

 

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

þ

 

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¨

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

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(2)

 

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(3)

 

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

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¨

 

Fee paid previously with preliminary materials:

 

¨

  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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LOGO

CADENCE DESIGN SYSTEMS, INC.

2655 SEELY AVENUE

SAN JOSE, CALIFORNIA 95134

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 5, 2016

 

 

TO THE STOCKHOLDERS OF CADENCE DESIGN SYSTEMS, INC.:

NOTICE IS HEREBY GIVEN that the 2016 Annual Meeting of Stockholders of CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, will be held on May 5, 2016, at 1:00 p.m. Pacific time, at Cadence’s offices located at 2655 Seely Avenue, Building 10, San Jose, California 95134 for the following purposes:

 

  1. To elect the nine directors named in the proxy statement to serve until the 2017 Annual Meeting of Stockholders and until their successors are elected and qualified, or until the directors’ earlier death, resignation or removal.

 

  2. To approve the amendment and restatement of the Omnibus Equity Incentive Plan.

 

  3. To re-approve the performance goals under the Senior Executive Bonus Plan for compliance with Internal Revenue Code 162(m).

 

  4. To vote on an advisory resolution to approve executive compensation.

 

  5. To ratify the selection of KPMG LLP as the independent registered public accounting firm of Cadence for its fiscal year ending December 31, 2016.

 

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

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

Cadence’s Board of Directors has fixed the close of business on March 8, 2016 as the record date for the determination of stockholders entitled to notice of, and to vote at, this 2016 Annual Meeting of Stockholders and any adjournment or postponement thereof.

By Order of the Board of Directors,

 

LOGO

James J. Cowie

Sr. Vice President, General Counsel and Secretary

San Jose, California

March 25, 2016

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


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CADENCE DESIGN SYSTEMS, INC.

2655 SEELY AVENUE

SAN JOSE, CALIFORNIA 95134

 

 

PROXY STATEMENT

FOR ANNUAL MEETING OF STOCKHOLDERS

MAY 5, 2016

TABLE OF CONTENTS

 

    

Page

 

Information Concerning Solicitation and Voting

     1   

Corporate Governance

     4   

Cadence’s Board of Directors

     5   

Matters to Be Considered at the Annual Meeting

     14   

Proposal 1: Election of Directors

     14   

Proposal 2: Approval of the Amendment and Restatement of the Omnibus Equity Incentive Plan

     20   

Proposal 3: Re-Approval of the Performance Goals Under the Senior Executive Bonus Plan for Compliance with Internal Revenue Code Section 162(m)

     29   

Proposal 4: Advisory Resolution to Approve Executive Compensation

     33   

Proposal 5: Ratification of the Selection of the Independent Registered Public Accounting Firm

     34   

Report of the Audit Committee

     35   

Fees Billed to Cadence by KPMG LLP During Fiscal 2015 and 2014

     36   

Security Ownership of Certain Beneficial Owners and Management

     37   

Compensation Discussion and Analysis

     39   

Compensation Committee Report

     51   

Compensation Committee Interlocks and Insider Participation

     52   

Compensation of Executive Officers

     52   

Potential Payments Upon Termination or Change in Control and Employment Contracts

     59   

Equity Compensation Plan Information

     65   

Certain Transactions

     66   

Other Matters

     69   

Appendix A

     A-1   

Appendix B

     B-1   


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CADENCE DESIGN SYSTEMS, INC.

2655 SEELY AVENUE

SAN JOSE, CALIFORNIA 95134

 

 

PROXY STATEMENT

FOR ANNUAL MEETING OF STOCKHOLDERS

MAY 5, 2016

 

 

INFORMATION CONCERNING SOLICITATION AND VOTING

PURPOSE OF PROXY MATERIALS

The enclosed proxy is solicited on behalf of the Board of Directors of Cadence Design Systems, Inc., a Delaware corporation (“Cadence”), for use at its 2016 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on May 5, 2016, at 1:00 p.m. Pacific time, or at any adjournment or postponement thereof, for the purposes set forth in this proxy statement and in the accompanying notice of annual meeting. The Annual Meeting will be held at Cadence’s offices located at 2655 Seely Avenue, Building 10, San Jose, California 95134. Cadence intends to publish this proxy statement on the investor relations page of its website at www.cadence.com/cadence/investor_relations on or about March 25, 2016.

This proxy statement contains important information for stockholders entitled to vote at the Annual Meeting to consider when deciding how to vote on the matters brought before the Annual Meeting. Stockholders entitled to vote at the Annual Meeting are encouraged to read it carefully.

IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF PROXY MATERIALS

Pursuant to the rules adopted by the U.S. Securities and Exchange Commission (the “SEC”), Cadence is furnishing proxy materials to its stockholders primarily via the internet, rather than mailing paper copies of these materials to each stockholder. Cadence believes that this process expedites stockholders’ receipt of the proxy materials, lowers the costs of the Annual Meeting and helps conserve natural resources. On or about March 25, 2016, Cadence will mail to each stockholder (other than those stockholders who previously had requested electronic or paper delivery of the proxy materials) a Notice of Internet Availability of Proxy Materials containing instructions on how to access and review the proxy materials, including its proxy statement and annual report, on the internet and how to access a proxy card to vote on the internet or by telephone. The Notice of Internet Availability of Proxy Materials also contains instructions on how to request a paper copy of the proxy materials. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a paper copy of the proxy materials unless you request one. If you would like to receive a paper copy of the proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials. Cadence may, at its discretion, voluntarily choose to mail or deliver a paper copy of the proxy materials, including its proxy statement and annual report, to one or more stockholders.

VOTING RIGHTS AND OUTSTANDING SHARES

Each share of Cadence common stock, $0.01 par value per share, outstanding as of the close of business on March 8, 2016 (the “Record Date”) is entitled to one vote at the Annual Meeting. At the close of business on the Record Date, Cadence had 303,471,578 shares of common stock outstanding and entitled to vote. Each stockholder may vote all of the shares owned as of the close of business on the Record Date and is entitled to cast one vote per share of common stock held on the Record Date. This includes shares that are (i) held directly in the stockholder’s name and (ii) held for the stockholder as the beneficial owner in a brokerage account or through a broker, bank or other nominee rather than directly in such stockholder’s name.

 

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QUORUM; ABSTENTIONS; BROKER NON-VOTES

The presence, in person or by proxy, of a majority of the shares of Cadence common stock outstanding and entitled to vote on the Record Date is required for a quorum at the Annual Meeting. Both abstentions and “broker non-votes” are counted as present for purposes of determining the presence of a quorum, but broker non-votes will not be counted towards the tabulation of votes cast on proposals presented to stockholders, while the treatment of abstentions differs based on the proposal.

Broker non-votes include shares for which a bank, broker or other nominee holder (i.e., record holder) has not received voting instructions from the beneficial owner and for which the record holder does not have discretionary power to vote on a particular matter. Under the rules that govern brokers who are record holders of shares that are held in brokerage accounts for the beneficial owners of the shares, brokers who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on routine matters but have no discretion to vote such uninstructed shares on non-routine matters. Proposal 1, regarding the election of directors, Proposal 2, regarding the approval of the amendment and restatement of the Omnibus Equity Incentive Plan, Proposal 3, regarding the re-approval of the performance goals under the Senior Executive Bonus Plan for compliance with Internal Revenue Code 162(m) and Proposal 4, regarding an advisory resolution to approve executive compensation, are all considered non-routine matters. Therefore, unless you provide voting instructions to any broker holding shares on your behalf, your broker may not use discretionary authority to vote your shares on Proposals 1, 2, 3 or 4. Proposal 5, regarding the ratification of the selection of Cadence’s independent registered public accounting firm, is considered a routine matter and brokers are therefore permitted to vote shares held by them without instruction from beneficial owners.

ANNUAL MEETING ADMISSION

Stockholders at the close of business on the Record Date as described above as well as holders of a valid proxy for the Annual Meeting are entitled to attend the Annual Meeting. Such individuals should be prepared to present photo identification, such as a valid driver’s license or passport, and verification of Cadence stock ownership for admittance. Stockholders at the close of business on the Record Date should be prepared to present proof of ownership as of the Record Date prior to admittance into the Annual Meeting. Stockholders who were not stockholders of record at the close of business on the Record Date but hold shares through a bank, broker or other nominee holder on the Record Date should be prepared to present proof of beneficial ownership at the close of business on the Record Date, such as an account statement or similar evidence of ownership, prior to admittance into the Annual Meeting. Stockholders will be admitted to the Annual Meeting if they comply with these procedures.

VOTE REQUIRED

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

All other items to be voted on at the Annual Meeting require the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting.

Computershare Limited (“Computershare”) has been appointed as the inspector of elections for the Annual Meeting. All votes will be tabulated by a representative of Computershare. This representative will also separately tabulate affirmative and negative votes, abstentions and broker non-votes.

VOTING

Stockholders at the close of business on the Record Date have three options for submitting their vote prior to the Annual Meeting: (i) vote via the internet, by following the instructions provided in the Notice of Internet Availability of Proxy Materials; (ii) vote via telephone, by following the instructions provided in the Notice of Internet Availability of Proxy Materials; or (iii) vote via mail, by completing, signing, dating and mailing a paper proxy card in a pre-addressed envelope, which a stockholder can request as outlined in the Notice of Internet Availability of Proxy Materials.

 

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

REVOCABILITY OF PROXIES

Whether the proxy is submitted via the internet, telephone or mail, any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. A proxy may be revoked by providing a written notice of revocation or a duly executed proxy bearing a later date to Cadence’s Corporate Secretary at Cadence’s corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134, or it may be revoked by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, be sufficient to revoke a proxy.

SOLICITATION

Cadence will bear the entire cost of soliciting proxies, including the preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders by Cadence in connection with the matters to be voted on at the Annual Meeting. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding shares of Cadence common stock beneficially owned by others for forwarding to the beneficial owners. Cadence will reimburse persons representing beneficial owners of Cadence common stock for their costs of forwarding solicitation materials to the beneficial owners. The solicitation of proxies through this proxy statement may be supplemented by telephone, facsimile and use of the internet or personal solicitation by directors, officers or other employees of Cadence and by Georgeson LLC (“Georgeson”). Cadence has retained Georgeson to solicit proxies and to separately prepare a stockholder vote analysis of certain proposals for an aggregate fee of approximately $15,500, plus reasonable expenses. No additional compensation will be paid to directors, officers or other employees of Cadence or any of its subsidiaries for their services in soliciting proxies.

HOUSEHOLDING INFORMATION

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

 

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CORPORATE GOVERNANCE

Cadence common stock is listed under the symbol CDNS on the NASDAQ Global Select Market (“NASDAQ”).

Cadence and its Board of Directors (the “Board”) regularly review and evaluate Cadence’s corporate governance practices. Cadence’s corporate governance documents are available on the investor relations page of its website at www.cadence.com/cadence/investor_relations. Paper copies of these documents are also available to stockholders upon written request directed to Cadence’s Corporate Secretary at Cadence’s corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134.

CORPORATE GOVERNANCE GUIDELINES

The Board has adopted Corporate Governance Guidelines (the “Corporate Governance Guidelines”), which cover various topics relating to the Board and its activities, including the selection and composition of the Board, Board leadership, compensation of directors, responsibilities of directors, Board access to senior management and outside advisors, meeting procedures, Board and committee responsibilities and other matters. The Corporate Governance and Nominating Committee annually reviews the Corporate Governance Guidelines, which may be amended by the Board at any time, and were most recently amended in February 2016.

CODE OF BUSINESS CONDUCT

Cadence has adopted a Code of Business Conduct to provide standards for ethical conduct in dealing with customers, suppliers, agents, government officials, political entities and others (the “Code of Business Conduct”). The Code of Business Conduct applies to all Cadence directors, officers and employees (and those of its subsidiaries), including Cadence’s President and Chief Executive Officer (the “CEO”) and Cadence’s Senior Vice President and Chief Financial Officer (the “CFO”). The Code of Business Conduct also applies to certain independent contractors and consultants who work at Cadence’s facilities or at Cadence’s direction. Compliance with the Code of Business Conduct is a condition of continued service to, or employment with, Cadence. The Code of Business Conduct covers topics including integrity and confidentiality of assets and information, conflicts of interest, compliance with federal and state securities laws, employment practices, payment practices, and compliance with competition, anti-corruption and other laws and regulations.

Except as otherwise provided by applicable law, each person subject to the Code of Business Conduct has the responsibility to report any possible misconduct, including unethical business practices, violations of the Code of Business Conduct and apparent or suspected illegal activities and any concerns regarding corporate governance, accounting, internal accounting controls or auditing matters, in the following manner:

 

   

Employees and consultants may make an anonymous report of possible misconduct; or, employees or consultants may report to the Office of the General Counsel or, in the event the report concerns a Cadence executive officer, to the General Counsel or the chair of the Audit Committee;

 

   

Executive officers must report possible misconduct to the General Counsel or, if the report concerns the General Counsel, to the chair of the Audit Committee, or, if the report concerns the General Counsel and the chair of the Audit Committee, to the chair of the Corporate Governance and Nominating Committee or another member of the Corporate Governance and Nominating Committee; and

 

   

Directors must report possible misconduct to the chair of the Audit Committee and the General Counsel (unless the report involves the General Counsel) or, if the report concerns the chair of the Audit Committee, to the chair of the Corporate Governance and Nominating Committee or another member of the Corporate Governance and Nominating Committee and the General Counsel (unless the report involves the General Counsel).

Any waiver by Cadence of a provision of the Code of Business Conduct with respect to a director or an executive officer may only be made by the Board. Any waivers for other employees may be granted only by the CEO or the General Counsel or their respective designees. To the extent required under applicable SEC rules, Cadence will disclose material amendments to the Code of Business Conduct and any waiver of its provisions

 

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with respect to any director or executive officer by filing a Current Report on Form 8-K with the SEC or posting such information on its website at www.cadence.com.

STOCK OWNERSHIP GUIDELINES AND TRADING RESTRICTIONS

The Board has adopted Stock Ownership Guidelines for its members and Cadence’s executive officers to further align the interests of its directors and executive officers with the interests of stockholders and to reinforce Cadence’s commitment to sound corporate governance. Each non-employee member of the Board is required to hold shares of Cadence common stock with a value equal to at least $320,000 within five years of the date of his or her initial appointment or election to the Board. Cadence’s CEO is required to hold shares of Cadence common stock with a value equal to three times his or her base salary within five years of the date of his or her appointment, and Cadence’s other executive officers are required to hold shares of Cadence common stock with a value equal to one times his or her base salary within five years of the date of his or her appointment. As of the Record Date, all directors and executive officers met the Stock Ownership Guidelines applicable to them, subject to their respective phase-in periods. Separately, Cadence’s Securities Trading Policy restricts certain transactions in Cadence securities and prohibits members of the Board, executive officers and other employees from hedging their ownership of Cadence securities, including trading in publicly-traded options, puts, calls or other derivative instruments related to Cadence securities.

CADENCE’S BOARD OF DIRECTORS

BOARD MEMBERSHIP

The Board currently consists of nine members: Mark W. Adams, Susan L. Bostrom, James D. Plummer, Alberto Sangiovanni-Vincentelli, George M. Scalise, John B. Shoven, Roger S. Siboni, Young K. Sohn and Lip-Bu Tan.

DIRECTOR INDEPENDENCE

The Corporate Governance Guidelines require that at least a majority of the Board be “independent directors” within the meaning of the listing standards of NASDAQ, as determined by the Board. To be “independent,” a director must not have a relationship that, in the opinion of the Board, would interfere with his or her exercise of independent judgment in carrying out the responsibilities of a Cadence director. In determining each director’s independence, the Board considers all relevant facts and circumstances and applies the following standards:

 

   

A director who is employed by Cadence or any of its subsidiaries, or whose family member is employed as an executive officer of Cadence or any of its subsidiaries, is not independent until three years after the end of the employment relationship;

 

   

A director who accepts, or whose family member accepts, more than $120,000 in compensation from Cadence or any of its subsidiaries or in payments for his or her own, or his or her family’s, benefit, other than compensation for Board or Board committee service, compensation paid to a family member who is a non-executive employee of Cadence or any of its subsidiaries, benefits under a tax-qualified retirement plan or non-discretionary compensation and payments arising solely from investment in Cadence stock, during any twelve month period within the past three fiscal years, is not independent until three years after the date of payment;

 

   

A director who is, or whose family member is, a current partner or employee of Cadence’s independent registered public accounting firm is not independent;

 

   

A director who was, or whose family member was, a partner or employee of Cadence’s independent registered public accounting firm who worked on Cadence’s audit during that time is not independent until three years after the end of the employment relationship;

 

   

A director who is, or whose family member is, employed as an executive officer of another entity for which at any time during the past three years any of Cadence’s executive officers served on the compensation committee of such entity is not independent; and

 

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A director who is, or whose family member is, a partner in, or a controlling stockholder or an executive officer of, any organization to which Cadence made, or from which Cadence received, payments for property or services in the current fiscal year or any of the past three fiscal years that exceed in such year the greater of 5% of the recipient’s consolidated gross revenues for such year or $200,000, other than payments arising solely from investments in Cadence securities or payments under non-discretionary charitable contribution matching programs, is not independent until three years after the conclusion of the fiscal year in which such payments are made or received.

The Board has determined that Ms. Bostrom, Drs. Plummer, Sangiovanni-Vincentelli and Shoven, and Messrs. Adams, Scalise, Siboni and Sohn, who constitute a majority of the Board, are independent directors within the meaning of the listing standards of NASDAQ.

BOARD MEETINGS

During the fiscal year ended January 2, 2016, the Board held seven meetings, in addition to taking actions by unanimous written consent in lieu of a meeting. Each director attended more than 75% of the aggregate meetings of the Board and the committees on which he or she served that were held during the period for which he or she was a director or committee member during fiscal 2015. The Corporate Governance Guidelines encourage directors to attend the annual meeting of stockholders. All of Cadence’s then-current directors attended the 2015 annual meeting of Cadence stockholders.

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

CONTACTING THE BOARD

Stockholders interested in communicating directly with the Board may do so by sending a letter to the Board, or to any individual director, group of directors or committee of the Board, c/o the Office of the Corporate Secretary, Cadence Design Systems, Inc., 2655 Seely Avenue, Building 5, San Jose, California 95134. Inquiries and other communications may be submitted anonymously and confidentially. The Corporate Secretary will review the correspondence and will transmit such communications as soon as practicable to the identified director addressee(s), unless there are legal or other considerations that mitigate against further transmission of the communication, as determined by the Corporate Secretary. In that regard, certain items that are unrelated to the duties and responsibilities of the Board will not be forwarded by the Corporate Secretary, such as business solicitations or advertisements, junk mail and mass mailings, new product suggestions, product complaints, product inquiries, resumes and other forms of job inquiries, spam and surveys. In addition, material that the Corporate Secretary determines is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the provision that the Board or individual directors so addressed shall be advised of any communication withheld for legal or other considerations as soon as practicable.

COMMITTEES OF THE BOARD

The Board currently has the following committees:

 

   

Audit Committee;

 

   

Compensation Committee;

 

   

Corporate Governance and Nominating Committee;

 

   

Finance Committee; and

 

   

Strategy Committee.

 

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

 

Director    Audit    Compensation    Corporate
Governance
and
Nominating
   Finance    Strategy

Mark W. Adams

             ü         ü

Susan L. Bostrom

        ü    ü         Chair

James D. Plummer

   ü    ü    Chair          

Alberto Sangiovanni-Vincentelli

                       ü

George M. Scalise

        ü               

John B. Shoven

   ü    Chair    ü    ü     

Roger S. Siboni

   Chair         ü    ü     

Young K. Sohn

                  Chair    ü

Lip-Bu Tan

                       ü

Audit Committee

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

The Audit Committee charter was last amended in February 2016 and complies with the NASDAQ listing standards. The duties and responsibilities of the Audit Committee include:

 

   

Appointing, retaining, compensating, evaluating, overseeing and terminating Cadence’s independent registered public accounting firm and annually evaluating the qualifications, performance and independence of the independent registered public accounting firm, including an evaluation of the lead partner of the independent registered public accounting firm;

 

   

Pre-approving all audit and permissible non-audit services to be provided by the independent registered public accounting firm and establishing policies and procedures for such pre-approval;

 

   

Reviewing and discussing with the independent registered public accounting firm its report regarding all relationships or services between Cadence and the independent registered public accounting firm and any other relationship or services that may impact the objectivity and independence of the independent registered public accounting firm;

 

   

Reviewing with the independent registered public accounting firm its audit procedures, including the scope and timing of the audit, the results of the annual audit and any audit problems, difficulties or disagreements and management’s response to any such problems, difficulties or disagreements;

 

   

Meeting to review with management and the independent registered public accounting firm Cadence’s annual and quarterly financial statements, annual reports on Form 10-K and quarterly reports on Form 10-Q, and recommending to the Board whether the financial statements should be included in Cadence’s annual report on Form 10-K;

 

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Reviewing and discussing the adequacy and effectiveness of Cadence’s internal controls, disclosure controls and procedures and practices with respect to risk assessment and risk management as they relate to financial reporting; and

 

   

Establishing and overseeing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls, auditing or violations of federal securities law matters, including a system for the confidential anonymous submission of accounting or auditing concerns by Cadence employees.

The Audit Committee held five meetings during fiscal 2015. See “Report of the Audit Committee” below for more information.

Compensation Committee

The Compensation Committee is currently comprised of four non-employee, independent directors of Cadence, each of whom the Board has determined to be “independent” as defined by the listing standards of NASDAQ applicable to compensation committee members and satisfies the applicable independence standards under the Exchange Act for compensation committee service. In addition, all Compensation Committee members are “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), to allow Cadence a tax deduction for certain employee compensation exceeding $1,000,000 for an individual. All Compensation Committee members are also “outside directors” within the meaning of Rule 16b-3 of the Exchange Act to allow Cadence to exempt certain option grants and similar transactions from the short-swing profits prohibition of Section 16 of the Exchange Act. Although the Compensation Committee may delegate its authority over certain matters to management when it deems it to be appropriate and in the best interests of Cadence, the Compensation Committee did not delegate any authority with respect to the consideration and determination of executive officer in fiscal 2015 and does not currently expect to delegate any such authority in the future. At or near the beginning of each fiscal year, the Compensation Committee typically establishes base salary levels and target bonuses for the CEO and other executive officers of Cadence. In addition, the Compensation Committee administers and, if deemed necessary, may amend the Senior Executive Bonus Plan, Cadence’s equity-based compensation plans and stock purchase plans, and Cadence’s deferred compensation plans. The Compensation Committee also reviews and recommends to the Board the compensation of Cadence’s directors, and the Compensation Committee did not delegate any authority with respect to the consideration and determination of director compensation.

The Compensation Committee charter was last amended in February 2016. The duties and responsibilities of the Compensation Committee include:

 

   

Identifying, reviewing and approving corporate goals and objectives relevant to the compensation of the CEO and any director who is also a Cadence employee, evaluating the performance of the CEO and any employee director in light of those goals and objectives and determining and approving the compensation of the CEO and any employee director based on such evaluation;

 

   

Overseeing the evaluation of Cadence’s management;

 

   

Reviewing periodically Cadence’s management succession planning in consultation with the CEO and reporting to the Board, at least annually, on CEO succession planning;

 

   

Reviewing compensation programs and determining the compensation of Cadence’s executive officers;

 

   

Reviewing and discussing with management the Compensation Discussion and Analysis and related disclosures that are required to be included in Cadence’s annual report and proxy statement, recommending to the Board, based on their review and discussions, whether the Compensation Discussion and Analysis should be included in the annual report or proxy statement, and furnishing the compensation committee report required to be included in the annual report or proxy statement under SEC rules;

 

   

Overseeing Cadence’s overall compensation practices, policies and programs, assessing whether Cadence’s compensation structure establishes appropriate incentives for management and employees, assessing the risks associated with such practices, policies and programs, and assessing the results of Cadence’s most recent advisory vote on executive compensation;

 

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Reviewing and, in certain cases, amending and administering Cadence’s general compensation plans, including equity incentive and stock purchase plans, benefit programs and bonus plans;

 

   

Reviewing annually an assessment of any potential conflicts of interest raised by the work of compensation consultants, whether retained by the Compensation Committee or management, who are involved in determining or recommending executive or Board compensation; and

 

   

Assessing the independence of any consultants or other outside advisors that the Compensation Committee selects or receives advice from, and being directly responsible for the appointment, compensation and oversight of the work of any consultants and advisors retained by the Compensation Committee.

In fiscal 2015, the Compensation Committee retained the services of a compensation consultant, Semler Brossy Consulting Group, LLC (“Semler Brossy”), for advice regarding the compensation of Cadence’s executive officers. The Compensation Committee believes that having an outside evaluation of executive officer salary, bonus and equity compensation is a valuable tool for the Compensation Committee and Cadence’s stockholders. The Compensation Committee retained Semler Brossy for a number of purposes, including constructing and reviewing peer groups for compensation comparison purposes, performing a competitive assessment of Cadence’s compensation programs, practices and levels for its executive officers and other select employees and providing information on typical industry practices concerning employment, equity practices, severance and change in control agreements. Semler Brossy has not been engaged to perform any other work for Cadence. Pursuant to the factors set forth in Item 407 of Regulation S-K of the Exchange Act, the Compensation Committee has reviewed the independence of Semler Brossy and conducted a conflicts of interest assessment, and has concluded that Semler Brossy is independent and Semler Brossy’s work for the Compensation Committee has not raised any conflicts of interest.

In determining the compensation of Cadence’s executive officers, including Cadence’s Named Executive Officers (as defined below in “Compensation Discussion and Analysis”), the Compensation Committee considers the competitive assessments provided by and through consultation with Semler Brossy. In addition, Cadence’s CEO typically makes assessments and recommendations to the Compensation Committee on whether there should be adjustments to the annual base salary, annual cash incentive compensation and long-term equity incentive compensation of executive officers other than himself based upon an assessment of certain factors described in “Compensation Discussion and Analysis” below. The Compensation Committee reviews such assessments and recommendations and determines whether or not to approve or modify the CEO’s recommendations. The Compensation Committee’s decisions are made, however, by the Compensation Committee in its sole discretion. See “Compensation Discussion and Analysis” below for more information.

The Compensation Committee, in consultation with Semler Brossy, reviews Cadence’s compensation practices, policies and programs for all employees, including the Named Executive Officers, to assess the risks associated with such practices, policies and programs. The risk-mitigating factors considered by the Compensation Committee include the following:

 

   

The use of different types of compensation that provide a balance of short-term and long-term incentives with fixed and variable components;

 

   

Cadence’s Securities Trading Policy, which restricts certain transactions in Cadence’s securities, prohibits hedging by members of the Board and Cadence employees and requires the Named Executive Officers to obtain permission from the General Counsel before trading any shares of Cadence common stock during periods when the trading window is open, except those transactions expressly permitted in such policy;

 

   

Cadence’s Clawback Policy, which, in the event of a restatement of Cadence’s reported financial results, allows Cadence to seek to recover or cancel performance-based bonuses and equity awards made to senior executives to the extent that performance goals would not have been met under such restated financial results;

 

   

Caps on bonus awards to limit windfalls; and

 

   

The consideration of ethical behavior, which is integral in assessing the performance of all executive officers, including the Named Executive Officers.

 

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The Compensation Committee held three meetings during fiscal 2015.

Corporate Governance and Nominating Committee

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

The Corporate Governance and Nominating Committee charter was last amended in February 2016. The duties and responsibilities of the Corporate Governance and Nominating Committee include:

 

   

Determining the Board’s criteria for selecting new directors and recommending to the Board director nominees for election at the next annual or special meeting of stockholders at which directors are to be elected or to fill any vacancies or newly created directorships that may occur between such meetings;

 

   

Interviewing and evaluating candidates for Board membership;

 

   

Considering potential director candidates recommended by Cadence’s management and stockholders in the same manner as nominees identified by the Corporate Governance and Nominating Committee; provided, with respect to those candidates recommended by stockholders, that such recommendation is made in accordance with Cadence’s procedures for nomination of directors by stockholders as provided in Cadence’s Bylaws;

 

   

Reviewing, at least annually, the appropriate qualifications, skills and characteristics required for directors in the context of the current composition of the Board;

 

   

Reviewing periodically the size of the Board and recommending any proposed changes to the Board;

 

   

Overseeing the annual evaluation of the Board and its committees, and considering the results of the annual evaluation;

 

   

Retaining, terminating and approving the fees and retention terms with respect to any search firm employed to identify director candidates;

 

   

Evaluating, at least annually, each director’s performance and effectiveness and determining whether the Board desires continued service;

 

   

Making a recommendation to the Board as to whether to accept or reject the resignation of an incumbent director who has received a greater number of votes cast “against” such nominee than votes cast “for” such nominee at an annual or special meeting of stockholders;

 

   

Reviewing, at least annually, the Corporate Governance Guidelines and the Code of Business Conduct;

 

   

Overseeing the administration of the Code of Business Conduct and administering the Code of Business Conduct with respect to Cadence’s directors and executive officers;

 

   

Reviewing and approving any related person transactions as defined under applicable SEC rules and establishing policies and procedures for the review, approval and ratification of such transactions; and

 

   

Reviewing whether it is appropriate for a director to continue to serve as a member of the Board if his or her business responsibilities or personal circumstances change and make a recommendation to the Board as to any action to be taken with respect to such change.

The Corporate Governance and Nominating Committee periodically assesses the appropriate size of the Board, whether any vacancies on the Board are expected due to retirement or otherwise, and the need for particular expertise on the Board. If vacancies on the Board are anticipated or otherwise arise, the committee considers potential director candidates, which may come to the committee’s attention through a variety of channels, including current directors, officers, professional search firms, stockholders or other persons. The Corporate Governance and Nominating Committee will consider individuals recommended by stockholders for nomination as a director pursuant to the provisions of Cadence’s Bylaws relating to stockholder nominations. A stockholder who wishes to recommend a prospective nominee for the Board should notify Cadence’s Corporate Secretary or the Corporate Governance and Nominating Committee in writing with the supporting material

 

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required by Cadence’s Bylaws as described under “Other Matters — Stockholder Proposals and Nominations” below and any other material the stockholder considers necessary or appropriate.

The Corporate Governance and Nominating Committee evaluates prospective nominees using a variety of criteria, including the standards and qualifications listed in the Corporate Governance Guidelines and other factors that it deems appropriate. Among the factors that the committee may consider are the current composition of the Board, the need for particular expertise, a prospective nominee’s experience, judgment, integrity, diversity of background, independence, ability to commit sufficient time and attention to Board activities, skills (such as an understanding of electronic design, semiconductor and electronics systems technologies), international background and other relevant characteristics.

The Corporate Governance and Nominating Committee makes a recommendation to the full Board as to the persons who should be nominated or elected by the Board, and the Board determines whether to reject, elect or nominate the candidate, as the case may be, after considering the recommendation of the committee.

The Corporate Governance and Nominating Committee held three meetings during fiscal 2015.

Finance Committee

The Finance Committee, on behalf of the Board, evaluates and approves financings, mergers, acquisitions, divestitures and other financial commitments of Cadence to unaffiliated third parties that involve amounts up to $60 million.

The Finance Committee held three meetings during fiscal 2015.

Strategy Committee

The Strategy Committee, on behalf of the Board, assists and advises in the strategic planning process and in the development of long-term strategic plans for Cadence.

The Strategy Committee held three meetings during fiscal 2015.

Board Leadership Structure

Mr. Tan serves as CEO, and Dr. Shoven, an independent director, serves as Chairman of the Board. The Board believes that at this time, Cadence and its stockholders are best served by this leadership structure because it is valuable to have a strong independent leader, separate from the CEO, assisting the Board in fulfilling its role of overseeing the management of Cadence and its risk management practices. While the Corporate Governance Guidelines permit the roles of the Chairman of the Board and the CEO to be filled by the same or different individuals, they require a lead independent director if the roles were to be combined. This provides the Board with flexibility to determine whether the two roles should be combined in the future based on Cadence’s needs and the Board’s assessment of Cadence’s leadership from time to time.

Risk Oversight

The Board exercises its risk oversight function through the Board as a whole and through certain of its committees. The Board and the relevant committees seek to understand and oversee the most critical risks facing Cadence. The Board does not view risk in isolation, but considers risk as part of its regular consideration of business decisions and business strategy. The Board as a whole has the ultimate responsibility for the oversight of risk management, but has delegated the oversight of certain risks to the Audit Committee and the Compensation Committee. The Audit Committee is responsible for overseeing risk management as it relates to Cadence’s financial condition, financial statements, financial reporting process and accounting matters. The Compensation Committee is responsible for overseeing Cadence’s overall compensation practices, policies and programs and assessing the risks associated with such practices, policies and programs. The Board and the relevant committees review with Cadence’s management the risk management practices for which they have oversight responsibility. Since overseeing risk is an ongoing process and inherent in Cadence’s strategic decisions, the Board and the relevant committees also discuss risk throughout the year in relation to specific proposed actions.

 

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COMPENSATION OF DIRECTORS

Directors who are Cadence employees, such as Mr. Tan, do not receive additional compensation for their service on the Board. A “non-employee director” is a Cadence director who is not an employee of Cadence. The following table sets forth the compensation earned by Cadence’s non-employee directors for their service on the Board in fiscal 2015:

DIRECTOR COMPENSATION FOR FISCAL 2015

 

Name

   Fees
Earned
or Paid in
Cash

($)
     Stock
Awards
($)(1)(2)
     Option
Awards
($)(3)
     All Other
Compensation
($)(4)
     Total
($)
 

Mark W. Adams

   $ 96,000       $ 169,986       $         —       $       $ 265,986   

Susan L. Bostrom

     129,000         169,987                 20,000         318,987   

James D. Plummer

     132,000         169,987                         301,987   

Alberto Sangiovanni-Vincentelli

     95,000         169,987                 7,186         272,173   

George M. Scalise

     98,000         169,987                 8,057         276,044   

John B. Shoven

     229,000         219,991                 8,617         457,608   

Roger S. Siboni

     152,000         169,987                 10,346         332,333   

Young K. Sohn

     128,000         169,987                         297,987   

 

(1) 

In accordance with SEC rules, the amount shown reflects the grant date fair value of stock awards granted during fiscal 2015 calculated pursuant to Financial Accounting Standards Board Codification (ASC) 718, Compensation — Stock Compensation (“FASB ASC 718”). The assumptions used to calculate the valuation of the stock awards for fiscal 2015 are set forth in Note 9 to the Notes to Consolidated Financial Statements in Cadence’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016. The amount shown is based on the price of Cadence common stock on the date the award was granted and does not reflect any fluctuations in the price of Cadence common stock subsequent to the grant date. The amount shown therefore does not reflect the financial benefit that the holder of the award will actually realize upon the vesting of the award.

 

(2) 

As of January 2, 2016, the aggregate number of unvested shares of restricted stock held by each non-employee director was as follows: Mr. Adams — 9,860; Ms. Bostrom — 9,906; Dr. Plummer — 9,906; Dr. Sangiovanni-Vincentelli — 9,906; Mr. Scalise — 9,906; Dr. Shoven — 12,820; Mr. Siboni — 9,906; and Mr. Sohn — 9,906.

 

(3) 

No option awards were granted to the non-employee directors during fiscal 2015. As of January 2, 2016, the aggregate number of outstanding stock options held by each non-employee director was as follows: Mr. Adams — 0; Ms. Bostrom — 0; Dr. Plummer — 57,500; Dr. Sangiovanni-Vincentelli — 170,000; Mr. Scalise — 145,000; Dr. Shoven — 340,000; Mr. Siboni — 102,078; and Mr. Sohn — 20,000.

 

(4) 

All Other Compensation for Ms. Bostrom, Drs. Sangiovanni-Vincentelli and Shoven and Messrs. Scalise and Siboni consists of reimbursements pursuant to the director medical and prescription benefits coverage reimbursement plan described below.

The annual retainer for non-employee directors is set at $80,000, with an additional annual retainer of $80,000 for a non-employee director serving as Chairman of the Board. A non-employee director serving as Chair of the Audit Committee receives an annual retainer of $40,000 per year; a non-employee director serving as Chair of the Finance Committee or the Compensation Committee receives an annual retainer of $30,000 per year; and a non-employee director serving as Chair of the Corporate Governance and Nominating Committee or the Strategy Committee receives an annual retainer of $20,000 per year. A non-employee director serving as Chairman of the Board is also eligible to receive fees for service as the Chair of any of these Board committees.

Each non-employee director of Cadence who served for the full fiscal year earned an $80,000 retainer for service on the Board in fiscal 2015. Dr. Shoven earned an additional retainer of $80,000 for his service as

 

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Chairman of the Board and a retainer of $30,000 for his service as Chair of the Compensation Committee. Ms. Bostrom received a retainer of $20,000 for her service as Chair of the Strategy Committee. Dr. Plummer received a retainer of $20,000 for his service as Chair of the Corporate Governance and Nominating Committee. Mr. Siboni received a retainer of $40,000 for his service as Chair of the Audit Committee. Mr. Sohn received a retainer of $30,000 for his service as Chair of the Finance Committee. Each non-employee director also received meeting fees of $2,000 for each meeting attended in person and $1,000 for each meeting attended via telephone. No additional compensation was paid when the Board or a committee acted by unanimous written consent in lieu of a meeting. Non-employee directors were also eligible for reimbursement of expenses they incurred in connection with attending Cadence’s Board meetings in accordance with Cadence’s expense reimbursement policy.

On February 9, 2015, each non-employee director (other than Dr. Shoven and Mr. Adams) was granted an incentive stock award of 9,906 shares of Cadence common stock under Cadence’s 1995 Directors Stock Incentive Plan (the “Directors Plan”) (which award had a grant date fair value of approximately $170,000). Dr. Shoven, the non-employee director serving as Chairman of the Board, was granted an incentive stock award of 12,820 shares of Cadence common stock under the Directors Plan (which award had a grant date fair value of approximately $220,000). Mr. Adams was elected to the Board on February 10, 2015, and in connection with his election, he was granted an incentive stock award of 9,860 shares of Cadence common stock under the Directors Plan (which award had a grant date fair value of approximately $170,000). These incentive stock award grants become exercisable in full on the first anniversary of the date of grant.

Each non-employee director who joins the Board may be granted incentive stock awards, stock options and restricted stock units (“RSUs”) under the Directors Plan, the amounts of which are determined at the sole discretion of the Board or its designated committee.

Directors may elect to defer cash compensation payable to them under Cadence’s deferred compensation plan. These deferred compensation payments are held in accounts with values indexed to the performance of selected mutual funds, self-directed accounts or money market accounts. Cadence does not match contributions made under Cadence’s deferred compensation plan.

In addition, a medical and prescription benefits coverage reimbursement plan is available to active non-employee directors who were directors on December 31, 2014 (the “Eligible Directors”), eligible retired directors who retired from the Board on or prior to December 31, 2014 (the “Eligible Retired Directors”) and their respective dependents (the “Medical Reimbursement Plan”). Directors who are first elected or appointed to the Board after December 31, 2014 are not eligible to participate in the Medical Reimbursement Plan. Eligible Directors and their dependents are eligible for coverage under the Medical Reimbursement Plan during their term of service on the Board. Eligible Retired Directors, Eligible Directors and their dependents are eligible for continuing coverage under the Medical Reimbursement Plan starting immediately after the director’s termination of service for a continuous term not to exceed such director’s term of service on the Board.

In accordance with the Medical Reimbursement Plan, a director’s eligibility for participation in the Medical Reimbursement Plan immediately ceases if the plan administrator determines that he or she violated the Code of Business Conduct or is engaged as a Cadence competitor’s employee, consultant, director, advisor or significant investor. Under the Medical Reimbursement Plan, Cadence reimburses 100% of the premiums for participants and their dependents up to a maximum of $20,000 for expenses incurred per calendar year, which maximum amount may be adjusted for future changes in medical costs. Benefits under the Medical Reimbursement Plan are fully taxable to the participants and Cadence does not gross up reimbursement payments to cover any such taxes.

 

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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING

PROPOSAL 1

ELECTION OF DIRECTORS

The Corporate Governance and Nominating Committee has recommended, and the Board has nominated, the nine nominees named below for election to the Board. Each director elected at the Annual Meeting will hold office until the 2017 annual meeting of Cadence stockholders and until his or her successor is elected and qualified, or until the director’s earlier resignation, removal or death. Each nominee listed below is currently a Cadence director, and all of the nominees have previously been elected by Cadence’s stockholders.

DIRECTOR QUALIFICATIONS AND DIVERSITY

The Board believes that the Board, as a whole, should possess a combination of skills, professional experience and diversity of backgrounds necessary to oversee Cadence’s business. In addition, the Board believes that there are certain attributes that every director should possess, as reflected in the Board’s membership criteria. Accordingly, the Board and the Corporate Governance and Nominating Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and Cadence’s current and future needs.

The Corporate Governance and Nominating Committee is responsible for developing the Board membership criteria and recommending them to the Board for approval. The criteria, which are set forth in the Corporate Governance Guidelines, include a prospective nominee’s integrity, experience, judgment, diversity of background, independence, ability to commit sufficient time and attention to Board activities, skills such as an understanding of electronic design, semiconductor and electronics systems technologies, international background and other relevant characteristics. The Corporate Governance and Nominating Committee considers all of these criteria in the context of the perceived needs of the Board at that point in time. In addition, the Corporate Governance and Nominating Committee annually reviews with the Board the appropriate skills and characteristics required of directors in the context of the current composition of the Board. In seeking a diversity of background, the Corporate Governance and Nominating Committee seeks a variety of occupational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives. This annual assessment enables the Board to update the skills and experience it seeks in the Board as a whole, and in individual directors, as Cadence’s needs evolve and change over time, and also enables the Board to assess the effectiveness of its policy to seek a diversity of background on the Board. In identifying director candidates from time to time, the Corporate Governance and Nominating Committee and the Board may establish specific skills and experience that it believes Cadence should seek in order to have an effective board of directors.

In evaluating director candidates and considering incumbent directors for renomination to the Board, the Corporate Governance and Nominating Committee has considered all of the criteria described above and, for incumbent directors, past performance on the Board. Among other things, the Corporate Governance and Nominating Committee has determined that it is important to have individuals with the following skills and experiences on the Board:

 

   

Strong technologists with in-depth understanding of electronic design, semiconductor and electronics systems technologies, which is vital in understanding and reviewing Cadence’s strategy, including product development and the acquisition of businesses that offer complementary products, services or technologies;

 

   

Current or former executives with significant operating experience that gives them specific insight into developing, implementing and assessing Cadence’s operating plan and business strategy;

 

   

Substantial international experience, which is particularly important given Cadence’s global business and operations;

 

   

Financial expertise with which to evaluate Cadence’s financial statements and capital structure; and

 

   

Corporate governance experience from publicly traded companies to support Cadence’s goals of accountability for management and the Board and protection of stockholder interests.

 

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The Corporate Governance and Nominating Committee believes that all of the nine director nominees listed below are highly qualified and have the skills and experience required for service on the Board. The biographies below contain information regarding their experience, qualifications and skills.

NOMINEES

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

 

Mark W. Adams

52 Years Old

Director Since 2015

Former President,

Micron Technology, Inc.

    

Mark W. Adams served as President of Micron Technology, Inc., a semiconductor solutions company, from February 2012 to February 2016. From 2006 to February 2012, Mr. Adams served in a number of positions at Micron Technology, Inc., including as Vice President of Worldwide Sales and Vice President of Digital Media. Prior to joining Micron Technology, Inc., Mr. Adams served as Chief Operating Officer of Lexar Media, Inc. in 2006 and as Vice President of Sales and Marketing of Creative Labs, Inc. from 2002 to 2006.

 

As the former President of a global leader in advanced semiconductor systems, Mr. Adams has substantial executive leadership experience, as well as industry, operational, international and corporate governance expertise.

Susan L. Bostrom

55 Years Old

Director Since 2011, and

previously from 2001 to 2005

Former Executive Vice President,

Chief Marketing Officer,

Worldwide Government Affairs,

Cisco Systems, Inc.

    

Susan L. Bostrom served as Executive Vice President, Chief Marketing Officer, Worldwide Government Affairs, of Cisco Systems, Inc., a networking equipment provider, from 2007 to 2011. From 1997 to 2007, Ms. Bostrom served in a number of positions at Cisco Systems, Inc., including as Senior Vice President, Chief Marketing Officer, Worldwide Government Affairs, Vice President of the Internet Business Solutions Group and Vice President of Applications and Services Marketing. Ms. Bostrom also serves as a director of Marketo, Inc., Rocket Fuel Inc., ServiceNow, Inc., Varian Medical Systems, Inc., Lucile Packard Children’s Hospital Stanford and Georgetown University and is a member of the Advisory Board of the Stanford Institute for Economic Policy Research. Ms. Bostrom served on the Management Board of the Stanford Graduate School of Business from 2010 to 2015.

 

As a former executive at one of the world’s leading technology companies and an experienced director, Ms. Bostrom has broad knowledge of marketing, government affairs, public policy and developing trends in networking and new media, as well as substantial operating, international, financial and corporate governance expertise.

James D. Plummer, Ph.D.

71 Years Old

Director Since 2011

John M. Fluke Professor of

Electrical Engineering,

Stanford University

    

Dr. James D. Plummer has been a Professor of electrical engineering at Stanford University since 1978 and served as the Dean of the Stanford School of Engineering from 1999 to 2014. Dr. Plummer has received numerous awards for his research and is a member of the U.S. National Academy of Engineering. Dr. Plummer directed the Stanford Nanofabrication Facility from 1994 to 2000. Dr. Plummer also serves as a director of Intel Corporation and served as a director of International Rectifier Corporation from 1994 to 2014.

 

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As a Professor of electrical engineering and the former Dean of the School of Engineering at Stanford University and as a director of large technology corporations, Dr. Plummer has significant industry and technical expertise, as well as substantial financial and corporate governance expertise.

Alberto Sangiovanni-Vincentelli, Ph.D.

68 Years Old

Director Since 1992

Edgar L. and Harold H. Buttner

Professor of Electrical Engineering

and Computer Sciences,

University of California, Berkeley

    

Dr. Alberto Sangiovanni-Vincentelli was a co-founder of SDA Systems, Inc., a predecessor of Cadence. Dr. Sangiovanni-Vincentelli has been a Professor of electrical engineering and computer sciences at the University of California, Berkeley since 1976. Dr. Sangiovanni-Vincentelli was elected to the National Academy of Engineering in 1998 and received the Kaufman Award from the Electronic Design Automation Consortium in 2001, the IEEE/RSE Wolfson James Clerk Maxwell Medal for his exceptional impact on the development of electronics and electrical engineering or related fields in 2008, the ACM/IEEE A. Richard Newton Technical Impact Award in Electronic Design Automation in 2009 and the EDAA Lifetime Achievement Award in 2012.

 

As a co-founder of one of Cadence’s predecessor companies, a Professor of electrical engineering at the University of California, Berkeley and a well-known expert in electrical engineering and computer sciences, Dr. Sangiovanni-Vincentelli is a strong technologist with significant industry expertise, as well as substantial international experience.

George M. Scalise

82 Years Old

Director Since 1989

Former President,

Semiconductor Industry Association

    

George M. Scalise served as President of the Semiconductor Industry Association, an association of semiconductor manufacturers and suppliers, from 1997 to 2010. Mr. Scalise served on the Board of Directors of the Federal Reserve Bank of San Francisco from 2000 to 2005, including as Deputy Chairman from 2001 to 2003 and Chairman from 2003 to 2005. Mr. Scalise served as Executive Vice President and Chief Administrative Officer of Apple Computer, Inc. (now Apple Inc.) from 1996 to 1997. Mr. Scalise also served as Senior Vice President of Planning and Development and Chief Administrative Officer of National Semiconductor Corporation, a semiconductor company, from 1991 to 1996. Mr. Scalise served on President George W. Bush’s Council of Advisors on Science and Technology from 2001 to 2009. Mr. Scalise also serves as a director of Intermolecular, Inc. and served as a director of ATMI, Inc. from 2010 to 2014.

 

As a former President of the Semiconductor Industry Association, a former board member of the Federal Reserve Bank of San Francisco and a former Chief Administrative Officer of Apple Computer, Inc. (now Apple Inc.), Mr. Scalise has significant semiconductor, operating, financial and corporate governance expertise and substantial international experience.

 

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John B. Shoven, Ph.D.

68 Years Old

Director Since 1992

Charles R. Schwab

Professor of Economics,

Stanford University

    

Dr. John B. Shoven has served as Chairman of the Board since 2005. Dr. Shoven is the Charles R. Schwab Professor of economics at Stanford University and served as the Director of the Stanford Institute for Economic Policy Research from 1999 to September 2015. He is also a senior fellow and the Chair of the Steering Committee at the Stanford Institute for Economic Policy Research, senior fellow at the Hoover Institution, a fellow of the American Academy of Arts and Sciences and a research associate at the National Bureau of Economic Research. Dr. Shoven has been a member of the faculty at Stanford University since 1973, serving as Chairman of the Economics Department from 1986 to 1989, director of the Center for Economic Policy Research from 1988 to 1993 and as Dean of the School of Humanities and Sciences from 1993 to 1998. Dr. Shoven also serves as a director of Exponent, Inc., Financial Engines, Inc. and the Mountain View Board of American Century Funds.

 

As a Professor of economics at Stanford University, a former director of the Stanford Institute for Economic Policy Research and a director of a number of companies, Dr. Shoven has strong financial and corporate governance expertise.

Roger S. Siboni

61 Years Old

Director Since 1999

Private Investor

    

Roger S. Siboni served as Chairman of the Board of Epiphany, Inc., a software company that provided customer relationship management solutions, from 2003 to 2005, and as President and Chief Executive Officer of Epiphany, Inc. from 1998 to 2003. Prior to joining Epiphany, Inc., Mr. Siboni spent more than 20 years at KPMG LLP, including as its Deputy Chairman and Chief Operating Officer. Mr. Siboni also serves as a director of Dolby Laboratories, Inc. and Marketo, Inc. Mr. Siboni served as a director of ArcSight, Inc. from 2009 to 2010, Classmates Media Corporation from 2007 to 2010 and infoGroup Inc. from 2009 to 2010.

 

As a former Chairman of the Board and Chief Executive Officer of Epiphany, Inc., a former Chief Operating Officer of and an accountant at KPMG LLP and a director of a number of technology companies, Mr. Siboni has significant operating experience, as well as financial, accounting and corporate governance expertise.

Young K. Sohn

60 Years Old

Director Since 2013

President and Chief Strategy Officer,

Samsung Electronics

     Young K. Sohn has served as President and Chief Strategy Officer of Samsung Electronics, a consumer electronics company, since 2012. Mr. Sohn also has served as a senior advisor at Silver Lake Management LLC, a private investment firm, since 2012. Mr. Sohn served as a senior advisor at Inphi Corporation, a provider of high-speed mixed signal semiconductor solutions, from 2012 to 2013 and as President and Chief Executive Officer of Inphi Corporation from 2007 to 2012. Prior to joining Inphi Corporation, Mr. Sohn served as President of Agilent Technologies, Inc.’s Semiconductor Group from 2003 until 2005, as Chief Executive Officer of Oak Technology, Inc. from 1999 until it was acquired by Zoran Corporation in 2003, and in executive

 

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positions at Quantum Corporation from 1992 to 1999, including as co-President and General Manager. Mr. Sohn also serves on the North American Executive Board for the MIT Sloan School of Management. Mr. Sohn served as a director of ARM Holdings plc from 2007 to 2012, Cymer, Inc. from 2003 to 2013 and Inphi Corporation from 2007 to 2012.

 

As President and Chief Strategy Officer of Samsung Electronics and a former director and executive at a number of semiconductor companies, Mr. Sohn has significant operating experience in the semiconductor industries, as well as technical, financial, corporate governance, international and marketing experience.

Lip-Bu Tan

56 Years Old

Director Since 2004

President and Chief Executive Officer, Cadence Design Systems, Inc.

    

Lip-Bu Tan has served as President and Chief Executive Officer of Cadence since 2009. In 1987, Mr. Tan founded Walden International, an international venture capital firm, and has served as its Chairman since its founding. Mr. Tan also serves as a director of Ambarella, Inc., Hewlett Packard Enterprise Company and Semiconductor Manufacturing International Corporation. Mr. Tan served as a director of Flextronics International Ltd. from 2003 to 2012, Inphi Corporation from 2002 to 2012 and SINA Corporation from 1999 to 2015.

 

As Cadence’s President and CEO, Mr. Tan has thorough knowledge of Cadence’s operations and strategic direction. In addition, as a Chairman of an international venture capital firm and a director of a number of technology companies, Mr. Tan has extensive experience in the electronic design automation, semiconductor and electronics systems industries, as well as international operations, financial and corporate governance expertise.

VOTE REQUIRED AND BOARD RECOMMENDATION

The Board recommends a vote FOR the election of each of the nine nominees. The election of directors at the Annual Meeting requires that each director receive a majority of the votes cast with respect to that director, which means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director. If, however, the election of directors is contested, the directors will be elected by the affirmative vote of a plurality of the votes cast at the Annual Meeting. The election this year is not contested and the majority voting standard outlined above applies.

In order for an incumbent Cadence director to become a nominee at the Annual Meeting, such director must submit an irrevocable resignation that becomes immediately effective if the votes cast “for” such director do not exceed the votes cast “against” such director in an election that is not a contested election, and if the Board accepts the resignation in accordance with the policies and procedures adopted by the Board for such purpose. If a nominee who is currently serving as a Cadence director is not elected at the Annual Meeting, the Corporate Governance and Nominating Committee will make a recommendation to the Board as to whether to accept or reject such director’s resignation, or whether to take other action. The Board will act on the Corporate Governance and Nominating Committee’s recommendation and publicly disclose (as required by applicable law) its decision and the reasons behind it within 90 days from the date the election results are certified.

 

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

Abstentions will be treated as being present and entitled to vote on the election; however, abstentions will not be counted as votes “for” or “against” directors and will not have an effect on the election of directors. Broker non-votes will be treated as not being entitled to vote on the election of directors, and, therefore, will not be counted for purposes of determining whether the directors have been elected. Unless marked to the contrary, proxies received will be voted FOR the election of each of the nine director nominees if authority to do so is not withheld.

THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH DIRECTOR NOMINEE.

 

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PROPOSAL 2

APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE

OMNIBUS EQUITY INCENTIVE PLAN

OVERVIEW

Cadence’s Omnibus Equity Incentive Plan (as it may be amended and restated, the “Omnibus Plan”) was approved by Cadence’s stockholders on May 6, 2014, with 14,866,116 authorized shares of common stock reserved for issuance. The Board on February 10, 2015 and the stockholders on May 14, 2015 approved an amendment to the Omnibus Plan to increase the number of shares of common stock authorized for issuance by 7,500,000 shares and to extend the expiration date, such that the Omnibus Plan will expire on May 14, 2025.

On February 9, 2016, subject to stockholder approval, the Board approved the amendment and restatement of the Omnibus Plan to increase the number of shares of common stock authorized for issuance by 6,000,000 shares and to extend the expiration date, such that the Omnibus Plan would expire on May 5, 2026.

As of February 9, 2016, 9,357,842 shares of common stock remained available for issuance under the Omnibus Plan, plus any shares that become available under the Omnibus Plan as a result of forfeitures or terminations of outstanding awards as described below. The proposed increase in the number of shares authorized for issuance under the Omnibus Plan represents approximately 1.98% of Cadence’s outstanding common stock as of the Record Date.

The purpose of the amendment and restatement of the Omnibus Plan is to increase the number of shares of common stock authorized for issuance by 6,000,000 shares and to extend the expiration date of the Omnibus Plan to May 5, 2026.

Approval of the amendment and restatement of the Omnibus Plan will also constitute re-approval, for purposes of Section 162(m) of the Code, of the material terms of the performance measures contained in the Omnibus Plan as described below that are intended to qualify as “performance-based” compensation under Section 162(m) of the Code. One of the conditions for compensation to be considered “performance-based” under Section 162(m) of the Code is that the material terms under which compensation will be paid be disclosed to and approved by the stockholders every five years. By approving the amendment and restatement of the Omnibus Plan, the stockholders will be approving the material terms of the performance goals under the amended and restated Omnibus Plan.

REASONS FOR THE PROPOSED INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE

The Board approved the most recent amendment and restatement of the Omnibus Plan to ensure that Cadence can continue to grant awards to eligible participants. The Omnibus Plan provides broad-based equity compensation that is viewed as an essential and long-standing element of Cadence’s culture and success and is deemed critical in building stockholder value by attracting and retaining the most talented employees and consultants. Giving eligible employees and consultants the opportunity to become Cadence stockholders and participate in Cadence’s success aligns the interests of participating individuals with those of stockholders. The Omnibus Plan also helps to attract and retain employees and consultants because equity incentive plans are a common benefit offered by Cadence’s competitors and other industry leaders. In addition, Cadence believes that the Omnibus Plan is a highly valued benefit that is necessary in order for Cadence to compete with other companies in attracting and retaining employees and consultants.

 

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Key Data Regarding Share Usage Under Cadence’s Equity Plans

Outstanding Awards and Share Reserve

The following table includes information regarding outstanding equity awards and shares available for future awards under Cadence’s equity plans as of February 9, 2016:

 

     1995 Directors
Stock
Incentive Plan
     Omnibus
Plan(1)(2)
 

Total shares underlying outstanding stock options

     1,156,007         8,333,835   

Weighted average exercise price of outstanding stock options

   $ 12.00       $ 13.10   

Weighted average remaining contractual life of outstanding stock options, in years

     3.96         3.84   

Total shares underlying outstanding unvested incentive stock awards and RSUs

     81,795         11,740,018   

Total shares currently available for grant (stock options, incentive stock awards and RSUs)

     603,449         9,357,842   

 

(1) 

This column includes shares underlying awards granted under the Amended and Restated 1997 Nonstatutory Stock Incentive Plan, which merged into the Amended and Restated 2000 Equity Incentive Plan (the “2000 Plan”) in 2011, the 2000 Plan, which was consolidated into the Amended and Restated 1987 Stock Incentive Plan (the “1987 Plan”) in 2014 and the 1987 Plan, which was amended and restated into the Omnibus Plan in 2014. Other than the Omnibus Plan, these plans are collectively referred to herein as the predecessor plans.

 

(2) 

This table excludes 576,591 stock options that were assumed in connection with acquisitions. No new awards may be issued under the acquired plans, with the exception of the Jasper Design Automation 2011 Stock Incentive Plan (the “Jasper Plan”). No shares remain available for grant and no stock options are outstanding under the Jasper Plan. However, as of February 9, 2016, 19,774 shares of unvested incentive stock were outstanding under the Jasper Plan, and if the award under which these shares were granted should terminate for any reason without having vested in full, then the unvested shares that were subject to the award will, unless the Jasper Plan has been terminated, be forfeited and become available for future grant under the Jasper Plan.

Burn Rate

Cadence measures net burn rate as the number of shares underlying equity awards granted by Cadence in the applicable fiscal year (including the effect of cancellations and forfeitures), divided by the weighted average number of shares of common stock outstanding at fiscal year end. Based on this approach, Cadence’s three-year average annual net burn rate has been 1.95%, as set forth below.

Three-Year Net Burn Rate

 

     Net Stock
Options
Granted(1)
     Net
Time-Based
Incentive
Stock
Awards and
RSUs
Granted(1)
     Net
Performance-
Based
Incentive
Stock
Awards and
RSUs
Granted(1)(2)
     Total
Net
Grants
     Weighted
Average
Number of
Common
Shares
Outstanding
     Net
Burn Rate =
Total

Net Shares
Granted or
Earned /
Common
Shares
Outstanding
 

2015

     1,113,352         4,824,606         326,585         6,264,543         288,017,698         2.18%   

2014

     657,454         4,683,613         397,000         5,738,067         283,348,602         2.03      

2013

     (233,399      4,442,599         332,500         4,541,700         277,796,293         1.63      

Three-Year Average

     512,469         4,650,273         352,028         5,514,770         283,054,198         1.95      

 

(1) 

Amounts in this column take into account the effect of cancellations and forfeitures.

 

(2) 

Amounts in this column include performance-based incentive stock awards and RSUs that were earned (i.e., the performance conditions were satisfied and shares subject to the award vested) during the applicable fiscal year.

 

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Cadence measures weighted gross burn rate as the number of shares underlying equity awards granted by Cadence in the applicable fiscal year (converting full value shares to option equivalents and excluding the effect of cancellations and forfeitures), divided by the weighted average number of shares of common stock outstanding at fiscal year end. Based on this approach, Cadence’s three-year average annual weighted gross burn rate has been 6.43%, as set forth below.

Three-Year Weighted Gross Burn Rate

 

     Stock
Options
Granted(1)
     Time-Based
Incentive
Stock
Awards  and
RSUs
Granted(1)
     Performance-
Based
Incentive
Stock
Awards and
RSUs
Granted(1)(2)
     Total
Grants(3)
     Weighted
Average
Number of
Common
Shares
Outstanding
     Weighted Gross
Burn Rate =
Total

Granted or
Earned /
Common
Shares
Outstanding
 

2015

     1,305,000         5,448,745         400,000         18,851,235         288,017,698         6.55

2014

     1,312,000         5,442,696         397,000         18,831,088         283,348,602         6.65   

2013

     1,042,500         4,973,887         332,500         16,961,661         277,796,293         6.11   

Three-Year Average

     1,219,833         5,288,443         376,500         18,214,661         283,054,198         6.43   

 

(1) 

Amounts in this column do not take into account the effect of cancellations and forfeitures.

 

(2) 

Amounts in this column include performance-based incentive stock awards and RSUs that were earned (i.e., the performance conditions were satisfied and shares subject to the award vested) during the applicable fiscal year.

 

(3) 

The calculation in this column places greater weight on full-value awards (that is, incentive stock awards and RSUs) than stock options, using a 3:1 ratio. The total grants calculation reported in Cadence’s 2014 proxy statement reflected a 2.5:1 ratio. Using a 2.5:1 ratio, Cadence’s Weighted Gross Burn Rate for fiscal 2015, 2014 and 2013 was 5.53%, 5.62% and 5.15%, respectively, which would yield a three-year average of 5.43%.

Overhang

Cadence calculates overhang as (i) the number of shares underlying all outstanding equity awards under all equity plans (which, as of February 9, 2016, consisted of 10,066,433 shares underlying vested and unvested stock options, 9,470,644 shares underlying unvested incentive stock awards and 2,370,943 shares underlying unvested RSUs), divided by (ii) the number of shares of Cadence common stock outstanding (which, as of February 9, 2016 was 305,621,753 shares), excluding unvested incentive stock awards. Based on this approach, as of February 9, 2016, equity compensation overhang was approximately 7.4%.

SUMMARY OF THE OMNIBUS PLAN

The following summary of the material provisions of the Omnibus Plan is qualified in its entirety by the complete text of the Omnibus Plan, a copy of which is attached as Appendix A to this proxy statement.

General

The Omnibus Plan provides for the grant of incentive stock options, nonstatutory stock options, incentive stock awards and RSUs. Incentive stock options granted under the Omnibus Plan are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code. Nonstatutory stock options granted under the Omnibus Plan are not intended to qualify as “incentive stock options” under the Code. See “Federal Income Tax Information” below for a discussion of the tax treatment of awards that may be granted under the Omnibus Plan.

 

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Purpose

The Omnibus Plan is intended by the Board to give the employees and consultants of Cadence and its affiliates an opportunity to purchase Cadence common stock or receive grants of Cadence common stock, in order to incentivize them to exert maximum efforts for the long-term success of Cadence and its affiliates and to attract and retain the services of persons most capable of filling these positions.

Administration

The Board administers the Omnibus Plan and has the final power to interpret the Omnibus Plan, including the power to prescribe, amend and rescind rules and regulations relating to the Omnibus Plan and to delegate administration of the Omnibus Plan to a committee, such as the Compensation Committee, consisting of one or more members of the Board. The Board has the power to determine which of the persons eligible under the Omnibus Plan will be granted awards, the types of awards that will be granted, when and how each award will be granted, and the terms and provisions of each award to be granted in accordance with the provisions of the Omnibus Plan. The Board has delegated the administration of the Omnibus Plan to the Compensation Committee.

The Board or the Committee may, by resolution, authorize one or more officers of Cadence to approve grants up to limits and subject to terms specified by the Board or the Committee. However, in no event will any officer be delegated authority with respect to grants to be made to executive officers of Cadence.

The Board has delegated administration of the Omnibus Plan to the Compensation Committee. As used in this proxy statement solely with respect to describing the terms of the Omnibus Plan, the “Board” refers to any committee the Board appoints to administer the Omnibus Plan as well as to the Board itself.

Eligibility

Only employees of Cadence and its affiliates are eligible for incentive stock options under the Omnibus Plan. Employees and consultants of Cadence and its affiliates are eligible to receive nonstatutory stock options, incentive stock awards and RSUs under the Omnibus Plan. Non-employee directors are not eligible to receive awards under the Omnibus Plan.

No person may be granted awards under the Omnibus Plan covering more than an aggregate of 2,216,702 shares of common stock in any calendar year.

Almost all of the employees of Cadence and its subsidiaries, including Cadence’s executive officers, are eligible to receive awards under the Omnibus Plan. As of the Record Date, Cadence had approximately 6,800 employees.

Stock Subject to the Omnibus Plan

Upon stockholder approval of this proposal, an additional 6,000,000 shares of common stock would be reserved for issuance under the Omnibus Plan. The proposed increase in the number of shares authorized for issuance under the Omnibus Plan represents approximately 1.98% of Cadence’s outstanding common stock as of the Record Date.

As of February 9, 2016, there were 9,357,842 shares of common stock available for issuance under the Omnibus Plan, and there were 20,073,853 shares subject to outstanding awards under the Omnibus Plan and its predecessor plans.

All of the shares that are available under the Omnibus Plan may be used for any type of award permitted under the Omnibus Plan (whether stock options, incentive stock awards or RSUs). If an award under the Omnibus Plan (or its predecessor plans) should expire, become unexercisable, be forfeited or otherwise terminate for any reason without having been exercised in full, then the unpurchased or forfeited shares that were subject to the award will, unless the Omnibus Plan has been terminated, become available for future grant under the Omnibus Plan. However, shares subject to an award may not again be made available for issuance under the Omnibus Plan if such shares are: (i) shares used to pay the exercise price of an option, (ii) shares delivered to or withheld by Cadence to pay the withholding taxes related to an award; or (iii) shares that Cadence repurchases on the open market with the proceeds of an option exercise.

 

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Stock Option Provisions

The following describes the permissible terms of the stock options granted under the Omnibus Plan. Individual stock option grants may be more restrictive as to any or all of these permissible terms.

 

   

Exercise Price.    The exercise price of stock options granted under the Omnibus Plan may not be less than the fair market value of Cadence common stock on the grant date. In the case of an incentive stock option granted to a 10% stockholder, the exercise price of the option may not be less than 110% of the fair market value on the grant date. The fair market value for purposes of the Omnibus Plan is the closing price of Cadence common stock on the grant date as reported by NASDAQ.

 

   

Payment of Exercise Price.    The exercise price of stock options granted under the Omnibus Plan may be paid by cash, check, shares of Cadence common stock with a fair market value on the date of surrender equal to the aggregate exercise price of the shares as to which the option is being exercised, or any combination of these methods, or other consideration and payment method as may be determined by the Board. In determining the type of consideration to accept, the Board considers whether the acceptance of such consideration may be reasonably expected to benefit Cadence. The particular forms of consideration available to exercise a specific stock option are set forth in the terms of the option agreement for that option.

 

   

Option Exercise.    Stock options granted under the Omnibus Plan become exercisable at the times and under the conditions determined by the Board. The Board has the power to accelerate the time at which a stock option may first be exercised or the time during which a stock option will vest.

 

   

Term.    The maximum term of stock options granted under the Omnibus Plan is seven years. However, the maximum term of incentive stock options granted to a 10% stockholder is five years. Stock options granted under the Omnibus Plan generally terminate three months (twelve months in the case of termination due to death or disability), or such other period of time as determined by the Board, after termination of the optionee’s employment or consulting relationship with Cadence or one of its affiliates.

Incentive Stock Award and Restricted Stock Unit Provisions

The following describes the permissible terms of the grant of restricted stock (“incentive stock awards”) and RSUs under the Omnibus Plan.

 

   

Sales Price and Payment of Sales Price.    The Board determines the price, if any, at which shares of restricted stock or shares underlying RSUs are sold or awarded to a participant under the Omnibus Plan, subject to applicable law. The sales price may vary among participants and may be below the fair market value of the shares of common stock on the grant date. The Board also determines the form of consideration that may be used to pay the sales price, if any, of shares of restricted stock or shares underlying RSUs. Under the Omnibus Plan, Cadence has typically awarded shares of incentive stock and shares underlying RSUs to a participant at no cost.

 

   

Vesting.    The grant, issuance, retention and vesting of shares of restricted stock and RSUs granted under the Omnibus Plan is at the times and in the installments determined by the Board. The timing of the grant, the issuance, the ability to retain shares and the vesting of shares of restricted stock and RSUs may be subject to continued service, the passage of time and/or the performance criteria as the Board deems appropriate as described below. However, if the vesting of the restricted stock or RSUs granted to an executive officer is based solely on continued service, the award may not vest in full sooner than three years after the grant date and may not have a vesting schedule more favorable, at any point in time, than what would become vested under a monthly pro rata vesting schedule (i.e., 1/36th per month) over those three years. If vesting of an award granted to an executive officer is also subject to the achievement of performance criteria, the award may not vest in full sooner than one year after the grant date. The Board may accelerate the vesting of incentive stock awards and RSUs in the event of a participant’s termination of service as an employee or consultant, a change in control of Cadence or a similar event, provided that, in the case of incentive stock awards and RSUs that are intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the acceleration complies with the regulations relating to Section 162(m) of the Code.

 

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Qualifying Performance Criteria.    The performance criteria for any incentive stock award or RSU that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be any one or more of the following performance criteria as determined pursuant to an objective formula, either individually, alternatively or in any combination, applied either to Cadence as a whole or to a Cadence business unit, segment or affiliate, either individually, alternatively or in any combination, and measured over a performance period determined by the Board, on an absolute basis or relative to a pre-established target, to previous results or to a designated comparison group, in each case as specified by the Board in the incentive stock award or RSU (and in each case on a GAAP or non-GAAP basis, if applicable): (a) cash flow (including measures of operating or free cash flow), (b) earnings per share (diluted or basic), (c) earnings per share from continuing operations, (d) earnings (including but not limited to earnings before interest, taxes, depreciation and amortization), (e) return on equity, (f) total stockholder return, (g) return on capital, (h) return on assets or net assets, (i) revenue or revenue growth, (j) income or net income, (k) operating income or net operating income, (l) operating profit or net operating profit, (m) operating margin, (n) return on operating revenue, (o) market share, (p) customer loyalty or satisfaction as measured by a customer loyalty or satisfaction index determined by an independent consultant or expert in measuring such matters, (q) return on investment, (r) stock price, (s) market capitalization, (t) cash from operations, (u) product innovation or release schedule, (v) capital expenditure, (w) working capital, (x) cost of capital, (y) cost reductions, (z) bookings and segments of bookings such as net product bookings, (aa) market penetration, and (bb) technology development or proliferation.

The Board, in its discretion, may reduce the number of shares granted, issued, retainable and/or vested under an incentive stock award or RSU grant on account of either financial performance or personal performance evaluations, despite the satisfaction of any performance criteria. In addition, to the extent consistent with Section 162(m) of the Code, the Board may appropriately adjust any evaluation of performance under qualifying performance criteria to exclude any of the following events that occurs during a performance period: (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles or other laws and provisions affecting reported results; (d) accruals for reorganization and restructuring programs; and (e) any unusual or infrequently occurring items as described in management’s discussion and analysis of financial condition and results of operations in Cadence’s annual report to stockholders for the applicable year.

Effect of Certain Corporate Events

The Omnibus Plan provides that, in the event of a change in control of Cadence, the surviving or acquiring corporation will assume the awards outstanding under the Omnibus Plan or substitute them with similar awards. If the surviving or acquiring corporation does not assume such awards or substitute similar awards, (i) the vesting of awards held by participants then providing services to Cadence as an employee or consultant will be accelerated prior to the change in control event and will terminate if not exercised after such acceleration and at, or prior to, such event, and (ii) all other awards outstanding under the Omnibus Plan, if any, will terminate if not exercised prior to the change in control event.

Adjustment Provisions

Upon an increase or decrease in the number of issued shares of Cadence common stock resulting from a stock split, the payment of a stock dividend or any other increase or decrease effected without receipt of consideration by Cadence, the number of shares authorized for issuance under the Omnibus Plan, and the number of shares covered by each outstanding award and the price per share of common stock covered by each outstanding award, will be equitably adjusted for any increase or decrease.

Duration, Amendment and Termination

The Board may suspend or terminate the Omnibus Plan without stockholder approval or ratification at any time or from time to time. If the amendment and restatement of the Omnibus Plan is approved by Cadence’s stockholders, the Omnibus Plan will terminate on May 5, 2026, unless it is sooner terminated. Otherwise, the

 

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Omnibus Plan will terminate on May 14, 2025, unless it is sooner terminated. However, any suspension or termination of the Omnibus Plan will not adversely affect awards previously granted, and awards will remain in full force and effect unless mutually agreed upon in a writing signed by the plan participant and Cadence.

The Board may also amend the Omnibus Plan at any time or from time to time. However, if the amendment would require stockholder approval to comply with any securities exchange or national market system listing requirements or any other applicable law, the amendment will not be effective unless approved by the stockholders before or after its adoption by the Board. The Board may submit any other amendment to the Omnibus Plan for stockholder approval. Any amendment of the Omnibus Plan will not adversely affect awards previously granted unless mutually agreed upon in a writing signed by the plan participant and Cadence.

Restrictions on Transfer

Under the Omnibus Plan, except as specifically provided in an award agreement, an award may not be transferred by the holder other than by will or by the laws of descent and distribution and, during the lifetime of the holder, may be exercised only by the holder or the holder’s legal representative. However, the holder may designate in writing a third party who may exercise the stock option in the event of the holder’s death.

FEDERAL INCOME TAX INFORMATION

The following is only a summary of the federal income tax consequences with respect to the grant and exercise of awards under the Omnibus Plan based upon applicable federal law as currently in effect, is not complete, does not discuss the income tax laws of any locality, state or foreign country in which a participant may reside, and is subject to change. Participants in the Omnibus Plan should consult their own tax advisors regarding the specific tax consequences to them of participating in the Omnibus Plan.

Nonstatutory Stock Options

Options granted under the Omnibus Plan that are not intended to qualify as incentive stock options are referred to in this proxy statement as nonstatutory stock options (“NSOs”). A participant will not recognize any taxable income when an NSO is granted. The participant will generally recognize ordinary income upon the exercise of an NSO equal to the amount by which the fair market value of the shares on the exercise date exceeds the exercise price. The ordinary income recognized by an employee participant will be subject to applicable tax withholding, including applicable income and employment taxes.

Upon the disposition of the shares acquired upon exercise of an NSO, the participant will recognize gain or loss equal to the difference between the amount realized on the disposition and the sum of the exercise price plus the amount of ordinary income recognized by the participant as a result of the exercise of the NSO. Any such gain or loss will generally be treated as long-term or short-term capital gain or loss, depending on whether the holding period for the shares exceeds one year at the time of the disposition.

Cadence will generally be entitled to a deduction to the extent a participant realizes ordinary income upon the exercise of an NSO.

Incentive Stock Options

The Omnibus Plan permits grants of incentive stock options (“ISOs”). ISOs granted under the Omnibus Plan are intended to be eligible for the favorable federal income tax treatment accorded to “incentive stock options” under Section 422 of the Code. Generally, a participant will not recognize any taxable income at the time of the grant of an ISO. In addition, the participant will not recognize income for regular federal income or employment tax purposes (but will recognize income for alternative minimum tax purposes) at the time of the exercise of an ISO. Cadence is not entitled to a deduction at the time of the grant or the exercise of an ISO.

If the participant holds the shares acquired through the exercise of an ISO for at least one year from the date of exercise and two years from the grant date, referred to in this proxy statement as the ISO holding period, the participant generally will realize long-term capital gain or loss upon disposition of the shares. This gain or loss will generally equal the difference between the amount realized upon the disposition of the shares and the exercise price of the shares.

 

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If a participant disposes of the shares acquired through the exercise of an ISO before expiration of the ISO holding period, referred to in this proxy statement as a disqualifying disposition, the participant will have: (i) ordinary income equal to the lesser of (a) the amount by which the sales price of such shares exceeds the exercise price and (b) the amount by which the fair market value of such shares on the date of exercise exceeds the exercise price; (ii) capital gain equal to the amount by which the sales price of such shares exceeds the fair market value of such shares on the date of exercise; and (iii) capital loss equal to the amount by which the exercise price exceeds the sales price of such shares.

In the event of a disqualifying disposition, Cadence will generally be entitled to a deduction to the extent that the participant realized ordinary income as a result of the disqualifying disposition.

Incentive Stock Awards

A participant who receives an incentive stock award subject to restrictions that constitute a substantial risk of forfeiture generally will not recognize any taxable income upon the award of the shares. When the restrictions subsequently lapse on the shares, the participant will recognize ordinary income in the amount by which the fair market value of the shares on the date the restrictions constituting a substantial risk of forfeiture lapse with respect to those shares exceeds the purchase price (if any) paid for the shares. However, a participant who makes a timely election under Section 83(b) of the Code with respect to unvested shares of restricted stock will be required to recognize ordinary income in the year the incentive stock award is granted equal to the amount by which the fair market value of the shares on the award date exceeds the purchase price (if any) paid for the shares. A participant who makes a Section 83(b) election for unvested shares of restricted stock will not recognize any additional income when the restrictions on those shares subsequently lapse.

Cadence will generally be entitled to a deduction equal to the amount of ordinary income recognized by a participant in connection with the grant or vesting, as applicable, of shares of Cadence common stock pursuant to an incentive stock award.

RSUs

Participants who are granted unvested RSUs do not recognize income at the time of the grant. When the award vests or is paid, participants generally recognize ordinary income in an amount equal to the fair market value of the units at such time constituting a substantial risk of forfeiture, and Cadence will receive a corresponding deduction.

Section 162(m)

Section 162(m) of the Code generally limits to $1,000,000 the amount that a publicly held corporation is allowed each year to deduct for the compensation paid to the corporation’s chief executive officer and the three other most highly compensated executive officers (excluding the chief financial officer) as of the last day of the corporation’s taxable year. However, “qualified performance-based compensation” is not subject to the $1,000,000 deduction limit. To qualify as performance based-compensation, the following requirements must be satisfied: (1) the performance goals are determined by a committee consisting solely of two or more “outside directors,” (2) the material terms under which the compensation is to be paid, including the performance goals, are approved by the corporation’s stockholders, and (3) the committee certifies that the applicable performance goals were satisfied before payment of any performance-based compensation is made. Compensation payable with respect to options will be considered payable solely on account of the attainment of pre-established objective performance measures (i) if such award has a purchase or base price at least equal to the fair market value of the underlying stock on the date of grant; (ii) if such award is granted by a committee, or a subcommittee thereof, consisting solely of two or more “outside directors;” and (iii) if the plan under which the option is granted states the maximum number of shares with respect to which stock options may be granted during a specified period to any employee. Certain compensation under the Omnibus Plan, such as that payable with respect to options, is not expected to be subject to the $1,000,000 deduction limit, but other compensation payable under the Omnibus Plan, such as any RSU award that is not subject to performance measures, would be subject to such limit.

 

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STOCK PRICE

On the Record Date, the closing price of Cadence common stock as reported by NASDAQ was $21.94.

NEW PLAN BENEFITS

Because the Board has the discretion to grant awards under the Omnibus Plan, it is not possible as of the date of this proxy statement to determine future awards that will be received by executive officers and other employees under the Omnibus Plan. During fiscal 2015, the following awards were granted in the aggregate under the Omnibus Plan and its predecessor plans: awards for an aggregate of 1,470,000 shares to all current executive officers and an aggregate of 5,601,629 shares to non-executive employees. Please see “Grants of Plan-Based Awards” for grants made to each of the Named Executive Officers during fiscal 2015.

As of February 9, 2016, since the approval of the Omnibus Plan by Cadence’s stockholders in May 2014, awards covering 14,732,199 shares had been granted under the Omnibus Plan, including awards that were subsequently forfeited (and therefore the shares underlying the awards became available for grant under the Omnibus Plan).

VOTE REQUIRED AND BOARD RECOMMENDATION

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

THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE OMNIBUS PLAN.

 

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PROPOSAL 3

RE-APPROVAL OF THE PERFORMANCE GOALS UNDER THE SENIOR EXECUTIVE BONUS PLAN FOR COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)

OVERVIEW

Cadence maintains the Senior Executive Bonus Plan (the “Bonus Plan”), which was most recently approved by stockholders on May 10, 2011.

In order to allow for certain awards under the Bonus Plan to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, Cadence is asking its stockholders to re-approve the material terms of the performance goals under the Bonus Plan. One of the requirements of “performance-based compensation” for purposes of Section 162(m) of the Code is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by Cadence’s stockholders every five years. Stockholders are not being asked to approve any amendment to the Bonus Plan, but are only being asked to re-approve the material terms of the performance goals under the Bonus Plan.

The Board believes that it is in the best interests of Cadence and its stockholders to provide for a stockholder-approved plan under which bonuses paid to its executive officers can be deducted by Cadence for federal income tax purposes. Accordingly, Cadence has structured the Bonus Plan in a manner such that payments made under the Bonus Plan can satisfy the requirements for “performance-based compensation” within the meaning of Section 162(m) of the Code, assuming other applicable regulatory requirements as satisfied. Under Section 162(m) of the Code, the federal income tax deductibility of compensation paid to Cadence’s CEO and three other most highly compensated executive officers (other than the CFO) may be limited to the extent that such compensation exceeds $1,000,000 in any fiscal year. However, compensation that satisfies the requirements for “performance-based compensation” as defined in Section 162(m) of the Code is not subject to this limit and, therefore, is generally deductible in full by Cadence. One of the requirements of “performance-based compensation” for purposes of Section 162(m) of the Code is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by Cadence’s stockholders every five years. For purposes of Section 162(m) of the Code, the material terms of the performance goals under which compensation may be paid include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goals are based, and (iii) the maximum amount of compensation that can be paid to an employee under the performance goals. Each of these aspects of the Bonus Plan is discussed below. A copy of the Bonus Plan is attached as Appendix B to this proxy statement.

SUMMARY OF THE BONUS PLAN

The following summary of the material provisions of the Bonus Plan is qualified in its entirety by the complete text of the Bonus Plan, a copy of which is attached as Appendix B to this proxy statement.

General

The Bonus Plan provides a framework under which Cadence can operate an executive bonus program that can satisfy the standard of “performance-based compensation” within the meaning of Section 162(m) of the Code, assuming other applicable regulatory requirements are satisfied.

Purpose

The purpose of the Bonus Plan is to motivate and reward Cadence’s CEO and the individuals who are part of Cadence’s executive management team and are designated as participants in the Bonus Plan by the Compensation Committee in order to improve Cadence’s profitability and achieve established corporate goals of Cadence.

Administration

The Bonus Plan is administered by the Compensation Committee. The Compensation Committee has the sole discretion and authority to: (i) administer and interpret the Bonus Plan in accordance with Section 162(m) of

 

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the Code as appropriate; (ii) designate participants for any given performance period, (iii) prescribe the terms and conditions of any awards granted under the Bonus Plan; (iv) adopt rules and guidelines for the administration of the Plan that are consistent with the Bonus Plan; and (v) interpret, amend or revoke any such rules and guidelines. The decisions of the Compensation Committee are in every case final and binding on all persons having an interest in the Bonus Plan.

Eligibility

The Bonus Plan provides that bonuses may be paid under the Bonus Plan to the CEO and the individuals who are part of Cadence’s executive management team as determined by the Compensation Committee (who are collectively referred to in this proposal as executives). As of the Record Date, nine Cadence employees, including all executive officers, as designated by the Compensation Committee, were eligible to participate in the Bonus Plan during fiscal 2016. Cadence’s non-employee directors are not entitled to participate in the Bonus Plan.

Performance Criteria

The Bonus Plan provides for performance-based cash bonus payments to the participants designated by the Compensation Committee. The amount of each bonus payment varies depending on the extent to which Cadence achieves its performance criteria within the applicable Bonus Plan measurement period. The performance criteria may be measured individually or in combination, and may be applied to Cadence’s performance as a whole or, alternatively, to individual business units of Cadence. In addition, the performance criteria can be measured by Cadence’s performance alone or, alternatively, measured relative to a designated group of companies or relative to a pre-established target or a previous year’s results. The performance criteria will include one or more of the following (and in each case as specified during the time permitted by Section 162(m) of the Code, on a GAAP or non-GAAP basis, if applicable): (a) cash flow (including measures of operating or free cash flow), (b) earnings per share (diluted or basic), (c) earnings per share from continuing operations, (d) earnings (including but not limited to earnings before interest, taxes, depreciation and amortization), (e) return on equity, (f) total stockholder return, (g) return on capital, (h) return on assets or net assets, (i) revenue or revenue growth, (j) income or net income, (k) operating income or net operating income, (l) operating profit or net operating profit, (m) operating margin, (n) return on operating revenue, (o) market share, (p) customer loyalty or satisfaction, as measured by a customer loyalty or satisfaction index determined by an independent consultant or expert in measuring such matters, (q) return on investment, (r) stock price, (s) market capitalization, (t) cash from operations, (u) product innovation or release schedule, (v) capital expenditure, (w) working capital, (x) cost of capital, (y) cost reductions, (z) bookings and segments of bookings, such as net product bookings, (aa) market penetration, and (bb) technology development or proliferation.

To the extent consistent with Section 162(m) of the Code, the Compensation Committee may (i) appropriately adjust any evaluation of performance under a performance criteria to eliminate the effects of charges for restructurings, discontinued operations, unusual or infrequently occurring items and all items of gain, loss or expense determined to be unusual or infrequently occurring in nature or related to the disposal of a segment of a business or related to a change in accounting principle all as determined in accordance with applicable accounting provisions, as well as the cumulative effect of accounting changes, in each case as determined in accordance with generally accepted accounting principles or identified in Cadence’s financial statements or notes to the financial statements, and (ii) appropriately adjust any evaluation of performance under a performance criteria to exclude any of the following events that occur during a performance period: (a) asset write-downs, (b) litigation, claims, judgments or settlements, (c) the effect of changes in tax law or other such laws or provisions affecting reported results, (d) accruals for reorganization and restructuring programs, and (e) accruals of any amounts for payment under the Bonus Plan or any other compensation arrangement maintained by Cadence.

The performance bonus amount payable to each executive is based on a target bonus, which is in turn based on the extent to which one or more relevant performance criteria targets identified for such criteria are realized. Any performance criteria may be measured over all or part of a fiscal year. If all of the performance criteria are to be measured over the entire fiscal year, the Compensation Committee will establish the target bonus amount, the relevant performance criteria and the respective targets for such criteria within the first 90 days of the fiscal

 

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year. If a shorter performance period is used for any performance criteria, the Compensation Committee will establish the target bonus amount, the relevant performance criteria and the respective targets for such criteria within the first quarter of the shorter performance period.

The Compensation Committee may, in its discretion, direct that any performance bonus be reduced below the amount as calculated above or decide that no payment shall be made. Thus, in administering the Bonus Plan, the Compensation Committee may establish the performance criteria and target bonus amounts that would allow the Compensation Committee to establish a potential bonus amount at the high end of its targeted range and then utilize its discretion to reduce the amount of the actual bonus paid to a participant. Further, the Compensation Committee may, in its discretion, increase the bonus amount otherwise payable to any executive upon achievement of the designated targets, but only if the executive is not covered by Section 162(m) of the Code.

Maximum Amount of Compensation Payable Under the Bonus Plan

The maximum aggregate amount payable under the Bonus Plan to any executive is $5,000,000 for any fiscal year.

Any bonus under the Bonus Plan will be paid as soon as practicable after the end of the bonus measurement period, but only if and after the Compensation Committee has certified that the performance criteria and targets established for the relevant period have been achieved. In general, the executive must remain employed by Cadence until the time the bonus payments are distributed, except in the event of death or disability or unless otherwise provided in a written agreement between Cadence and the executive. If the executive was not employed for the entire bonus measurement period, the executive may be entitled to receive a prorated amount of the bonus amount payable.

Clawback

All amounts earned and paid under the Bonus Plan on or after January 1, 2010 are subject to Cadence’s Clawback Policy as in effect from time to time (see “Compensation Discussion and Analysis” below for more information).

Awards Under the Bonus Plan

For fiscal 2015, all current executives as a group were paid a total of $3,366,751 under the Bonus Plan. Please refer to the “Summary Compensation Table” for the amounts paid under the Bonus Plan for fiscal 2015 to each of the Named Executive Officers.

Non-employee directors and officers who do not report to Cadence’s CEO do not participate in the Bonus Plan. Since payments under the Bonus Plan for fiscal 2016 will be determined by comparing actual performance to the performance targets set by the Compensation Committee, it is not possible to state the amounts that will be paid under the Bonus Plan in fiscal 2016.

Amendment and Termination

Subject to any stockholder approval requirement under applicable law, rule or regulation, the Compensation Committee may terminate the Bonus Plan at any time, for any and no reason, and may also amend the Bonus Plan in order to reduce the amount of any executive’s bonus payment at any time, for any or no reason.

Nothing contained in the Bonus Plan prevents the Board from adopting other or additional compensation arrangements that provide for bonuses or other forms of compensation for Cadence’s executive officers, directors or other employees, whether or not stockholders approve the Bonus Plan. Such other arrangements may or may not qualify for deductibility under Section 162(m) of the Code and may be applicable only for specific executives, directors or employees or may be generally applicable.

VOTE REQUIRED AND BOARD RECOMMENDATION

We are requesting the stockholders to approve the material terms of the performance goals under the Bonus Plan in accordance with Section 162(m) of the Code. If the stockholders do not approve the material terms of the

 

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performance goals under the Bonus Plan in accordance with Section 162(m) of the Code, then the Compensation Committee will re-evaluate the compensation program in order to continue to provide compensation designed to attract, retain and motivate Cadence’s executive officers.

The Board recommends a vote FOR re-approval of the material terms of the performance goals under the Bonus Plan for compliance with Section 162(m) of the Code. The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting is required for approval of the proposal. Abstentions will be treated as being present and entitled to vote on the proposal and, therefore, will have the effect of votes against the proposal. Broker non-votes will be treated as not being entitled to vote on the proposal and, therefore, will not be counted for purposes of determining whether the proposal has been approved. Unless marked to the contrary, proxies received will be voted FOR re-approval of the material terms of the performance goals under the Bonus Plan for compliance with Section 162(m) of the Code.

THE BOARD RECOMMENDS A VOTE FOR RE-APPROVAL OF THE PERFORMANCE GOALS UNDER THE SENIOR EXECUTIVE BONUS PLAN FOR COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M).

 

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PROPOSAL 4

ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION

BACKGROUND TO THE ADVISORY VOTE

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 14A of the Exchange Act enable Cadence’s stockholders to vote to approve, on an advisory (non-binding) basis, the compensation of the Named Executive Officers as disclosed in this proxy statement.

CADENCE’S COMPENSATION PROGRAM

Stockholders are encouraged to read the “Compensation Discussion and Analysis” in this proxy statement and the tables and narrative for the details of Cadence’s executive compensation programs. Cadence’s executive compensation programs are designed to support the long-term success of Cadence and the creation of stockholder value.

Cadence continued to deliver strong financial and strategic achievement in fiscal 2015 even though semiconductor business conditions remained challenging and there was ongoing consolidation in its semiconductor customer base. In fiscal 2015, total revenue was $1.702 billion, a 7.7% increase over total revenue in fiscal 2014, total bookings were $1.902 billion, an increase of 7% over total bookings in fiscal 2014, and non-GAAP operating margin (as defined below in “Compensation Discussion and Analysis”) for the year was 27%, as compared to 25% for fiscal 2014. The Compensation Committee and the Board believe that the leadership of Cadence’s management team, including Mr. Tan, who was appointed Cadence’s CEO in January 2009, and the Named Executive Officers, was key to Cadence’s execution and strong performance in fiscal 2015, which contributed to a total stockholder return of 55% over the past three fiscal years and 442% over the past seven fiscal years. Highlights of Cadence’s executive compensation program for fiscal 2015 include tying a significant majority of the executive officers’ compensation to performance, emphasizing alignment between long-term equity incentives and Cadence stock performance, and not providing any material perquisites or tax gross-ups to its executive officers.

Cadence’s focus on pay-for-performance in its compensation policies and decisions was considered an important part of driving its fiscal 2015 performance. The Compensation Committee and the Board believe that the policies and procedures articulated in the “Compensation Discussion and Analysis” below are consistent with sound executive compensation principles, as well as stockholder interests and concerns, and that such policies and procedures will act to incentivize the achievement of Cadence’s goals moving forward.

In accordance with Section 14A of the Exchange Act, Cadence is asking its stockholders to approve the following advisory resolution at the Annual Meeting:

RESOLVED, that the compensation paid to Cadence’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K of the Exchange Act, including the “Compensation Discussion and Analysis,” compensation tables and narrative discussion, is hereby APPROVED.

This advisory resolution, commonly referred to as a “say-on-pay” resolution, is not binding on the Board. The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting is required for approval of the proposal. Abstentions will be treated as being present and entitled to vote on the proposal and, therefore, will have the effect of votes against the proposal. Broker non-votes will be treated as not being entitled to vote on the proposal and, therefore, will not be counted for purposes of determining whether the proposal has been approved. Although non-binding, the Board and the Compensation Committee value the opinions of Cadence’s stockholders and will review and consider the voting results when evaluating Cadence’s executive compensation program.

THE BOARD RECOMMENDS A VOTE FOR THE ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION.

 

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PROPOSAL 5

RATIFICATION OF THE SELECTION OF

THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected KPMG LLP as Cadence’s independent registered public accounting firm for the fiscal year ending December 31, 2016. Pursuant to the Audit Committee charter, the Board has directed management to submit the selection of the independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. KPMG LLP has audited Cadence’s financial statements since fiscal 2002. Representatives from KPMG LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions.

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

VOTE REQUIRED AND BOARD RECOMMENDATION

The Board recommends a vote FOR ratification of the selection of KPMG LLP. The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting is required for approval of this proposal. Abstentions will be treated as being present and entitled to vote on the proposal and, therefore, will have the effect of votes against the proposal. This proposal is considered a routine matter, and brokers are therefore permitted to vote shares held by them without instruction from the beneficial owners of the shares. Unless marked to the contrary, proxies received will be voted FOR ratification of the selection of KPMG LLP.

THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION OF KPMG LLP AS CADENCE’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

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REPORT OF THE AUDIT COMMITTEE

The Audit Committee is currently comprised of three non-employee directors of Cadence who are “independent” as defined by the listing standards of NASDAQ and as defined under the Exchange Act. During fiscal 2015, the Audit Committee was comprised of Drs. Shoven and Plummer and Mr. Siboni. Mr. Siboni served as the Audit Committee’s Chair. The Audit Committee met five times in fiscal 2015.

The Audit Committee operates under a charter that was last amended by the Board in February 2016. The Audit Committee charter is available on the investor relations page of Cadence’s website at www.cadence.com/cadence/investor_relations. As more fully described in its charter, the Audit Committee appoints and retains the independent registered public accounting firm and oversees the quality and integrity of Cadence’s financial statements, Cadence’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications, independence and performance, and the performance of Cadence’s internal audit function, Cadence’s accounting and financial reporting processes and the audits of Cadence’s financial statements on behalf of the Board.

In this context, the Audit Committee has reviewed and discussed the audited financial statements included in Cadence’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016 with Cadence’s management and KPMG LLP, Cadence’s independent registered public accounting firm. The Audit Committee has also discussed with KPMG LLP the matters required to be discussed under Public Company Accounting Oversight Board standards (Communication with Audit Committees), as amended, as well as KPMG LLP’s independence from Cadence and its management. In addition, the Audit Committee has received from KPMG LLP the written report regarding these matters and KPMG LLP’s independence, as required by the Public Company Accounting Oversight Board. The Audit Committee has also considered whether the provision of non-audit services by KPMG LLP to Cadence is compatible with KPMG LLP’s independence.

In reliance on the reviews and discussions referred to above, the current members of the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited financial statements in Cadence’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016 for filing with the SEC.

AUDIT COMMITTEE

Roger S. Siboni, Chair

James D. Plummer

John B. Shoven

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

 

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FEES BILLED TO CADENCE BY KPMG LLP DURING FISCAL 2015 AND 2014

The following table presents fees incurred by Cadence for professional services rendered by KPMG LLP for the fiscal years ended January 2, 2016 and January 3, 2015.

 

     Fiscal Year
Ended
January 2,
2016
    Fiscal Year
Ended
January 3,
2015
 
     (In thousands)  

Audit Fees(1)

   $ 3,024      $ 3,187   

Audit-Related Fees(2)

              
  

 

 

   

 

 

 

Total Audit and Audit-Related Fees

     3,024        3,187   

Tax Fees(3)

     34 (4)      36 (5) 

All Other Fees

              
  

 

 

   

 

 

 

Total Fees

   $ 3,058      $ 3,223   
  

 

 

   

 

 

 

 

(1) 

Includes fees for the audit of Cadence’s consolidated financial statements in Cadence’s Annual Report on Form 10-K, fees for the audit of Cadence’s internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, fees for the review of the interim condensed consolidated financial statements in Cadence’s Quarterly Reports on Form 10-Q and fees for services that are normally provided by KPMG LLP in connection with statutory and regulatory filings or other engagements.

 

(2) 

Includes fees for assurance and related services that are reasonably related to the performance of the audit or review of Cadence’s consolidated financial statements that are not reported under “Audit Fees.”

 

(3) 

Includes fees for tax compliance, tax advice and tax planning.

 

(4) 

Tax fees for fiscal 2015 consisted of tax compliance fees of $33,900.

 

(5) 

Tax fees for fiscal 2014 consisted of tax compliance fees of $36,000.

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

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

However, engagements for these pre-approved audit-related and tax services with an estimated cost of more than $250,000 or that exceed the applicable budgeted amount for the pre-approved services must be pre-approved on a case-by-case basis by the Audit Committee or the Chair of the Audit Committee, or, if the Chair is unavailable, another member of the Audit Committee. In addition, any proposed engagement of KPMG LLP for services that are not pre-approved audit-related and tax services as described above must also be pre-approved on a case-by-case basis by the Audit Committee or the Chair of the Audit Committee, or, if the Chair is unavailable, another member of the Audit Committee. The members to whom such authority is delegated must report any approval decisions to the full Audit Committee at its next scheduled meeting. None of the services described in the table above entitled “Fees Billed to Cadence by KPMG LLP During Fiscal 2015 and 2014” were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X of the Exchange Act.

 

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SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of Cadence common stock as of March 8, 2016, the Record Date, unless otherwise indicated below, by:

 

   

All those known by Cadence to be beneficial owners of more than 5% of its common stock;

 

   

Each of the current or former executive officers named in the Summary Compensation Table presented below under “Compensation of Executive Officers;”

 

   

All directors and director nominees; and

 

   

All current executive officers and directors of Cadence as a group.

 

     Beneficial Ownership(1)  

Beneficial Owner

   Number of
Shares
     Percent of
Total
 

Five Percent Stockholders:

     

Janus Capital Management LLC(2)

     25,240,311         8.3

151 Detroit Street

     

Denver, CO 80206

     

The Vanguard Group(3)

     20,773,669         6.9   

100 Vanguard Blvd.

     

Malvern, PA 19355

     

BlackRock, Inc.(4)

     20,754,915         6.8   

55 East 52nd Street

     

New York, NY 10055

     

Massachusetts Financial Services Company(5)

     19,239,644         6.3   

111 Huntington Avenue

     

Boston, MA 02199

     

Directors and Executive Officers:

     

Mark W. Adams(6)

     18,533         *   

Susan L. Bostrom(6)(7)

     35,579         *   

James D. Plummer(6)(8)

     91,079         *   

Alberto Sangiovanni-Vincentelli(6)

     234,072         *   

George M. Scalise(6)

     188,579         *   

John B. Shoven(6)(9)

     519,044         *   

Roger S. Siboni(6)

     127,086         *   

Young K. Sohn(6)

     53,579         *   

Lip-Bu Tan(6)(10)

     4,401,022         1.4   

Geoffrey G. Ribar(6)

     519,160         *   

Thomas P. Beckley(6)

     431,450         *   

Anirudh Devgan(6)

     518,303         *   

Neil Zaman(6)

     288,809         *   

Charlie Huang(6)(11)

     732,212         *   

All current executive officers and directors as a group (15 persons)(12)

     8,355,804         2.7   

 

* Less than 1%

 

(1) 

This table is based upon information provided by stockholders pursuant to Schedules 13G filed with the SEC and the executive officers and directors. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, Cadence believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned by such stockholder. Beneficial ownership of greater than 5% of Cadence outstanding common stock reflects ownership as of the most recent date indicated under filings with the SEC as noted below, while beneficial ownership of the executive officers and directors is as of the Record Date. Applicable percentages are based on 303,471,578 shares of Cadence common stock outstanding on the Record Date, adjusted as required by rules promulgated by the SEC.

 

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(2) 

Janus Capital Management LLC filed Amendment No. 2 to its Schedule 13G with the SEC on February 16, 2016, indicating that it beneficially owns 25,240,311 shares, for which it has sole voting power with respect to 24,438,611 shares, shared voting power with respect to 801,700 shares, sole dispositive power with respect to 24,438,611 shares and shared dispositive power with respect to 801,700 shares.

 

(3) 

The Vanguard Group filed Amendment No. 4 to its Schedule 13G with the SEC on February 10, 2016, indicating that it beneficially owns 20,773,669 shares, for which it has sole voting power with respect to 216,994 shares, shared voting power with respect to 14,700 shares, sole dispositive power with respect to 20,559,575 shares and shared dispositive power with respect to 214,094 shares.

 

(4) 

BlackRock, Inc. filed Amendment No. 6 to its Schedule 13G with the SEC on January 26, 2016, indicating that it beneficially owns 20,754,915 shares, for which it has sole voting power with respect to 19,761,737 shares, shared voting power with respect to none of the shares, sole dispositive power with respect to 20,754,915 shares and shared dispositive power with respect to none of the shares.

 

(5) 

Massachusetts Financial Services Company filed its Schedule 13G with the SEC on February 9, 2016, indicating that it beneficially owns 19,239,644 shares, for which it has sole voting power with respect to 18,595,322 shares, shared voting power with respect to none of the shares, sole dispositive power with respect to 19,239,644 shares and shared dispositive power with respect to none of the shares.

 

(6) 

Includes shares that executive officers named in the Summary Compensation Table presented under “Compensation of Executive Officers” and directors of Cadence have the right to acquire within 60 days after the Record Date upon exercise of outstanding stock options as follows:

 

Mark W. Adams

     0      

Young K. Sohn

     20,000   

Susan L. Bostrom

     0      

Lip-Bu Tan

     2,922,499   

James D. Plummer

     57,500      

Geoffrey G. Ribar

     234,791   

Alberto Sangiovanni-Vincentelli

     170,000      

Thomas P. Beckley

     154,269   

George M. Scalise

     145,000      

Anirudh Devgan

     159,894   

John B. Shoven

     340,000      

Neil Zaman

     8,958   

Roger S. Siboni

     88,507      

Charlie Huang

     261,667   

 

(7) 

Includes 15,000 shares held by the Bostrom Family Trust dated 12/23/2008, of which Ms. Bostrom and her spouse are trustees, and for which Ms. Bostrom shares voting and investment power with her spouse.

 

(8) 

Includes 15,000 shares held by the Plummer Family Trust, of which Dr. Plummer and his spouse are trustees, and for which Dr. Plummer shares voting and investment power with his spouse.

 

(9) 

Includes 40,000 shares held by the Shoven Family Trust dated 03/01/2012, of which Dr. Shoven and his spouse are trustees, and for which Dr. Shoven shares voting and investment power with his spouse.

 

(10) 

Includes 886,625 shares held by the Lip-Bu Tan and Ysa Loo Trust dated 2/3/1992, of which Mr. Tan and his spouse are trustees and for which Mr. Tan shares voting and investment power with his spouse; 15,000 shares held by A&E Investment LLC, the sole member of which is the Lip-Bu Tan and Ysa Loo Trust dated 2/3/1992; 7,000 shares held by L Tan & N Lee & W Lee Trustees, Pacven Walden Inc. for which Mr. Tan has sole voting and investment power; 31,400 shares held by IRA FBO Lip-Bu Tan DB Securities Inc. Custodian Rollover Account dated 5/19/97; and 51,000 shares held by Mr. Tan’s child. Mr. Tan disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.

 

(11) 

Includes 226,388 shares held by the Huang-Zhang Trust dated 6/12/96, of which Mr. Huang and his spouse are trustees, and for which Mr. Huang shares voting and investment power with his spouse. Also includes 29,520 shares held in a custodial account by Mr. Huang’s spouse for their child and 12,399 shares held by Mr. Huang’s spouse for which Mr. Huang may be deemed to share voting and investment power. Mr. Huang disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Mr. Huang resigned from his position of Executive Vice President, Research and Development, effective November 20, 2015.

 

(12) 

Includes 4,785,895 shares which all current executive officers and directors in the aggregate have the right to acquire within 60 days after the Record Date upon exercise of outstanding stock options.

 

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COMPENSATION DISCUSSION AND ANALYSIS

This section discusses the compensation program for Cadence’s Named Executive Officers in fiscal 2015 (the “NEOs”): the Chief Executive Officer (“CEO”), the Chief Financial Officer (“CFO”), the three most highly compensated executive officers other than the CEO and the CFO and a former executive officer. The NEOs were:

 

   

Lip-Bu Tan, President and CEO

 

   

Geoffrey G. Ribar, Senior Vice President and CFO

 

   

Thomas P. Beckley, Senior Vice President of Research and Development, Custom IC and PCB Group

 

   

Anirudh Devgan, Senior Vice President of Research and Development, Digital and Signoff Group and System and Verification Group

 

   

Neil Zaman, Senior Vice President, Worldwide Field Operations

 

   

Charlie Huang, Former Executive Vice President, Research and Development, System and Verification Group

EXECUTIVE SUMMARY

Cadence’s Fiscal 2015 Performance Highlights

In fiscal 2015, Cadence continued its strong financial and strategic achievement even though semiconductor business conditions remained challenging and there was ongoing consolidation in its semiconductor customer base. Under the leadership of Mr. Tan and his team, Cadence’s record of strong operating results and growth in revenue and operating margins continued in fiscal 2015. As further discussed below under “Short-Term Cash Incentive Compensation,” total revenue in fiscal 2015 was $1.702 billion, a 7.7% increase over total revenue in fiscal 2014, and non-GAAP operating margin (as defined below) for the year improved to 27%.

In particular, in fiscal 2015 Cadence:

 

   

progressed on its System Design Enablement strategy across electronic design automation (“EDA”), IP and system integration;

 

   

continued to grow its core EDA business through innovative product development and focus on its market-shaping customers;

 

   

revolutionized its digital flow, as its customers adopted its new digital and signoff portfolio that included the launch of Innovus™ for implementation, Genus™ for synthesis and Joules™ for power estimation;

 

   

launched its Palladium® Z1 Enterprise Emulation Platform in November 2015;

 

   

delivered the new Virtuoso® advanced node platform for 10-nanometer FinFET design with initial support for 7-nanometer design;

 

   

expanded its IP business by 17%; and

 

   

initiated an 18-month plan to repurchase shares of Cadence common stock up to an aggregate of $1.2 billion.

Cadence’s Fiscal 2015 Compensation Highlights

Cadence’s executive compensation practices for fiscal 2015 were consistent with its executive compensation principles, pay-for-performance philosophy and commitment to sound corporate governance, as outlined below:

 

   

Significant Majority of Executive Officers’ Compensation Tied to Performance.    The compensation of Cadence’s executive officers is weighted towards performance-based, variable incentive awards. In fiscal 2015, 89% of the total target direct compensation for the CEO consisted of variable awards (in the form of

 

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both short-term cash incentives and long-term equity incentives). For Messrs. Beckley, Devgan, Huang and Ribar, their variable awards comprised at least 77% of their total target direct compensation.

 

   

Focused Cash Compensation Increases.    Even with Cadence’s continued strong financial performance, the only changes in salary and target bonus percentages for the NEOs were a salary increase of 7.1% for Mr. Devgan and, in connection with his promotion to an executive officer, a salary increase of 40% for Mr. Zaman, each as further described below under “Elements of Executive Officer Compensation.” Target cash compensation for the CEO, Mr. Tan, remained unchanged for fiscal 2015.

 

   

Continued Emphasis on Long-Term Equity Incentives Aligned with Stock Performance.    The Compensation Committee uses a mixture of types of equity awards in order to provide a balance of incentives that, together, promote stockholder value, growth of the business, talent retention and operational excellence.

Cadence’s Executive Compensation Practices

Cadence continued its commitment to sound corporate governance in its executive compensation program, as demonstrated by the following highlights:

 

   

Clawback Policy.    Cadence has a clawback policy that is applicable to the executive officers’ performance-based compensation.

 

   

Anti-Hedging Policy.    Cadence’s Securities Trading Policy prohibits hedging, short-sales and similar transactions by Cadence employees, including its executive officers.

 

   

No Material Perquisites Provided to Any Executive Officer.    Cadence did not provide material perquisites to its executive officers.

 

   

No Tax Gross-Ups.    Cadence did not provide tax gross-ups to its executive officers with respect to taxable income and executive officers are not eligible to receive tax gross-ups in connection with a change in control.

 

   

Regular Compensation Risk Review.    The Compensation Committee conducts a formal review of the risks associated with Cadence’s executive compensation practices, policies and programs on an annual basis and assesses such risks as part of its regular decision making process.

 

   

Stock Ownership Guidelines.    All of Cadence’s executive officers are in compliance with Cadence’s stock ownership guidelines.

 

   

Independent Compensation Consultant.    The Compensation Committee continued to engage its own compensation consultant, Semler Brossy, which does not provide any services to management or otherwise to Cadence and had no prior relationship with any of Cadence’s executive officers.

DETERMINING EXECUTIVE COMPENSATION

Executive Compensation Objectives

Cadence is engaged in a very competitive industry, and its success depends on its ability to attract, motivate and retain highly qualified, talented and creative executives with the leadership and innovation skills deemed necessary to achieve Cadence’s annual and long-term business objectives. Cadence seeks to accomplish these objectives in ways that are aligned with the long-term interests of its stockholders.

Cadence’s executive officer compensation is based on the following principles:

 

   

Total direct compensation is targeted to be competitive with peer companies and market practice, taking into account each executive officer’s scope of responsibility, criticality and individual performance; and

 

   

A substantial portion of compensation of the executive officers is at-risk and is highly dependent on Cadence’s short-term and long-term financial, operational and stock performance.

 

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The Compensation Committee oversees the executive compensation program and assesses executive officer compensation at least annually to monitor Cadence’s adherence to these principles. The executive compensation program is designed to be results-oriented and dependent on the achievement of key financial goals and the long-term performance of Cadence’s stock.

Competitive Compensation Levels

Each fiscal year, the Compensation Committee assesses the competitiveness of each element of the executive officers’ total direct compensation. The Compensation Committee also periodically reviews the competitiveness of the executive officers’ severance and change in control arrangements and the broad-based employee benefit plans in which the executive officers participate.

For fiscal 2015, the Compensation Committee considered the competitiveness of the executive officers’ total direct compensation as compared to executives with similar titles and responsibilities at companies with which Cadence competes for talent (the “Peer Group”). In order to accurately reflect the pool from which executive talent is drawn and to which it is lost, the Peer Group for fiscal 2015 includes Cadence’s direct business competitors (in particular, publicly-traded electronic design automation competitors) and publicly-traded semiconductor and software companies located throughout California that compete in the same talent market as Cadence. The Peer Group excludes any companies that are foreign, have been acquired, or are in businesses or industries that are not reasonably comparable.

In July 2014, the Compensation Committee approved the Peer Group for fiscal 2015. All members of the Peer Group for fiscal 2015 had reported revenue between one-third and three times that of Cadence’s trailing twelve-month revenue at the time the Peer Group was determined. This revenue range allows for robust and reliable competitive data while still ensuring the group represents the broad market for talent. The median revenue of the companies included in the fiscal 2015 Peer Group was approximately $1.4 billion (calculated on a most recent and available trailing four fiscal quarters basis, as of May 31, 2014). Cadence’s revenue for the same period was approximately $1.5 billion. The Compensation Committee approved the resulting group of 20 companies to be included in the Peer Group for fiscal 2015, and such companies’ executive compensation information was used to assess the competitiveness of the executive officers’ total direct compensation. The Peer Group for fiscal 2015 added two companies that were not part of the Peer Group for fiscal 2014, and three companies (Integrated Device Technology, Inc., International Rectifier Corporation and LSI Corporation) were removed because they were acquired or no longer met the revenue screening criteria.

The Peer Group for fiscal 2015 for determining competitive compensation levels was comprised of the following companies:

 

Altera Corporation   KLA-Tencor Corporation   OmniVision Technologies, Inc.
ANSYS, Inc.   Lam Research Corporation   PMC-Sierra, Inc.
Atmel Corporation   Linear Technology Corporation   Semtech Corporation
Autodesk, Inc.   Maxim Integrated Products, Inc.   Synaptics, Inc.*
Cypress Semiconductor Corporation   Mentor Graphics Corporation   Synopsys, Inc.
Fairchild Semiconductor International, Inc.   Microsemi Corporation   Xilinx, Inc.
Intersil Corporation   NVIDIA Corporation*  

 

* Added to the Peer Group in July 2014.

Compensation Determinations

Consistent with the principles of Cadence’s executive officer compensation outlined above, after the Compensation Committee determines the market levels of each executive officer’s target compensation based on the compensation paid by the companies in the Peer Group, the Compensation Committee assesses the appropriateness of each executive officer’s compensation relative to executives with similar titles and responsibilities in the Peer Group. For the purposes of this assessment, the Compensation Committee considers the annual base salary, short-term cash incentive compensation and long-term equity incentive compensation (based on the fair value of the equity awards on the date of grant). Cadence does not target executive officer

 

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compensation at a specific level or percentage relative to compensation provided by the companies in the Peer Group, whether for total direct compensation or any element of total direct compensation. Instead, when determining target compensation for the executive officers, the Compensation Committee takes into account each of the following factors, without prescribing particular weightings:

Cadence Factors:

 

   

Cadence’s financial and operational performance as compared to the performance of the companies in the Peer Group;

 

   

Cadence’s relative size and scope of business as compared to the companies in the Peer Group; and

 

   

Cadence’s budget considerations.

Individual Factors:

 

   

Compensation paid to executives with similar titles and responsibilities as the individual at the companies in the Peer Group;

 

   

Individual performance over the preceding year;

 

   

Strategic importance of the individual’s position;

 

   

Criticality, experience and ability of the individual to impact corporate and/or business group results;

 

   

Scarcity in the market of the individual’s skills and talents;

 

   

Expected future contributions of the individual;

 

   

Historical compensation of the individual;

 

   

Retention risks related to the individual; and

 

   

Relative positioning/performance of the individual versus other Cadence executives.

The Compensation Committee retains and does not delegate any of its responsibility to determine executive compensation. However, for executive officers other than the CEO, the CEO typically makes assessments and recommendations to the Compensation Committee on their respective base salaries, short-term cash incentive compensation and long-term equity incentive compensation based upon an assessment of the “Cadence Factors” and the “Individual Factors” outlined above (collectively, the “Compensation Factors”).

The Compensation Committee then reviews these assessments and recommendations and determines whether or not to approve or modify the CEO’s recommendations. The Compensation Committee also evaluates the CEO based on the Compensation Factors described above, and the assessment from such evaluation is used to determine the CEO’s compensation. The Compensation Committee, in its sole discretion, makes all decisions related to the CEO’s and the NEOs’ compensation.

ELEMENTS OF EXECUTIVE OFFICER COMPENSATION

The compensation of executive officers, including the NEOs, is comprised of the following elements:

 

   

Total direct compensation, consisting of:

 

   

Base salary;

 

   

Short-term cash incentive compensation; and

 

   

Long-term equity incentive compensation (including stock options and incentive stock awards).

 

   

Other compensation and benefits, consisting of:

 

   

Participation in Cadence’s broad-based employee benefit plans;

 

   

Participation in Cadence’s non-qualified deferred compensation plan;

 

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Limited perquisites; and

 

   

Severance benefits.

Consistent with the principles of Cadence’s executive officer compensation outlined above, an executive officer’s total direct compensation is based on Cadence’s performance and on the performance of the individual executive officer, as well as on the Compensation Committee’s view of the level of total direct compensation sufficient to attract, motivate and retain qualified executives. Cadence does not have a pre-established policy or target for allocating between fixed and variable compensation or for allocating among the different types of variable compensation, although the allocation is influenced by the Compensation Committee’s assessment of the compensation practices of the companies in the Peer Group and Cadence’s short-term and long-term strategic objectives. The Compensation Committee believes that executive officer compensation should motivate the NEOs to drive Cadence’s consistent and sustained performance. Accordingly, the executive officers’ compensation is weighted towards long-term equity incentives and short-term cash incentives rather than base salaries.

Base Salaries

Cadence offers its executive officers an annual base salary to compensate them for services rendered during the year. Base salaries are essential for the attraction and retention of talented executive officers and are determined using the Compensation Factors. The executive officers’ base salaries are reviewed annually by the Compensation Committee, but do not automatically or necessarily increase each year. Changes to the executive officers’ base salaries, if any, are typically made in the first quarter of the fiscal year or in connection with an executive officer’s promotion or change in responsibilities.

In February 2015, consistent with the process discussed under “Compensation Determinations” above, the Compensation Committee reviewed the base salaries of the NEOs, other than Mr. Zaman, and determined that the salaries of Messrs. Beckley, Huang, Ribar and Tan were appropriate and would remain unchanged. Mr. Devgan’s base salary was increased from $350,000 to $375,000 to reflect his technical executive leadership and the importance of his role at Cadence.

On September 1, 2015, Mr. Zaman, who has been at Cadence since October 1999 and has held various leadership roles within Cadence’s Worldwide Field Operations (“WFO”) group, was promoted to Senior Vice President, Worldwide Field Operations. Prior to his promotion as an executive officer, Mr. Zaman’s role within WFO was expanded in April 2015 to oversee the North America region. In connection with Mr. Zaman’s promotions and to reflect his expanded leadership responsibilities, Mr. Zaman’s annual base salary was increased from $225,000 to $250,000 in April 2015 and was increased from $250,000 to $350,000 in September 2015. Prior to his promotion in September 2015, Mr. Zaman also participated in sales commission plans provided to sales personnel, but as an executive officer, he no longer participates in these plans.

Short-Term Cash Incentive Compensation

Overview.    Cadence generally provides its officers who report to the CEO with the opportunity to earn short-term cash incentive compensation under a Senior Executive Bonus Plan (the “Bonus Plan”). The purpose of the Bonus Plan is to reward executive officers for performance during a single fiscal year (or portions thereof) and to provide incentives for them to achieve Cadence’s short-term financial and operational goals, as measured against specific performance criteria relative to Cadence’s overall business results and the particular executive officer’s individual performance. Cash bonus payouts under the Bonus Plan for fiscal 2015 were determined semi-annually, with each six-month performance period weighted equally at 50%.

For each executive officer other than the CEO, the CEO makes a recommendation as to the individual’s target bonus. The Compensation Committee reviews the CEO’s recommendation, as described above under “Compensation Determinations,” and approves (with or without modification, in its sole discretion) the CEO’s recommendation. For the CEO, the Compensation Committee is solely responsible for assigning a target bonus based on its review, as described above under “Compensation Determinations.”

 

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In February 2015, the Compensation Committee reviewed the target bonus levels of the NEOs, other than Mr. Zaman, and determined that the target bonus levels as a percentage of base salary were appropriate and would remain unchanged. The Compensation Committee made this determination in a manner consistent with the process discussed under “Compensation Determinations” above.

In connection with his promotion in September 2015, Mr. Zaman was provided a target bonus opportunity of 100% of his base salary under the Bonus Plan for the second half of 2015. Prior to his promotion, Mr. Zaman’s target opportunity under the bonus plan for employees who do not report to the CEO, which he participated in prior to his promotion, was 35% of his base salary, and he also participated in sales commission and bonus plans provided to sales personnel. As an executive officer, he no longer participates in those plans.

The base salaries, target bonus levels and actual bonuses earned by the NEOs for their fiscal 2015 performance as executive officers (as determined using the criteria described below) are set forth in the table below:

 

Name

   Base
Salary
     Target Bonus
(as % of Base
Salary)
     Target
Bonus
     Actual
Bonus
 

Lip-Bu Tan

   $ 650,000           100.0%       $ 650,000       $ 829,413   

Geoffrey G. Ribar

     400,000           75.0            300,000         362,003   

Thomas P. Beckley

     375,000           75.0            281,250         344,063   

Anirudh Devgan

     375,000         75.0            281,250         362,409   

Neil Zaman(1)

     350,000         100.0            350,000         203,352   

Charlie Huang(2)

     425,000         100.0            425,000         249,916   

 

(1) 

Mr. Zaman’s base salary and target bonus reflect his annualized base salary and target bonus that were provided to him when he was promoted to an executive officer as of September 1, 2015. Mr. Zaman’s actual bonus shown above consists of the amount paid to him under the Bonus Plan, and does not include payments he received as a participant in a sales commission plan and other bonus plans prior to September 1, 2015. See “Summary Compensation Table” and “Grants of Plan-Based Awards in Fiscal Year 2015” below for more information.

 

(2) 

Mr. Huang’s base salary and target bonus reflect his annualized base salary and target bonus prior to his resignation that was effective on November 20, 2015. Mr. Huang’s actual target bonus for the first half of fiscal 2015 was $212,500 and his actual bonus shown above consists of his bonus payment for such period. Due to his resignation, Mr. Huang did not receive a bonus for the second half of fiscal 2015.

Performance Factors.    Each NEO’s bonus under the Bonus Plan for fiscal 2015 was determined by multiplying the target bonus by two factors: a company performance factor and an individual performance factor. The individual performance factor is determined by an assessment of performance against (i) quality-related factors (weighted 25%), such as the accomplishment of quality goals and improvement, leadership of quality initiatives and customer satisfaction, and (ii) executive leadership factors (weighted 75%), such as the achievement of strategic objectives, overall leadership of the organization, talent acquisition and retention and fiscal management. The combination of these performance factors is intended to ensure that all critical aspects of performance are considered in determining short-term cash incentive awards. The bonus determination is illustrated below:

 

Target Bonus

  x   Company
Performance
Factor
  x  

Individual Performance

Factor

(25% Quality and 75%

Executive Leadership)

  =   Actual Bonus

Determination of Company Performance Factor.    The company performance factor is a percentage that reflects Cadence’s overall financial performance. The weightings and performance measures used to determine the company performance factor are reviewed by the Compensation Committee at the beginning of each performance period, in consultation with the CEO, to ensure that the weightings and performance measures align

 

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with what the Compensation Committee and the CEO believe are the most important factors that influence Cadence’s business and financial performance and directly impact long-term stockholder value.

For fiscal 2015, achievement of both the revenue and non-GAAP operating margin targets under the fiscal 2015 financial plan would have resulted in a company performance factor of 1.00.

For fiscal 2015, the relative weightings of the components of the company performance factor were 45% for the total revenue target and 55% for the non-GAAP operating margin target.

For each half of fiscal 2015, the performance goals and actual performance against such goals used to determine the company performance factors were as follows:

 

     1st Half      2nd Half  
     Revenue
(In millions)
     Non-GAAP
Operating
Margin
     Revenue
(In millions)
     Non-GAAP
Operating
Margin
 

2015 Bonus Plan Target

   $ 830         23.6%       $ 873         25.8%   

Actual Achievement

   $ 827         25.6%       $ 875         27.8%   

Company Performance Factor

     1.11         1.11   

For purposes of the Bonus Plan, non-GAAP operating margin is defined as non-GAAP income from operations (that is, income from operations excluding such items as stock-based compensation expense, non-qualified deferred compensation expenses, restructuring and other charges, integration and acquisition-related costs and other non-recurring items), expressed as a percentage of total revenue. For both metrics, the Compensation Committee excludes the impact of acquisitions made by Cadence during the applicable performance period if such acquisitions were not taken into account in the setting of the goals.

Determination of Individual Performance Factor.    As described under “Performance Factors” above, for fiscal 2015, the individual performance factor consisted of two components: (i) 25% was based on quality-related factors and (ii) 75% was based on executive leadership factors. The quality-related and executive leadership factors specific to each NEO that the Compensation Committee considered are set forth below:

 

   

Mr. Tan: delivery on significant customer wins and stockholder commitments, leadership of a strong executive management team and a dynamic organization, progress on the System Design Enablement strategy and company-wide quality initiatives and continued focus on investments for the growth of Cadence’s business.

 

   

Mr. Ribar: delivery of financial performance in a competitive environment, leadership of the plan to repurchase shares of Cadence common stock up to an aggregate of $1.2 billion, rigorous management of internal financial controls and improved effectiveness of the IT function.

 

   

Mr. Beckley: leadership and achievements in leading quality improvement across all products and continued delivery of strong growth in the Custom IC and PCB technology segments.

 

   

Mr. Devgan: leadership of the Digital and Signoff Group, marked by the launch of significant new products for the digital and signoff portfolio and achievement of customer success for the digital flow.

 

   

Mr. Zaman: delivery on Cadence’s sales and financial objectives and commitment to driving consistent, high performance from the Worldwide Field Organization in the second half of fiscal 2015.

 

   

Mr. Huang: leadership of the Worldwide Field Organization in the first half of fiscal 2015 and leadership of product and customer success for the System and Verification Group, including the launch of the Palladium Z1 Enterprise Emulation Platform.

 

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Actual Bonus Payments.    Based on its assessment of Cadence’s performance and individual performance as described above, the Compensation Committee approved the following bonus payout percentage of target and amounts for each half of fiscal 2015:

 

     1st Half 2015    2nd Half 2015

Name

   (% of Target)   ($)    (% of Target)   ($)

Lip-Bu Tan

       123 %     $ 400,250          132 %     $ 429,163  

Geoffrey G. Ribar

       116         174,353          125         187,650  

Thomas P. Beckley

       117         164,623          128         179,440  

Anirudh Devgan

       121         170,850          136         191,559  

Neil Zaman(1)

                        129         203,352  

Charlie Huang(2)

       118         249,916                   

 

  (1) 

Mr. Zaman became an executive officer upon his promotion on September 1, 2015. The amounts shown in the 2nd Half 2015 columns reflect the target and actual bonus amount paid to him under the Bonus Plan, and does not include payments he received as a participant in a sales commission plan and other bonus plans prior to September 1, 2015. See “Summary Compensation Table” and “Grants of Plan-Based Awards in Fiscal Year 2015” below for more information.

 

  (2) 

Due to his resignation that was effective on November 20, 2015, Mr. Huang did not receive a bonus for the second half of fiscal 2015.

Long-Term Equity Incentive Compensation

Overview.    Consistent with the principles of Cadence’s compensation for its executive officers outlined above, long-term equity incentives are designed to provide executive officers with an equity stake in Cadence, promote stock ownership to align the executive officers’ interests with those of Cadence’s stockholders, and create significant incentives for executive retention. Specifically, stock options provide an opportunity for Cadence to reward its executive officers solely to the extent Cadence’s stock price increases from the date of grant over time, which aligns the interests of executive officers with those of Cadence’s stockholders, and the executive officers remain employed at Cadence during the period required for the stock options to vest. Furthermore, incentive stock awards align the interests of executive officers with the interests of stockholders through stock ownership, require continued employment of the executive throughout the vesting period, and increase in value when Cadence’s stock price increases.

When the Compensation Committee determines and approves individual equity grants to executive officers, it considers each of the Compensation Factors, without prescribing particular weightings to any of the Compensation Factors. In addition, the Compensation Committee reviews the CEO’s assessments and recommendations as to the long-term equity compensation for all of the executive officers except himself.

In fiscal 2010, the Compensation Committee adopted a policy that, in determining the compensation of executive officers, including the NEOs, a portion of their stock awards granted be performance-based. These performance-based stock awards may take either of the following forms:

 

   

Performance-Vesting Stock Awards — stock awards that do not vest unless certain specific business performance goals established by the Compensation Committee are met.

 

   

Performance-Accelerated Stock Awards — stock awards for which vesting is accelerated upon achievement of specific business performance goals established by the Compensation Committee.

Fiscal 2015 Grants.    The Compensation Committee intends the long-term equity incentive mix to provide the appropriate level of executive alignment with stockholder interests, reward its executives for building long-term stockholder value, and create balance between stock options (which provide value only if the stock price increases) and incentive stock awards (which provide more certain retention value subject to the fulfillment of certain conditions, including performance goals, while still providing incentive to improve Cadence’s stock performance). In February 2015, the Compensation Committee approved annual equity grants for the NEOs, other than Mr. Zaman. Approximately 52% of the CEO’s annual equity grants (based on grant date fair value)

 

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were in the form of stock options, and approximately 40% of the other NEOs’ 2015 equity grants (based on grant date fair value) (with the exception of Mr. Zaman) were in the form of stock options, with the remainder of the equity grants in incentive stock awards. No other grants were made to the NEOs in fiscal 2015 other than to Mr. Zaman, as discussed below. The Compensation Committee weighted Mr. Tan’s equity compensation in favor of stock options in order to focus his incentives on long-term stock price performance. The Compensation Committee and Mr. Tan continue to believe that equity-based compensation is an important component of Cadence’s compensation program and essential to motivate executives and align their interests with those of its stockholders.

The stock options granted in February 2015 to the NEOs vest monthly over four years from the date of grant and expire seven years from the date of grant.

The incentive stock awards granted in February 2015 to the NEOs, other than Mr. Zaman, vest in equal semi-annual installments over three years from the date of grant, subject to the achievement of performance goals intended to qualify the awards as “performance-based compensation” under Section 162(m) of the Code.

In connection with Mr. Zaman’s promotion to Senior Vice President, Worldwide Field Operations, Mr. Zaman was awarded on September 15, 2015 an option to purchase 30,000 shares of common stock, which vests monthly over four years from the date of grant and expires seven years from the date of grant, and an incentive stock award of 20,000 shares of common stock, of which 1/3rd vests 12 months from the date of grant, subject to the achievement of performance goals intended to qualify the awards as “performance-based compensation” under Section 162(m) of the Code, and the remaining shares vest in equal semi-annual installments over the remaining two years. These awards are in addition to incentive stock awards of an aggregate of 35,000 shares of common stock, which were granted to Mr. Zaman during fiscal 2015 as part of his ongoing compensation and in connection with his assumption of an expanded role in April 2015 overseeing the North America region. The awards associated with Mr. Zaman’s promotion as an executive officer were intended to better align Mr. Zaman’s compensation with competitive levels for his new expanded leadership role, further align his interests with stockholder interests and recognize his past performance that led to his promotion.

The values reflected for equity awards in the Summary Compensation Table below are the grant date fair values of such awards. The values in the Summary Compensation Table do not reflect the financial benefit that the holders of the awards will actually realize upon the vesting of the awards, nor, with respect to stock options, whether the stock options will be exercised or exercisable prior to their expiration. Please refer to the Grants of Plan-Based Awards in Fiscal Year 2015 table below for more detail regarding grants to NEOs.

Fiscal 2016 Long-Term Performance-Based Grants.    As part of its ongoing review of the executive compensation program during fiscal 2015 and 2016, and with advice from the Compensation Committee’s independent consultant, the Compensation Committee determined to modify the executive compensation program in 2016 to include a special long-term performance-based stock award. The award is designed to further focus the executive officers to build on Cadence’s strong, sustained levels of growth in future years and create a significant incentive to achieve Cadence’s strategic priorities over the next five years, including growth of the business and continued execution of product innovation and strategy and focus on its market-shaping customers, which the Compensation Committee believes will contribute to strong stockholder value creation.

Accordingly, in February 2016, the Compensation Committee approved a special long-term performance-based stock award to the current executive officers to complement their annual 2016 grants of stock options and incentive stock awards. This long-term performance-based stock award will begin to vest only when a threshold stock price is achieved or exceeded. Performance will be measured on March 15, 2021, with the ability for accelerated vesting on a portion of the award based on performance through March 15, 2019 and March 15, 2020 (the “Measurement Dates”). Vesting of these grants will not begin unless the average stock price on any of the three Measurement Dates is at least $28 measured as the trailing 20-day average closing price on the Measurement Date (a 45.3% total stockholder return relative to the trailing 20-day average closing price on the grant date of February 8, 2016), and full vesting will only be achieved if the average stock price is at least $43 measured as the trailing 20-day average closing price on the Measurement Date (a 123.1% total stockholder return relative to the trailing 20-day average closing price on the grant date of February 8, 2016). In no event will the number of shares vesting on the first Measurement Date in 2019 be greater than 33% of the grant, in no event

 

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will the aggregate number of shares vesting on the first Measurement Date in 2019 and the second Measurement Date in 2020 be greater than 67% of the grant and in no event will the aggregate number of shares vesting on or before the third Measurement Date in 2021 be greater than 100% of the grant. In order to incentivize both absolute and relative performance, no shares will vest on any Measurement Date if Cadence’s total stockholder return for the period from February 8, 2016 through the applicable Measurement Date is below the 35th percentile of the companies listed in the S&P MidCap 400 Information Technology Index as of February 8, 2016.

These special grants are intended to complement the regular annual ongoing compensation program and provide value to the executive officers only if there is a significant and sustained increase in stockholder value over the five year period. The Compensation Committee believes that this long-term performance-based stock award focuses the executive officers on execution of Cadence’s long-term strategy and provides strong alignment with long-term stockholder interests.

Grant Timing Policy

The Compensation Committee and senior management monitor Cadence’s equity grant policies to evaluate whether such policies comply with governing regulations and are consistent with good corporate practice. Grants to the executive officers are generally made at the Compensation Committee meeting held in February of each year, after results for the preceding fiscal year become available and after review and evaluation of each executive officer’s performance, enabling the Compensation Committee to consider both the prior year’s performance and expectations for the succeeding year in making grant decisions. However, the Compensation Committee may make grants at any time of the year it deems appropriate.

Deferred Compensation

In fiscal 2015, all of the NEOs were eligible to defer compensation payable to them under a nonqualified deferred compensation plan maintained by Cadence (the “Deferred Compensation Plan”). The Deferred Compensation Plan is designed to allow for savings above the limits imposed by the Code for 401(k) plans on an income tax-deferred basis for Cadence employees at the level of vice president (or its equivalent) and above who choose to participate. Amounts deferred under the Deferred Compensation Plan are held in accounts with values indexed to the performance of selected mutual funds or money market accounts. The investment options made available under the Deferred Compensation Plan are substantially similar to those available under Cadence’s tax-qualified 401(k) plan. Cadence does not match contributions made under the Deferred Compensation Plan. The Deferred Compensation Plan is unfunded and is subject to the claims of creditors, so that participants in the Deferred Compensation Plan have rights in the plan only as unsecured creditors. Cadence maintains the Deferred Compensation Plan for the purposes of providing a competitive benefit and allowing all participants, including the NEOs, an opportunity to defer income tax payments on their cash compensation.

Other Employee Benefit Plans

The executive officers, including the NEOs, are eligible for the same benefits generally available to Cadence employees. These include participation in a tax-qualified 401(k) plan, employee stock purchase plan, and group life, health, dental, vision and disability insurance plans. Cadence does not currently offer guaranteed pension benefits. Cadence periodically assesses its broad-based employee benefit plans based upon a review of the benefits survey conducted by the Silicon Valley Employers’ Forum, among other sources. Cadence aims to provide benefits to its employees that are competitive with market practices.

Perquisites

Cadence did not provide material perquisites to any NEO in fiscal 2015. Cadence does not provide its executive officers with club memberships, financial planning assistance, personal use of private aircraft or any tax gross-up payments with respect to any taxable income. Prior to his promotion as an executive officer, Cadence provided Mr. Zaman with a $500 monthly automobile allowance that ceased effective September 15, 2015.

 

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Severance Benefits

The Compensation Committee periodically reviews typical industry practices concerning severance and change in control arrangements and Cadence’s severance and change in control arrangements. Cadence has entered into agreements with Messrs. Beckley, Devgan, Ribar and Tan that provide for benefits upon termination of employment under certain circumstances, such as in connection with a change in control of Cadence. Cadence provides these benefits as a means of retaining executive officers, focusing executive officers on stockholder interests when considering strategic alternatives and providing income protection in the event of involuntary loss of employment. In general, these arrangements provide for severance benefits upon Cadence’s termination of the executive’s employment without cause or resignation by the executive for good reason (constructive termination). In the event of a change in control of Cadence, and if the executive’s employment is terminated without cause or for good reason (constructive termination), the NEO will receive enhanced severance benefits. Accordingly, Cadence provides for enhanced severance benefits only in the event of a “double trigger” because it believes that the executive officers would be materially harmed only if a change in control results in reduced responsibilities or compensation or loss of employment.

Mr. Huang resigned from his executive officer position, effective on November 20, 2015. Pursuant to the terms of his Executive Transition and Release Agreement, dated October 28, 2015 (the “Transition Agreement”), Mr. Huang agreed to remain with Cadence as a non-executive employee thereafter through February 28, 2017 to assist with transitional matters unless his employment is terminated earlier by him or by Cadence in the event of his material breach of his duties or obligations under the Transition Agreement. Mr. Huang’s unvested stock options and incentive stock awards (for which the performance conditions have been met) that were outstanding and held by Mr. Huang on November 20, 2015 and that would have vested in accordance with their terms on or before February 28, 2017 had Mr. Huang continued to serve as an executive of Cadence were accelerated and Cadence agreed to provide Mr. Huang with certain payments if he does not resign from employment with Cadence or Cadence does not terminate his employment due to a material breach of his duties or obligations under the Transition Agreement.

Please refer to the discussion under “Potential Payments upon Termination or Change in Control and Employment Contracts” below for a more detailed discussion of the severance and change in control arrangements with the NEOs.

SAY-ON-PAY

At the 2015 annual meeting of Cadence stockholders, stockholders again expressed strong support for Cadence’s executive compensation program, with approximately 98% of the votes cast for approval of the “say-on-pay” advisory vote. The Compensation Committee took into consideration the results of the 2015 advisory “say-on-pay” vote and, in light of the approval from an overwhelming majority of Cadence’s stockholders of the executive compensation program and its own overall consideration of the effectiveness of the program, the Compensation Committee did not make changes to the executive compensation program for 2015 in response to the 2015 advisory “say-on-pay” vote.

STOCK OWNERSHIP GUIDELINES

Cadence’s Stock Ownership Guidelines require that Cadence’s executive officers hold shares of Cadence common stock with a value equal to or greater than a specific value, as set forth below. These guidelines are designed to further align the interests of its executive officers with the interests of stockholders and to reinforce Cadence’s commitment to sound corporate governance. All of the NEOs satisfy Cadence’s Stock Ownership Guidelines.

 

  

Stock Ownership Guidelines

 

  
Position    Minimum Value of Shares    Years to Meet Guidelines

Chief Executive Officer

   3x base salary    5 years

Other Executive Officers

   1x base salary   

 

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Compliance with the Stock Ownership Guidelines is measured on the last trading day of each fiscal year in which the guidelines are applicable (the “Ownership Measurement Date”), based on the average closing price of Cadence common stock during the twenty trading day period ending on the Ownership Measurement Date (the “Measurement Price”).

Should any executive officer not meet the Stock Ownership Guidelines on the Ownership Measurement Date based on the Measurement Price or on any other date based on the closing price of Cadence common stock on such date, such executive officer is required to retain an amount equal to 100% of the “net shares” received as a result of the exercise, vesting or payment of any of Cadence common stock granted to such executive officer until this guideline is met. “Net shares” are those shares that remain after the shares are sold or withheld to pay any applicable exercise price or tax for the award. The Compensation Committee retains the discretion to grant a hardship exception to an executive officer if he or she fails to meet this guideline as of the Ownership Measurement Date.

For purposes of determining stock ownership levels, the following forms of equity interests in Cadence count towards satisfaction of the Stock Ownership Guidelines: restricted or incentive shares (whether vested or unvested), shares subject to RSUs, shares obtained through the Employee Stock Purchase Plan (the “ESPP”), shares obtained through the exercise of stock options or upon settlement of restricted stock, shares purchased on the open market, shares owned outright by the executive officer or his or her immediate family members residing in the same household, shares held in trust for the benefit of the executive officer or his or her family and restricted shares granted under Cadence’s equity plans.

CLAWBACK POLICY

Cadence has adopted a clawback policy, which provides that if Cadence restates its reported financial results, the Board will review all bonuses and other awards made to the NEOs on the basis of having met or exceeded performance goals during the period covered by the restatement and will, to the extent practicable and in the best interests of stockholders, instruct Cadence to seek to recover or cancel such bonuses or awards to the extent that performance goals would not have been met under such restated financial results.

ANTI-HEDGING POLICY

Cadence’s Securities Trading Policy prohibits hedging, short-sales or related transactions by Cadence employees, including its executive officers. The policy also requires approval by Cadence of pledges of Cadence stock or deposits of Cadence stock in margin accounts by certain employees, including its executive officers. None of the NEOs currently or in the last year has pledged any Cadence common stock under this policy.

TAX CONSIDERATIONS

Section 162(m) of the Code

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

In fiscal 2015, all stock option and restricted stock grants to the NEOs when they were executive officers were structured with the intent to qualify them as “performance-based compensation” under Section 162(m) of the Code, and performance measures and goals under the Bonus Plan were intended to comply with the exception for performance-based compensation under Section 162(m) of the Code.

 

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Section 280G of the Code

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

 

   

The full payout, including any portion that would be classified as an excess parachute payment; or

 

   

The maximum payout that would result in no portion of the payout being subject to the excise tax.

Cadence chose to provide the NEOs with the best after-tax alternative to maximize the benefits provided to each executive in connection with a change in control while allowing Cadence to avoid making any gross-up payments. In the event that a portion of the payout would be classified as an excess parachute payment, Cadence’s tax deduction would be disallowed under Section 280G of the Code and an excise tax would be imposed on the NEO under Section  4999 of the Code.

COMPENSATION COMMITTEE REPORT

The current members of the Compensation Committee have reviewed and discussed the Compensation Discussion and Analysis above with management. In reliance on the review and discussions referred to above, the current members of the Compensation Committee recommended to the Board the inclusion of the Compensation Discussion and Analysis in this proxy statement and incorporation by reference into Cadence’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.

COMPENSATION COMMITTEE

John B. Shoven, Chair

Susan L. Bostrom

James D. Plummer

George M. Scalise

 

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee is, or was during or prior to fiscal 2015, an officer or employee of Cadence or any of its subsidiaries. None of Cadence’s executive officers serves or served as a director or member of the compensation committee of another entity where an executive officer of such other entity serves or served as a director or member of the Compensation Committee.

COMPENSATION OF EXECUTIVE OFFICERS

The following table shows the compensation awarded to, paid to, or earned by Cadence’s NEOs in fiscal 2015 and, to the extent required, in fiscal 2014 and fiscal 2013.

SUMMARY COMPENSATION TABLE

 

Name and Principal Position

  Year     Salary
($)(1)
    Bonus
($)
    Stock
Awards

($)(2)
    Option
Awards

($)(2)
    Non-Equity
Incentive Plan
Compensation
($)(1)
    All
Other
Compensation
($)(3)
    Total
($)
 

Lip-Bu Tan

    2015      $ 650,000      $       —      $ 2,145,000      $ 2,291,850      $ 829,413      $ 13,230      $ 5,929,493   

President and Chief

    2014        650,000               1,726,250        1,924,200        699,404        11,040        5,010,894   

Executive Officer

    2013        650,000               1,777,500        2,006,663        746,422        10,890        5,191,475   

Geoffrey G. Ribar

    2015        400,000               600,600        412,533        362,003        11,646        1,786,782   

Senior Vice President and

    2014        400,000               497,160        307,872        305,524        11,866        1,522,422   

Chief Financial Officer

    2013        400,000               568,800        367,073        335,557        11,716        1,683,146   

Thomas P. Beckley

    2015        375,000               686,400        458,370        344,063        11,416        1,875,249   

Senior Vice President,

    2014        375,000               497,160        307,872        301,567        11,613        1,493,212   

Research and Development

    2013        350,000               462,150        281,422        304,038        11,207        1,408,817   

Anirudh Devgan(4)

    2015        375,000               686,400        458,370        362,409        9,415        1,891,594   

Senior Vice President,

    2014        350,000               829,910        327,114        285,736        9,285        1,802,045   

Research and Development

               

Neil Zaman(5)

    2015        322,129 (6)             1,087,950        155,955        328,987 (7)      14,519        1,909,540   

Senior Vice President,

               

Worldwide Field Operations

               

Charlie Huang(8)

    2015        376,923               858,000        572,963        249,916        10,269        2,068,071   

Former Executive Vice

    2014        412,500               593,830        384,840        435,235        10,554        1,836,959   

President, Research and

    2013        400,000               533,250        342,601        432,181        9,589        1,717,621   

Development

               

 

(1) 

Includes amounts deferred pursuant to Section 401(k) of the Code and the Deferred Compensation Plan.

 

(2) 

In accordance with SEC rules, the amount shown reflects the grant date fair value of stock awards and option awards granted during the fiscal year calculated pursuant to FASB ASC 718. The assumptions used to calculate the valuation of the awards for fiscal 2015 are set forth in Note 9 to the Notes to Consolidated Financial Statements in Cadence’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016, and the assumptions used to calculate the valuation of the awards for prior years are set forth in the Notes to Consolidated Financial Statements in Cadence’s Annual Report on Form 10-K for the corresponding years. While the grant date fair value of awards reflects the full value of the awards in the year of grant, the awards will be earned by the holder over a number of years, and the stock awards are subject to performance conditions. The terms of the applicable awards are discussed in more detail in the tables entitled “Grants of Plan-Based Awards in Fiscal Year 2015” and “Outstanding Equity Awards at 2015 Fiscal Year End.” The amount shown is based on the price of Cadence common stock on the date the award was granted and does not reflect any fluctuations in the price of Cadence common stock subsequent to the grant date. The amount shown therefore does not reflect the financial benefit that the holder of the award will actually realize upon the vesting of the award, and with respect to option awards, such amount does not reflect whether the option award will be exercised or exercisable prior to its expiration.

 

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(3) 

The payments listed in the “All Other Compensation” column above reflect the following and, unless noted below, are based upon the actual cost expended by Cadence in connection with the following amounts for fiscal 2015:

 

   

For Mr. Tan, the amount shown includes $7,950 for 401(k) matching contributions and $5,280 for term life insurance premium payments.

 

   

For Mr. Ribar, the amount shown includes $7,950 for 401(k) matching contributions and $3,696 for term life insurance premium payments.

 

   

For Mr. Beckley, the amount shown includes $7,950 for 401(k) matching contributions and $3,466 for term life insurance premium payments.

 

   

For Mr. Devgan, the amount shown includes $7,950 for 401(k) matching contributions and $1,465 for term life insurance premium payments.

 

   

For Mr. Zaman, the amount shown includes $7,950 for 401(k) matching contributions, $1,562 for term life insurance premium payments and $5,007 in other benefits, including $4,250 in automobile allowance provided to him in fiscal 2015 prior to his promotion to an officer, as that term is defined for purposes of Section 16 of the Exchange Act.

 

   

For Mr. Huang, the amount shown includes $7,950 for 401(k) matching contributions and $2,319 for term life insurance premium payments.

 

(4) 

Mr. Devgan became an officer as that term is defined for purposes of Section 16 of the Exchange Act effective November 18, 2013.

 

(5) 

Mr. Zaman became an officer as that term is defined for purposes of Section 16 of the Exchange Act effective September 1, 2015.

 

(6) 

Mr. Zaman’s annual base salary was $225,000 from January through March 2015, $250,000 from April through August 2015 and $350,000 starting on September 1, 2015 upon his promotion to an officer as that term is defined for purposes of Section 16 of the Exchange Act. Mr. Zaman’s annual base salary amount in the table also includes $44,149 in sales commissions.

 

(7) 

Mr. Zaman’s non-equity incentive plan compensation includes an aggregate of $125,635 that he received as a participant in bonus plans prior to September 1, 2015.

 

(8) 

Mr. Huang resigned from his position of Executive Vice President, Research and Development, effective November 20, 2015.

 

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GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2015

 

              
    
    
     
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
    All
Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)(1)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(2)
    Exercise or
Base Price
of Option
Awards
($/Sh)(3)
    Grant Date
Fair Value
of Stock

and Option
Awards
($)(4)
 

Name

  Grant Date     Threshold
($)
    Target
($)
    Maximum
($)
         

Lip-Bu Tan

    2/09/15      $         —      $      $        125,000             $      $ 2,145,000   
    2/09/15                                    500,000        17.16        2,291,850   
    Bonus Plan               650,000        1,462,500                               

Geoffrey G. Ribar

    2/09/15                             35,000                      600,600   
    2/09/15                                    90,000        17.16        412,533   
    Bonus Plan               300,000        675,000                               

Thomas P. Beckley

    2/09/15                             40,000                      686,400   
    2/09/15                                    100,000        17.16        458,370   
    Bonus Plan               281,250        632,813                               

Anirudh Devgan

    2/09/15                             40,000                      686,400   
    2/09/15                                    100,000        17.16        458,370   
    Bonus Plan               281,250        632,813                               

Neil Zaman

    4/15/15                             25,000 (5)                    468,250   
    7/15/15                             10,000 (6)                    196,900   
    9/15/15                             20,000 (7)                    422,800   
    9/15/15                                    30,000        21.14        155,955   
    Sales Bonus  Plan (8)             91,094                                      
    Non-Executive Bonus Plan (8)             41,394                                      
    Bonus Plan (9)             157,308        353,943                               

Charlie Huang

    2/09/15                             50,000 (10)                    858,000   
    2/09/15                                    125,000 (10)      17.16        572,963   
    Bonus Plan               212,500        478,125                               

 

(1) 

The stock awards granted to Messrs. Beckley, Devgan, Huang, Ribar and Tan on February 9, 2015 were granted under the Omnibus Plan and vest over three years, with 1/6th of the shares subject to such stock award vesting every six months after the date of grant, subject to the achievement of certain specified performance goals intended to qualify the stock awards as “performance-based compensation” under Section 162(m) of the Code.

 

(2) 

The stock options granted to Messrs. Beckley, Devgan, Huang, Ribar and Tan on February 9, 2015 and the stock options granted to Mr. Zaman in connection with his promotion as an executive officer on September 15, 2015 were granted under the Omnibus Plan and vest over four years, with 1/48th of the shares subject to such option vesting each month after the date of grant.

 

(3) 

The exercise price of the stock options is the closing price of Cadence common stock on the date of grant.

 

(4) 

In accordance with SEC rules, the amount shown reflects the grant date fair value of stock awards and option awards granted during fiscal 2015 calculated pursuant to FASB ASC 718. The assumptions used to calculate the valuation of the stock awards and option awards for fiscal 2015 are set forth in Note 9 to the Notes to Consolidated Financial Statements in Cadence’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016. The grant date fair value is based on the price of Cadence common stock on the date the award was granted and does not reflect any fluctuations in the price of Cadence common stock subsequent to the grant date. The amount shown therefore does not reflect the financial benefit that the holder of the award will actually realize upon the vesting of the award, and with respect to option awards, such amount does not reflect whether the option award will be exercised or exercisable prior to its expiration.

 

(5) 

The stock award granted to Mr. Zaman on April 15, 2015 was granted under the Omnibus Plan, vests over three years, with 1/6th of the shares subject to such stock award vesting every six months after the date of grant, and was granted in connection with his assumption of an expanded role in overseeing the North America region.

 

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(6) 

The stock award granted to Mr. Zaman on July 15, 2015 was granted under the Omnibus Plan and vests over 37 months, with 1/6th of the shares subject to such stock award vesting on February 15, 2016 and every six months thereafter.

 

(7) 

The stock award granted to Mr. Zaman on September 15, 2015 was granted in connection with his promotion as an executive officer under the Omnibus Plan and vests over three years, with 1/3rd of the shares subject to such stock award vesting 12 months after the date of grant, and the remaining shares vesting ratably every six months over the remaining two years, subject to the achievement of certain specified performance goals intended to qualify the stock award as “performance-based compensation” under Section 162(m) of the Code.

 

(8) 

As discussed in the “Compensation Discussion and Analysis” above, Mr. Zaman participated in a bonus plan for sales personnel which is referred to as the “Sales Bonus Plan” in this table and a bonus plan for employees who do not report to the CEO which is referred to as the “Non-Executive Bonus Plan” in this table prior to his promotion to an executive officer effective September 1, 2015. The target bonus under the Sales Bonus Plan was an annual target for fiscal 2015. Since Mr. Zaman ceased to participate in the Sales Bonus Plan upon his promotion in September 2015, he received a pro rata amount of $64,989.

 

(9) 

The target and maximum amounts shown for Mr. Zaman are for the second half of 2015.

 

(10) 

Pursuant to the terms of the Transition Agreement, Mr. Huang’s unvested equity awards outstanding on November 20, 2015 that were not accelerated under the Transition Agreement were forfeited.

NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2015 TABLE

EMPLOYMENT TERMS

Certain elements of compensation set forth in the Summary Compensation Table and Grants of Plan-Based Awards in Fiscal Year 2015 table reflect the terms of an employment agreement or a letter between Cadence and each of the NEOs that were in effect as of January 2, 2016.

Lip-Bu Tan.    Cadence is a party to an employment agreement with Mr. Tan, pursuant to which Mr. Tan serves as President and Chief Executive Officer. The agreement provides for an initial base salary of $600,000 per year and for Mr. Tan’s participation in the Bonus Plan at an annual target bonus of 100% of his base salary. In 2012, Mr. Tan’s base salary was increased to $650,000.

Geoffrey G. Ribar.    Cadence is a party to an employment agreement with Mr. Ribar, pursuant to which Mr. Ribar serves as Senior Vice President and Chief Financial Officer. The agreement provides for an initial base salary of $350,000 per year and for Mr. Ribar’s participation in the Bonus Plan at an annual target bonus of 75% of his base salary. In 2012, Mr. Ribar’s base salary was increased to $380,000 and, in 2013, his base salary was increased to $400,000.

Thomas P. Beckley.    Cadence is a party to an employment agreement with Mr. Beckley, pursuant to which Mr. Beckley serves as Senior Vice President of Research and Development. The agreement provides for an initial base salary of $330,000 per year and for Mr. Beckley’s participation in the Bonus Plan at an annual target bonus of 60% of his base salary. In 2013, Mr. Beckley’s base salary was increased to $350,000 and his annual target bonus was increased to 75% of his base salary. In February 2014, his base salary was increased to $375,000.

Anirudh Devgan.    Cadence is a party to an employment agreement with Mr. Devgan, pursuant to which Mr. Devgan serves as Senior Vice President of Research and Development. The agreement provides for a base salary of $375,000 per year and for Mr. Devgan’s participation in the Bonus Plan at an annual target bonus of 75% of his base salary.

Neil Zaman.    Pursuant to the letter confirming Mr. Zaman’s promotion to Senior Vice President, Worldwide Field Operations, Mr. Zaman is paid a base salary of $350,000 per year and participates in the Bonus Plan at an annual target bonus of 100% of his base salary.

 

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Charlie Huang.    Cadence was a party to an employment agreement with Mr. Huang, pursuant to which Mr. Huang initially served as Senior Vice President and Chief Strategy Officer. He later served as Senior Vice President of Worldwide Field Operations and Research and Development and then served as Executive Vice President of Worldwide Field Operations and Research and Development until his resignation as an executive officer in November 2015. The agreement provided for an initial base salary of $350,000 per year and for Mr. Huang’s participation in the Bonus Plan at an annual target bonus of 75% of his base salary. In 2009, Mr. Huang’s base salary was increased to $400,000. In 2012, his target bonus was increased to 87.5% of his base salary and, in July 2013, it was increased to 100% of his base salary. In July 2014, Mr. Huang’s base salary was increased to $425,000. In connection with his resignation from his position of Executive Vice President, Research and Development, effective November 20, 2015, Mr. Huang entered into the Transition Agreement with Cadence, which is discussed under “Potential Payments upon Termination or Change in Control and Employment Contracts — Mr. Huang” below.

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

OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR END

 

     Option Awards      Stock Awards  

Name

   Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable(1)
    Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable(1)
     Option
Exercise  Price

($)
     Option
Expiration
Date
     Number of
Shares of Stock
That Have Not
Vested

(#)
    Market Value
of Shares of
Stock That
Have Not
Vested

($)(2)
 

Lip-Bu Tan

     25,000 (3)            $ 18.08         4/01/16         $   
     25,000 (3)              20.53         4/02/17                  
     25,000 (3)              10.94         4/01/18                  
     800,000 (4)              5.60         2/08/17                  
     800,000 (4)              9.66         2/08/18                  
     479,166        20,834         11.62         2/06/19                  
     290,416        119,584         14.22         2/11/20                  
     229,166        270,834         13.81         2/04/21                  
     104,166        395,834         17.16         2/09/22                  
                                    20,833 (5)      433,535   
                                    62,499 (6)      1,300,604   
                                    104,166 (7)      2,167,694   

Geoffrey G. Ribar

     95,833        4,167         11.62         2/06/19                  
     53,125        21,875         14.22         2/11/20                  
     36,666        43,334         13.81         2/04/21                  
     18,750        71,250         17.16         2/09/22                  
                                    6,666 (5)      138,719   
                                    18,000 (6)      374,580   
                                    29,166 (7)      606,944   

Thomas P. Beckley

     26,666        3,334         11.62         2/06/19                  
     40,729        16,771         14.22         2/11/20                  
     36,666        43,334         13.81         2/04/21                  
     20,833        79,167         17.16         2/09/22                  
                                    5,416 (8)      112,707   
                                    18,000 (6)      374,580   
                                    33,333 (7)      693,660   

Anirudh Devgan

     71,666        8,334         10.79         5/15/19                  
     38,958        46,042         13.81         2/04/21                  
     20,833        79,167         17.16         2/09/22                  
                                    20,499 (6)      426,584   
                                    33,333 (7)      693,660   
                                    10,000 (9)      208,100   
                                    6,666 (10)      138,719   
                                    10,000 (11)      208,100   

 

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     Option Awards     Stock Awards  

Name

   Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable(1)
     Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable(1)
     Option
Exercise  Price

($)
     Option
Expiration
Date
    Number of
Shares of Stock
That Have Not
Vested

(#)
    Market Value
of Shares of
Stock That
Have Not
Vested

($)(2)
 

Neil Zaman

     1,875         28,125       $ 21.14         9/15/22             $   
                                    20,000 (12)      416,200   
                                    1,666 (13)      34,669   
                                    3,332 (10)      69,339   
                                    13,332 (14)      277,439   
                                    6,666 (15)      138,719   
                                    10,000 (16)      208,100   
                                    20,833 (17)      433,535   
                                    10,000 (18)      208,100   

Charlie Huang

     250,000                 9.66         2/08/18 (19)               
     8,334                 11.62         2/06/19 (19)               
     23,334                 14.22         2/11/20 (19)               
     33,335                 13.81         2/04/21 (19)               
     41,667                 17.16         2/09/22 (19)               

 

(1) 

Unless otherwise indicated, these stock options were granted seven years prior to the expiration date and vest at a rate of 1/48th every month after the date of grant.

 

(2) 

The market value of the stock awards that have not vested is calculated by multiplying the number of shares that have not vested by the closing price of Cadence common stock on December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share.

 

(3) 

Stock option was granted on the date ten years prior to the expiration date and, as of January 2, 2016, was fully vested.

 

(4) 

Stock option was granted on the date seven years prior to the expiration date and, as of January 2, 2016, was fully vested.

 

(5) 

Restricted stock was granted on February 11, 2013 and vests at a rate of 1/6th every six months from the date of grant over three years, subject to the achievement of specific performance goals.

 

(6) 

Restricted stock was granted on February 4, 2014 and vests at a rate of 1/6th every six months from the date of grant over three years, subject to the achievement of specific performance goals.

 

(7) 

Restricted stock was granted on February 9, 2015 and vests at a rate of 1/6th every six months from the date of grant over three years, subject to the achievement of specific performance goals.

 

(8) 

Restricted stock was granted on February 11, 2013 and vests at a rate of 1/6th every six months from the date of grant over three years.

 

(9) 

Restricted stock was granted on May 15, 2012 and vests at a rate of 1/4th every year from the date of grant over four years.

 

(10) 

Restricted stock was granted on July 15, 2013 and vests over a 37-month period, with 1/6th of the shares vesting seven months after the date of grant and the remaining shares vesting in five equal installments every six months over two and a half years.

 

(11) 

Restricted stock was granted on September 15, 2014 and vests at a rate of 1/3rd every year from the date of grant over three years, subject to the achievement of specific performance goals.

 

(12) 

Restricted stock was granted on September 15, 2015 and 1/3rd vests one year from the date of grant and the remaining shares vest at a rate of 1/6th every six months thereafter, subject to the achievement of specific performance goals.

 

(13) 

Restricted stock was granted on April 15, 2013 and vests at a rate of 1/6th every six months from the date of grant over three years.

 

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(14) 

Restricted stock was granted on July 15, 2014 and vests over a 37-month period, with 1/6th of the shares vesting seven months after the date of grant and the remaining shares vesting in five equal installments every six months over two and a half years.

 

(15) 

Restricted stock was granted on September 15, 2014 and vests at a rate of 1/6th every six months from the date of grant over three years.

 

(16) 

Restricted stock was granted on October 15, 2014 and vests at a rate of 1/6th every six months from the date of grant over three years.

 

(17) 

Restricted stock was granted on April 15, 2015 and vests at a rate of 1/6th every six months from the date of grant over three years.

 

(18) 

Restricted stock was granted on July 15, 2015 and vests over a 37-month period, with 1/6th of the shares vesting seven months after the date of grant and the remaining shares vesting in five equal installments every six months over two and a half years.

 

(19) 

Due to the resignation of Mr. Huang from his position of Executive Vice President, Research and Development, each of his unexercised stock options will terminate upon the earlier of (i) the original expiration date set forth above or (ii) three months after the date Mr. Huang ceases to be an employee or consultant of Cadence pursuant to his Transition Agreement, discussed under “Potential Payments upon Termination or Change in Control and Employment Contracts — Mr. Huang” below.

OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2015

The following table sets forth information with respect to the exercise of stock options by the NEOs during fiscal 2015 and the vesting during fiscal 2015 of stock awards previously granted to the NEOs.

 

     Option Awards      Stock Awards  

Name

   Number of Shares
Acquired on
Exercise

(#)
     Value Realized  on
Exercise

($)(1)
     Number of Shares
Acquired on
Vesting

(#)
     Value Realized  on
Vesting

($)(2)
 

Lip-Bu Tan

     1,740,000       $ 26,340,025         127,500       $ 2,470,117   

Geoffrey G. Ribar

     100,000         1,248,593         36,167         704,346   

Thomas P. Beckley

     180,000         2,339,774         34,500         673,455   

Anirudh Devgan

                     42,000         839,472   

Neil Zaman

     1,094         9,414         30,502         613,857   

Charlie Huang

     640,831         7,921,691         92,917         1,919,652   

 

(1) 

Amounts shown for option awards are determined by multiplying (i) the number of shares of Cadence common stock to which the exercise of the options related, by (ii) the difference between the per share sales price of Cadence common stock at exercise and the exercise price of the options.

 

(2) 

Amounts shown for stock awards are determined by multiplying the number of shares that vested by the per share closing price of Cadence common stock on the vesting date.

 

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NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2015

Under the Deferred Compensation Plan, executive officers may elect to defer up to 80% of their base salary and up to 100% of the non-equity incentive plan compensation payable to them. These deferred compensation payments are held in accounts with values indexed to the performance of selected mutual funds or money market accounts. Executive officers may elect to receive distributions from their account upon termination of employment with Cadence, the passage of a specified number of years or the attainment of a specified age, whichever event occurs first. In addition, executive officers may elect a lump-sum payment or monthly installments over a five or ten year period.

 

Name

   Executive
Contributions in
Last FY

($)
     Registrant
Contributions in
Last FY

($)
     Aggregate
Earnings in
Last FY

($)
  Aggregate
Withdrawals/
Distributions
($)
     Aggregate
Balance
at Last FYE
($)
 

Lip-Bu Tan

       $               —           $               —           $        84       $         —           $   85,145   

Geoffrey G. Ribar

                                 —                   —                       —   

Thomas P. Beckley

                            9,917                   —               882,455   

Anirudh Devgan

     3,562                              (8)                   —                 26,818   

Neil Zaman

                                 —                   —                       —   

Charlie Huang

                                 —                   —                       —   

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL AND

EMPLOYMENT CONTRACTS

The information below describes certain compensation that would have become payable to the NEOs under existing plans and contractual arrangements, assuming that a termination of employment or assuming a change in control combined with a termination of employment had occurred on January 2, 2016 (based upon the closing price of Cadence common stock on December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share), given the compensation and service levels of each NEO, other than Messrs. Huang and Zaman. In addition to the benefits described below, upon any termination of employment, the NEOs who elect to participate in the Deferred Compensation Plan would also be entitled to the amount shown in the “Aggregate Balance at Last FYE” column of the Nonqualified Deferred Compensation for Fiscal Year 2015 table above. Since Mr. Huang resigned during fiscal 2015, the actual terms of his separation are discussed below, following the narrative discussion and tables describing the arrangements for Messrs. Beckley, Devgan, Ribar and Tan. As of January 2, 2016, Cadence had no agreement with Mr. Zaman relating to payment of benefits upon termination of employment or a change in control combined with a termination of employment.

Employment Terms

Messrs. Beckley, Devgan, Ribar and Tan

As of January 2, 2016, Cadence had employment agreements with Messrs. Beckley, Devgan, Ribar and Tan. The employment agreements generally provide for the payment of benefits if the executive’s employment with Cadence is terminated either by Cadence without “cause” (as defined below) or by the executive in connection with a “constructive termination” (as defined below). In addition, the employment agreements provide for certain benefits upon a termination of employment due to death or “permanent disability” (as defined below). The employment agreements provide for benefits upon a termination either by Cadence without “cause” or by the executive in connection with a “constructive termination” that occurs during the period commencing three months before a “change in control” (as defined below) of Cadence and ending 13 months following such “change in control.” The employment agreements do not provide for any benefits upon a termination by Cadence for “cause” or upon the executive’s resignation other than in connection with a “constructive termination.”

 

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For purposes of the employment agreements, “cause,” “constructive termination,” “change in control” and “permanent disability” are defined as follows:

“Cause” generally means an executive’s:

 

   

gross misconduct or fraud in the performance of his duties under the employment agreement;

 

   

conviction or guilty plea or plea of nolo contendere with respect to any felony or act of moral turpitude;

 

   

engaging in any material act of theft or material misappropriation of company property in connection with his employment;

 

   

material breach of the employment agreement or after written notice is delivered to the executive of such breach;

 

   

material breach of Cadence’s Employee Proprietary Information and Inventions Agreement;

 

   

material failure or refusal to perform the assigned duties; or

 

   

material breach of the Code of Business Conduct, as such code may be revised from time to time.

“Constructive termination” generally means the occurrence of any one of the following events:

 

   

for Mr. Tan, a material adverse change, without the executive’s written consent, in the executive’s authority, duties or title causing the executive’s position to be of materially less stature or responsibility, including removal from his current position, or a reduction, without the executive’s written consent, in the executive’s base salary then in effect by more than 5% or a reduction by more than 5% in the executive’s stated target bonus in effect under a bonus plan;

 

   

for Messrs. Beckley and Devgan, Cadence’s removal of the executive from his position as Senior Vice President of Research and Development;

 

   

for Mr. Ribar, Cadence’s removal of the executive from his executive position and determination not to identify the executive as an executive officer of Cadence for purposes of the rules promulgated under Section 16 of the Exchange Act or any change, without the executive’s written consent, to the executive’s reporting structure causing the executive to no longer report to the CEO;

 

   

for Messrs. Beckley, Devgan and Ribar, a reduction, without the executive’s written consent, in the executive’s base salary then in effect by more than 10% or a reduction by more than 10% in the executive’s stated target bonus in effect under a bonus plan;

 

   

a relocation of the executive’s principal place of employment by more than 30 miles, unless the executive consents in writing to such relocation;

 

   

any material breach by Cadence of any provision of the employment agreement;

 

   

any failure by Cadence to obtain the written assumption of the employment agreement by any successor to Cadence; or

 

   

in the event the executive, prior to a “change in control,” is identified as an executive officer of Cadence for purposes of the rules promulgated under Section 16 of the Exchange Act and following a “change in control” in which Cadence or any successor remains a publicly traded entity, the executive is not identified as an executive officer for purposes of Section 16 of the Exchange Act at any time within one year after the “change in control.”

“Change in control” generally means the occurrence of any one of the following events:

 

   

any person acquires more than 50% of the total voting power represented by Cadence’s then outstanding voting securities;

 

   

any person acquires in one transaction (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person) more than 30% of the total voting power represented by Cadence’s then outstanding voting securities;

 

   

if a majority of the members of the Board are replaced in any two-year period other than in specific circumstances;

 

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the consummation of a merger or consolidation of Cadence with any other corporation if such merger or consolidation is approved by the stockholders of Cadence, other than a merger or consolidation in which the holders of Cadence’s outstanding voting securities immediately prior to such merger or consolidation receive securities possessing at least 80% of the total voting power represented by the outstanding voting securities of the surviving entity immediately after such merger or consolidation; or

 

   

the consummation of the liquidation, sale or disposition by Cadence of all or substantially all of Cadence’s assets if such liquidation, sale or disposition is approved by the stockholders of Cadence.

“Permanent disability” generally means any medically determinable physical or mental impairment that can reasonably be expected to result in death or that has lasted or can reasonably be expected to last for a continuous period of not less than 12 months and that renders the executive unable to perform effectively all of the essential functions of his position pursuant to his employment agreement, with or without reasonable accommodation.

Under the employment agreements, if the executive’s employment is terminated by Cadence without “cause” (and not due to death or “permanent disability”) or if the executive terminates his employment in connection with a “constructive termination,” the executive will be entitled to the benefits provided for in an Executive Transition and Release Agreement in exchange for his execution and delivery of that agreement. The transition agreements provide for the following payments and benefits:

 

   

continued employment by Cadence, for up to one year after the executive’s termination, as a non-executive employee at a monthly salary of $4,000 per month, payable for up to six months commencing on the first pay date that is more than 30 days following the date that is six months following the date of his termination;

 

   

provided the executive elects COBRA coverage, continued coverage for up to one year under Cadence’s medical, dental and vision insurance plans, at Cadence’s expense;

 

   

accelerated vesting, as of the date of the executive’s termination, of his outstanding and unvested equity compensation awards, other than awards with performance-based vesting criteria, that would have vested over the succeeding 12-month period (or, in the case of Mr. Tan, the succeeding 18-month period); provided that, if the executive remains employed pursuant to his transition agreement through the end of the applicable performance period, unvested equity compensation awards that are subject to performance-based vesting criteria and that are outstanding as of the date of his termination shall continue to vest through the end of the applicable performance period; provided any such performance period ends within 12 months (or, in the case of Mr. Tan, 18 months) of his termination and only to the extent the applicable performance conditions are satisfied;

 

   

a lump-sum payment equal to one year’s base salary at the highest rate in effect during the executive’s employment, payable on the 30th day following the date that is six months after the date of his termination; and

 

   

a lump-sum payment equal to 75% (or, in the case of Mr. Tan, 100%) of one year’s base salary at the highest rate in effect during the executive’s employment, payable 30 days following termination of the transition agreement.

In addition, the employment agreements provide that if, within three months before or thirteen months after a “change in control,” an executive’s employment is terminated without “cause” or the executive terminates his employment in connection with a “constructive termination,” then, in exchange for the executive’s execution and delivery of a transition and release agreement, all of the executive’s outstanding and unvested equity compensation awards will immediately vest in full. In the employment agreements, all other provisions of the transition agreement described in the paragraph above remain unchanged, except that the executives shall also receive: (i) a lump-sum payment equal to 50% of one year’s base salary at the highest rate in effect during the executive’s employment, payable on the 30th day following the date that is six months after the date of his termination and (ii) a lump-sum payment equal to 37.5% (or, in the case of Mr. Tan, 50%) of one year’s base salary at the highest rate in effect during the executive’s employment, payable 30 days following termination of the transition agreement. As discussed in more detail in “Compensation Discussion and Analysis — Section 280G of the Code,” the executives are not entitled to a tax gross-up in connection with any “excess parachute payments” paid upon a “change in control,” but instead are entitled to the best after-tax alternative.

 

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Under the employment agreements, if the executive’s employment is terminated due to the executive’s death or “permanent disability,” the executive will be entitled to the following payments and benefits if his estate executes and delivers a release agreement:

 

   

accelerated vesting, as of the date of the executive’s termination of employment, of his outstanding and unvested equity compensation awards that would have vested over the succeeding 12-month period, and such awards and all previously vested equity awards shall remain exercisable for 24 months from the date of the executive’s termination of employment (but not later than the expiration of the term of the applicable award); and

 

   

solely in the case of termination due to “permanent disability,” and provided the executive elects COBRA coverage, continued coverage for 12 months under Cadence’s medical, dental and vision insurance plans, at Cadence’s expense.

The receipt of benefits following termination under each of the employment agreements is contingent upon the affected executive delivering and not revoking a general release in favor of Cadence. In addition, the post-termination benefits provided for under these employment agreements, except upon death or “permanent disability,” are contingent upon the affected executive complying with the terms of an Executive Transition and Release Agreement. These transition agreements provide that the affected executive will continue to provide services to Cadence for a one-year transition period. During this one-year transition period, the executive is entitled to receive the termination payments described above, is prohibited from competing with Cadence, soliciting employees of Cadence or interfering with Cadence’s relationship with its current or prospective clients, customers, joint-venture partners or financial backers, and must provide Cadence with continued cooperation in matters related to his employment. Any violation of the provisions of the transition agreement would result in the cessation of Cadence’s obligation to provide the then unpaid portion of the affected executive’s termination benefits.

In addition to the benefits described above and quantified below, Cadence provides each of its benefits-eligible U.S.-based employees, including each of its executive officers, with life insurance in an amount equal to the lesser of two times the employee’s annual target cash compensation (base salary plus target bonus) or $2,000,000, which, as of January 2, 2016, for Messrs. Tan, Ribar, Beckley, Devgan and Zaman was $2,000,000, $1,400,000, $1,312,500, $1,312,500 and $1,400,000, respectively.

The tables below set forth the estimated value of the potential payments to the NEOs, assuming the executive’s employment had terminated on January 2, 2016 (based upon the closing price of Cadence common stock on December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share) under an employment agreement in effect at that time, and, for purposes of the second table below, that a change in control of Cadence had also occurred on that date. Amounts are reported without any reduction for possible delay in the commencement or timing of payments or due to any reduction under Section 280G of the Code.

Potential Payments and Benefits Upon a Termination of Employment by Cadence Without Cause or by Executive in Connection with a Constructive Termination Not in Connection with a Change in Control

 

Name

   Transition
Period
Salary

($)
     Lump Sum
Payment
(7 Months
After
Termination)
($)
     Lump Sum
Payment
(13 Months
After
Termination)
($)
     Company-
Paid
COBRA
Premiums
($)
     Vesting of
Stock
Options
($)(1)
     Vesting of
Restricted
Stock
Awards
($)(2)
     Pre-Tax
Total

($)
 

Lip-Bu Tan

   $ 24,000       $ 650,000       $ 650,000       $ 14,727       $ 2,976,398       $ 3,034,764       $ 7,349,889   

Geoffrey G. Ribar

     24,000         400,000         300,000         14,706         383,982         631,230         1,753,918   

Thomas P. Beckley

     24,000         375,000         281,250         25,414         356,621         639,908         1,702,193   

Anirudh Devgan

     24,000         375,000         281,250         26,245         323,507         1,012,739         2,042,741   

 

(1) 

These amounts are calculated based on the number of shares of Cadence common stock that would have been subject to acceleration multiplied by the difference between the closing price of Cadence common stock on December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share (assuming it was the market price per share of Cadence common stock on the date of termination of employment) and the exercise price of the stock option.

 

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(2) 

These amounts are calculated based on the number of shares of Cadence common stock that would have been subject to acceleration multiplied by the closing price of Cadence common stock on December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share.

Potential Payments and Benefits Upon a Termination of Employment by Cadence Without Cause or by Executive in Connection with a Constructive Termination for Good Reason Within 3 Months Prior to or 13 Months Following a Change in Control

 

Name

   Transition
Period
Salary

($)
     Lump Sum
Payment
(7 Months
After
Termination)
($)
    Lump Sum
Payment
(13 Months
After
Termination)
($)
    Company-
Paid
COBRA
Premiums
($)
     Vesting of
Stock
Options
($)(1)
     Vesting of
Restricted
Stock
Awards
($)(2)
     Pre-Tax
Total
($)
 

Lip-Bu Tan

   $ 24,000       $ 975,000 (3)    $ 975,000 (3)    $ 14,727       $ 4,320,155       $ 3,901,833       $ 10,210,715   

Geoffrey G. Ribar

     24,000         600,000        450,000        14,706         745,851         1,120,244         2,954,801   

Thomas P. Beckley

     24,000         562,500        421,875        25,414         733,458         1,180,947         2,948,194   

Anirudh Devgan

     24,000         562,500        421,875        26,245         694,760         1,675,163         3,404,543   

 

(1) 

These amounts are calculated based on the number of shares of Cadence common stock that would have been subject to acceleration upon a termination of employment in connection with a change in control multiplied by the difference between the closing price of Cadence common stock on December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share (assuming it was equal to the market price per share of Cadence common stock on the date of termination of employment) and the exercise price of the stock option.

 

(2) 

These amounts are calculated based on the number of shares of Cadence common stock that would have been subject to acceleration upon a termination of employment in connection with a change in control multiplied by the closing price of Cadence common stock on December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share.

 

(3) 

If, within three months or before thirteen months after a change in control, Mr. Tan’s employment were terminated without “cause” or if Mr. Tan were to terminate his employment in connection with a “constructive termination,” Mr. Tan would receive two payments, one at seven months after termination and one at thirteen months after termination, each of which would equal 150% of his base salary, for a total of $1,950,000.

Potential Payments and Benefits Upon a Termination of Employment by Reason of Death or Due to Permanent Disability

The table below sets forth the estimated value of the potential payments to each NEO, assuming the executive’s employment had terminated on January 2, 2016 by reason of the executive’s death or “permanent disability.” Amounts are reported without any reduction for possible delay in the commencement or timing of payments.

 

Name

   Company- Paid
COBRA Premiums
(Upon Termination
of Employment Due
to Permanent
Disability)

($)
     Vesting of
Stock
Options

($)(1)
     Vesting of
Restricted
Stock
Awards

($)(2)
     Pre-Tax Total
(Upon Termination of
Employment Due

to Permanent
Disability)

($)
     Pre-Tax Total
(Upon Termination of
Employment Due
to Death)
($)
 

Lip-Bu Tan

   $ 14,727       $ 2,198,189       $ 2,167,694       $ 4,380,610       $ 4,365,883   

Geoffrey G. Ribar

     14,706         383,982         631,230         1,029,918         1,015,212   

Thomas P. Beckley

     25,414         356,621         639,908         1,021,943         996,529   

Anirudh Devgan

     26,245         323,507         1,012,739         1,362,491         1,336,246   

 

(1) 

These amounts are calculated based on the number of shares of Cadence common stock that would have been subject to acceleration multiplied by the difference between the closing price of Cadence common stock on

 

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  December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share (assuming it was equal to the market price per share of Cadence common stock on the date of termination of employment) and the exercise price of the stock option.

 

(2) 

These amounts are calculated based on the number of shares of Cadence common stock that would have been subject to acceleration multiplied by the closing price of Cadence common stock on December 31, 2015 (the last business day of Cadence’s fiscal 2015) of $20.81 per share.

Mr. Huang

Mr. Huang’s resignation from his executive officer position was effective on November 20, 2015. Pursuant to the terms of his Executive Transition and Release Agreement, dated October 28, 2015 (the “Transition Agreement”), Mr. Huang agreed to remain with Cadence as a non-executive employee from November 20, 2015 through February 28, 2017 to assist with transitional matters unless his employment is terminated earlier by him or by Cadence in the event of his material breach of his duties or obligations under the Transition Agreement (the “Transition Period”). Mr. Huang is also required to comply with non-solicitation and non-competition provisions in favor of Cadence during the Transition Period.

In consideration of Mr. Huang’s services during the Transition Period and subject to Mr. Huang’s execution and non-revocation of the Transition Agreement, the following equity awards held by Mr. Huang vested and became exercisable in full: (i) Mr. Huang’s unvested equity awards (including stock options, restricted stock and restricted stock units) that were not intended to be performance-based compensation within the meaning of Section 162(m) of the Code that were outstanding and held by Mr. Huang on November 20, 2015 and that would have vested in accordance with their terms on or before February 28, 2017 had Mr. Huang continued to serve as an executive of Cadence and (ii) Mr. Huang’s unvested equity awards (including stock options, restricted stock and restricted stock units) that were intended to be performance-based compensation within the meaning of Section 162(m) of the Code that were outstanding and held by Mr. Huang on November 20, 2015 and for which the performance conditions have been met and that would have vested in accordance with their terms on or before February 28, 2017 had Mr. Huang continued to serve as an executive of Cadence. In addition, should Mr. Huang elect to continue coverage under Cadence’s medical, dental and vision insurance plans pursuant to COBRA, Cadence agreed to pay his COBRA premium during the Transition Period.

Further, provided that Mr. Huang does not resign from employment with Cadence or Cadence does not terminate his employment due to a material breach of his duties or obligations under the Transition Agreement and Mr. Huang delivers additional releases to Cadence, the following payments will be made to Mr. Huang: (i) on or about June 20, 2016, a $425,000 lump-sum payment, less applicable tax withholdings and deductions, and a monthly salary of $4,000, less applicable tax withholdings and deductions, for a period of six months, and (ii) on or about March 28, 2017, a $425,000 lump-sum payment, less applicable tax withholdings and deductions. If Cadence should terminate Mr. Huang’s employment due to a breach by Mr. Huang of his duties and obligations under the Transition Agreement that, if such breach is curable, Mr. Huang fails to cure within 30 days of receiving written notice identifying such breach, Mr. Huang is required to promptly refund, with interest, the first lump-sum payment.

 

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides information about Cadence’s equity compensation plans, including its equity incentive plans and employee stock purchase plans, as of January 2, 2016.

 

Plan Category

  Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
    Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
    Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
 
    (a)     (b)     (c)  

Equity compensation plans approved by security holders

    8,152,762(1)      $ 12.12        19,282,278(2)   

Equity compensation plans not approved by security holders

        221,808(3)      $   6.72        0      
 

 

 

   

 

 

   

 

 

 

Total

       8,374,570         $ 11.98        19,282,278      

 

(1) 

This amount excludes purchase rights accruing under the ESPP, for which remaining available rights are included in column (c). Under the ESPP, each eligible employee may purchase shares of Cadence common stock at six-month intervals at a purchase price per share equal to 85% of the lower of the fair market value of Cadence common stock on (i) the first day of an offering period (currently, six months in duration), or (ii) the last day of the offering period.

 

(2) 

This amount includes 6,660,450 shares available for issuance under the ESPP as of January 2, 2016.

 

(3) 

This amount excludes 602,680 shares subject to issuance upon exercise of options assumed in connection with acquisitions at a weighted average exercise price of $2.56.

The Amended and Restated 1997 Nonstatutory Stock Incentive Plan (the “1997 Plan”) historically provided for the issuance of nonstatutory stock options, restricted stock, RSUs, stock bonuses and rights to acquire restricted stock to Cadence employees and consultants who are not executive officers (other than in limited cases of grants to individuals not then employed by Cadence, as a material inducement to such person becoming an employee and executive officer of Cadence), directors or beneficial owners of 10% or more of Cadence common stock. In connection with the amendment and restatement of the 2000 Nonstatutory Equity Incentive Plan, effective March 16, 2011, reserved shares of common stock that were not subject to a grant or shares as to which a stock award is forfeited under the 1997 Plan became available for grant under the Amended and Restated 2000 Equity Incentive Plan (the “2000 Plan”). In connection with the adoption of the Omnibus Plan, which consolidated the 2000 Plan into the Amended and Restated 1987 Stock Incentive Plan, effective May 6, 2014, reserved shares of common stock that were not subject to a grant or shares as to which a stock award is forfeited under the 1997 Plan or the 2000 Plan became available for grant under the Omnibus Plan. As of January 2, 2016, under the 1997 Plan, there were options to purchase 221,808 shares outstanding with a weighted average exercise price of $6.72, no shares subject to unvested restricted stock grants and no shares remaining available for grant.

The exercise price of options granted under the 1997 Plan could not be less than the fair market value of a share of Cadence common stock on the grant date. Prior to January 1, 2007, the fair market value was the average of the high and low price of Cadence common stock on the grant date. For grants made after January 1, 2007, the fair market value was the closing price of Cadence common stock on the grant date. Options granted to new employees under the 1997 Plan generally vested over a four-year period, with one-fourth of the shares vesting one year from the vesting commencement date, and the remaining shares vesting in 36 equal monthly installments thereafter. Options granted to existing employees under the 1997 Plan generally vested over a four-year period, in 48 equal monthly installments. Options granted under the 1997 Plan prior to October 1, 2006 generally expire ten years from the grant date, and options granted under the 1997 Plan after October 1, 2006 expire seven years from the grant date. The vesting of options and restricted stock may be subject to continued employment, the passage of time and/or performance criteria deemed appropriate by the Board. Stock bonus awards and incentive stock awards granted under the 1997 Plan are subject to the terms and conditions determined by the Board.

 

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CERTAIN TRANSACTIONS

REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS

The Board has adopted written Related Party Transaction Policies and Procedures, which require that all “interested transactions” with “related parties” (each as defined below) be subject to approval or ratification in accordance with the procedures outlined in the policy.

An “interested transaction” is any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, in which:

 

   

The aggregate amount involved will or may be expected to exceed $100,000 since the beginning of Cadence’s last completed fiscal year;

 

   

Cadence or any of its subsidiaries is a participant; and

 

   

Any “related party” has or will have a direct or indirect interest (other than solely as a result of being a director or, together with all other related parties, less than 10%, in the aggregate, beneficial owner of another entity).

A “related party” covered by the policy is any:

 

   

Person who was or is (since the beginning of the last fiscal year) an executive officer, director or nominee for election as a director of Cadence;

 

   

Greater than 5% beneficial owner of Cadence common stock; or

 

   

Immediate family member of any of those parties, which includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in law and anyone residing in such person’s home (other than tenants or employees).

The Corporate Governance and Nominating Committee reviews the material facts of all interested transactions and either approves or disapproves of the entry into the transaction. If advanced approval of an interested transaction is not feasible, the transaction is reviewed and, if the Corporate Governance and Nominating Committee determines it to be appropriate, ratified at that committee’s next scheduled meeting. In determining whether to approve or ratify an interested transaction, the Corporate Governance and Nominating Committee takes into account, among other appropriate factors, the extent of the related party’s interest in the transaction and whether the interested transaction is on terms no less favorable than terms generally available to unaffiliated third parties under similar circumstances. Directors may not participate in any discussion or approval of an interested transaction for which they are a related party.

The Corporate Governance and Nominating Committee has preapproved or ratified the following categories of potential interested transactions:

 

   

Any employment by Cadence of an executive officer of Cadence if:

 

   

The related compensation is required to be reported in Cadence’s proxy statement under the SEC’s compensation disclosure requirements, or

 

   

The executive officer is not an immediate family member of a “related party,” the related compensation would be reported in Cadence’s proxy statement under the SEC’s compensation disclosure requirements if the executive officer was a NEO and the Compensation Committee approved (or recommended that the Board approve) such compensation;

 

   

Any compensation paid to a director if the compensation is required to be reported in Cadence’s proxy statement under the SEC’s compensation disclosure requirements;

 

   

Any transaction with another company in which the related person’s only relationship is as a non-executive employee, director and/or equity owner of, together with all other related parties, less than 10% of that company’s shares, if the aggregate amount involved, since the beginning of Cadence’s last completed fiscal year, exceeds $100,000 but does not exceed the greater of (i) $200,000 and/or (ii) 5% of the recipient’s total annual revenues;

 

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Any charitable contribution by Cadence to a charitable organization, foundation or university at which a related person’s only relationship is as a non-executive employee or director, if the aggregate amount involved, since the beginning of Cadence’s last completed fiscal year, exceeds $100,000 but does not exceed the lesser of (i) $200,000 or (ii) 5% of the charitable organization’s total annual revenues, or if donations are made pursuant to Cadence’s matching program as a result of contributions by employees, pursuant to a program that is available on the same terms to all employees of Cadence;

 

   

Any transaction where the related person’s interest arises solely from the ownership of Cadence common stock and all holders of Cadence common stock received the same benefit on a pro rata basis; and

 

   

Any transaction with a related party involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services.

The Board has also delegated to the Chair of the Corporate Governance and Nominating Committee the authority to pre-approve or ratify any interested transaction with a related party in which the aggregate amount is expected to be less than $1,000,000. Further, if a director serves as an executive officer of another company with which Cadence does business, the Corporate Governance and Nominating Committee may establish guidelines, via resolutions, under which certain transactions are deemed pre-approved and the Corporate Governance and Nominating Committee, on at least an annual basis, will review both Cadence’s relationship with the director-affiliated company and the guidelines that have been established for management of that relationship.

TRANSACTIONS WITH RELATED PARTIES

As disclosed previously and in this proxy statement, Mr. Tan, Cadence’s President and CEO and a member of the Board, is also the founder and Chairman of Walden International (“Walden”), an international venture capital firm, that invests in privately-held companies. In addition to continuing to be Chairman of Walden, from time to time Mr. Tan also makes direct investments alongside Walden or in other companies in the semiconductor and electronics systems industry for himself or his family. Certain companies that are customers of Cadence have, from time to time, invested in Walden funds. As of January 2, 2016, the aggregate amount of such investments by such customers represented approximately 8.5% of Walden’s total cumulative capital commitments.

From time to time, companies in which Walden or Mr. Tan has invested are customers of Cadence or otherwise transact with Cadence. In fiscal 2015, customer arrangements involving Walden-associated companies accounted for less than 2% of Cadence’s consolidated gross revenue. All of these arrangements were on market terms and none of these arrangements individually was material to Cadence. In addition, in fiscal 2015, Cadence leased on market terms excess office space in its San Jose headquarters campus to one Walden-associated company. Mr. Tan holds less than 3% of the equity of this company. The aggregate rental income to Cadence from this arrangement in fiscal 2015 was insignificant to Cadence.

While none of the foregoing transactions, individually or in the aggregate, is material to Cadence or Mr. Tan, the Board has nonetheless put in place policies and procedures designed to assure that any such transactions are appropriately reviewed and monitored by the Corporate Governance and Nominating Committee and that any such transactions that are entered into are on an arm’s length basis and on terms that are not adverse to Cadence. Such transactions will be undertaken by Cadence only when they are in the best interests of Cadence and when Mr. Tan’s interest is appropriately disclosed and the transaction is approved by the Corporate Governance and Nominating Committee (e.g., on the basis that it will be made on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and considering the extent of Mr. Tan’s interest in the transaction). In addition, all such transactions, including discussions prior to the execution of the agreements, are subject to the terms of Cadence’s Code of Business Conduct and Related Party Transaction Policies and Procedures. These policies and internal procedural guidelines also require that Mr. Tan recuse himself from any discussion or approval by the Corporate Governance and Nominating Committee of Cadence’s transactions with those companies that are associated with Walden or Mr. Tan, except to provide material information concerning such transactions to the Corporate Governance and Nominating Committee. Further, when required by SEC rules and regulations, Cadence will disclose the terms of individual transactions to its stockholders.

 

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INDEMNIFICATION AGREEMENTS

Cadence’s Bylaws provide that Cadence will indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Cadence’s Bylaws also authorize the Board to cause Cadence to enter into indemnification agreements with its directors, officers and employees and to purchase insurance on behalf of any person it is permitted to indemnify. Pursuant to these Bylaw provisions, Cadence has entered into indemnity agreements with each of its directors and executive officers, and has also purchased insurance on behalf of its directors and executive officers.

Each indemnity agreement provides, among other things, that Cadence will indemnify each signatory to the extent provided in the agreement for expenses, witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that the individual becomes legally obligated to pay because of any claim or claims made against or by him or her in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitral, administrative or investigative, to which the individual is or may be made a party by reason of his or her position as a director, officer, employee or other agent of Cadence, and otherwise as may be provided to the individual by Cadence under the non-exclusivity provisions of the Delaware General Corporation Law and Cadence’s Bylaws.

 

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OTHER MATTERS

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act (“Section 16(a)”) requires the directors and executive officers of Cadence and persons who beneficially own more than 10% of a registered class of Cadence’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish Cadence with copies of all Section 16(a) forms they file.

To Cadence’s knowledge, based solely on a review of the copies of the Section 16(a) reports submitted to Cadence and written representations that no other reports were required during fiscal 2015, all reports required by Section 16(a) applicable to its executive officers and directors and greater than 10% beneficial owners were filed on a timely basis during fiscal 2015.

STOCKHOLDER PROPOSALS AND NOMINATIONS

From time to time, Cadence’s stockholders submit proposals that they believe should be voted upon at the annual meeting or nominate persons for election to the Board. Under Rule 14a-8 of the Exchange Act, certain stockholder proposals may be eligible for inclusion in Cadence’s proxy statement and form of proxy in connection with the annual meeting of stockholders. Stockholder proposals must be submitted in writing to Cadence’s Corporate Secretary and received at its executive offices no later than November 25, 2016 to be included in the proxy statement and form of proxy relating to the 2017 annual meeting of Cadence stockholders pursuant to Rule 14a-8 under the Exchange Act. The submission of a stockholder proposal does not guarantee that it will be included in Cadence’s proxy statement and form of proxy.

Alternatively, under Cadence’s Bylaws, any director nominations or other business proposals which the stockholder does not seek to include in Cadence’s 2017 proxy statement and form of proxy pursuant to Rule 14a-8 under the Exchange Act must be submitted in writing to Cadence’s Corporate Secretary no later than February 4, 2017, nor earlier than January 5, 2017, and must otherwise satisfy the requirements set forth in Cadence’s Bylaws. If the date of the 2017 annual meeting of Cadence stockholders changes by more than 30 days from the anniversary date of the Annual Meeting, stockholder proposals or nominations must be submitted in writing to Cadence’s Corporate Secretary no later than ten days following the first public announcement of the date of the meeting. If the stockholder does not also comply with the requirements of Rule 14a-4 under the Exchange Act, Cadence may exercise discretionary voting authority under proxies it solicits to vote in accordance with its best judgment on any such stockholder proposal or nomination submitted by a stockholder.

A stockholder’s notice must include: (A) as to each person whom the stockholder proposes to nominate for election as a director, all information relating to the candidate that is required to be disclosed in proxy solicitations for a contested election of directors, or is otherwise required pursuant to Regulation 14A under the Exchange Act, accompanied by the candidate’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected in addition to such other information as Cadence may reasonably require to determine the eligibility of such candidate to serve as a director; (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on Cadence’s books, and of such beneficial owner, (ii) the class and number of shares of Cadence common stock owned directly and indirectly and of record by such stockholder and beneficial owner, (iii) a representation that the stockholder intends to appear in person or by proxy at the meeting to propose the nomination or other business, (iv) the class and number of shares of Cadence common stock beneficially owned (within the meaning of Section 13(d) of the Exchange Act) by such stockholder and beneficial owner as of the date of the notice, and a representation that such stockholder will notify Cadence in writing within five business days after the record date for such meeting of the class and number of Cadence shares beneficially owned by such stockholder or beneficial owner as of the record date for the meeting, (v) a description of any agreement, arrangement or understanding with respect to the nomination for

 

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director or other business between or among such stockholder or beneficial owner and any other person, (vi) a description of any agreement, arrangement or understanding that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder or beneficial owner with the effect or intent to mitigate loss to, manage risk or benefit from changes in Cadence’s share price, or increase or decrease the voting power of the stockholder or beneficial owner, and (vii) a representation as to whether the stockholder or beneficial owner, if any, intends or is part of a group that intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of Cadence’s outstanding shares required to elect the director nominee or approve the other business and/or otherwise to solicit proxies from stockholders in support of the nomination or other business. If a stockholder intending to make a nomination of a director or to propose other business (other than matters properly brought under Rule 14a-8 under the Exchange Act) at an annual meeting pursuant to the terms set forth in Cadence’s Bylaws does not provide the information described in clause (C) above within five business days following the record date for the annual meeting, or the stockholder (or a qualified representative of the stockholder) does not appear at the annual meeting to present the nomination of a director or other business, such nomination of a director or other business shall not be presented for stockholder action at the annual meeting and shall be disregarded, although the proxies in respect of such nomination or other business may have been received by Cadence.

Only candidates nominated in accordance with the procedures set forth above are eligible to serve as directors. Except as otherwise provided by law, the Chair of a meeting determines whether a nomination or any business proposed to be brought before the annual meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in Cadence’s Bylaws and, if any proposed nomination or business is not in compliance with Cadence’s Bylaws, whether to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting.

OTHER MATTERS

The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

By Order of the Board of Directors,

 

LOGO

James J. Cowie

Sr. Vice President, General Counsel and Secretary

March 25, 2016

A COPY OF CADENCE’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 2, 2016 CAN BE FOUND ON THE INTERNET AT WWW.CADENCE.COM/CADENCE/INVESTOR_RELATIONS OR, IF A STOCKHOLDER REQUESTED A PAPER COPY, IT IS BEING DELIVERED WITH THIS PROXY STATEMENT, AND IS ALSO AVAILABLE, ALONG WITH THE FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED WITH THE SEC PURSUANT TO RULE 13A-1 FOR CADENCE’S MOST RECENT FISCAL YEAR, WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, CADENCE DESIGN SYSTEMS, INC., 2655 SEELY AVENUE, BUILDING 5, SAN JOSE, CALIFORNIA 95134.

 

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APPENDIX A

CADENCE DESIGN SYSTEMS, INC.

OMNIBUS EQUITY INCENTIVE PLAN

Approved by the Board of Directors: February 5, 2014

Approved by the Stockholders: May 6, 2014

Amendment and Restatement Approved by the Board of Directors: February 9, 2016

Amendment and Restatement Approved by the Stockholders: May 5, 2016 (Subject to stockholder approval)

Termination Date: May 5, 2026 (Subject to stockholder approval)

This Omnibus Equity Incentive Plan (the “Plan”) of Cadence Design Systems, Inc., a Delaware corporation (the “Company”), amends and restates in its entirety the Plan. Following the Effective Date, no additional Awards shall be granted under the prior plans that have been consolidated into the Plan (the “Prior Plans”), and all outstanding Awards granted under the Prior Plans shall remain subject to the terms of the Prior Plans with respect to which such Awards were originally granted and the Shares issuable under such Awards shall be issued from such Prior Plans. All Awards granted subsequent to the Effective Date shall be subject to the terms of this Plan.

1. PURPOSES OF THE PLAN. The purposes of the Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and its Affiliates, and to promote the success of the Company’s business.

2. DEFINITIONS. As used herein, the following definitions shall apply:

(a) Affiliate” shall mean any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

(b) Award” shall mean any right granted under the Plan, including an Option, an award of Incentive Stock or a Restricted Stock Unit.

(c) Award Agreement” means a written agreement between the Company and a holder of an Award, or other instrument, evidencing the terms and conditions of an individual Award grant. Each Award Agreement shall be subject to the terms and conditions of the Plan.

(d) Board” shall mean the Committee, if one has been appointed, or the Board of Directors, if no Committee is appointed.

(e) Board of Directors” shall mean the Board of Directors of the Company.

(f) Code” shall mean the U.S. Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

(g) Committee” shall mean the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed.

(h) Common Stock” shall mean the common stock of the Company.

(i) Company” shall mean Cadence Design Systems, Inc., a Delaware corporation.

(j) Consultant” shall mean any consultant, independent contractor or adviser rendering services to the Company or an Affiliate (provided that such person renders bona fide services not in connection with the offering and sale of securities in capital raising transactions). The term “Consultant” shall not include non-employee members of the Board of Directors.

(k) Continuous Status as an Employee or Consultant” shall mean the absence of any interruption or termination of service, whether as an Employee or Consultant. The Board shall determine whether Continuous Status as an Employee or Consultant shall be considered interrupted in the case of: (i) any approved leave of absence, including sick leave, military leave or any other personal leave; or (ii) transfers between the Company, Affiliates or their successors. Continuous Status as an Employee or Consultant shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or any Affiliate, provided that there is no interruption or termination thereof.

 

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(l) Effective Date” shall mean May 6, 2014.

(m) Employee” shall mean any person, including officers and directors, employed by the Company or any Affiliate. The payment of a director’s fee or other compensation paid solely on account of service as a director by the Company shall not be sufficient to constitute “employment” by the Company.

(n) Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(o) Fair Market Value” means the closing price of the Common Stock on such date, as reported on the NASDAQ Global Select Market or such other primary national exchange on which the Common Stock is listed. In the event the Common Stock is not listed on an exchange as described in the previous sentence, Fair Market Value with respect to any relevant date shall be determined in good faith by the Board.

(p) Incentive Stock” means shares of Common Stock granted to a Participant pursuant to Section 10 hereof.

(q) Incentive Stock Option” shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(r) Nonstatutory Stock Option” shall mean an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(s) Option” shall mean a stock option granted pursuant to the Plan, which may be either an Incentive Stock Option or a Nonstatutory Stock Option, at the discretion of the Board and as reflected in the terms of the applicable Award Agreement.

(t) Optioned Stock” shall mean the Common Stock subject to an Option.

(u) Parent” shall mean a “parent corporation” of the Company, whether now or hereafter existing, as defined in Section 424(e) of the Code.

(v) Participant” shall mean an Employee or Consultant who receives an Award.

(w) Plan” shall mean this Omnibus Equity Incentive Plan, as amended from time to time.

(x) Prior Plans” shall mean the Company’s Amended and Restated 1987 Stock Incentive Plan and the Company’s Amended and Restated 2000 Equity Incentive Plan (which includes reserved shares of Common Stock that are not subject to a grant or as to which an Award granted has been forfeited under the Company’s 1993 Nonstatutory Stock Incentive Plan, as amended, and the Company’s 1997 Nonstatutory Stock Incentive Plan, as amended).

(y) Qualifying Performance Criteria” shall mean any one or more of the following performance criteria as determined pursuant to an objective formula, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, segment or Affiliate, either individually, alternatively or in any combination, and measured over a performance period determined by the Board, on an absolute basis or relative to a pre-established target, or compared to previous results or to a designated comparison group, in each case as specified by the Board in an Award (and in each case on a GAAP or non-GAAP basis, if applicable): (a) cash flow (including measures of operating or free cash flow), (b) earnings per share (diluted or basic), (c) earnings per share from continuing operations, (d) earnings (including but not limited to earnings before interest, taxes, depreciation and amortization), (e) return on equity, (f) total stockholder return, (g) return on capital, (h) return on assets or net assets, (i) revenue or revenue growth, (j) income or net income, (k) operating income or net operating income, (l) operating profit or net operating profit, (m) operating margin, (n) return on operating revenue, (o) market share, (p) customer loyalty or satisfaction as measured by a customer loyalty or satisfaction index determined by an independent consultant or expert in measuring such matters, (q) return on investment, (r) stock price, (s) market capitalization, (t) cash from operations, (u) product innovation or release schedule, (v) capital expenditure, (w) working capital, (x) cost of capital, (y) cost reductions, (z) bookings and segments of bookings such as net product bookings, (aa) market penetration, and (bb) technology development or proliferation.

(z) Restricted Stock Unit” means an Award granted to a Participant pursuant to Section 10 hereof pursuant to which shares of Common Stock or cash in lieu thereof may be issued in the future.

 

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(aa) Rule 16b-3” shall mean Rule 16b-3 of the Exchange Act, or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

(bb) Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(cc) Share” shall mean a share of Common Stock, as may be adjusted in accordance with Section 12 of the Plan.

(dd) Subsidiary” shall mean a “subsidiary corporation” of the Company, whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. STOCK SUBJECT TO THE PLAN.

(a) Share Reserve. Subject to the provisions of Sections 3(b) and 12 of the Plan, the number of Shares reserved for issuance under the Plan is (i) from and as of the Effective Date, 14,866,116 Shares, comprised of Shares reserved for issuance under the Prior Plans that were not subject to a grant as of the Effective Date, plus (ii) from and as of May 14, 2015, an additional 7,500,000 Shares reserved for issuance pursuant to an amendment to the Plan as of May 14, 2015, plus (iii) from and as of May 5, 2016, an additional 6,000,000 Shares reserved for issuance pursuant to an amendment to the Plan as of May 5, 2016, plus (iv) the number of Shares that are subject to outstanding Awards granted under the Prior Plans that have been forfeited or terminated and revert and become available for issuance under the Plan.

(b) Reversion of Shares to the Share Reserve. If any Award under the Plan or the Prior Plans shall for any reason expire or otherwise terminate, in whole or in part, without having vested or been exercised in full, the shares of Common Stock not acquired under such Award shall revert to and again become available for issuance under the Plan. If the Company repurchases any unvested Shares acquired pursuant to an Award under the Plan or the Prior Plans, such repurchased Shares shall revert to and again become available for issuance under the Plan. Additionally, Shares subject to an Award under the Plan or the Prior Plans may not again be made available for issuance under the Plan if such shares are: (i) shares used to pay the exercise price of an Option, (ii) shares delivered to or withheld by the Company to pay the withholding taxes related to an Award, or (iii) shares repurchased on the open market with the proceeds of an Option exercise.

(c) Source of Shares. Shares issued under the Plan may be authorized, but unissued or reacquired Common Stock.

(d) Tax Code Limits. The aggregate number of Shares subject to Awards granted under this Plan during any calendar year to any one Participant shall not exceed 2,216,702, which number shall be calculated and adjusted pursuant to Section 12 only to the extent that such calculation or adjustment will not affect the status of any Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code. The aggregate number of Shares that may be issued pursuant to the exercise of Incentive Stock Options granted under this Plan shall not exceed the number of shares reserved for issuance under the Plan on and after May 5, 2016 set forth in Section 3(a), which number shall be calculated and adjusted pursuant to Section 12 only to the extent that such calculation or adjustment will not affect the status of any option intended to qualify as an Incentive Stock Option under Section 422 of the Code.

4. ADMINISTRATION OF THE PLAN.

(a) Procedure. The Plan shall be administered by the Board of Directors. The Board of Directors may appoint a Committee consisting of one or more members of the Board of Directors, to administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. In such event, any references in the Plan to the Board of Directors shall be deemed to refer to the Committee. To the extent required to satisfy the requirements of Rule 16b-3 or Section 162(m) of the Code, the Committee shall consist of two or more “Non-Employee Directors” (as defined under Rule 16b-3) or “Outside Directors” (as defined under Section 162(m) of the Code). Once appointed, the Committee shall continue to serve until otherwise directed by the Board of Directors. Unless and until otherwise determined by the Board of Directors, the Compensation Committee of the Board of Directors shall be the “Committee” hereunder. From time to time the Board of Directors may increase or decrease the size of the Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefor, fill

 

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vacancies however caused and remove all members of the Committee, and thereafter directly administer the Plan. Notwithstanding anything in this Section 4 to the contrary, at any time the Board of Directors or the Committee may delegate to a committee of one or more members of the Board of Directors the authority to grant Awards to all Employees and Consultants or any portion or class thereof, to the extent consistent with applicable law or regulations. In addition, the Board of Directors or the Committee may by resolution authorize one or more officers of the Company to perform any or all tasks that the Board is authorized and empowered to do or perform under the Plan, to the extent permitted by applicable law, and for all purposes under the Plan, such officer or officers shall be treated as the Board; provided, however, that the resolution so authorizing such officer or officers shall specify the maximum number of Shares per Award (if any) and the total number of Shares (if any) such officer or officers may award pursuant to such delegated authority, and any such Award shall be subject to the form of Award Agreement theretofore approved by the Board of Directors or the Committee. No such officer shall designate himself or herself, or designate any executive officer (that is, an officer within the meaning of Section 16 of the Exchange Act) or member of the Board of Directors, as a recipient of any Awards granted under authority delegated to such officer.

(b) Powers of the Board. Subject to the provisions of the Plan, the Board shall have the authority, in its discretion: (i) to grant Awards under the Plan; (ii) to determine the exercise, sales or purchase price per share of Awards to be granted, which price shall be determined in accordance with Sections 8(a) and 10(c) of the Plan, as applicable; (iii) to determine the Employees or Consultants to whom, and the time or times at which, Awards shall be granted, the number of Shares to be represented by each Award, and the terms of such Awards; (iv) to interpret the Plan; (v) to prescribe, amend and rescind rules and regulations relating to the Plan; (vi) to determine the terms and provisions of each Award granted (which need not be identical) in accordance with the Plan, and, with the consent of the holder thereof with respect to any adverse change, modify or amend each Award; (vii) to accelerate or defer (the latter with the consent of the Participant) the exercise date and vesting of any Award; (viii) to adopt any sub-plan to the Plan for grants of Awards to Employees residing outside the United States to comply with tax, securities or other non-U.S. legal requirements or to provide favorable tax treatment for Awards; (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Award previously granted by the Board; and (x) to make all other determinations deemed necessary or advisable for the administration of the Plan. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

(c) Effect of Board’s Decision. All decisions, determinations and interpretations of the Board shall be final and binding on all Participants and any other holders of any Awards granted under the Plan.

5. ELIGIBILITY. Awards may be granted only to Employees or Consultants. An Employee or Consultant who has been granted an Award may, if he or she is otherwise eligible, be granted an additional Award.

Incentive Stock Options may only be granted to Employees. The aggregate Fair Market Value (determined at the time the Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by such individual during any calendar year (under the Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) shall not exceed $100,000. To the extent that the grant of an Option exceeds this limit, the portion of the Option that exceeds such limit shall be treated as a Nonstatutory Stock Option.

The Plan shall not confer upon any Participant any right with respect to continuation of employment or consultancy by the Company or any Affiliate, as applicable, nor shall it interfere in any way with the Participant’s right or the Company’s or any Affiliate’s right, as applicable, to terminate the Participant’s employment at any time or the Participant’s consultancy pursuant to the terms of the Consultant’s agreement with the Company or any Affiliate.

6. TERM OF THE PLAN. The Board of Directors approved the Plan on February 5, 2014. The Plan shall become effective upon approval by the stockholders of the Company. Subject to approval of the stockholders of the Company, the Plan, as may be amended from time to time, shall continue in effect until May 5, 2026 unless sooner terminated under Section 14 hereof.

 

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7. TERM OF OPTION; VESTING PROVISIONS.

(a) Opt