def14a
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 o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o 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):
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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
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CADENCE
DESIGN SYSTEMS, INC.
2655
SEELY AVENUE
SAN JOSE, CALIFORNIA 95134
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Be Held on May 10,
2011
TO THE STOCKHOLDERS OF CADENCE DESIGN SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
of CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, will be
held on May 10, 2011, at 1:00 p.m. Pacific time, at
Cadences offices located at 2655 Seely Avenue, Building
10, San Jose, California 95134 for the following purposes:
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1.
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To elect directors to serve until the 2012 Annual Meeting of
Stockholders and until their successors are elected and
qualified, or until the directors earlier death,
resignation or removal.
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2.
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To approve the 2000 Equity Incentive Plan, including an increase
in the number of shares of common stock reserved for issuance
thereunder.
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3.
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To re-approve the performance goals under the Senior Executive
Bonus Plan for compliance with Section 162(m) of the
Internal Review Code of 1986, as amended.
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4.
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To re-approve the performance goals under the 1987 Stock
Incentive Plan for compliance with Section 162(m) of the
Internal Review Code of 1986, as amended.
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5.
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To approve an amendment to the 1987 Stock Incentive Plan,
including an increase in the number of shares of common stock
reserved for issuance thereunder.
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6.
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To vote on a non-binding advisory resolution regarding executive
compensation.
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7.
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To vote on a non-binding advisory resolution regarding the
frequency of non-binding stockholder votes regarding executive
compensation.
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8.
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To ratify the selection of KPMG LLP as the independent
registered public accounting firm of Cadence for its fiscal year
ending December 31, 2011.
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9.
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To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
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These items of business are more fully described in the proxy
statement accompanying this notice.
Cadences Board of Directors has fixed the close of
business on March 15, 2011 as the record date for the
determination of stockholders entitled to notice of, and to vote
at, this Annual Meeting of Stockholders and at any adjournment
or postponement thereof.
By Order of the Board of Directors
James J. Cowie
Sr. Vice President, General Counsel and Secretary
San Jose, California
March 28, 2011
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.
TABLE OF
CONTENTS
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CADENCE
DESIGN SYSTEMS, INC.
2655 SEELY AVENUE
SAN JOSE, CALIFORNIA 95134
PROXY
STATEMENT
FOR ANNUAL MEETING OF
STOCKHOLDERS
MAY 10, 2011
INFORMATION
CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of
Directors of Cadence Design Systems, Inc., a Delaware
corporation, which is referred to in this proxy statement as
Cadence, for use at its Annual Meeting of Stockholders to be
held on May 10, 2011, 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
Cadences 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
http://www.cadence.com/company/investor_relations/index.aspx
on or about March 28, 2011.
INTERNET
AVAILABILITY OF PROXY MATERIALS
Pursuant to the rules adopted by the U.S. Securities and
Exchange Commission, which is referred to in this proxy
statement as 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 its annual meeting
and helps conserve natural resources. On or about March 28,
2011, Cadence will mail to each stockholder (other than those
stockholders who previously had requested electronic or paper
delivery) a Notice of Internet Availability of Proxy Materials
containing instructions on how to access and review the proxy
materials, including 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.
An audio webcast of the annual meeting will also be available on
the investor relations page of Cadences website at
http://www.cadence.com/company/investor_relations/index.aspx.
The webcast will allow investors to listen to the proceedings of
the annual meeting, but stockholders accessing the annual
meeting using the Internet will not be considered present at the
annual meeting by virtue of this access and will not be able to
vote on matters presented at the annual meeting or ask any
questions of Cadences directors, management or independent
registered public accounting firm. For a description of how to
vote on matters presented at the annual meeting, see
Voting below. The webcast will begin promptly at
1:00 p.m. Pacific time on the day of the annual meeting and
may be accessed on Cadences website for 30 days
thereafter.
VOTING
RIGHTS AND OUTSTANDING SHARES
Only holders of record of Cadences outstanding common
stock, $0.01 par value per share, at the close of business
on March 15, 2011, which is referred to in this proxy
statement as the record date, will be entitled to notice of and
to vote at the annual meeting. At the close of business on the
record date, Cadence had 268,572,911 shares of common stock
outstanding and entitled to vote. Each holder of record of
common stock outstanding at the close of business on the record
date will be entitled to one vote for each share held on all
matters to be voted on at the annual meeting.
1
QUORUM;
ABSTENTIONS; BROKER NON-VOTES
The presence in person or by proxy of a majority of the shares
of Cadence common stock outstanding and entitled to vote on the
record date is required for a quorum at the annual meeting. Both
abstentions and broker non-votes are counted as
present for purposes of determining the presence of a quorum,
but broker non-votes will not be counted towards the tabulation
of votes cast on proposals presented to stockholders.
Broker non-votes include shares for which a bank, broker or
other nominee 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. Brokers are not permitted to vote on the election of
directors without instructions from the beneficial owner,
because the election of directors (Proposal 1) and
Proposals 2, 3, 4, 5, 6 and 7 are 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, 4, 5, 6 or 7. Proposal 8, regarding
the ratification of Cadences independent registered public
accounting firm, is considered a routine matter and brokers are
therefore permitted to vote shares held by them without
instruction.
ANNUAL
MEETING ADMISSION
Stockholders at the close of business on the record date or
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 drivers
license or passport, and verification of Cadence stock ownership
for admittance. For stockholders at the close of business on the
record date, proof of ownership as of the record date will be
verified prior to admittance into the annual meeting. For
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, proof of beneficial ownership at
the close of business on the record date, such as an account
statement or similar evidence of ownership, will be verified
prior to admittance into the annual meeting. Stockholders will
be admitted to the annual meeting if they comply with these
procedures. Please allow ample time for admittance to the
1:00 p.m. Pacific time meeting time.
VOTE
REQUIRED
The election of directors at the annual meeting requires that
each director receive a majority of the votes cast at the annual
meeting (number of shares voted for a director must
exceed the number of votes cast against that
director), provided that in a contested election, each director
shall 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.
BNY Mellon Shareowner Services has been appointed as the
inspector of elections for the annual meeting. All votes will be
tabulated by a representative of BNY Mellon Shareowner Services.
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.
If a stockholder attends the annual meeting, he or she may also
submit his or her vote in person, and any votes that were
previously submitted whether via the Internet, by
telephone or by mail will be superseded by the vote
that is cast at the annual meeting. Whether the proxy is
submitted via the Internet, by telephone or by mail, if it
2
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 Cadences
Corporate Secretary at Cadences corporate offices located
at 2655 Seely Avenue, Building 5, San Jose, California
95134, or it may be revoked by attending the meeting and voting
in person. Attendance at the annual meeting will not, by itself,
be sufficient to revoke a proxy. Accessing the webcast of the
annual meeting will not, by itself, constitute attendance at the
annual meeting and will not enable a stockholder to revoke his,
her or its proxy via the Internet, unless the proxy revocation
procedures set forth above are followed.
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 its common stock for their costs of
forwarding solicitation materials to the beneficial owners. The
solicitation of proxies through this proxy statement may be
supplemented by telephone, facsimile, and use of the Internet or
personal solicitation by directors, officers or other employees
of Cadence and by Georgeson Inc., which is referred to in this
proxy statement as Georgeson. Cadence has retained Georgeson to
solicit proxies and to separately prepare a stockholder vote
analysis of certain proposals for an aggregate fee of
approximately $50,000, 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 Cadences 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 Cadences Notice of Internet
Availability of Proxy Materials and proxy materials by writing
to Cadences Corporate Secretary at Cadences
corporate offices located at 2655 Seely Avenue, Building 5,
San Jose, California 95134, or by calling Cadences
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 this
years annual meeting, you should follow the instructions
provided in the Notice of Internet Availability of Proxy
Materials. Copies of Cadences SEC filings and certain
other submissions are made available free of charge on the
investor relations page of Cadences website at
http://www.cadence.com/company/investor_relations/index.aspx
as soon as practicable after Cadence electronically files or
furnishes these documents with the SEC. Information on
Cadences 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, which is referred to in this proxy
statement as NASDAQ.
Cadence and its Board of Directors, which is referred to in this
proxy statement as the Board, regularly review and evaluate
Cadences corporate governance practices. Cadences
corporate governance documents are posted on the investor
relations page of its website at
http://www.cadence.com/company/investor_relations/index.aspx.
Paper copies of these documents are also available to
stockholders upon written request directed to Cadences
Corporate Secretary at Cadences corporate offices located
at 2655 Seely Avenue, Building 5, San Jose, California
95134.
CORPORATE
GOVERNANCE GUIDELINES
The Board has adopted Corporate Governance Guidelines of the
Board of Directors, which are referred to in this proxy
statement as the Corporate Governance Guidelines. The Corporate
Governance Guidelines cover various topics relating to the Board
and its activities including, but not limited to, the selection
and composition of the Board, Board leadership, compensation of
directors, responsibilities of directors, Board access to senior
management and outside advisors, meeting procedures and board
and committee responsibilities and other matters. The Corporate
Governance and Nominating Committee of the Board periodically
reviews the Corporate Governance Guidelines, which may be
amended by the Board at any time, and were most recently amended
in November 2010.
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, which is referred to in this proxy statement as the Code
of Business Conduct. The Code of Business Conduct applies to all
Cadence directors, officers and employees (and those of its
subsidiaries), including Cadences President and Chief
Executive Officer, who is referred to in this proxy statement as
the CEO, and Cadences Senior Vice President and Chief
Financial Officer, who is referred to in this proxy statement as
the CFO. Compliance with the Code of Business Conduct is a
condition of continued service to or employment with Cadence.
The Code of Business Conduct covers topics including, but not
limited to, integrity and confidentiality of assets and
information, conflicts of interest, compliance with federal and
state securities laws, employment practices, payment practices,
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:
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Employees must 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
(employees may report possible misconduct on an anonymous basis);
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Executive officers must report 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 chair of the Audit
Committee, executive officers are to contact the Chair of the
Corporate Governance and Nominating Committee or another member
of the Corporate Governance and Nominating Committee; and
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Directors must report to the chair of the Audit Committee 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.
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Any waiver of a provision of the Code of Business Conduct with
respect to a director or an executive officer may only be made
by the Board or the Corporate Governance and Nominating
Committee. Any waivers for other employees may be granted only
by the 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
4
and any waiver of its provisions 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
The Board has adopted Stock Ownership Guidelines for its members
and Cadences executive officers, to align the interests of
its directors and executive officers with the interests of
stockholders and to further promote Cadences commitment to
sound corporate governance. Each member of the Board is
encouraged to hold at least 5,000 shares of Cadence common
stock within the first two years of his or her election to the
Board, and Cadences executive officers are encouraged to
hold at least the following number of shares of Cadence common
stock no later than five years after the date of his or her
designation to the following offices: CEO
100,000 shares; CFO 50,000 shares; and
Senior Vice Presidents 25,000 shares. 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 according to Cadences Stock
Ownership Guidelines.
CADENCES
BOARD OF DIRECTORS
DIRECTOR
INDEPENDENCE
Cadences 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 making these
determinations, the Board considers all relevant facts and
circumstances and applies the following standards:
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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;
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A director who accepts, or whose family member accepts, more
than $120,000 in compensation from Cadence or any of its
subsidiaries, 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, until three years after the
date of payment;
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A director who is, or whose family member is, a current partner
or employee of Cadences independent registered public
accounting firm is not independent;
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A director who was, or whose family member was, a partner or
employee of Cadences independent registered public
accounting firm who worked on Cadences audit during that
time is not independent until three years after the end of the
employment relationship;
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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 Cadences 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 recipients consolidated
gross revenues 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.
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The Board has determined that Ms. Bostrom, Dr. Shoven
and Messrs. Lucas, Scalise, Siboni and Swainson, 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 1, 2011, the Board
held ten meetings, in addition to taking actions by unanimous
written consent in lieu of a meeting. Each director attended
more than 75% of the meetings of the Board and of the committees
on which he served that were held during the period for which he
was a director or committee member during fiscal 2010. The
Corporate Governance Guidelines encourage directors to attend
the annual meeting of stockholders. All of Cadences
then-current directors attended the 2010 Annual Meeting of
Stockholders.
Under the Corporate Governance Guidelines, Cadences
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 OF DIRECTORS
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 OF DIRECTORS
The Board currently has the following committees:
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Audit Committee;
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Compensation Committee;
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Corporate Governance and Nominating Committee; and
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Finance Committee.
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6
Each of the above committees has a written charter approved by
the Board. The charters of the Audit Committee, the Compensation
Committee and the Corporate Governance and Nominating Committee
are posted on the investor relations page of Cadences
website at
http://www.cadence.com/company/investor_relations/index.aspx.
The members and chairs of the current committees are identified
in the following table.
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Corporate
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Governance
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and
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Director
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Audit
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Compensation
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Nominating
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Finance
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Susan L. Bostrom
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ü
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Donald L. Lucas
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ü
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ü
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Chair
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Chair
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Dr. Alberto Sangiovanni-Vincentelli
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George M. Scalise
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ü
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ü
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Dr. John B. Shoven
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ü
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Chair
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ü
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ü
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Roger S. Siboni
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Chair
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ü
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ü
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John A.C. Swainson
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ü
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ü
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Lip-Bu Tan
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Audit
Committee
The Board has determined that all members of the Audit Committee
are independent as defined by the NASDAQ listing
standards and
Rule 10A-3
of the Securities Exchange Act of 1934, as amended, which is
referred to in this proxy statement as the Exchange Act. The
Board has also determined that each of the three members of the
Audit Committee is an audit committee financial
expert as defined in rules promulgated by the SEC. In
addition, the Board has determined that each Audit Committee
member is able to read and understand fundamental financial
statements and, other than strictly in his capacity as a member
of the Board or a committee of the Board, has not participated
in preparing Cadences financial statements in any of the
past three years.
The Audit Committee charter was last amended in February 2010
and complies with the NASDAQ listing standards. The duties and
responsibilities of the Audit Committee include:
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Appointing, retaining, compensating, evaluating, overseeing and
terminating Cadences 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;
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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;
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Reviewing and discussing with the independent registered public
accounting firm their 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;
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Reviewing with the independent registered public accounting firm
their audit procedures, including the scope and timing of the
audit, the results of the annual audit and any audit problems or
difficulties and managements response to any such problems
or difficulties;
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Meeting to review with management and the independent registered
public accounting firm Cadences annual and quarterly
financial statements, reports and specific disclosures, and
recommending to the Board whether the financial statements
should be included in Cadences Annual Report on
Form 10-K;
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7
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Reviewing and discussing the adequacy and effectiveness of
Cadences internal controls, disclosure controls and
procedures and practices with respect to risk assessment and
risk management as they relate to financial reporting; and
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Establishing and overseeing procedures for the receipt,
retention and treatment of complaints regarding accounting,
internal controls or auditing matters, including a system for
the confidential anonymous submission of accounting or auditing
concerns by Cadence employees.
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The Audit Committee held nine meetings during fiscal 2010. See
Report of the Audit Committee below for more
information.
Compensation
Committee
The Compensation Committee of the Board, which is referred to in
this proxy statement as the Compensation Committee, is 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. In addition, all
Compensation Committee members are outside directors
within the meaning of Section 162(m) of 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. As provided
in its charter, the Compensation Committee acts on behalf of the
Board to identify, review and approve corporate goals and
objectives relevant to the compensation of Cadences CEO
and any director who is also a Cadence employee, evaluate the
performance of the CEO and any director who is also a Cadence
employee in light of those goals and objectives, and determine
and approve the compensation of the CEO and any director who is
also a Cadence employee. Although the Compensation Committee may
delegate its authority 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 and director compensation in fiscal 2010 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, which is
referred to in this proxy statement as the Bonus Plan,
Cadences equity-based compensation plans and stock
purchase plans, and Cadences deferred compensation plans.
The Compensation Committee also reviews and recommends to the
Board the compensation of Cadences directors.
The Compensation Committee charter was last amended in February
2010. The duties and responsibilities of the Compensation
Committee include:
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Identifying, reviewing and approving corporate goals and
objectives relevant to the compensation of Cadences 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, either
as a committee or together with the independent directors of the
Board, the compensation of the CEO and any employee director
based on such evaluation;
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Overseeing the evaluation of the executive officers of Cadence;
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Reviewing periodically Cadences management succession
planning in consultation with the CEO and reporting to the
Board, at least annually, on CEO succession planning;
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Reviewing compensation programs and determining the compensation
of Cadences executive officers;
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Reviewing and discussing with management Cadences
Compensation Discussion and Analysis and related disclosures
that are required be included in Cadences annual report
and proxy statement, recommending to the Board, based on the
review and discussions, whether the Compensation Discussion and
Analysis should be included in the annual report and the proxy
statement, and preparing the compensation committee report that
SEC rules require to be included in the annual report and the
proxy statement;
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8
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Overseeing Cadences overall compensation practices,
policies and programs, assessing whether Cadences
compensation structure establishes appropriate incentives for
management and employees, and assessing the risks associated
with such practices, policies and programs; and
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Reviewing and, in certain cases, amending and administering
Cadences general compensation plans including:
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Equity incentive and stock purchase plans;
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Benefit programs; and
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Bonus plans.
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In fiscal 2010, the Compensation Committee retained the services
of a compensation consultant, Semler Brossy Consulting Group,
LLC, or Semler Brossy, for advice regarding the compensation of
Cadences 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 Cadences stockholders. Semler
Brossy has not been engaged to perform any other work for
Cadence.
The Compensation Committee retained Semler Brossy for a number
of purposes, including:
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Constructing and reviewing peer groups for compensation
comparison purposes;
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Performing a competitive assessment of Cadences
compensation programs, practices and levels for its executive
officers and other select employees; and
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Providing information on typical industry practices concerning
employment, equity practices, severance and change in control
agreements.
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The Compensation Committee made a number of compensation
decisions, including decisions with respect to Cadences
Named Executive Officers (as defined below in Compensation
Discussion and Analysis), based on the competitive
assessments provided by and through consultation with Semler
Brossy. In addition, Cadences 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 CEOs recommendations. The Compensation
Committees 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 Cadences compensation practices, policies and
programs for all employees, including the Named Executive
Officers, to assess the risks associated with such practices,
policies and programs. Among the risk-mitigating factors
considered by the Compensation Committee are:
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The use of different types of compensation that provide a
balance of short- and long-term incentives with fixed and
variable components;
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Cadences Stock Ownership Guidelines;
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Cadences Clawback Policy, which, in the event of a
restatement of Cadences reported financial results, allows
Cadence to seek to recover or cancel performance-based bonuses
and awards made to senior executives to the extent that
performance goals would not have been met under such restated
financial results;
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Caps on bonus awards to limit windfalls;
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The Named Executive Officers must obtain permission from
Cadences General Counsel before trading any shares of
Cadence common stock, even during an open trading
period; and
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9
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The Compensation Committees consideration of ethical
behavior as integral in assessing the performance of all
executive officers, including the Named Executive Officers.
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The Compensation Committee held four meetings during fiscal 2010.
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 November 2010. The duties and responsibilities
of the Corporate Governance and Nominating Committee include:
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Determining the Boards 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;
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Interviewing and evaluating candidates for Board membership;
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Reviewing, at least annually, the appropriate skills and
characteristics required for directors in the context of the
current composition of the Board;
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Reviewing periodically the size of the Board and recommending
any proposed changes to the Board;
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Overseeing the annual evaluation of the Board and its
committees, and considering the results of the annual evaluation;
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Retaining, terminating and approving the fees and retention
terms with respect to any search firm employed to identify
director candidates;
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Evaluating, at least annually, each Board members
performance and effectiveness and determining whether the Board
desires continued service;
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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;
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Reviewing, at least annually, the Corporate Governance
Guidelines and the Code of Business Conduct;
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Overseeing the administration of the Code of Business Conduct
and administering the Code of Business Conduct with respect to
Cadences directors and executive officers;
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Reviewing and approving any related person transactions as
defined in applicable SEC rules and establishing policies and
procedures for the review, approval and ratification of such
transactions; and
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Reviewing whether it is appropriate for a director to continue
service 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.
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The Corporate Governance and Nominating Committee uses a variety
of methods to identify and evaluate director nominees. The
committee periodically assesses the appropriate size of the
Board, and whether any vacancies on the Board are expected due
to retirement of directors or otherwise, and the need for
particular expertise on the Board. If vacancies are anticipated
or otherwise arise, the committee considers potential director
candidates. Additionally, candidates may come to the attention
of the committee through current directors, officers,
professional search firms, stockholders or other persons. These
candidates are evaluated at regular or special meetings of the
committee, and may be considered at any point during the year.
In connection with this evaluation, the Corporate Governance and
Nominating Committee determines whether to interview the
prospective nominee and, as warranted, one or more members of
the committee, and others as appropriate, interview prospective
nominees in person or by telephone. After completing this
evaluation and interview, the committee makes a recommendation
to the full Board as to the persons who should be nominated or
elected by the Board, and the Board determines
10
whether to reject, elect or nominate the candidate, as the case
may be, after considering the recommendation of the committee.
In February 2011, the Board elected Susan L. Bostrom to serve as
a director.
The Corporate Governance and Nominating Committee will consider
individuals recommended by stockholders for nomination as a
director pursuant to the provisions of Cadences Bylaws
relating to stockholder nominations. A stockholder who wishes to
recommend a prospective nominee for the Board should notify
Cadences Corporate Secretary or the Corporate Governance
and Nominating Committee in writing with the supporting material
required by Cadences Bylaws as described under Other
Matters Stockholder Proposals and Nominations
below, and any other material the stockholder considers
necessary or appropriate.
Although the Board currently has no defined minimum criteria for
consideration or continued service as a director, the Corporate
Governance and Nominating Committee evaluates prospective
nominees against the standards and qualifications set out in the
Corporate Governance Guidelines and other relevant factors as it
deems appropriate. Among the factors the Board may consider are
the current composition of the Board, the need for particular
expertise, a prospective nominees 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 and
semiconductor technologies, international background and other
relevant characteristics. At least a majority of the directors
on the Board must be independent as defined by the
NASDAQ listing standards and as determined by the Board.
The Corporate Governance and Nominating Committee held three
meetings during fiscal 2010.
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 seven meetings during fiscal 2010.
Technology
Committee
The Technology Committee was constituted to monitor trends in
technology that might affect Cadences strategic plans,
advise the Board regarding Cadences research and
development activities and review and make recommendations to
management regarding Cadences leading technologists and
researchers.
The Technology Committee held three meetings during fiscal 2010
and was dissolved in February 2011 because the Board determined
that it was more efficient for the Board as a whole, in
conjunction with management, to monitor trends in technology
that may affect Cadences strategic plans.
Board
Leadership Structure
Mr. Tan serves as CEO and Dr. Shoven, an independent
director, serves as Chairman of the Board. The Board believes
that Cadence and its stockholders are best served at this time
by this leadership structure because it is valuable to have
strong independent leadership to assist the Board in fulfilling
its role of overseeing the management of Cadence and its risk
management practices, separate from the CEO. However, 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. This provides the Board with flexibility to
determine whether the two roles should be combined in the future
based on Cadences needs and the Boards assessment of
Cadences leadership from time to time. The Corporate
Governance Guidelines provide for a lead independent director if
the roles are combined.
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
11
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 Cadences financial condition, financial
statements, financial reporting process and accounting matters.
The Compensation Committee is responsible for overseeing
Cadences 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 Cadences management the risk management
practices for which they have oversight responsibility. Since
overseeing risk is an ongoing process and inherent in
Cadences strategic decisions, the Board and the relevant
committees also discuss risk throughout the year in relation to
specific proposed actions.
COMPENSATION
OF DIRECTORS
Directors who are Cadence employees do not receive additional
compensation for their service on the Board. The following table
sets forth the compensation earned by Cadences
non-employee directors (as defined below) for their service on
the Board in fiscal 2010:
DIRECTOR
COMPENSATION FOR FISCAL
2010*
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Fees Earned
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Option
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All Other
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or Paid in Cash
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Awards
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Compensation
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Total
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Name
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($)
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($)(1)(2)
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($)(3)
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($)
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Donald L. Lucas
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$
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187,000
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$
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71,823
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$
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8,279
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$
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267,102
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Dr. Alberto Sangiovanni-Vincentelli
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137,000
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71,823
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883
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209,706
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George M. Scalise
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110,000
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71,823
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0
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181,823
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Dr. John B. Shoven
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228,000
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143,645
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4,833
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376,478
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Roger S. Siboni
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161,000
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71,823
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17,435
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250,258
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John A.C. Swainson
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101,000
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71,823
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0
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172,823
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* |
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Susan L. Bostrom was appointed to the Board on
February 14, 2011 and is therefore not included in the
table above, which relates only to fiscal 2010. |
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(1) |
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As of January 1, 2011, the aggregate number of outstanding
stock options held by each director was as follows:
Mr. Lucas 220,000;
Dr. Sangiovanni-Vincentelli 272,500;
Mr. Scalise 247,500;
Dr. Shoven 408,750; Mr. Siboni
260,000; and Mr. Swainson 125,000. |
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(2) |
|
In accordance with SEC rules, the amount shown reflects the
grant date fair value of stock options granted during fiscal
2010 calculated pursuant to Financial Accounting Standards Board
Codification (ASC) 718, Compensation Stock
Compensation, which is referred to in this proxy statement
as FASB ASC 718. The grant date fair value is based on the
price of Cadence common stock on the date the stock option 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 stock option will actually realize upon the
vesting of the stock option nor whether the stock option will be
exercised or exercisable prior to its expiration. The
assumptions used to calculate the valuation of the stock options
for fiscal 2010 are set forth in Note 11 to the Notes to
Consolidated Financial Statements in Cadences Annual
Report on
Form 10-K
for the fiscal year ended January 1, 2011. |
|
(3) |
|
All Other Compensation for Drs. Sangiovanni-Vincentelli and
Shoven and Messrs. Lucas and Siboni consists of
reimbursements pursuant to the director medical and prescription
benefits coverage reimbursement plan described below. |
A non-employee director is a Cadence director who
was not an employee of Cadence during fiscal 2010. 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. In May 2009, the
Board temporarily reduced the retainer fees payable to the
non-employee directors and the retainer fee payable to the
Chairman of the Board by 10% each, effective July 1, 2009
through March 31, 2010. In February 2010, the Board
extended the duration of the reduction through June 30,
2010. Effective July 1, 2010, the annual retainer for
non-employee directors was restored back to its original fiscal
2009 level. A non-employee director serving as Chairman of the
Audit Committee or the Finance
12
Committee receives an annual retainer of $40,000 per year and a
non-employee director serving as Chairman of the Corporate
Governance and Nominating Committee or the Compensation
Committee receives an annual retainer of $20,000 per year. In
2010 and prior to the dissolution of the Technology Committee,
the Chairman of the Technology Committee also received an annual
retainer of $40,000 per year. A non-employee director serving as
Chairman of the Board is also eligible to receive fees for
service as the Chairman of any of these Board committees.
Each non-employee director of Cadence earned a $76,000 retainer
for his service on the Board in fiscal 2010. Dr. Shoven
earned an additional $76,000 retainer for his service as
Chairman of the Board in fiscal 2010 and a retainer of $20,000
for his service as Chairman of the Compensation Committee.
Mr. Siboni and Dr. Sangiovanni-Vincentelli each earned
a retainer of $40,000 for his service as Chairman of the Audit
Committee and Chairman of the Technology Committee,
respectively. Mr. Lucas earned a retainer of $20,000 for
his service as the Chairman of the Corporate Governance and
Nominating Committee and a retainer of $40,000 for his service
as the Chairman 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 their expenses incurred in connection with
attending Cadences Board meetings in accordance with
Cadences policy.
Each non-employee director also receives stock option grants
under Cadences 1995 Directors Stock Option Plan, as
amended, which is referred to in this proxy statement as the
Directors Plan. Only non-employee directors are eligible to
receive stock options under the Directors Plan.
Under the Directors Plan, each non-employee director, upon
joining the Board, is automatically granted a one-time option to
purchase the number of shares of Cadence common stock equal to
6,250 multiplied by the number of full calendar quarters between
the date the directors service begins and the next
April 1st. A director is considered to have served the full
calendar quarter if he or she becomes a director at any time
during the first half of the quarter. These initial grants vest
and become exercisable in full on the
March 31st following
the grant date and have an exercise price equal to the average
closing price of Cadence common stock for the 20 trading days
prior to the grant date.
In addition, every
April 1st,
each non-employee director is automatically granted an option to
purchase 25,000 shares of Cadence common stock and a
non-employee director serving as Chairman of the Board is
automatically granted an option to purchase an additional
25,000 shares of common stock. These annual stock option
grants vest and become exercisable in full on the March
31st following
the grant date and have an exercise price equal to the average
closing price of Cadence common stock for the 20 trading days
prior to the grant date.
Directors may elect to defer compensation payable to them under
Cadences 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 Cadences deferred compensation
plan.
Furthermore, a medical and prescription benefits coverage
reimbursement plan is available for active non-employee
directors, eligible retired directors and their dependents. All
non-employee directors and their dependents are eligible for
coverage under the plan during their term of service on the
Board. Retired employee and non-employee directors and their
dependents are eligible for continuing coverage under the plan
after the directors termination of service for a term not
to exceed such directors term of service on the Board. In
accordance with the plan, which was last amended in February
2011, a directors eligibility for participation in the
plan immediately ceases if the plan administrator determines
that an eligible director violated the Code of Business Conduct
or is engaged as employee, consultant, director, advisor, or
significant investor of a Cadence competitor. Under the plan,
Cadence reimburses 100% of the premiums for participants and
their dependents up to a maximum of $20,000 per calendar year,
which maximum amount may be adjusted for future changes in
medical costs. Benefits under the plan are fully taxable to the
participants and Cadence does not gross up reimbursement
payments to cover any such taxes. Messrs. Lucas and Siboni
and Drs. Sangiovanni-Vincentelli and Shoven maintained
medical coverage under this plan in fiscal 2010.
13
PROPOSAL 1
ELECTION
OF DIRECTORS
The Corporate Governance and Nominating Committee of the Board
has recommended, and the Board has nominated, the eight nominees
named below for election to the Board. Each director elected at
the 2011 Annual Meeting of Stockholders will hold office until
the 2012 Annual Meeting of Stockholders and until his or her
successor is elected and qualified, or until the directors
earlier death, resignation or removal. Each nominee listed below
is currently a Cadence director, and all of the nominees have
previously been elected by Cadences stockholders.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR EACH NAMED
NOMINEE.
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 Cadences business. In
addition, the Board believes that there are certain attributes
that every director should possess, as reflected in the
Boards 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 Boards overall
composition and Cadences current and future needs.
The Corporate Governance and Nominating Committee is responsible
for developing and recommending Board membership criteria to the
Board for approval. The criteria, which are set forth in the
Corporate Governance Guidelines, include a prospective
nominees 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 and semiconductor 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 Cadences 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:
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Strong technologists with in-depth understanding of electronic
design and semiconductor technologies, which is vital in
understanding and reviewing Cadences strategy, including
product development and the acquisition of businesses that offer
complementary products, services or technologies;
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Current or former executives with significant operating
experience that gives them specific insight into developing,
implementing and assessing our operating plan and business
strategy;
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Substantial international experience, which is particularly
important given our global presence;
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Financial expertise with which to evaluate our financial
statements and capital structure; and
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14
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Corporate governance experience from publicly traded companies
to support our 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 eight director nominees listed below are highly
qualified and have the skills and experience required for
service on our Board. The biographies below contain information
regarding each of their experiences, 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 2011 Annual Meeting of Stockholders, are set forth below:
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Susan L. Bostrom
50 Years Old
Director Since February 2011, and previously from 2001 to
2005
Former Executive Vice President,
Chief Marketing Officer,
Worldwide Government Affairs,
Cisco Systems, Inc.
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Susan L. Bostrom has served as Executive Vice President, Chief
Marketing Officer, Worldwide Government Affairs, of Cisco
Systems, Inc., a networking equipment provider, from January
2006 to January 2011. From 1997 to January 2006, Ms. Bostrom
served in a number of positions at Cisco Systems, Inc.,
including as Senior Vice President, Chief Marketing Officer,
Vice President of the Internet Business Solutions Group and Vice
President of Applications and Services Marketing. Ms. Bostrom
also serves as a director of Varian Medical Systems, Inc. and
Stanford Hospital and Clinics and is a member of the Advisory
Board of the Stanford Institute for Economic Policy Research.
Ms. Bostrom is also a member of the Management Board of the
Stanford Graduate School of Business.
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As a former leader at one of the worlds leading technology
companies, Ms. Bostrom has broad knowledge of marketing,
government affairs and developing trends in networking and new
media, as well as financial and corporate governance expertise.
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Donald L. Lucas
81 Years Old
Director Since 1988
Private Venture Capital Investor
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Donald L. Lucas served as Chairman of the Board of Cadence from
1988 to 2004. From its inception in 1983 to 1987, Mr. Lucas
served as Chairman of the Board and a director of SDA Systems,
Inc., a predecessor of Cadence. Mr. Lucas has been a private
venture capital investor since 1960. Mr. Lucas also serves as a
director of 51job, Inc., and Oracle Corporation.
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Mr. Lucas served as a director of Vimicro International
Corporation from July 2004 to July 2010, and Spansion, Inc. from
September 2007 to May 2010.
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As a successful private venture capital investor and long-time
director for a range of large and small technology companies,
Mr. Lucas is highly regarded for his business judgment and has
broad industry and business experience, as well as financial and
corporate governance expertise.
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Dr. Alberto Sangiovanni-Vincentelli 63 Years
Old
Director Since 1992
Professor of Electrical Engineering
and Computer Sciences,
University of California, Berkeley
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Dr. Alberto Sangiovanni-Vincentelli is a co-founder of SDA
Systems, Inc., a predecessor of Cadence, and currently serves as
a consultant to Cadences CEO. Since 1976,
Dr. Sangiovanni-Vincentelli has been a professor of
electrical engineering and computer sciences at the University
of California, Berkeley, where he holds the Edgar L. and Harold
H. Buttner Chair of Electrical Engineering.
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 impact on the
development of electronics and electrical engineering or related
fields in 2008 and the ACM/IEEE A. Richard Newton Technical
Impact Award in Electronic Design Automation in 2009.
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As a co-founder of one of Cadences predecessor companies,
a professor of electrical engineering at the University of
California, Berkeley and a well-known expert in electrical
engineering, Dr. Sangiovanni-Vincentelli is a strong
technologist with significant industry expertise, as well as
substantial international experience.
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George M. Scalise
77 Years Old
Director Since 1989
Former President,
Semiconductor Industry Association
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George M. Scalise has served as President of the Semiconductor
Industry Association, an association of semiconductor
manufacturers and suppliers, from 1997 to December 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 as 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. Bushs Council of Advisors on Science and
Technology from 2001 to 2009. Mr. Scalise also serves as a
director of ATMI, Inc.
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As a former President of the Semiconductor Industry Association,
a former board member of the Federal Reserve and a former Chief
Administrative Officer of Apple Computer, Inc. (now Apple,
Inc.), Mr. Scalise has significant semiconductor and
financial expertise and substantial international experience.
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Dr. John B. Shoven
63 Years Old
Director Since 1992
Professor of Economics,
Stanford University
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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 the Wallace R. Hawley
Director of the Stanford Institute for Economic Policy Research.
He is also a 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.
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Dr. Shoven served as a director of Watson Wyatt Worldwide,
Inc. from 2002 to 2006.
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As a professor of economics at Stanford University, the 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.
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Roger S. Siboni
56 Years Old
Director Since 1999
Independent Investor
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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, most recently as its Deputy Chairman
and Chief Operating Officer. Mr. Siboni also serves as a
director of Dolby Laboratories, Inc.
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Mr. Siboni served as a director of ArcSight, Inc. from 2009 to
2010, Classmates Media Corporation from 2007 to 2010, FileNet
Corporation from 1998 to 2006 and infoGroup, Inc. from 2009 to
2010.
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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 software
companies, Mr. Siboni has significant operating experience,
as well as financial, accounting and corporate governance
expertise.
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John A.C. Swainson
56 Years Old
Director Since 2006
Former Chief Executive Officer,
CA, Inc.
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John A.C. Swainson served as Chief Executive Officer of CA,
Inc., an information technology management software company,
from 2005 to 2009. Prior to joining CA, Inc., Mr. Swainson was
Vice President of Worldwide Sales and Marketing of the Software
Group at International Business Machines Corporation (IBM),
during 2004 and General Manager of the Application Integration
and Middleware division of IBMs Software Group from 1997
to 2004. Mr. Swainson also serves as a director of Assurant,
Inc., Broadcom Corporation and Visa, Inc., where he has been
Lead Independent Director since 2007, and as a Senior Advisor to
Silver Lake.
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Mr. Swainson served as a director of CA, Inc. from November 2004
to 2009, and Visa U.S.A., the predecessor of Visa, Inc., from
2006 to 2007.
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As a former Chief Executive Officer and director of CA, Inc., as
well as a former General Manager and Vice President of Worldwide
Sales and Marketing of IBM, Mr. Swainson has significant
management, international operating and sales and marketing
experience, as well as substantial corporate governance
expertise.
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Lip-Bu Tan
51 Years Old
Director Since 2004
President and Chief Executive
Officer,
Cadence Design Systems, Inc.
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Lip-Bu Tan has served as President and Chief Executive Officer
of Cadence since January 2009. In 1987, Mr. Tan founded Walden
International, an international venture capital firm, and since
its founding has served as its Chairman. Mr. Tan also serves as
a director of Flextronics International Ltd., Inphi Corporation,
Semiconductor Manufacturing International Corporation and SINA
Corporation.
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Mr. Tan served as a director of Centillium Communications, Inc.
from 1997 to 2007, Creative Technology, Ltd. from 1990 to 2009,
Integrated Silicon Solution, Inc. from 1990 to 2007, and Leadis
Technology, Inc. from 2002 to 2006.
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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 and semiconductor
industries, as well as international operations and corporate
governance expertise.
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17
VOTE
REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
Shares represented by executed proxies will be voted FOR
the election of the eight nominees named above, if authority
to do so is not withheld.
The Board recommends a vote FOR the election of each of
the eight 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 (i) the
votes cast for such director does not exceed the
votes cast against such director in an election that
is not a contested election, and (ii) 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 directors resignation, or whether
to take other action. The Board will act on the Corporate
Governance and Nominating Committees 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.
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 proposal, however, abstentions are not counted as
votes for or against directors and will
not have an effect on the election of directors. Unless marked
to the contrary, proxies received will be voted FOR the
election of each of the eight director nominees.
PROPOSAL 2
APPROVAL
OF THE 2000 EQUITY INCENTIVE PLAN, INCLUDING AN INCREASE IN THE
NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
THEREUNDER
Overview
On March 16, 2011, Cadences Board of Directors
adopted, subject to stockholder approval, an amendment and
restatement of the 2000 Equity Incentive Plan, formerly known as
the 2000 Nonstatutory Equity Incentive Plan. The amended and
restated form of the 2000 Equity Incentive Plan is referred to
in this proxy statement as the 2000 Plan, and the prior version
is referred to as the Original Plan. The Board recommends that
Cadences stockholders approve the 2000 Plan because it
believes that employee ownership in Cadence serves the best
interests of all stockholders by promoting its employees
focus on the long-term increase in stockholder value. The 2000
Plan supports this goal by allowing Cadence to award
equity-based compensation that aligns a portion of employee
compensation with increasing stockholder value. The 2000 Plan
permits the grant of stock options (including nonqualified stock
options and incentive stock options), incentive stock and
restricted stock units, which are referred to in this proxy
statement as RSUs. The 2000 Plan provides for an increase in the
number of shares authorized for issuance from
50,000,000 shares to 57,500,000 shares. No
employee or consultant who is an executive officer of Cadence,
who is a member of the Board of Directors or who beneficially
owns 10% or more of Cadences common stock will be entitled
to receive a stock award under the 2000 Plan unless the stock
award will be granted to a person not previously employed by
Cadence as a material inducement to such person becoming an
employee of Cadence.
A copy of the 2000 Plan is attached as Appendix A to
this proxy statement.
18
Key
Data
The following table includes information regarding outstanding
equity awards and shares available for future awards under
Cadences equity plans as of January 1, 2011:
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1987 Plan
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1993 Plan
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1997 Plan
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2000 Plan
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Total shares underlying outstanding options
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4,884,523
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10,000
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4,073,740
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13,125,207
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Weighted average exercise price of outstanding options
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$
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4.95
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$
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4.20
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$
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9.34
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$
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15.44
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Weighted average remaining contractual life of outstanding
options, in years
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4.96
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3.16
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4.01
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2.88
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Total shares underlying outstanding unvested incentive stock
awards and RSUs
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749,159
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0
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1,347,479
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6,200,654
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Total shares currently available for grant (options, incentive
stock awards and RSUs)
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7,997,314
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*
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845,932
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1,203,457
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6,260,587
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* |
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Of these 7,997,314 shares, no more than
2,089,876 shares may be granted as full-value awards
(incentive stock awards and RSUs). |
Broad-based equity compensation is an essential and
long-standing element of Cadences culture and success. It
continues to be critical to attracting and retaining the most
talented employees and consultants.
In a challenging macroeconomic environment, Cadences net
annual dilution of stockholder interests pursuant to the 1987,
1993, 1997 and 2000 Plans (including the effect of annual
cancellations and forfeitures) in 2008, 2009 and 2010 was 1.10%,
0.0078%, and negative 2.28%, respectively.
Institutional Shareholder Services, referred to in this proxy
statement as ISS, applies an alternate methodology to analyze
the level of annual share usage relative to the Companys
industry group. The ISS methodology converts full value shares
to option equivalents, and does not include the effect of annual
cancellations and forfeitures. Based on this approach,
Cadences three-year average annual burn rate has been
6.16%, which is below the ISS burn rate threshold of 7.26%
applied to our industry.
Three-Year
Burn Rate ISS Methodology
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Performance-
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Burn Rate =
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Time-Based
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Based
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Weighted
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Total
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Incentive
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Incentive
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Average
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Granted or
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Stock
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Stock
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Number of
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Earned /
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Awards and
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Awards and
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Common
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Common
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Options
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RSUs
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RSUs
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Shares
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Shares
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Year
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Granted
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Granted
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Earned*
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Total**
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Outstanding
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Outstanding
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2010
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2,940,095
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3,979,364
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276,672
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13,580,185
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260,786,708
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5.21
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%
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2009
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4,144,000
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4,496,613
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459,925
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16,535,345
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257,782,305
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6.41
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%
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2008
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3,268,200
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5,320,088
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350,341
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17,444,273
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254,322,937
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6.86
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%
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Three-Year Average
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3,450,765
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4,598,688
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362,313
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15,853,268
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257,630,650
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6.16
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%
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* |
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The amount in this column includes 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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Total calculation is based on the ISS methodology of weighting
incentive stock awards and RSUs more heavily than options, using
a 2.5:1 ratio. |
19
Promotion
of Good Corporate Governance Practices
Cadence designed the 2000 Plan to include a number of best
practice provisions that it believes reinforce the alignment
between stockholders interests and equity compensation
arrangements for employees and consultants. These provisions
include, but are not limited to, the following:
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No Discounted Options. Stock options may not
be granted with exercise prices lower than the fair market value
of the underlying shares on the grant date.
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No Repricing without Stockholder
Approval. Cadence cannot, without stockholder
approval, reprice such an award by reducing the
exercise price of such stock option or exchanging such stock
option for cash, or other awards or a new stock option at a
reduced exercise price.
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No Share Recycling for Net Exercises, Tax
Withholding or Open Market Purchases. Shares
retained by or delivered to the Company to pay either the
exercise price of an outstanding stock option or the withholding
taxes in connection with the vesting of incentive stock or RSUs,
and shares purchased by us in the open market using the proceeds
of option exercises do not become available for issuance as
future awards under the 2000 Plan.
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No Dividends on Unearned Performance
Awards. The 2000 Plan prohibits the payment of
dividends or dividend equivalent rights on unvested performance
awards.
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No Transferability. Awards generally may not
be transferred, except by will or the laws of descent and
distribution, unless approved by the Board.
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No Evergreen Provision. There is no
evergreen feature pursuant to which the shares
authorized for issuance under the 2000 Plan can be automatically
replenished.
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No Automatic Grants. The 2000 Plan does not
provide for automatic grants to any participant.
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No Tax
Gross-ups. The
2000 Plan does not provide for any tax
gross-ups.
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VOTE
REQUIRED AND BOARD RECOMMENDATION
The Board recommends a vote FOR approval of the 2000
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, are
not counted for purposes of determining whether the proposal has
been approved. Unless marked to the contrary, proxies received
will be voted FOR approval of the 2000 Plan.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL
OF THE 2000 PLAN.
2000 PLAN
SUMMARY
The following summary of the material provisions of the 2000
Plan is qualified in its entirety by the complete text of the
2000 Plan, a copy of which is attached as Appendix A
to this proxy statement.
GENERAL
The 2000 Plan provides for the grant of incentive stock options,
nonstatutory stock options, incentive stock awards and
restricted stock units. Incentive stock options granted under
the 2000 Plan are intended to qualify as incentive stock
options within the meaning of Section 422 of the
Code. Nonstatutory stock options granted under the 2000 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 2000 Plan.
20
PURPOSE
The 2000 Plan was adopted to give an opportunity to
Cadences and its affiliates employees and
consultants to purchase Cadence common stock or receive grants
of incentive stock subject to performance-based or time-based
vesting, to incentivize them to exert maximum efforts for the
success of Cadence and its affiliates and to attract and retain
the services of persons most capable of filling these positions.
ADMINISTRATION
The 2000 Plan provides that the Board shall administer the 2000
Plan and has the final power to interpret the 2000 Plan,
including the power to prescribe, amend and rescind rules and
regulations relating to the plan and to delegate administration
of the 2000 Plan as described below. The Board has the power to
determine which of the persons eligible under the 2000 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 2000 Plan. While Cadence intends to continue
to grant stock awards with specified vesting criteria, as
described under Option Provisions Option
Exercise below, the Board has the power to accelerate the
exercise date and vesting of any stock award granted under the
2000 Plan. The Board may delegate the administration of the 2000
Plan to a committee, such as Cadences Compensation
Committee, consisting of one or more members of the Board.
Once appointed, the committee will continue to serve until
otherwise directed by the Board. At any time, the Board or the
committee may delegate to a committee of one or more members of
the Board the authority to grant awards under the 2000 Plan. In
addition, the Board or the Committee may by resolution authorize
one or more officers of Cadence to perform any or all tasks that
the Board is authorized and empowered to do or perform under the
2000 Plan, to the extent permitted by applicable law, and for
all purposes under the 2000 Plan, such officer or officers shall
be treated as the Board; provided, however, that the resolution
so authorizing such officer or officers will specify the maximum
number of shares per stock 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 stock award will be
subject to the form of stock award agreement previously approved
by the Board or the Committee
The Board has delegated administration of the 2000 Plan to the
Compensation Committee. However, any increase in the number of
shares authorized for issuance under the 2000 Plan requires the
approval of the full Board. As used in this proxy statement
solely with respect to the 2000 Plan, the Board
refers to any committee the Board appoints to administer the
2000 Plan as well as to the Board itself.
ELIGIBILITY
Incentive stock options may be granted under the 2000 Plan only
to employees of Cadence and its affiliates. Employees and
consultants of Cadence and its affiliates are eligible to
receive nonstatutory stock options, incentive stock awards and
restricted stock units under the 2000 Plan. Notwithstanding the
foregoing, no employee or consultant who is an executive officer
of Cadence, who is a member of the Board of Directors or who
beneficially owns 10% or more of Cadences common stock is
entitled to receive the grant of a stock award under the 2000
Plan unless the stock award is granted to a person not
previously employed by Cadence as a material inducement to take
employment with Cadence. In addition, the aggregate fair market
value, determined at the time of grant, of the shares of common
stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any
calendar year, under the 2000 and all other plans of Cadence and
its affiliates, may not exceed $100,000.
Almost all of Cadences and its subsidiaries
approximately 4,600 employees, excluding Cadences
executive officers, are eligible to receive awards under the
2000 Plan. Directors are not eligible to receive awards under
the 2000 Plan.
STOCK
SUBJECT TO THE 2000 PLAN
The shares of common stock reserved under the 2000 Plan (if
approved by stockholders) will include reserved shares of common
stock that are not subject to a grant or as to which the stock
award granted has been forfeited
21
under the Cadence Design Systems, Inc. 1993 Nonstatutory Stock
Incentive Plan, as amended and the Cadence Design Systems, Inc.
1997 Nonstatutory Stock Incentive Plan, as amended, which are
collectively referred to in this proxy statement as the Prior
Plans, and under the Original Plan, and, subject to stockholder
approval of this proposal, an additional 7,500,000 shares
of common stock. As of January 1, 2011, and without giving
effect to this proposal, the number of shares available for
grant under the Original Plan was 6,260,587, and the number of
shares available for grant under the Prior Plans (in the
aggregate) was 2,049,389.
If a stock award 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 2000 Plan has
been terminated, become available for future grant under the
2000 Plan. Additionally, shares subject to a stock award under
the 2000 Plan may not again be made available for issuance under
the 2000 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 a stock award or (iii) shares repurchased on the open
market with the proceeds of an option exercise.
Subject to approval of this proposal, the aggregate number of
shares that may be issued pursuant to the exercise of incentive
stock options granted under the 2000 Plan will not exceed
57,500,000, which number will be calculated and adjusted for
changes in capitalization 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.
OPTION
PROVISIONS
The following describes the permissible terms of options granted
under the 2000 Plan. Individual option grants may be more
restrictive as to any or all of these permissible terms.
Exercise Price. The exercise price of options
granted under the 2000 Plan may not be less than the fair market
value of Cadences 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 2000 Plan is the closing price of
Cadences common stock on the grant date as reported by
NASDAQ.
Payment of Exercise Price. The exercise price
of options granted under the 2000 Plan may be paid by cash,
check, promissory note, shares of Cadence common stock with a
fair market value on the date of exercise 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 option are set
forth in the terms of the option agreement for that option.
Option Exercise. Options granted under the
2000 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 an option may first be exercised or
the time during which an option will vest.
Term. The maximum term of options granted
under the 2000 Plan is seven years. And, the maximum term of
incentive stock options granted to a 10% stockholder is five
years. Options granted under the 2000 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 optionees
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 incentive stock
awards and restricted stock units granted under the 2000 Plan.
Sales Price and Payment of Sales Price. The
Board determines the price, if any, at which shares of incentive
stock or shares underlying restricted stock units will be sold
or awarded to a participant under the 2000 Plan, subject to
applicable law. The sales price may vary among participants and
may be below the fair market value of the shares
22
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 incentive stock or shares underlying
restricted stock units.
Vesting. The grant, issuance, retention and
vesting of shares of incentive stock and restricted stock units
granted under the 2000 Plan will be 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 incentive stock and restricted stock units may be
subject to continued service, the passage of time
and/or the
performance criteria as the Board deems appropriate as described
below. The Board may accelerate the vesting of an incentive
stock award and restricted stock units in the event of a
participants termination of service as an employee or
consultant, a change in control of Cadence or a similar event.
EFFECT OF
CERTAIN CORPORATE EVENTS
The 2000 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 2000 Plan or substitute them
with similar awards. If the surviving or acquiring corporation
refuses to assume such awards or to 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 2000 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 2000 Plan, and the
number of shares covered by each outstanding stock award and the
price per share of common stock covered by each outstanding
stock award, will be equitably adjusted for any increase or
decrease.
DURATION,
AMENDMENT AND TERMINATION
The Board may suspend or terminate the 2000 Plan without
stockholder approval or ratification at any time or from time to
time. Unless sooner terminated, the 2000 Plan will terminate on
March 16, 2021. However, any suspension or termination of
the 2000 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 2000 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 Cadence
stockholders before or after its adoption by the Board. The
Board may submit any other amendment to the 2000 Plan for
stockholder approval. Any amendment of the 2000 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 2000 Plan, except as specifically provided in a stock
award agreement, a stock 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 holders legal
representative. However, the holder may designate in writing a
third party who may exercise the option in the event of the
holders 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 2000 Plan based upon applicable federal law as
currently in effect, is not complete, does not discuss the
income tax laws of any state or foreign country in which a
participant may reside, and is subject to
23
change. Participants in the 2000 Plan should consult their own
tax advisors regarding the specific tax consequences to them of
participating in the 2000 Plan.
Nonstatutory Stock Options.
Options granted under the 2000 Plan that are not intended to
qualify as incentive stock options are referred to in this proxy
statement as nonstatutory stock options, or 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 a 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 gain or loss on the subsequent disposition of shares
acquired through the exercise of an NSO 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.
Although the 2000 Plan permits grants of incentive stock
options, referred to in this proxy statement as ISOs, Cadence
has not granted any options intended to be ISOs in the past
several years and does not intend to do so in the foreseeable
future. ISOs granted under the 2000 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 does 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 at the time of the exercise of
an ISO. However, a participant may be subject to an alternative
minimum tax upon 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.
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 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.
The tax consequences to a participant who receives an incentive
stock award pursuant to the 2000 Plan will vary depending on
whether or not the participant makes a timely Section 83(b)
election under the Code with respect to the unvested shares of
incentive stock. The Board has the discretion to establish, in
accordance with the 2000 Plan, the terms of incentive stock
awards, including whether or not participants may make
Section 83(b) elections under the Code. A participant who
does not make a timely Section 83(b) election with respect
to unvested shares of incentive stock will not recognize any
taxable income upon the award of the shares. However, when the
restrictions
24
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 lapse with respect to
those shares exceeds the purchase price (if any) paid for the
shares. A participant who makes a timely Section 83(b)
election with respect to unvested shares of incentive 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. The fair market
value of the shares will be determined as if the shares were not
restricted. A participant who makes a Section 83(b)
election for unvested shares of incentive 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 acquisition of shares of Cadence common
stock pursuant to an incentive stock award.
Restricted Stock Units.
Participants who are granted restricted stock units 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, and Cadence will receive a corresponding deduction.
STOCK
PRICE
On March 15, 2011, the closing price of Cadence common
stock as reported by NASDAQ was $9.44.
PARTICIPATION
IN THE 2000 PLAN
Other than in limited cases of new executives receiving awards
as a material inducement to such person becoming an employee of
Cadence, Cadences executive officers were not eligible to
receive stock awards under the Original Plan and instead have
historically received stock awards under the 1987 Plan.
Cadences executive officers and non-employee directors
will remain ineligible to receive stock awards under the 2000
Plan. As of January 1, 2011, stock awards covering
173,303,079 shares had been granted over the life of the
Original Plan and the Prior Plans, which includes stock awards
that were granted to former employees no longer employed by
Cadence, and also includes forfeited shares.
Because the Board has the discretion to grant awards under the
2000 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 2000 Plan.
PROPOSAL 3
RE-APPROVAL
OF THE PERFORMANCE GOALS UNDER THE SENIOR EXECUTIVE BONUS PLAN
FOR COMPLIANCE WITH SECTION 162(m) OF THE CODE
Cadence maintains the Senior Executive Bonus Plan, referred to
in this proxy statement as the Bonus Plan, which was most
recently approved by stockholders on May 10, 2006.
In order to allow for certain awards under the Bonus Plan to
qualify as tax-deductible performance-based
compensation within the meaning of Section 162(m) of
the Code, which is referred to in this proxy statement as
Section 162(m), Cadence is asking 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
Cadences stockholders every five years. Stockholders
are not being asked to approve any amendment to the Bonus Plan
or to approve the Bonus Plan itself, but are only asked to
re-approve the material terms for compliance with
Section 162(m).
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
25
Bonus Plan can satisfy the requirements for
performance-based compensation within the meaning of
Section 162(m). Under Section 162(m), the federal
income tax deductibility of compensation paid to Cadences
CEO and certain executive officers 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) 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 Cadences stockholders
every five years. For purposes of Section 162(m), 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.
VOTE
REQUIRED AND BOARD RECOMMENDATION
The Board of Directors recommends a vote FOR re-approval
of the material terms of the performance goals under the Bonus
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, are
not 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.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE RE-APPROVAL
OF THE PERFORMANCE GOALS UNDER THE SENIOR EXECUTIVE BONUS PLAN
FOR
COMPLIANCE WITH SECTION 162(m) OF THE CODE.
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.
PURPOSE
The purpose of the Bonus Plan is to motivate and reward
Cadences CEO, and the individuals who are part of
Cadences senior executive management team as designated by
the CEO, in order to enhance stockholder value through
incentivizing the improvement of Cadences profitability
and achievement of Cadences strategic goals.
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 the Code as appropriate;
(ii) prescribe the terms and conditions of any awards
granted under the Bonus Plan; (iii) adopt rules and
guidelines for the administration of the Plan that are
consistent with the Bonus Plan; and (iv) interpret, amend
or revoke any such rules any guidelines. The decisions of the
Compensation Committee are in every case final and binding on
all persons having an interest in the Bonus Plan.
26
ELIGIBILITY
The Bonus Plan provides that bonuses may be paid under the Bonus
Plan to the CEO and the individuals who are part of
Cadences senior executive management team as designated by
the CEO, who are collectively referred to in this section of the
proxy statement as executives. As of March 15, 2011,
8 employees, including executive officers, as designated by
the CEO, were eligible to participate in the Bonus Plan during
fiscal 2011. Cadences non-employee directors are not
entitled to participate in the Bonus Plan.
PERFORMANCE
CRITERIA
The Bonus Plan provides for cash bonus payments to the
executives. The amount of a performance-based 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
Cadences performance as a whole or, alternatively, to
individual business units of Cadence. In addition, the
performance criteria can be measured by Cadences
performance alone or, alternatively, measured relative to a
designated group of companies or relative to a pre-established
target or a previous performance periods results. The
performance criteria will include one or more of the following
(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 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, extraordinary items and all items of
gain, loss or expense determined to be extraordinary or unusual
in nature or related to the disposal of a segment of a business
or related to a change in accounting principles 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 Cadences 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 each
fiscal year. If a shorter performance period is used, the
Compensation Committee will establish the target bonus, 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. Thus, in administering the Bonus Plan, the Compensation
Committee may establish performance criteria and targeted 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
27
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 as a
performance bonus 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 after the Compensation Committee has certified that the
performance criteria and targets established for the relevant
period have been achieved. In addition, 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, he or she may be entitled to
receive a prorated amount of the bonus amount payable.
CLAWBACK
Executives participating in the Bonus Plan and all amounts
earned by them under the Bonus Plan on or after January 1,
2010 are subject to the Cadence Design Systems, Inc. Clawback
Policy as in effect from time to time (see description in the
Compensation Discussion and Analysis section below).
AWARDS
UNDER THE BONUS PLAN
No payments were made under the Bonus Plan for fiscal 2008 or
fiscal 2009. Please refer to the Summary Compensation Table
below under Compensation of Executive Officers for
the amounts paid under the Bonus Plan for fiscal 2010 to the
Named Executive Officers. For fiscal 2010, all current executive
officers as a group were paid a total of $1,650,818 under the
Bonus Plan. Non-employee directors and employees who are not
executive officers do not participate in the Bonus Plan. Because
payments under the Bonus Plan for fiscal 2011 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 2011.
AMENDMENT
AND TERMINATION
The Compensation Committee may terminate the Bonus Plan at any
time, for any or no reason, and may also amend the Bonus Plan in
order to reduce the amount of any executives bonus payment
at any time, for any or no reason.
NON-EXCLUSIVITY
Nothing contained in the Bonus Plan prevents the Board of
Directors from adopting other or additional compensation
arrangements that provide for bonuses or other forms of
compensation for Cadences executive officers, directors or
other employees, whether or not stockholders approve the Bonus
Plan. However, any such other or additional compensation
arrangements will not be designed to provide compensation to
Bonus Plan participants to make up for a failure to achieve any
performance goals or any part of the compensation they might
have received under the Bonus Plan had such performance goals
been achieved. 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.
28
PROPOSAL 4
RE-APPROVAL
OF THE PERFORMANCE GOALS UNDER THE 1987 STOCK INCENTIVE PLAN FOR
COMPLIANCE WITH SECTION 162(m)
In April of 1987, Cadences Board of Directors originally
adopted the 1987 Stock Incentive Plan. In February of 2007, the
Compensation Committee approved the 1987 Plan, as amended, which
was subsequently approved by Cadences stockholders on
May 9, 2007. The 1987 Stock Incentive Plan, as amended in
February and July 2007 and as further amended by the
Compensation Committee in the first quarter of 2011, is referred
to in this proxy statement as the 1987 Plan.
In order to allow for certain awards under the 1987 Plan to
qualify as tax-deductible performance-based
compensation within the meaning of Section 162(m) of
the Code, which is referred to in this proxy statement as
Section 162(m), Cadence is asking stockholders to
re-approve the material terms of the performance goals under the
1987 Plan. Stockholders are not being asked to approve any
amendment to the 1987 Plan or to approve the 1987 Plan itself in
this Proposal 4, but are only asked to re-approve the
material terms for compliance with Section 162(m) of the
Code.
The Board believes that it is in the best interests of Cadence
and its stockholders to continue providing an equity incentive
plan under which equity-based compensation awards made to
executive officers can be deducted by Cadence for federal income
tax purposes. The 1987 Plan has been structured in a manner such
that awards granted under it can satisfy the requirements for
performance-based compensation within the meaning of
Section 162(m). Under Section 162(m), the federal
income tax deductibility of compensation paid to Cadences
CEO and certain executive officers 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) 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) is that the material terms of
the performance goals under which compensation may be paid be
disclosed to and approved by Cadences stockholders every
five years.
For purposes of Section 162(m), the material terms 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 is discussed below. A
copy of the 1987 Plan with the proposed share increase and
revised termination date, which are discussed further in
Proposal 5 below is attached as Appendix C to
this proxy statement.
VOTE
REQUIRED AND BOARD RECOMMENDATION
The Board recommends a vote FOR re-approval of the
material terms of the performance goals under the 1987 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, are not 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 1987 Plan.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE RE-APPROVAL OF THE
PERFORMANCE GOALS UNDER THE 1987 STOCK INCENTIVE PLAN.
SUMMARY
OF THE 1987 PLAN
The following summary of the material provisions of the 1987
Plan is qualified in its entirety by the complete text of the
1987 Plan a copy of which is attached as Appendix C
to this proxy statement. Appendix C also reflects
the share increase and revised termination date requested in
Proposal 5.
29
GENERAL
The 1987 Plan provides for the grant of incentive stock options,
nonstatutory stock options, incentive stock awards and
restricted stock units. Incentive stock options granted under
the 1987 Plan are intended to qualify as incentive stock
options within the meaning of Section 422 of the
Code. Nonstatutory stock options granted under the 1987 Plan are
intended not 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 1987 Plan.
PURPOSE
The 1987 Plan was adopted to provide a means by which employees
of and consultants to Cadence and its affiliates (including
officers and directors who are also employees or consultants)
could be given an opportunity to purchase Cadence common stock
or receive grants of incentive stock subject to
performance-based or time-based vesting to attract and retain
the services of persons most capable of filling these positions,
and to provide incentives for these persons to exert maximum
efforts for the success of Cadence and its affiliates.
ADMINISTRATION
The 1987 Plan provides that the Board shall administer the 1987
Plan and has the final power to interpret the 1987 Plan,
including the power to prescribe, amend and rescind rules and
regulations relating to the plan and to delegate administration
of the 1987 Plan as described below. The Board has the power to
determine which of the persons eligible under the 1987 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 1987 Plan. While Cadence intends to continue
to grant stock awards with specified vesting criteria, as
described under Option Provisions Option
Exercise below, the Board has the power to accelerate the
exercise date and vesting of any stock award granted under the
1987 Plan. The Board may delegate the administration of the 1987
Plan to a committee, such as Cadences Compensation
Committee, consisting of one or more members of the Board.
Once appointed, the committee will continue to serve until
otherwise directed by the Board. At any time, the Board or the
committee may delegate to a committee of one or more members of
the Board the authority to grant awards under the 1987 Plan.
Members of the Board who are either eligible for awards or have
been granted awards may vote on any matters affecting the
administration of the 1987 Plan or the grant of any awards
thereunder, but may not grant awards to themselves. However,
such members may be counted in determining the existence of a
quorum at a Board or committee meeting during which action is
taken with respect to the granting of such awards.
The Board has delegated administration of the 1987 Plan to the
Compensation Committee of the Board. However, any increase in
the number of shares authorized for issuance under the 1987 Plan
requires the approval of the full Board. As used in this proxy
statement solely with respect to the 1987 Plan, the
Board refers to any committee the Board appoints to
administer the 1987 Plan as well as to the Board itself.
ELIGIBILITY
Incentive stock options may be granted under the 1987 Plan only
to Cadence employees or employees of its affiliates. Employees
of Cadence and its affiliates (including officers and directors
who are also Cadence employees or employees of its affiliates)
as well as consultants are eligible to receive nonstatutory
stock options, incentive stock awards and restricted stock units
under the 1987 Plan. No incentive stock option may be granted
under the 1987 Plan to any person who, at the time of the grant,
owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Cadence or any of its affiliates,
such person being referred to below as a 10% stockholder, unless
the option exercise price is at least 110% of the fair market
value of the common stock subject to the option on the grant
date, and the term of the option does not exceed five years from
the grant date. In addition, the aggregate fair market value,
determined at the time of grant, of the shares of common stock
with respect to which incentive stock options are exercisable
for the first time by an optionee during any calendar year,
under the 1987 and all other plans of Cadence and its
affiliates, may not exceed $100,000.
30
No person may be granted awards under the 1987 Plan covering
more than an aggregate of 2,216,702 shares of common stock
in any calendar year.
Almost all of Cadences and its subsidiaries
approximately 4,600 employees, including Cadences 8
executive officers, are eligible to receive awards under the
1987 Plan. Non-employee directors are not eligible to receive
awards under the 1987 Plan.
STOCK
SUBJECT TO THE 1987 PLAN
75,370,100 shares of common stock have been authorized for
issuance over the life of the 1987 Plan, with a limit of
5,000,000 of such shares authorized for issuance as incentive
stock or restricted stock units. As of January 1, 2011,
7,997,314 shares of common stock remained available for
issuance under the 1987 Plan, of which no more than
2,089,876 shares may be issued as awards of incentive stock
or restricted stock units. These limits are subject to the
provisions of the 1987 Plan relating to adjustments upon changes
in common stock described below. If any award granted under the
1987 Plan expires, becomes unexercisable, is forfeited or
otherwise terminates, in whole or in part, without having been
exercised, the unpurchased or forfeited shares again become
available for issuance under the 1987 Plan.
OPTION
PROVISIONS
The following describes the permissible terms of options granted
under the 1987 Plan. Individual option grants may be more
restrictive as to any or all of these permissible terms.
Exercise Price. The exercise price of options
granted under the 1987 Plan may not be less than the fair market
value of Cadences 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 1987 Plan is the closing price of
Cadences common stock on the grant date as reported by
NASDAQ.
Payment of Exercise Price. The exercise price
of options granted under the 1987 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 option are set forth in the terms of the
option agreement for that option.
Option Exercise. Options granted under the
1987 Plan become exercisable at the times and under the
conditions, including the achievement of performance or other
criteria with respect to Cadence
and/or the
optionee, as determined by the Board. The Board has the power to
accelerate the time at which an option may first be exercised or
the time during which an option will vest.
Term. The maximum term of options granted
under the 1987 Plan is seven years. In all cases, the maximum
term of incentive stock options granted to a 10% stockholder is
five years. Options granted under the 1987 Plan generally
terminate three months, or such longer period of time as
determined by the Board, after termination of the
optionees 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 incentive stock
awards and restricted stock units granted under the 1987 Plan.
Sales Price and Payment of Sales Price. The
sales price, if any, at which shares of incentive stock or
shares underlying restricted stock units will be sold or awarded
to a participant under the 1987 Plan will be determined by the
Board. 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 will determine the form of
consideration that may be used to pay the sales price, if any,
of shares of incentive stock or shares underlying restricted
stock units.
31
Vesting. The grant, issuance, retention and
vesting of shares of incentive stock and restricted stock units
granted under the 1987 Plan will be at the times and in the
installments as determined by the Board. The timing of the
grant, the issuance, the ability to retain shares and the
vesting of shares of incentive stock and restricted stock units
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 incentive stock or
restricted stock units 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 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 an incentive stock award and
restricted stock units in the event of a participants
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 restricted stock units 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).
Qualifying Performance Criteria. The
performance criteria for any incentive stock award or restricted
stock unit 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
restricted stock unit (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 restricted stock unit
on account of either financial performance or personal
performance evaluations, despite the satisfaction of any
performance criteria. In addition, 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 extraordinary non-recurring items as
described in managements discussion and analysis of
financial condition and results of operations in Cadences
annual report to stockholders for the applicable year.
EFFECT OF
CERTAIN CORPORATE EVENTS
The 1987 Plan provides that, in the event of a change in control
of Cadence, the surviving or acquiring corporation shall assume
the awards outstanding under the 1987 Plan or provide substitute
similar awards. If the surviving or acquiring corporation
refuses to assume such awards or to 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 1987 Plan, if any, will terminate if not exercised
prior to the change in control event.
32
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 1987 Plan, and the
number of shares covered by each outstanding stock award and the
price per share of common stock covered by each outstanding
stock award, will be equitably adjusted for any increase or
decrease.
DURATION,
AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1987 Plan without
stockholder approval or ratification at any time or from time to
time. Unless sooner terminated, the 1987 Plan will terminate on
May 8, 2017, unless extended as requested in
Proposal 5. However, any suspension or termination of the
1987 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 1987 Plan at any time or from time
to time. However, no amendment will be effective unless approved
by Cadence stockholders before or after its adoption by the
Board if the amendment would require stockholder approval to
comply with
Rule 16b-3
of the Exchange Act, Section 422 of the Code or any
securities exchange or national market system listing
requirements. The Board may submit any other amendment to the
1987 Plan for stockholder approval, including, but not limited
to, amendments intended to satisfy the requirements of
Section 162(m) of the Code regarding the exclusion of
performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees. Any
amendment of the 1987 Plan will not adversely affect awards
previously granted unless mutually agreed upon in a writing
signed by the participant and Cadence.
RESTRICTIONS
ON TRANSFER
Under the 1987 Plan, except as specifically provided in a stock
option agreement or incentive stock agreement, a stock 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 holders
legal representative. However, the holder may designate in
writing a third party who may exercise the option in the event
of the holders 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 1987 Plan based upon applicable federal law as
currently in effect, is not complete, does not discuss the
income tax laws of any state or foreign country in which a
participant may reside, and is subject to change. Participants
in the 1987 Plan should consult their own tax advisors regarding
the specific tax consequences to them of participating in the
1987 Plan.
Nonstatutory Stock Options.
Options granted under the 1987 Plan that are not intended to
qualify as incentive stock options are referred to as
nonstatutory stock options, or 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 a 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 gain or loss on the subsequent disposition of shares
acquired through the exercise of an NSO 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.
33
Incentive Stock Options.
Although the 1987 Plan permits grants of incentive stock
options, referred to as ISOs, Cadence has not granted any
options intended to be ISOs in the past several years and does
not intend to do so in the foreseeable future. ISOs granted
under the 1987 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 does 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 at the time of the exercise of
an ISO. However, a participant may be subject to alternative
minimum tax upon 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 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.
If a participant disposes of the shares acquired through the
exercise of an ISO before expiration of the ISO holding period,
referred to 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; and (ii) either (a) 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, or (b) 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.
The tax consequences to a participant who receives an incentive
stock award pursuant to the 1987 Plan will vary depending on
whether or not the participant makes a timely Section 83(b)
election under the Code with respect to the unvested shares of
incentive stock. The Board has the discretion to establish, in
accordance with the 1987 Plan, the terms of incentive stock
awards, including whether or not participants may make
Section 83(b) elections under the Code. A participant who
does not make a timely Section 83(b) election with respect
to unvested shares of incentive stock will not recognize any
taxable income upon the award of the shares. However, 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 lapse
exceeds the purchase price (if any) paid for the shares. A
participant who makes a timely Section 83(b) election with
respect to unvested shares of incentive 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. The fair market value of the
shares will be determined as if the shares were not restricted.
A participant who makes a Section 83(b) election for
unvested shares of incentive 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 acquisition of shares of Cadence common
stock pursuant to an incentive stock award.
Restricted Stock Units.
Participants who are granted restricted stock units 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, and Cadence will receive a corresponding deduction.
Potential Limitation on Deductions.
As described above, Section 162(m) of the Code denies a
deduction to any publicly-held corporation for compensation paid
to certain covered employees in a taxable year to
the extent that compensation exceeds
34
$1,000,000 for such employee. It is possible that compensation
attributable to stock awards granted under the 1987 Plan, when
combined with all other types of compensation received by a
Cadence covered employee, may cause this limitation to be
exceeded in any particular year. Stock awards that qualify as
performance-based compensation are disregarded for
purposes of the deduction limitation of Section 162(m). If
Cadences stockholders approve the material terms of the
performance goals under the 1987 Plan, the plan will continue to
enable Cadence to grant awards that will be exempt from the
deduction limits of Section 162(m). Cadence does, however,
weigh the benefits of compliance with Section 162(m)
against the potential burdens of such compliance, and reserves
the right to pay compensation that may not be fully deductible.
STOCK
PRICE
On March 15, 2011, the closing price of Cadence common
stock as reported by NASDAQ was $9.44.
PARTICIPATION
IN THE 1987 PLAN
Non-employee directors are not eligible to receive grants under
the 1987 Plan, except for Dr. Alberto
Sangiovanni-Vincentelli, who is a consultant to Lip-Bu Tan,
Cadences CEO. As of January 1, 2011, over the life of
the 1987 Plan, stock awards covering 566,250 shares of
Cadence common stock had been granted to
Dr. Sangiovanni-Vincentelli, who is the only current
director and director nominee who is not an executive officer
who has been granted stock awards under the 1987 Plan, most
recently in February 2002. As of January 1, 2011, as a
group, Cadences current executive officers and Kevin S.
Palatnik, who resigned his position as Senior Vice President and
Chief Financial Officer on November 1, 2010, had been
granted stock awards covering 6,109,150 shares over the
life of the 1987 Plan. As of January 1, 2011, the current
and former executive officers listed in the Summary Compensation
Table below, referred to in this proxy statement as the Named
Executive Officers, had been granted stock awards covering the
following aggregate number of shares over the life of the 1987
Plan: Lip-Bu Tan, 3,115,000; Geoffrey G. Ribar, 0; Kevin S.
Palatnik, 713,750; John J. Bruggeman II, 170,000; Thomas A.
Cooley, 405,400, and Charlie Huang, 405,000. All other employees
as a group had been granted stock awards covering
135,347,230 shares over the life of the 1987 Plan, which
includes stock awards that were granted to former executive
officers and other employees no longer employed by Cadence, and
also includes forfeited shares.
Because the Board has the discretion to grant awards under the
1987 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 1987 Plan.
PROPOSAL 5
APPROVAL
OF AN AMENDMENT TO THE 1987 STOCK INCENTIVE PLAN, INCLUDING AN
INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER
Overview
As discussed in Proposal 4 of this proxy statement,
Cadences Board of Directors is seeking re-approval of the
performance goals under the 1987 Plan. For information related
to the 1987 Plan, including a general summary of the material
provisions thereunder, see Proposal 4 of this proxy
statement above.
In this Proposal 5, Cadence is asking stockholders to:
(i) approve an increase in the number of shares of common
stock authorized for issuance under the 1987 Plan from
75,370,100 shares to 79,370,100 shares under the 1987
Plan and to (ii) set the termination date for the plan to
be March 16, 2021. Cadence is not asking stockholders to
approve any increase to the 5,000,000 shares of common
stock that are issuable under the 1987 Plan as incentive stock
awards or restricted stock units.
Key
Data
See Proposal 2 for information regarding outstanding equity
awards and shares available for future awards under
Cadences equity plans as of January 1, 2011.
35
Broad-based equity compensation is an essential and
long-standing element of Cadences culture and success. It
continues to be critical to attracting and retaining the most
talented employees and consultants. As shown in Proposal 2,
Cadences three-year average annual burn rate
has been 6.16%, which is below the burn rate threshold of 7.26%
applied to our industry by Institutional Shareholder Services,
which is referred to in this proxy statement as ISS.
Promotion
of Good Corporate Governance Practices
Cadence designed the 1987 Plan to include a number of best
practice provisions that reinforce the alignment between
stockholders interests and equity compensation
arrangements for employees and consultants. These provisions
include, but are not limited to, the following:
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No Discounted Options. Stock options may not
be granted with exercise prices lower than the fair market value
of the underlying shares on the grant date.
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No Repricing without Stockholder
Approval. Cadence cannot, without stockholder
approval, reprice such an award by reducing the
exercise price of such stock option or exchanging such stock
option for cash, or other awards or a new stock option at a
reduced exercise price.
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Minimum Vesting Requirements. Incentive Stock
and RSUs granted under the 1987 Plan are required to meet
minimum vesting requirements. Incentive Stock and RSUs that are
not performance-based must have vesting periods over at least
three years, and performance-based awards must measure
performance over a period of at least one year.
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No Share Recycling for Net Exercises, Tax
Withholding or Open Market Purchases. Shares
retained by or delivered to the Company to pay either the
exercise price of an outstanding stock option or the withholding
taxes in connection with the vesting of incentive stock or RSUs,
and shares purchased by us in the open market using the proceeds
of option exercises do not become available for issuance as
future awards under the 1987 Plan.
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No Dividends on Unearned Performance
Awards. The 1987 Plan prohibits the payment of
dividends or dividend equivalent rights on unvested performance
awards.
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No Transferability. Awards generally may not
be transferred, except by will or the laws of descent and
distribution, unless approved by the Board.
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No Evergreen Provision. There is no
evergreen feature pursuant to which the shares
authorized for issuance under the 1987 Plan can be automatically
replenished.
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No Automatic Grants. The 1987 Plan does not
provide for automatic grants to any participant.
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No Tax
Gross-ups. The
1987 Plan does not provide for any tax
gross-ups.
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VOTE
REQUIRED AND BOARD RECOMMENDATION
The Board recommends a vote FOR approval of (i) an
increase in the shares of common stock authorized for issuance
under the 1987 Plan from 75,370,100 to 79,370,100 and
(ii) a March 16, 2021 termination date for the 1987
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, are
not counted for purposes of determining whether the proposal has
been approved. Unless marked to the contrary, proxies received
will be voted FOR approval of an increase in the shares
authorized for issuance under, and a March 16, 2021
termination date for, the 1987 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE
AMENDMENT TO THE 1987 PLAN.
36
PROPOSAL 6
ADVISORY
VOTE ON EXECUTIVE COMPENSATION
BACKGROUND
TO THE ADVISORY VOTE
The recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, which is called the Dodd-Frank Act in
this proxy statement, and Section 14A of the Exchange Act
enable the Cadences stockholders to vote to approve, on an
advisory (non-binding) basis, the compensation of the Named
Executive Officers as disclosed in this proxy statement.
OUR
COMPENSATION PROGRAM
Stockholders are encouraged to read the Compensation
Discussion and Analysis in this proxy statement and the
tables and narrative for the details on Cadences executive
compensation. Cadences executive compensation programs are
designed to support its long-term success and the creation of
stockholder value. Highlights of Cadences executive
compensation program for fiscal 2010 include:
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Continuation of the reduction in executives annual
base salaries that began in 2009;
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After no bonus payouts for fiscal 2008 and 2009, resumed
short-term cash incentive compensation opportunities for fiscal
2010 with actual payment below targets;
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Continued emphasis on long-term equity incentives aligned
with stock performance;
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Adoption of a clawback policy;
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Adoption of a performance-based stock award policy;
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Absence of material perquisites; and
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Continued absence of tax
gross-ups.
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After realigning its business operations with fiscal 2009s
economic realities and implementing the executive compensation
program highlighted above, Cadence grew both its business and
stockholder value in 2010. Cadences fiscal 2010 revenue
and non-GAAP operating margin increased by $83.3 million
and $100.2 million, respectively, as compared to fiscal
2009. Cadence exceeded its fiscal 2010 Annual Operating Plan
targets and materially increased cash flow from operating
activities, enhancing liquidity. The leadership, commitment and
performance of the named executive officers were critical to
Cadences performance.
Similarly, critical to the fiscal 2010 performance was
Cadences focus on
pay-for-performance
in its compensation policies and decisions. As such, the
Compensation Committee and the Board believe that the policies
and procedures articulated in the Compensation Discussion
and Analysis are consistent with sound executive
compensation principles, as well as stockholder interests and
concerns, and that they will act to incentivize the achievement
of Cadences goals moving forward.
In accordance with recently adopted Section 14A of the
Exchange Act, Cadence is asking stockholders to approve the
following advisory resolution at the 2011 Annual Meeting of
Stockholders:
RESOLVED, that the compensation paid to the Cadences Named
Executive Officers, as disclosed pursuant to Item 402 of
Regulation S-K,
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 non-binding on the Board of Directors. Although
non-binding, the Board and the Compensation Committee value the
opinions of our stockholders and will review and consider the
voting results when evaluating our executive compensation
program.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL
OF THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION.
37
PROPOSAL 7
ADVISORY VOTE ON THE FREQUENCY OF ADVISORY VOTES
ON EXECUTIVE COMPENSATION
BACKGROUND
TO THE ADVISORY VOTE
In Proposal 6 above, Cadence stockholders were asked to
vote on an advisory resolution on named executive compensation.
Pursuant to recently adopted Section 14A of the Exchange
Act, in this Proposal 7, stockholders are able to indicate
how frequently they believe an advisory
say-on-pay
vote, as included in Proposal 6, should occur. By voting on
this Proposal 7, stockholders may indicate whether they
prefer that Cadence hold an advisory
say-on-pay
vote every year, every two years or every three years.
REASONS
FOR THE BOARD RECOMMENDATION
After careful consideration, the Board has determined that
holding an advisory vote on executive compensation every year is
the most appropriate policy for Cadence, and recommends that
stockholders vote for future advisory votes on named executive
officer compensation to occur every year. While Cadences
executive compensation programs are designed to promote a
long-term connection between pay and performance, the Board
recognizes that compensation disclosures are made annually.
Holding an annual advisory vote on executive compensation would
provide Cadence with more direct and immediate feedback on those
compensation disclosures. However, stockholders should note that
because the advisory vote on executive compensation occurs well
after the beginning of the compensation year, and because the
different elements of Cadences executive compensation
programs are designed to operate in an integrated manner and to
complement one another, in many cases it may not be appropriate
or feasible to change such executive compensation programs in
consideration of any one years advisory vote on executive
compensation by the time of the following years annual
meeting of stockholders.
Stockholders will be able to specify one of four choices for
this proposal on the proxy card: one year, two years, three
years or abstain. Stockholders are not voting to approve or
disapprove the Boards recommendation. This advisory vote
on the frequency of future advisory
say-on-pay
votes is non-binding on the Board. The option of one year, two
years or three years that receives the highest number of votes
cast by stockholders will be the frequency for the advisory vote
on
say-on-pay
that has been selected by our stockholders. However, because
this vote is advisory and not binding, the Board may in the
future decide to conduct advisory votes on a more or less
frequent basis.
THE BOARD
OF DIRECTORS RECOMMENDS STOCKHOLDERS VOTE TO CONDUCT FUTURE
ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY YEAR.
PROPOSAL 8
RATIFICATION
OF APPOINTMENT OF THE INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
The Audit Committee has selected KPMG LLP as Cadences
independent registered public accounting firm for the fiscal
year ending December 31, 2011. 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 Cadences financial statements since
fiscal 2002. Representatives from KPMG LLP are expected to be
present at the 2010 Annual Meeting of Stockholders, 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
Cadences independent registered public accounting firm is
not required by Cadences 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 Cadences 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.
38
VOTE
REQUIRED AND BOARD OF DIRECTORS 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 on the proposal is required for approval of this proposal.
Abstentions will be treated as being present and entitled to
vote on the proposal and, therefore, will have the effect of
votes against the proposal. Unless marked to the contrary,
proxies received will be voted FOR ratification of the
selection of KPMG LLP.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
PROPOSAL 8.
REPORT OF
THE AUDIT COMMITTEE
The Audit Committee of the Board is 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
2010, the Audit Committee was comprised of Dr. Shoven and
Messrs. Lucas and Siboni, with Mr. Siboni serving as
its Chairman. The Audit Committee met nine times in fiscal 2010.
The Audit Committee operates under a charter that was last
amended by the Board in February 2010. The Audit Committee
charter is posted on the investor relations page of
Cadences website at www.cadence.com. As more fully
described in its charter, the Audit Committee appoints and
retains the independent registered public accounting firm and
oversees the quality and integrity of Cadences financial
statements, Cadences compliance with legal and regulatory
requirements, the independent registered public accounting
firms qualifications, independence and performance, and
the performance of Cadences internal audit function,
Cadences accounting and financial reporting processes and
the audits of Cadences financial statements on behalf of
the Board.
In this context, the Audit Committee has reviewed and discussed
the audited financial statements included in Cadences
Annual Report on
Form 10-K
for the fiscal year ended January 1, 2011 with
Cadences management and KPMG LLP, Cadences
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. In
addition, the Audit Committee has received from KPMG LLP the
written disclosures and the letter required by the applicable
requirements of the Public Company Accounting Oversight Board
regarding KPMG LLPs communications with the Audit
Committee concerning independence, and has discussed with KPMG
LLP its independence from Cadence and its management. The Audit
Committee has also considered whether the provision of other
non-audit services by KPMG LLP to Cadence is compatible with
KPMG LLPs independence.
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to the Board, and the Board
approved, the inclusion of the audited financial statements in
Cadences Annual Report on
Form 10-K
for the fiscal year ended January 1, 2011 for filing with
the SEC.
AUDIT COMMITTEE
Roger S. Siboni, Chairman
Donald L. Lucas
John B. Shoven
The foregoing Audit Committee report is not soliciting material,
is not deemed filed with the SEC and is not to be incorporated
by reference in any filing of Cadence under the Securities Act
of 1933, as amended, 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.
39
FEES
BILLED TO CADENCE BY KPMG LLP DURING FISCAL 2010 AND
2009
The following table presents fees incurred by Cadence for
professional services rendered by KPMG LLP for the fiscal years
ended January 1, 2011 and January 2, 2010.
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Fiscal Year Ended
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Fiscal Year Ended
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January 1,
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January 2,
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2011
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2010
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(In thousands)
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Audit
Fees(1)
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$ 3,089
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$ 3,150
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Audit-Related
Fees(2)
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201
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(3)
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1
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(4)
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Total Audit and Audit-Related Fees
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3,290
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3,151
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Tax
Fees(5)
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109
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(6)
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40
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(7)
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All Other Fees
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Total Fees
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$ 3,399
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$ 3,191
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(1) |
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Includes fees for the audit of Cadences consolidated
financial statements in Cadences Annual Report on
Form 10-K,
fees for the audit of Cadences 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 Cadences
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. |
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(2) |
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Includes fees for assurance and related services that are
reasonably related to the performance of the audit or review of
Cadences consolidated financial statements that are not
reported under Audit Fees. |
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(3) |
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Audit-Related Fees for fiscal 2010 consisted primarily of fees
for services provided in connection with Cadences
convertible debt offering during fiscal 2010. |
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(4) |
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Audit-Related Fees for fiscal 2009 consisted of fees for a
statutory compliance engagement in India associated with the
certification of certain financial data for a regulatory filing. |
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(5) |
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Includes fees for tax compliance, tax advice and tax planning. |
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(6) |
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Tax Fees for fiscal 2010 consisted of tax compliance fees of
$43,663 and tax advice and tax planning fees of $65,329. |
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(7) |
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Tax Fees for fiscal 2009 consisted of tax compliance fees of
$40,218. |
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 Chairman of the Audit
Committee, or, if the Chairman is unavailable, another member of
the Audit Committee. In addition, any proposed engagement of
KPMG LLP for services that are not pre-approved audit-related
and tax services as described above must also be pre-approved on
a
case-by-case
basis by the Audit Committee or the Chairman of the Audit
Committee, or, if the Chairman is unavailable, another member of
the Audit Committee. The members to whom such authority is
delegated must report any approval decisions to the full Audit
Committee at its next scheduled meeting. None of the services
described in the table above entitled Fees Billed to
Cadence by KPMG LLP During Fiscal 2010 and 2009 were
approved by the Audit Committee under the de minimis
exception provided by
Rule 2-01(c)(7)(i)(C)
of
Regulation S-X.
40
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 15, 2011, the
record date, unless otherwise indicated below, by:
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All those known by Cadence to be beneficial owners of more
than 5% of its common stock;
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Each of the current or former executive officers named in
the Summary Compensation Table presented below under
Compensation of Executive Officers;
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All directors and director nominees; and
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All current executive officers and directors of Cadence as
a group.
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Beneficial
Ownership(1)
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Number of
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Percent of
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Beneficial Owner
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Shares
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Total
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Five Percent Stockholders:
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Dodge &
Cox(2)
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45,760,982
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17.0
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%
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555 California Street, 40th Floor
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San Francisco, CA 94104
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T. Rowe Price Associates,
Inc.(3)
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18,259,197
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6.8
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100 E. Pratt Street
Baltimore, Maryland 21202
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BlackRock,
Inc.(4)
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15,585,456
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5.8
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40 East 52nd Street
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New York, NY 10022
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Directors and Executive Officers:
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Susan L.
Bostrom(5)
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31,250
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*
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Donald L.
Lucas(5)(6)
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245,000
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*
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Dr. Alberto
Sangiovanni-Vincentelli(5)
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280,493
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*
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George M.
Scalise(5)
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235,000
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*
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Dr. John B.
Shoven(5)
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490,000
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*
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Roger S.
Siboni(5)
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242,500
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*
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John A.C.
Swainson(5)
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140,000
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*
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Lip-Bu
Tan(5)(7)
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2,216,555
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*
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Geoffrey G.
Ribar(5)
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50,000
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*
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Kevin S.
Palatnik(5)(8)
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806,762
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*
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John J.
Bruggeman II(5)
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216,814
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*
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Thomas A.
Cooley(5)
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310,040
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*
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Charlie
Huang(5)(9)
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751,343
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*
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All current executive officers and directors as a group
(15 persons)(10)
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6,579,723
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2.4
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* |
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Less than 1% |
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(1) |
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This table is based upon information provided by principal
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
Cadences 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 268,572,911 shares of Cadence
common stock outstanding on the record date, adjusted as
required by rules promulgated by the SEC. |
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(2) |
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Dodge & Cox filed Amendment No. 3 to its
Schedule 13G with the SEC on February 10, 2011,
indicating that it beneficially owns 45,760,982 shares for
which it has sole voting power with respect to
43,322,532 shares, shared voting power with respect to none
of the shares and sole dispositive power with respect to
45,760,982 shares. |
41
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(3) |
|
T. Rowe Price Associates, Inc. filed Amendment No. 1 to its
Schedule 13G with the SEC on February 10, 2011,
indicating that it beneficially owns 18,259,197 shares for
which it has sole voting power with respect to
1,875,380 shares and sole dispositive power with respect to
18,259,197 shares. |
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(4) |
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BlackRock, Inc. filed Amendment No. 1 to Schedule 13G
with the SEC on February 3, 2011, indicating that it
beneficially owns 15,585,456 shares for which it has sole
voting and dispositive power. |
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(5) |
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Includes shares which 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: |
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Susan L. Bostrom
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31,250
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Lip-Bu Tan
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1,458,437
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Donald L. Lucas
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175,000
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Geoffrey G. Ribar
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0
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Dr. Alberto Sangiovanni-Vincentelli
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250,000
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Kevin S.
Palatnik(8)
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|
|
567,083
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George M. Scalise
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|
225,000
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John J. Bruggeman II
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127,916
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|
Dr. John B. Shoven
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|
375,000
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|
|
Thomas A. Cooley
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|
|
178,646
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|
Roger S. Siboni
|
|
|
237,500
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|
|
Charlie
Huang(11)
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|
|
386,917
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|
John A.C. Swainson
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|
|
125,000
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|
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|
|
|
|
|
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|
(6) |
|
Includes 55,000 shares held by Donald L. Lucas, TTEE,
Donald L. & Lygia S. Lucas Trust dated 12/3/84, of which
Mr. Lucas is the trustee. Also includes 15,000 shares
held by Donald L. Lucas, SUCC TTEE, Donald L. Lucas Profit
Sharing Trust dated 1/1/84, of which Mr. Lucas is the
Successor Trustee. Mr. Lucas disclaims beneficial ownership
of these shares except to the extent of his pecuniary interest
therein. |
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(7) |
|
Includes 156,386 shares held by 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, and 5,000 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. Also includes 7,000 shares
held by L Tan & N Lee & W Lee Trustees,
Pacven Walden Inc. 401(k) PSP FBO Lip-Bu Tan for which
Mr. Tan has sole voting and investment power and
31,400 shares held by IRA FBO Lip-Bu Tan DB Securities Inc.
Custodian Rollover Account 5/19/97. Mr. Tan disclaims
beneficial ownership of these shares except to the extent of his
pecuniary interest therein. |
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(8) |
|
Kevin S. Palatnik resigned as Sr. Vice President and CFO
effective November 1, 2010. |
|
(9) |
|
Includes 239,488 shares held by Huang-Zhang Trust U/A
DTD 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
16,420 shares held in custodial accounts by
Mr. Huangs spouse for their minor children and
11,704 shares held by Mr. Huangs 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. |
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(10) |
|
Includes 4,556,847 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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(11) |
|
Includes 3,959 shares held by Mr. Huangs spouse
that may be acquired within 60 days after the record date
upon exercise of outstanding stock options. |
42
COMPENSATION
DISCUSSION AND ANALYSIS
This section discusses Cadences compensation program for
the Named Executive Officers, or NEOs in fiscal 2010, who were:
Lip-Bu Tan, its President and Chief Executive Officer, or CEO;
Geoffrey G. Ribar, its Senior Vice President and Chief Financial
Officer, or CFO; Kevin S. Palatnik, its Senior Vice President
and CFO for part of fiscal 2010; and its three most highly
compensated executive officers other than its CEO and CFO: John
J. Bruggeman II, its Senior Vice President and Chief
Marketing Officer; Thomas A. Cooley, its Senior Vice President,
World Wide Field Operations; and Charlie Huang, its Senior Vice
President and Chief Strategy Officer.
EXECUTIVE
SUMMARY
Cadences
Fiscal 2010 Compensation Highlights
In fiscal 2010, Cadence continued to compensate its executive
officers in a manner consistent with its
pay-for-performance
philosophy, emphasizing both short and long-term incentive
compensation.
In 2009, the semiconductor industrys sales declined as the
global macroeconomic environment was negatively affected by
decreased consumer spending, high unemployment, and restrained
corporate spending. As a result, Cadence faced significant
challenges in fiscal 2009 that required realignment of
Cadences business operations with the economic realities.
As part of that realignment, Cadence initiated and executed a
restructuring plan, and enacted significant pay reductions for
its executive team, as discussed further below. In fiscal 2010,
the semiconductor industry grew significantly as consumer demand
for electronic products improved as global economic conditions
improved. In fiscal 2010, Cadence grew its business and
increased stockholder value by delivering superior technical
solutions, implementing a number of austerity measures, and
improving its operating margins. Total stockholder return over
fiscal 2010 was 38%. Cadences fiscal 2010 revenue
increased by 10% when compared to fiscal 2009 and Cadences
non-GAAP operating margin improved to 9% in fiscal 2010 as
compared to negative 2% in fiscal 2009. The executive
officers leadership, commitment and performance were
critical to the improvement in Cadences business results.
Consistent with Cadences executive compensation
principles, the following compensation decisions were made with
respect to fiscal 2010 (including related compensation decisions
made prior to fiscal 2010):
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|
|
Extended Fiscal 2009 Executive Base Salaries Reduction
through the First Half of Fiscal 2010
|
|
|
|
|
|
The Cadence executive management team volunteered to extend
their 10% annual base salary reductions through June 30,
2010. The executive teams base salaries were first reduced
effective July 1, 2009 and were originally set to resume to
their prior level on March 31, 2010.
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|
Mr. Tan, Cadences CEO, whose annual base salary had
been reduced by 20% effective July 1, 2009, volunteered an
additional 6.25% annual base salary reduction effective
March 1, 2010, and extended his annual base salary
reduction through December 31, 2010. Effective
January 1, 2011, Mr. Tans annual base salary was
restored to its prior level.
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|
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|
|
|
No Bonuses Paid to Executive Officers in 2008 or
2009
|
|
|
|
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|
No bonuses were paid for fiscal 2009 performance, because the
executive and senior management team volunteered to forgo their
bonus opportunities at the beginning of fiscal 2009. No bonuses
were paid to executive officers for fiscal 2008, either.
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Resumed Short-Term Cash Incentive Compensation with
Payments Below Annual Targets
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While achievement of Cadences internal operating plan
typically results in bonus payments at or near 100% of
individual target levels, fiscal 2010 bonus plan objectives were
set such that achievement of the revenue and non-GAAP operating
margin targets in Cadences fiscal 2010 internal operating
plan, referred to in this proxy statement as the 2010 Operating
Plan, would result in bonuses at or near 50% of individual
annual target payouts.
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Because Cadence exceeded its 2010 Operating Plan revenue and
non-GAAP operating margin targets, on a weighted average basis,
the NEOs, as a group, were paid 76.8% of their target bonuses
for fiscal
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43
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2010. Historically, such overachievement of performance targets
would have resulted in payments above 100% of individual annual
target payout levels.
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Continued Emphasis on Long-Term Equity Incentives Aligned
with Stock Performance
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Cadence continued weighting equity incentive grants to its
executive officers toward stock options to align the incentives
of executive officers with the performance of Cadences
stock.
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In fiscal 2010, approximately 60% of the grant date fair value
of equity incentive grants to the Named Executive Officers,
other than the CEO, were options and approximately 40% were
restricted stock awards. For the CEO, fiscal 2010 equity
incentive grants were more heavily weighted toward options, with
approximately 80% of the grant date fair value attributable to
options and approximately 20% to restricted stock awards.
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Adopted a Clawback Policy, Applicable to Performance-based
Compensation for Cadences Senior Executive Officers,
Including the Named Executive Officers
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Adopted a Policy That a Portion of Stock Awards Granted to
Executive Officers, Including the Named Executive Officers, be
Performance-based
|
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 skills necessary to achieve Cadences 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.
Cadences executive officer compensation is based on the
following principles:
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Total direct compensation (consisting of annual base salary,
short-term cash incentive compensation and long-term equity
incentive compensation) is targeted to be competitive with peer
companies and market practice; and
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A substantial portion of compensation of the executive officers
is at-risk and is highly dependent on Cadences financial
and operational performance as well as each executive
officers scope of responsibility, criticality and
individual performance.
|
The Compensation Committee oversees the executive compensation
program and assesses executive officer compensation at least
annually to monitor Cadences adherence to these
principles. The executive compensation program is results
oriented and is dependent on achievement of difficult to attain
targets and the long-term performance of Cadences stock.
Compensation
Governance
In addition to the compensation decisions discussed above,
Cadences executive compensation programs continued to
support its commitment to sound corporate governance.
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Cadence did not provide any material perquisites to any Named
Executive Officer in fiscal 2010;
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As noted above, in fiscal 2010, Cadence adopted a clawback
policy, applicable to performance-based compensation for its
senior executive officers, including the Named Executive
Officers;
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As noted above, in fiscal 2010, the Compensation Committee
adopted a policy that a portion of stock awards granted to
executive officers, including the Named Executive Officers, be
performance-based;
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The Compensation Committee conducts a formal review of the risks
associated with Cadences executive compensation practices,
policies, and programs on an annual basis and assesses risks as
part of its regular decision making process;
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44
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Cadence has established stock ownership guidelines designed to
promote alignment with the interests of stockholders. All of the
Named Executive Officers are in compliance with Cadences
stock ownership guidelines or are on track to do so within five
years of becoming subject to the guidelines; and
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The Compensation Committee continued to engage its own
compensation consultant that does not provide any services to
management or otherwise to Cadence and had no prior relationship
with any of the NEOs.
|
DETERMINING
EXECUTIVE COMPENSATION
Competitive
Compensation Levels
Each year, the Compensation Committee assesses the
competitiveness of the elements 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 2010, 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. This group of companies is referred to in this proxy
statement as the Peer Group. In order to more accurately reflect
the pool from which executive talent is drawn and to which it is
lost, the Peer Group is not limited to Cadences direct
business competitors. Rather, the Compensation Committee
included publicly traded electronic design automation (EDA)
competitors, as well as a broader group of semiconductor and
application software companies that are located in the
San Francisco Bay Area (where Cadence is headquartered) and
compete in the same talent market as Cadence.
All members of the Peer Group fall within a relevant revenue and
market capitalization range as follows: (i) revenue is
between one-half and two times that of Cadences
twelve-month trailing revenue, and (ii) two-year average
market capitalization is between one-third and three times that
of Cadences two-year average market capitalization. In
February 2010, the Compensation Committee approved the resulting
group of 19 companies, which was used to assess the
competitiveness of the executive officers base salaries,
target and actual annual cash incentive compensation, long-term
equity incentive opportunities and total direct compensation.
The following companies comprised the Peer Group for fiscal 2010
for determining competitive compensation levels:
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Altera Corporation
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Intersil Corporation
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National Semiconductor Corporation
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ANSYS Inc.
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KLA-Tencor Corporation
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Novellus Systems, Inc.
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Atheros Communications Inc.
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Lam Research Corporation
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PMC-Sierra Inc.
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Atmel Corporation
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Linear Technology Corporation
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Synopsys, Inc.
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Cypress Semiconductor Corporation
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Maxim Integrated Products, Inc.
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TIBCO Software Inc.
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Informatica Corp.
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Mentor Graphics Corporation
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Xilinx Inc.
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Integrated Device Technology Inc.
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The Peer Group includes several changes from the peer group for
fiscal 2009 (referred to in the 2009 proxy statement as the
Primary Compensation Peer Group), primarily driven by two
factors: (i) narrower revenue and market capitalization
screening criteria, and (ii) decreases in Cadences
revenue and market capitalization in fiscal 2009 as compared to
fiscal 2008. As a result, 17 companies from the fiscal 2009
peer group were excluded, and 8 new companies were added. For
the fiscal 2010 Peer Group, the median revenue was
$800 million (as calculated on a trailing four-quarter
basis as of December 31, 2009) and the median market
capitalization was $2.0 billion (as calculated on a
trailing two-year average basis as of December 31, 2009).
Compensation
Determinations
Consistent with the principles of Cadences executive
officer compensation outlined above, after the Compensation
Committee determines the market levels of each executive
officers compensation based on the compensation paid by
the companies in the Peer Group, the Compensation Committee
assesses the appropriateness of each executive officers
compensation relative to executives with similar titles and
responsibilities in the Peer
45
Group. For the purposes of this assessment, the Compensation
Committee considers the annual base salary, short-term cash
incentive award opportunities and long-term equity incentive
award opportunities (based on the fair value of the equity
awards on the date of grant). Cadence does not target executive
officer 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 compensation for
the executive officers, the Compensation Committee takes into
account not only the information regarding compensation paid to
executives with similar titles and responsibilities at the
companies in the Peer Group, but also each of the following
factors, without prescribing particular weightings:
Cadence
Factors
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Cadences financial and operational performance as compared
to the performance of the companies in the Peer Group;
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Cadences relative size and scope of business as compared
to the companies in the Peer Group; and
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Budget constraints.
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Individual
Factors
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Individual performance over the preceding year;
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Strategic importance of the position;
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Criticality, experience and ability to impact corporate
and/or
business group results;
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Scarcity in the market of the individuals skills and
talents;
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Expected future contributions;
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Historical compensation;
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Retention risks; and
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Relative positioning/performance versus other executives.
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The Compensation Committee retains and does not delegate any of
its exclusive power to determine all matters of executive
compensation, although for each executive officer other than the
CEO, the CEO typically makes assessments and recommendations to
the Compensation Committee on other executive officers
base salaries, short-term cash incentive compensation and
long-term equity incentive compensation based upon an assessment
of each of the Cadence Factors and the
Individual Factors outlined above, which are
collectively referred to in this proxy statement as the
Compensation Factors. The Compensation Committee then reviews
these assessments and recommendations and determines whether or
not to approve or modify the CEOs recommendations.
The Compensation Committee evaluates each of the Cadence
Factors as well as the CEOs performance with respect
to each of the Individual Factors described above,
and the assessment from such evaluation is used to determine the
CEOs compensation. The Compensation Committee, in its sole
discretion, makes all decisions related to the CEOs
compensation.
ELEMENTS
OF EXECUTIVE COMPENSATION
The Named Executive Officers compensation is comprised of
the following elements:
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Total direct compensation, consisting of:
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Base salary;
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Short-term cash incentive compensation; and
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Long-term equity incentive compensation (including stock options
and restricted stock).
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Other compensation and benefits, consisting of:
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Participation in Cadences broad-based employee benefit
plans;
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46
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Participation in Cadences nonqualified deferred
compensation plan; and
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Limited perquisites.
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Consistent with the principles of Cadences executive
officer compensation outlined above, an executive officers
total direct compensation is based upon Cadences
performance as well as the performance of the individual
executive officer. Cadence does not have a pre-established
policy or target for allocating between fixed and variable
compensation or among the different types of variable
compensation, although the allocation is influenced by the
Compensation Committees assessment of the compensation
practices of the companies in the Peer Group and Cadences
short-term and long-term strategic objectives. Instead, the
Compensation Committee aims to provide total direct compensation
at levels sufficient to attract, motivate and retain qualified
executives. The Compensation Committee believes that executive
compensation should incentivize Cadences consistent and
sustained performance. Accordingly, the executive officers
compensation at Cadence is weighted towards short-term cash
incentives and long-term equity 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 as described
above under Compensation Determinations. 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 year or in connection with an executive
officers promotion or change in responsibilities.
In May 2009, in support of Cadences cost-reduction
strategy and commitment to operational efficiency,
Cadences executive officers, including the Named Executive
Officers who were executive officers at the time, volunteered
for a temporary reduction of their annual base salaries
(effective July 1, 2009 through March 31,
2010) and the Compensation Committee accepted this
voluntary reduction. During this period, the annual base salary
of Mr. Tan was reduced by 20% and the annual base salary of
each of Cadences Senior Vice Presidents (including all of
the other Named Executive Officers who were executive officers
at the time) was reduced by 10%. In February 2010, Mr. Tan
requested, and the Compensation Committee agreed to, an
additional 6.25% reduction of his already reduced annual base
salary, effective March 1, 2010. Mr. Tan additionally
requested, and the Compensation Committee agreed, that his
reduced base salary remain in effect indefinitely. At the same
time, Cadences other executive officers, including each of
the Named Executive Officers, joined Mr. Tan and
volunteered to continue (and in the case of Mr. Bruggeman,
who became an executive officer after the initial reduction, to
commence) the temporary 10% reductions in their base salaries
through June 30, 2010, and the Compensation Committee
accepted such extension. Effective July 1, 2010, the annual
base salaries of the NEOs, except for Mr. Tan, were
restored to their prior levels as follows: Mr. Palatnik,
$450,000; Mr. Bruggeman, $350,000; Mr. Cooley,
$425,000; and Mr. Huang, $400,000. Effective
January 1, 2011, the annual base salary of Mr. Tan was
restored to its original level of $600,000.
In September 2010, in connection with the appointment of
Mr. Ribar as Senior Vice President and Chief Financial
Officer of Cadence, effective November 1, 2010, the
Compensation Committee set his base annual salary at $350,000,
consistent with the principles of Cadences compensation
for its executive officers described above. Mr. Palatnik
resigned from his executive position at Cadence effective
November 1, 2010.
Short-Term
Cash Incentive Compensation
Target
Bonuses
Cadence generally provides its executive officers with the
opportunity to earn short-term cash incentive compensation under
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 Cadences short-term financial and operational
goals, as measured against specific performance criteria
relative to Cadences overall
47
business results as well as the particular executive
officers individual performance. Cash bonus payouts under
the Bonus Plan are determined semi-annually after the end of
each performance period, and the amount paid to each executive
officer is determined based upon the executive officers
target bonus multiplied by a company performance modifier and an
individual performance modifier (each described in more detail
below). For each executive officer other than the CEO, the
Compensation Committee reviews, as described above under
Compensation Determinations, and approves (with or
without modification, in its sole discretion) the CEOs
recommendations as to the executive officers target bonus.
For the CEO, however, the Compensation Committee is solely
responsible for assigning a target bonus based on its review, as
described above under Compensation Determinations.
For fiscal 2010, the target and actual bonuses paid to the
executive officers are set forth in the table below:
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Target Bonus
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(as a % of Base
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Target
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Actual
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Name
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Base
Salary*
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Salary)
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Bonus**
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Bonus
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Lip-Bu Tan
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$
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454,616
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100
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%
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$
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453,692
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$
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357,321
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Geoffrey G. Ribar***
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74,038
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75
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66,635
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47,857
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Kevin S. Palatnik
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427,846
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75
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324,311
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240,698
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John J. Bruggeman II
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341,250
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75
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257,331
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196,875
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Thomas A. Cooley
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404,077
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75
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306,294
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233,877
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Charlie Huang
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380,308
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75
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288,277
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226,285
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* |
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As described above in Base Salaries, the Named
Executive Officers base salaries were reduced by 10%
through June 30, 2010, and then restored to their pre-2009
reduction levels effective July 1, 2010, and this column
reflects such salary adjustments. |
|
** |
|
Target bonuses were calculated by adding the target bonuses for
each of the two performance periods in fiscal 2010. The target
bonus for each period was determined by multiplying the
performance period target percentage by the individuals
base salary during the performance period. Please see below for
a more detailed explanation of the performance period targets
and payment. |
|
*** |
|
Mr. Ribar received only a pro-rated second-half bonus for
fiscal 2010. |
Ordinarily, the Compensation Committee would have made
determinations in February 2010 about executive officer bonus
payments for performance during fiscal 2009. However, because
management had foregone bonus opportunities for fiscal 2009, the
Compensation Committee made no such determinations and paid no
bonuses for fiscal 2009. At the same time, the Compensation
Committee determined that the executive officers, including the
Named Executive Officers, would be eligible for bonus
opportunities under the Bonus Plan for fiscal 2010, but elected
to set very challenging financial and operational goals under
the Bonus Plan, anticipating only partial payment under the
Bonus Plan compared to target bonus amounts outlined in the
table above. The Compensation Committee reviewed the target
bonus amounts of the Named Executive Officers who were executive
officers at that time and decided not to make any changes to
their existing target bonus amounts because the Compensation
Committee believed that the target bonus levels were
appropriate. Moreover, the Compensation Committee set very
difficult to attain financial performance measures that were not
expected to result in payments at target levels.
For the first half of 2010, achievement of Cadences
revenue and non-GAAP operating margin targets under its 2010
Operating Plan would have resulted in bonus payouts of 20% of
annual target payouts under the 2010 Bonus Plan, and, for the
second half of 2010, achievement of Cadences revenue and
non-GAAP operating margin targets under its 2010 Operating Plan
would have resulted in bonus payouts of 30% of annual target
payouts under the 2010 Bonus Plan. Thus, for the full fiscal
year, achievement of the revenue and non-GAAP operating margin
targets under Cadences 2010 Operating Plan would have
resulted in bonus payouts of only 50% of the annual target
payouts under the Bonus Plan. Cadence weighted the payouts more
heavily towards the second half of the fiscal year and set more
challenging targets for the second half of the fiscal year
because of a number of factors, including the expectation that
its financial performance for fiscal 2010 would improve over the
course of the year and that the Committee wanted to ensure that
the company performed against its annual financial targets
before paying the majority of executives bonuses.
48
Company
Performance Modifier
The Company performance modifier is a percentage that reflects
Cadences overall performance. The weightings and
performance measures used to determine the Company performance
modifier are reviewed by the Compensation Committee at the
beginning of each performance period, in consultation with the
CEO, to assure that they align with what the Compensation
Committee and the CEO believe are the most important factors
that influence Cadences annual business and financial
performance and directly impact long-term stockholder value. For
fiscal 2010, the components of the Company performance modifier
and relative weightings were as follows: 45% for the total
revenue target and 55% for the non-GAAP operating margin target.
For each half of fiscal 2010, the performance goals, and actual
performance against such goals, used to determine the group
performance modifiers were as follows:
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Non-GAAP
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Non-GAAP
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Revenue
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Operating
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Revenue
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Operating
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(In millions)
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|
Margin*
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(In millions)
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Margin*
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1st Half
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2nd Half
|
|
2010 Operating Plan Target
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$
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436.0
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4.3
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%
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$
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472.1
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6.9
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%
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Actual
Achievement**
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449.0
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7.7
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%
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487.0
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9.8
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%
|
Company Performance Modifier
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0.763
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0.684
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* |
|
Non-GAAP operating margin target is defined as non-GAAP income
from operations expressed as a percentage of total revenue, as
disclosed in Cadences earnings releases. |
|
** |
|
In fiscal 2010, the Compensation Committee set the Bonus Plan
targets such that achievement of the fiscal 2010 Operating Plan
targets would result in bonuses at or near 50% of individual
annual target payouts. |
Individual
Performance and Bonus Determination
For each executive officer other than the CEO, the CEO makes a
bonus recommendation for each performance period. Based on the
executive officers performance, as well as the CEOs
bonus recommendation, the Compensation Committee determines the
bonus for each executive officer, which reflects individual and
company performance. For the CEOs bonus, the Compensation
Committee evaluates the CEOs performance and contributions
as well as Cadences overall performance.
For the first half of 2010, based on Cadences business
results, as discussed in the Executive Summary
above, and to recognize the achievements of executives who had
performed well not only as individuals but as a strong, unified
team, the Compensation Committee determined that each Named
Executive Officer would receive approximately 84% of their first
half 2010 bonus targets, as enumerated in Target
Bonuses above.
For the second half of 2010, the Compensation Committee took
into consideration the business results the executive team
accomplished, as well as the Individual Factors
listed above, to determine each Named Executive Officers
bonus payment.
The decision of the Compensation Committee to award Mr. Tan
approximately 75% of his second half 2010 target bonus was based
on numerous factors, including Cadences overall
performance and the significant increase in stockholder value in
2010, overachievement of Cadences 2010 Operating Plan
financial targets, including achievement of a 10% increase in
revenue as compared with fiscal year 2009, Mr. Tans
intense focus on and significant contributions to strategic
customer relationships, his leadership on setting the EDA360
vision for the industry and the successful acquisition and
integration of Denali Software, Inc.
Mr. Huang received a bonus of approximately 75% of his
target bonus for the second half of 2010, in recognition of his
roles as the Chief Strategy Officer, acting Chief Technology
Officer and the CEOs Chief of Staff, his development of
and leadership with respect to Cadences strategy and the
key role he played in the acquisition and integration of Denali
Software, Inc.
Mr. Palatnik received a bonus payment of approximately 68%
of his target bonus for the second half of 2010, which reflected
his contributions to Cadences fiscal performance,
particularly, the improvement in operating
49
margin from negative 2% in fiscal 2009 to 9% in fiscal 2010 and
his role in ensuring a smooth transition of the CFO role to
Mr. Ribar in the fourth quarter of 2010.
Mr. Ribar received a bonus payment of approximately 72% of
his second half bonus target, as prorated to reflect the fact
that Mr. Ribar joined Cadence during the second half of
2010. This bonus award was based on his quick assimilation as
Cadences new CFO and the role he played in its fiscal
performance in the fourth quarter of 2010.
Mr. Bruggeman received a bonus payment of approximately 72%
of his second half 2010 target bonus based on the role he played
in enhancing Cadences market presence and in developing
and proliferating Cadences EDA360 vision for the EDA
industry.
Mr. Cooley received a bonus payment of approximately 72% of
his second half 2010 target bonus in recognition of his
leadership of the Worldwide Sales team in driving Cadences
success with new and existing customers, and Cadences
progress in transitioning to a ratable revenue model.
Long-Term
Equity Incentive Compensation
Consistent with the principles of Cadences 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 Cadences
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 Cadences stock price increases from the date of
grant over time and the executive officers remain employed at
Cadence during the period required for the stock options to
vest. Furthermore, awards of restricted stock 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 Cadences stock price increases.
When the Compensation Committee determines and approves
individual equity grants to executive officers, it considers
compensation paid to executives with similar titles and
responsibilities at the companies in the Peer Group and each of
the Compensation Factors, without prescribing particular
weightings to any of the Compensation Factors. In addition, the
Compensation Committee reviews the CEOs 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 Named Executive Officers, a portion of their stock
awards granted be performance-based. The performance-based stock
awards may take either of the following forms:
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Performance-Vesting Stock Awards stock awards that
do not vest or become exercisable unless certain specific
business performance goals established by the Compensation
Committee are met.
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Performance-Accelerated Stock Awards stock awards
for which vesting is accelerated upon achievement of specific
business performance goals established by the Compensation
Committee.
|
Approximately 60% of the grant date fair value of the long-term
equity incentives granted to the Named Executive Officers in
February 2010 consisted of stock options, and the remaining
approximately 40% consisted of restricted stock, with the
exception of awards to Mr. Tan, approximately 80% of which
consisted of stock options and the remaining approximately 20%
consisted of restricted stock. The Compensation Committee
intended this long-term equity incentive mix to provide the
appropriate level of executive alignment with stockholder
interests, reward its executives for building and sustaining
long-term stockholder value, and balance between stock options
(which provide value only if the stock price increases) and
restricted stock (which provide more certain retention value
subject to the fulfillment of certain conditions, including
performance goals). The Compensation Committee and the CEO
continue to believe that equity-based compensation is an
important component of Cadences compensation program and
essential to motivate executives and align their interests with
those of its stockholders.
The stock options granted to the Named Executive Officers in
February 2010 vest monthly over four years from the date of
grant and expire seven years from the date of grant. The
February 2010 restricted stock awards vest in equal semi-annual
installments over three years from the date of grant, subject to
the achievement of performance
50
goals intended to qualify the awards as performance-based
compensation under Section 162(m) of the Code. The
values reflected for equity awards in the Summary Compensation
Table 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.
In September 2010, as an inducement for Mr. Ribar to join
Cadence and in connection with the negotiation of the terms of
his employment, the Compensation Committee approved an equity
grant to Mr. Ribar that included stock options and
restricted stock. Please refer to the Grants of Plan-Based
Awards in Fiscal Year 2010 table below for more detail regarding
Mr. Ribars grants and the grants to the other Named
Executive Officers.
In February 2011, the Compensation Committee made equity grants
in the form of stock options and performance-based restricted
stock to each of the Named Executive Officers who were executive
officers at the time, except for Mr. Ribar, who received an
equity grant as an inducement to join Cadence in November 2010.
Consistent with the February 2010 equity grants, the February
2011 equity grants are also allocated more heavily towards stock
options than restricted stock. The Compensation Committee
awarded approximately 70% of the total grant date fair value of
Mr. Tans equity grant in the form of stock options,
with the remainder consisting of restricted stock.
Mr. Huangs equity award was comprised of 100% stock
options. For Messrs. Bruggeman and Cooley, approximately
60% of the total grant date fair value of the equity grants is
in the form of stock options. The terms and vesting schedules of
the February 2011 stock option grants and the incentive stock
awards are consistent with the stock option grants made in
fiscal 2010.
Grant
Timing Policy
The Compensation Committee and senior management monitor
Cadences stock option and restricted stock grant policies
to ensure that 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 publicly available and
after review and evaluation of each executive officers
performance, enabling the Compensation Committee to consider
both the prior years 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 2010, each of the Named Executive Officers was
eligible to defer compensation payable to them under a
nonqualified deferred compensation plan maintained by Cadence,
which is referred to in this proxy statement as 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 into 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 Cadences 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 Named
Executive Officers, an opportunity to defer income tax payments
on their cash compensation.
Other
Employee Benefit Plans
The Named Executive Officers are eligible for the same benefits
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. Cadence aims to provide benefits to its employees that
are competitive with market practices.
51
Perquisites
Cadence does not provide NEOs any tax restoration payments with
respect to any taxable income. Cadence did not provide material
perquisites to any Named Executive Officer in fiscal 2010.
Severance
Benefits
The Compensation Committee periodically reviews typical industry
practices concerning severance and change in control agreements
and Cadences severance and change in control agreements.
Cadence has entered into employment agreements with
Messrs. Tan, Bruggeman, Cooley, and Huang that provide for
benefits upon termination of employment under certain
circumstances, including in connection with a change in control
of Cadence. Cadence entered into an Executive Transition and
Release Agreement with Mr. Palatnik, referred to in this
proxy statement as the Transition Agreement, in connection with
his resignation from his executive position at Cadence,
effective November 1, 2010. Cadence provides these benefits
as a means of remaining competitive, 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
Cadences termination of the executives 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 executives employment is terminated
without cause or for good reason (constructive termination), the
executive 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.
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 Named
Executive Officers.
Severance
Benefits Provided Upon Resignation
Effective November 1, 2010, Mr. Palatnik resigned from his
executive officer position with Cadence. Under the Transition
Agreement, Mr. Palatnik remained with Cadence as a non-executive
employee through February 28, 2011 to assist on transitional
matters. Effective February 28, 2011, Mr. Palatnik became a
part-time employee, and receives certain benefits consistent
with a termination without cause as set forth in his Employment
Agreement with Cadence dated July 29, 2008, as amended. For
further detail of the severance benefits provided to and that
will be provided to Mr. Palatnik, please refer to the footnotes
to the Summary Compensation Table and the discussion under
Potential Payments Upon Termination or Change in Control
and Employment Contracts.
STOCK
OWNERSHIP GUIDELINES
Cadence maintains stock ownership guidelines for its executive
officers. These guidelines are designed to promote alignment
with the interests of stockholders and Cadences commitment
to sound corporate governance. The Compensation Committee
reviewed industry standard practices when it established the
guidelines below. All of the Named Executive Officers satisfy
Cadences stock ownership guidelines.
Stock
Ownership Guidelines
|
|
|
|
|
|
|
Position
|
|
Shares
|
|
Years to Meet Guidelines
|
Chief Executive Officer
|
|
|
100,000
|
|
|
5 years
|
|
|
|
|
|
Chief Financial Officer
|
|
|
50,000
|
|
|
|
|
|
|
Senior Vice Presidents
|
|
|
25,000
|
|
|
|
|
|
|
|
|
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 obtained
through the Amended and Restated Employee Stock Purchase Plan,
which is referred to in this proxy statement as the ESPP, shares
acquired and held through the exercise of stock options, shares
purchased on the
52
open market, shares owned outright by the executive officer or
his or her immediate family members residing in the same
household, and shares held in trust for the benefit of the
executive officer or his or her family.
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 senior executive
officers after January 1, 2010 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.
TAX
CONSIDERATIONS
Section 162(m)
of the Internal Revenue Code of 1986
Section 162(m) of the Code limits deductions for certain
executive compensation in excess of $1,000,000 in any fiscal
year. Certain types of compensation are deductible only if
performance criteria are specified in detail and payments are
contingent on stockholder approval of the compensation
arrangement. Cadence attempts to structure its compensation
arrangements to achieve deductibility under Section 162(m)
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 2010, all stock option and restricted stock grants to
Messrs. Tan, Palatnik, Bruggeman, Cooley, and Huang were
structured with the intent to qualify them as
performance-based compensation under
Section 162(m) of the Code, and should be fully deductible,
and performance measures and goals under the Bonus Plan were
intended to comply with the exception for performance-based
compensation Section 162(m) of the Code.
Section 280G
of the Code
Section 280G of the Code disallows a companys 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.
Messrs. Tan, Palatnik, Bruggeman, Cooley, and Huang 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 Messrs. Tan, Palatnik, Bruggeman,
Cooley, and Huang 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, Cadences tax deduction would
be disallowed under Section 280G of the Code and an excise
tax would be imposed on the Named Executive Officer under
Section 4999 of the Code. Please refer to the discussion
below under Potential Payments upon Termination or Change
in Control and Employment Contracts for more detail on the
potential lost tax deductions.
53
COMPENSATION
COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis above with management. In
reliance on the review and discussions referred to above, the
Compensation Committee recommended to the Board, and the Board
approved, the inclusion of the Compensation Discussion and
Analysis in this proxy statement and incorporation by reference
into Cadences Annual Report on
Form 10-K
for the fiscal year ended January 1, 2011.
SUBMITTED BY THE COMPENSATION
COMMITTEE
John B. Shoven, Chairman
Donald L. Lucas
George M. Scalise
John A. C. Swainson
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is, or was during or
prior to fiscal 2010, an officer or employee of Cadence or any
of its subsidiaries. None of Cadences 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 of Cadence.
COMPENSATION
OF EXECUTIVE OFFICERS
The following table shows the compensation awarded or paid to,
or earned by, Cadences Named Executive Officers in fiscal
2010.
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
All
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Other
|
|
|
Name and
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Total
|
Principal Position
|
|
Year
|
|
($)(1)
|
|
($)(1)
|
|
($)(2)
|
|
($)(2)
|
|
($)(1)
|
|
($)(3)
|
|
($)
|
|
Lip-Bu Tan
|
|
|
2010
|
|
|
$
|
454,616
|
|
|
$
|
|
|
|
$
|
560,000
|
|
|
$
|
1,845,360
|
|
|
$
|
357,321
|
|
|
$
|
11,046
|
|
|
$
|
3,228,343
|
|
President and Chief
|
|
|
2009
|
|
|
|
531,692
|
|
|
|
11,765
|
|
|
|
2,076,000
|
|
|
|
3,636,609
|
|
|
|
|
|
|
|
26,029
|
|
|
|
6,282,095
|
|
Executive Officer
|
|
|
2008
|
|
|
|
|
|
|
|
238,235
|
|
|
|
|
|
|
|
163,900
|
|
|
|
|
|
|
|
|
|
|
|
402,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geoffrey G.
Ribar(4)
|
|
|
2010
|
|
|
|
74,038
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|
|
|
|
|
|
|
329,600
|
|
|
|
656,500
|
|
|
|
47,857
|
|
|
|
2,043
|
|
|
|
1,110,038
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin S.
Palatnik(5)
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|
|
2010
|
|
|
|
427,846
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|
|
|
|
|
|
|
224,000
|
|
|
|
299,871
|
|
|
|
240,698
|
|
|
|
10,261
|
|
|
|
1,202,676
|
|
Former Senior Vice
|
|
|
2009
|
|
|
|
423,135
|
|
|
|
|
|
|
|
210,000
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|
|
|
625,873
|
|
|
|
|
|
|
|
10,261
|
|
|
|
1,269,269
|
|
President and Chief Financial Officer
|
|
|
2008
|
|
|
|
383,269
|
|
|
|
|
|
|
|
562,000
|
|
|
|
410,520
|
|
|
|
|
|
|
|
6,992
|
|
|
|
1,362,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Bruggeman II
|
|
|
2010
|
|
|
|
341,250
|
|
|
|
|
|
|
|
224,000
|
|
|
|
299,871
|
|
|
|
196,875
|
|
|
|
9,026
|
|
|
|
1,071,022
|
|
Senior Vice President and Chief Marketing Officer
|
|
|
2009
|
|
|
|
125,192
|
|
|
|
40,000
|
|
|
|
212,100
|
|
|
|
653,140
|
|
|
|
|
|
|
|
4,369
|
|
|
|
1,034,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Cooley
|
|
|
2010
|
|
|
|
404,077
|
|
|
|
|
|
|
|
224,000
|
|
|
|
299,871
|
|
|
|
233,877
|
|
|
|
9,386
|
|
|
|
1,171,211
|
|
Senior Vice President, Worldwide Field Operations
|
|
|
2009
|
|
|
|
401,337
|
|
|
|
|
|
|
|
126,000
|
|
|
|
455,180
|
|
|
|
|
|
|
|
9,386
|
|
|
|
991,903
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charlie Huang
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|
|
2010
|
|
|
|
380,308
|
|
|
|
|
|
|
|
224,000
|
|
|
|
299,871
|
|
|
|
226,285
|
|
|
|
9,265
|
|
|
|
1,139,729
|
|
Senior Vice President
|
|
|
2009
|
|
|
|
375,692
|
|
|
|
|
|
|
|
147,000
|
|
|
|
455,180
|
|
|
|
|
|
|
|
9,168
|
|
|
|
987,040
|
|
and Chief Strategy Officer
|
|
|
2008
|
|
|
|
350,000
|
|
|
|
|
|
|
|
318,300
|
|
|
|
256,212
|
|
|
|
|
|
|
|
8,135
|
|
|
|
932,647
|
|
|
|
|
(1) |
|
Includes amounts deferred pursuant to Section 401(k) of the
Code and the Deferred Compensation Plan. |
54
|
|
|
(2) |
|
In accordance with SEC rules, the amount shown is the aggregate
grant date fair value for awards granted during the fiscal year
calculated in accordance with FASB ASC Topic 718. 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
holders over a number of years, and in certain cases, subject to
performance conditions. The terms of the applicable awards are
discussed in more detail in the Grants of Plan-Based Awards in
Fiscal Year 2010 and the Outstanding Equity Awards at 2010
Fiscal Year End tables. The assumptions used to calculate the
valuation of the awards for fiscal 2010 are set forth in
Note 11 to the Notes to Consolidated Financial Statements
in Cadences Annual Report on
Form 10-K
for the fiscal year ended January 1, 2011 and the
assumptions used to calculate the valuation of the awards in
prior years are set forth in the Notes to Consolidated Financial
Statements in Cadences Annual Report on
Form 10-K
for the corresponding years. The amount shown is calculated
based on the price of Cadence common stock on the date the
awards were 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 market value of the
awards as of January 1, 2011, the financial benefit that
the holders of the awards will actually realize upon exercise of
the awards or the likelihood that the awards will be exercised
prior to their expiration. |
|
(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 Mr. Tan, the amount shown includes (for fiscal 2010):
$7,350 for 401(k) matching contributions and $3,696 for term
life insurance premium payments.
|
|
|
|
For Mr. Ribar, the amount shown includes (for fiscal 2010):
$1,608 for 401(k) matching contributions, and $435 for term life
insurance premium payments.
|
|
|
|
For Mr. Palatnik, the amount shown includes (for fiscal
2010): $7,350 for 401(k) matching contributions and $2,911 for
term life insurance premium payments.
|
|
|
|
For Mr. Bruggeman, the amount shown includes (for fiscal
2010): $7,350 for 401(k) matching contributions and $1,676 for
term life insurance premium payments.
|
|
|
|
For Mr. Cooley, the amount shown includes (for fiscal
2010): $7,350 for 401(k) matching contributions and $2,036 for
term life insurance premium payments.
|
|
|
|
For Mr. Huang, the amount shown includes (for fiscal 2010):
$7,350 for 401(k) matching contributions and $1,915 for term
life insurance premium.
|
|
|
|
(4) |
|
Mr. Ribar was appointed Sr. Vice President and CFO,
effective November 1, 2010. |
|
(5) |
|
Mr. Palatnik resigned from his position of Sr. Vice
President and CFO, effective November 1, 2010. |
55
GRANTS OF
PLAN-BASED AWARDS IN FISCAL YEAR 2010
|
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|
|
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|
|
|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
|
|
Grant Date
|
|
|
|
|
Possible Payments Under
|
|
Number of
|
|
Number of
|
|
Exercise or
|
|
Fair Value
|
|
|
|
|
Non-Equity Incentive Plan
|
|
Shares of
|
|
Securities
|
|
Base Price
|
|
of Stock
|
|
|
|
|
Awards
|
|
Stock or
|
|
Underlying
|
|
of Option
|
|
and Option
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units
|
|
Options
|
|
Awards
|
|
Awards
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)(1)
|
|
(#)
|
|
($/Sh)(2)
|
|
($)(3)
|
|
Lip-Bu Tan
|
|
|
2/08/10
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
100,000
|
|
|
|
|
|
|
$
|
|
|
|
$
|
560,000
|
|
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800,000
|
(4)
|
|
|
5.60
|
|
|
|
1,845,360
|
|
|
|
|
Bonus Plan
|
|
|
|
|
|
|
|
453,692
|
|
|
|
1,020,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geoffrey G. Ribar
|
|
|
11/15/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
329,600
|
|
|
|
|
11/15/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
(5)
|
|
|
8.24
|
|
|
|
656,500
|
|
|
|
|
Bonus Plan
|
|
|
|
|
|
|
|
66,635
|
|
|
|
149,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin S. Palatnik
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
224,000
|
|
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
(4)
|
|
|
5.60
|
|
|
|
299,871
|
|
|
|
|
Bonus Plan
|
|
|
|
|
|
|
|
324,311
|
|
|
|
729,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Bruggeman II
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
224,000
|
|
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
(4)
|
|
|
5.60
|
|
|
|
299,871
|
|
|
|
|
Bonus Plan
|
|
|
|
|
|
|
|
257,331
|
|
|
|
578,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Cooley
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
224,000
|
|
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
(4)
|
|
|
5.60
|
|
|
|
299,871
|
|
|
|
|
Bonus Plan
|
|
|
|
|
|
|
|
306,294
|
|
|
|
689,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charlie Huang
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
224,000
|
|
|
|
|
2/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
(4)
|
|
|
5.60
|
|
|
|
299,871
|
|
|
|
|
Bonus Plan
|
|
|
|
|
|
|
|
288,277
|
|
|
|
648,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The stock awards granted to Messrs. Bruggeman, Cooley,
Huang, Palatnik and Tan on February 8, 2010 were granted
under the 1987 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. The stock award granted to
Mr. Ribar on November 15, 2010 was granted under the
2000 Plan, as an inducement for him to accept employment as
Senior Vice President and Chief Financial Officer.
Mr. Ribars award vests over four years, with 1/4th of
the shares subject to such stock award vesting on each
anniversary of the date of grant. |
|
(2) |
|
The exercise price of the stock options is the closing price of
Cadence common stock on the date of grant. |
|
(3) |
|
In accordance with SEC rules, the amount shown reflects the
grant date fair value of stock awards and option awards
calculated pursuant to FASB ASC 718. 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. The
assumptions used to calculate the valuation of the stock awards
and option awards for fiscal 2010 are set forth in Note 11
to the Notes to Consolidated Financial Statements in
Cadences Annual Report on
Form 10-K
for the fiscal year ended January 1, 2011. |
|
(4) |
|
The stock options were granted under the 1987 Plan and vest over
four years, with 1/48th of the shares subject to such option
vesting at the end of each month after the date of grant. |
|
(5) |
|
The stock option was granted under the 2000 Plan as an
inducement for Mr. Ribar to accept employment as Senior
Vice President and Chief Financial Officer and vests over four
years, with 1/4th of the shares subject to such stock option
vesting on the first anniversary after the date of grant and
1/36th of the remaining shares vesting monthly thereafter. |
56
NARRATIVE
DISCLOSURE TO SUMMARY COMPENSATION TABLE AND
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2010 TABLE
EMPLOYMENT
TERMS
Certain elements of compensation set forth in the Summary
Compensation Table and Grants of Plan-Based Awards in Fiscal
Year 2010 table reflect the terms of an employment agreement or
an offer letter between Cadence and each of the Named Executive
Officers that were in effect as of January 1, 2011.
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. Tans participation in the Bonus
Plan at an annual target bonus of 100% of his base salary.
Effective July 1, 2009, Mr. Tans base salary was
subject to a voluntary salary reduction whereby his salary was
reduced by 20%. Effective March 1, 2010,
Mr. Tans employment agreement was further amended to
reflect Mr. Tans request to reduce his base salary by
another 6.25% to $450,000. Effective January 1, 2011,
Mr. Tans salary was restored back to $600,000.
Geoffrey G. Ribar. Cadence is party to an
offer letter with Mr. Ribar pursuant to which
Mr. Ribar serves as Senior Vice President and Chief
Financial Officer. The offer letter provides for an initial base
salary of $350,000 per year and for Mr. Ribars
participation in the Bonus Plan at an annual target bonus of 75%
of his base salary.
Kevin S. Palatnik. Cadence was a party to an
employment agreement with Mr. Palatnik pursuant to which
Mr. Palatnik served as Senior Vice President and Chief
Financial Officer. The agreement provided for an initial base
salary of $400,000 per year and for Mr. Palatniks
participation in the Bonus Plan at an annual target bonus of 75%
of his base salary. In February 2009, Mr. Palatniks
base salary was increased to $450,000. Effective July 1,
2009 through June 30, 2010, Mr. Palatniks base
salary was voluntarily reduced by 10% and effective July 1,
2010, Mr. Palatniks base salary was restored to
$450,000. In connection with his resignation from all executive
positions, effective November 1, 2010, Cadence entered into
the Transition Agreement with Mr. Palatnik, which is
discussed under Executive Transition and Release Agreement
with Mr. Palatnik below.
John J. Bruggeman II. Cadence is a party
to an employment agreement with Mr. Bruggeman pursuant to
which Mr. Bruggeman serves as Senior Vice President and
Chief Marketing Officer. The employment agreement provides for
an initial base salary of $350,000 per year and for
Mr. Bruggemans participation in the Bonus Plan at an
annual target bonus of 75% of his base salary.
Mr. Bruggemans employment agreement also provides for
a one-time hiring bonus of $40,000, which was payable upon the
commencement of his employment in August 2009.
Mr. Bruggeman must repay a pro-rated amount of the bonus if
he voluntarily terminates his employment within 24 months
of his hire date: 100% in the first 12 months after his
hire date, 70% in the subsequent
12-18 months
after his hire date, and 40% in the remaining
18-24 months
after his hire date. Effective April 1, 2010 through
June 30, 2010, Mr. Bruggemans base salary was
voluntarily reduced by 10% and effective July 1, 2010,
Mr. Bruggemans base salary was restored to $350,000.
Thomas A. Cooley. Cadence is a party to an
employment agreement with Mr. Cooley pursuant to which
Mr. Cooley serves as Senior Vice President, Worldwide Field
Operations. The agreement provides for an initial base salary of
$425,000 per year and for Mr. Cooleys participation
in the Bonus Plan at an annual target bonus of 75% of his base
salary. Effective July 1, 2009 through June 30, 2010,
Mr. Cooleys base salary was voluntarily reduced by
10% and effective July 1, 2010, Mr. Cooleys base
salary was restored to $425,000.
Charlie Huang. Cadence is a party to an
employment agreement with Mr. Huang pursuant to which
Mr. Huang serves as Senior Vice President and Chief
Strategy Officer. The agreement provides for an initial base
salary of $350,000 per year and for Mr. Huangs
participation in the Bonus Plan at an annual target bonus of 75%
of his base salary. In February 2009, Mr. Huangs base
salary was increased to $400,000. Effective July 1, 2009
through June 30, 2010, Mr. Huangs base salary
was voluntarily reduced by 10% and effective July 1, 2010,
Mr. Huangs base salary was restored to $400,000.
The proportion of salary to total compensation of the Named
Executive Officers is explained above under Compensation,
Discussion and Analysis Elements of Executive
Compensation.
57
EQUITY
PLAN AWARDS
The stock awards granted in fiscal 2010 to the Named Executive
Officers were granted under the 1987 Plan vest over three years,
with 1/6th of the shares subject to vesting every six
months after the date of grant, except for the stock award to
Mr. Ribar, which was granted under the 2000 Plan as an
inducement for him to accept appointment as CFO, and vests over
four years and is described in footnote (10) to the
Outstanding Equity Awards at 2010 Fiscal Year End table below.
The stock awards granted February 8, 2010 under the 1987
Plan were also 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. The stock options granted in
fiscal 2010 to the Named Executive Officers were granted under
the 1987 Plan and vest over four years, with 1/48th of the
shares subject to vesting at the end of each month after the
date of grant, except for the grant to Mr. Ribar, which was
made under the 2000 Plan and is described in footnote (9)
to the Outstanding Equity Awards at 2010 Fiscal Year End table
below. The exercise price of stock options granted under the
1987 Plan and the 2000 Plan in fiscal 2010 was the closing price
of Cadence common stock on the date of grant. Dividends, if any,
are payable to the holders of restricted stock issued under
Cadences equity plans, subject to the same restrictions
and vesting conditions as the stock award with respect to which
they were distributed.
OUTSTANDING
EQUITY AWARDS AT 2010 FISCAL YEAR END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
Market Value
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Number of
|
|
of Shares of
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
|
|
Shares of Stock
|
|
Stock that
|
|
|
Options
|
|
Options
|
|
Option
|
|
Option
|
|
that have not
|
|
have not
|
|
|
(#)
|
|
(#)
|
|
Exercise Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
Name
|
|
Exercisable(1)
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)(2)
|
|
Lip-Bu Tan
|
|
|
6,250
|
|
|
|
|
|
|
$
|
18.30
|
|
|
|
2/04/14
|
|
|
|
|
|
|
$
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
14.87
|
|
|
|
4/01/14
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
14.59
|
|
|
|
4/01/15
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
18.08
|
|
|
|
4/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
20.53
|
|
|
|
4/02/17
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
10.94
|
|
|
|
4/01/18
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
(3)
|
|
|
|
|
|
|
2.61
|
|
|
|
12/15/15
|
|
|
|
|
|
|
|
|
|
|
|
|
431,250
|
|
|
|
468,750
|
(4)
|
|
|
4.12
|
|
|
|
1/08/16
|
|
|
|
|
|
|
|
|
|
|
|
|
327,708
|
|
|
|
387,292
|
(5)
|
|
|
4.20
|
|
|
|
2/05/16
|
|
|
|
|
|
|
|
|
|
|
|
|
166,666
|
|
|
|
633,334
|
(5)
|
|
|
5.60
|
|
|
|
2/08/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
(6)
|
|
|
1,858,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,999
|
(7)
|
|
|
825,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,332
|
(8)
|
|
|
688,322
|
|
Geoffrey G. Ribar
|
|
|
|
|
|
|
200,000
|
(9)
|
|
|
8.24
|
|
|
|
11/15/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(10)
|
|
|
330,400
|
|
Kevin S. Palatnik
|
|
|
125,000
|
|
|
|
|
|
|
|
21.99
|
|
|
|
6/15/11
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
22.35
|
|
|
|
12/28/11
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
44,791
|
|
|
|
5,209
|
(5)
|
|
|
21.58
|
|
|
|
5/15/14
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
66,666
|
|
|
|
33,334
|
(5)
|
|
|
11.24
|
|
|
|
4/23/15
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
126,041
|
|
|
|
148,959
|
(5)
|
|
|
4.20
|
|
|
|
2/05/16
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
27,083
|
|
|
|
102,917
|
(5)
|
|
|
5.60
|
|
|
|
2/08/17
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
(12)
|
|
|
51,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750
|
(13)
|
|
|
30,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,999
|
(7)
|
|
|
206,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
(8)
|
|
|
275,331
|
|
John J. Bruggeman II
|
|
|
62,500
|
|
|
|
137,500
|
(4)
|
|
|
7.07
|
|
|
|
9/15/16
|
|
|
|
|
|
|
|
|
|
|
|
|
27,083
|
|
|
|
102,917
|
(5)
|
|
|
5.60
|
|
|
|
2/08/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(14)
|
|
|
165,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
(8)
|
|
|
275,331
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
Market Value
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Number of
|
|
of Shares of
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
|
|
Shares of Stock
|
|
Stock that
|
|
|
Options
|
|
Options
|
|
Option
|
|
Option
|
|
that have not
|
|
have not
|
|
|
(#)
|
|
(#)
|
|
Exercise Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
Name
|
|
Exercisable(1)
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)(2)
|
|
Thomas A. Cooley
|
|
|
9,687
|
|
|
|
5,313
|
(5)
|
|
|
11.25
|
|
|
|
5/15/15
|
|
|
|
|
|
|
|
|
|
|
|
|
6,459
|
|
|
|
|
|
|
|
17.89
|
|
|
|
12/09/15
|
|
|
|
|
|
|
|
|
|
|
|
|
91,666
|
|
|
|
108,334
|
(5)
|
|
|
4.20
|
|
|
|
2/05/16
|
|
|
|
|
|
|
|
|
|
|
|
|
27,083
|
|
|
|
102,917
|
(5)
|
|
|
5.60
|
|
|
|
2/08/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
(15)
|
|
|
103,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(7)
|
|
|
123,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
(8)
|
|
|
275,331
|
|
Charlie Huang
|
|
|
20,000
|
|
|
|
|
|
|
|
24.00
|
|
|
|
3/09/11
|
|
|
|
|
|
|
|
|
|
|
|
|
53,500
|
|
|
|
|
|
|
|
15.49
|
|
|
|
9/21/11
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
12.63
|
|
|
|
7/31/12
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
9.59
|
|
|
|
2/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
44,791
|
|
|
|
5,209
|
(5)
|
|
|
21.58
|
|
|
|
5/15/14
|
|
|
|
|
|
|
|
|
|
|
|
|
43,750
|
|
|
|
16,250
|
(5)
|
|
|
10.61
|
|
|
|
2/01/15
|
|
|
|
|
|
|
|
|
|
|
|
|
91,666
|
|
|
|
108,334
|
(5)
|
|
|
4.20
|
|
|
|
2/05/16
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
16.80
|
|
|
|
2/15/16
|
|
|
|
|
|
|
|
|
|
|
|
|
27,083
|
|
|
|
102,917
|
(5)
|
|
|
5.60
|
|
|
|
2/08/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(16)
|
|
|
123,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,499
|
(7)
|
|
|
144,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
(8)
|
|
|
275,331
|
|
|
|
|
(1) |
|
Unless otherwise indicated, these stock options were granted on
the date ten years prior to the expiration date and were fully
vested on January 1, 2011. |
|
(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, 2010 (the last business day of Cadences
fiscal 2010) of $8.26 per share. |
|
(3) |
|
Stock option was granted on the date seven years prior to the
expiration date and was fully vested on January 1, 2011. |
|
(4) |
|
Stock option was granted on the date seven years prior to the
expiration date and 1/4th of the shares vests on the first
anniversary of the date of grant and 1/36th of the remaining
shares vests monthly thereafter. |
|
(5) |
|
Stock option was granted on the date seven years prior to the
expiration date and vests at a rate of 1/48th per month each
month after the date of grant. |
|
(6) |
|
Restricted stock was granted on January 8, 2009 and vests
at a rate of 1/4th on each anniversary of the date of grant,
subject to the achievement of specific performance goals. |
|
(7) |
|
Restricted stock was granted on February 5, 2009 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 8, 2010 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. |
|
(9) |
|
Stock option was granted on November 15, 2010 and 1/4th of
the shares vests on the first anniversary of the date of grant
and 1/36th of the remaining shares vest monthly thereafter. |
|
(10) |
|
Restricted stock was granted on November 15, 2010 and vests
at a rate of 1/4th on each anniversary of the date of grant. |
|
(11) |
|
Due to the resignation of Mr. Palatnik from his executive
position, each of his unexercised stock options will terminate
upon the earlier of May 28, 2012 or the original expiration
date set forth above. |
|
(12) |
|
Restricted stock was granted on February 15, 2007 and vests
at a rate of 1/4th on each anniversary of the date of grant. |
59
|
|
|
(13) |
|
Restricted stock was granted on August 15, 2007 and vests
at a rate of 1/4th on each anniversary of the date of grant. |
|
(14) |
|
Restricted stock was granted on September 15, 2009 and
vests at a rate of 1/4th on each anniversary of the date of
grant. |
|
(15) |
|
Restricted stock was granted on May 15, 2008 and vests at a
rate of 1/4th on each anniversary of the date of grant. |
|
(16) |
|
Restricted stock was granted on February 1, 2008 and vests
at a rate of 1/4th on each anniversary of the date of grant. |
OPTION
EXERCISES AND STOCK VESTED IN FISCAL YEAR
2010(1)
The following table sets forth information with respect to the
stock awards vested during fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Number of Shares
|
|
|
|
|
Acquired on
|
|
Value Realized on
|
|
|
Vesting
|
|
Vesting
|
Name
|
|
(#)
|
|
($)(2)
|
|
Lip-Bu Tan
|
|
|
158,335
|
|
|
$
|
1,016,844
|
|
Geoffrey G. Ribar
|
|
|
|
|
|
|
|
|
Kevin S. Palatnik
|
|
|
42,084
|
|
|
|
267,837
|
|
John J. Bruggeman II
|
|
|
16,667
|
|
|
|
117,452
|
|
Thomas A. Cooley
|
|
|
25,917
|
|
|
|
178,422
|
|
Charlie Huang
|
|
|
30,834
|
|
|
|
195,512
|
|
|
|
|
(1) |
|
No stock options were exercised by the Named Executive Officers
during fiscal 2010. |
|
(2) |
|
Amount reflects the value realized on vesting computed by
multiplying the number of shares of stock by the market value of
the underlying shares on the vesting date. |
NONQUALIFIED
DEFERRED COMPENSATION FOR FISCAL YEAR 2010
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 under the Deferred Compensation
Plan. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
Contributions in
|
|
|
Contributions in
|
|
|
Earnings in
|
|
|
Withdrawals/
|
|
|
Balance
|
|
|
|
Last FY
|
|
|
Last FY
|
|
|
Last FY
|
|
|
Distributions
|
|
|
at Last FYE
|
|
Name
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)(2)
|
|
|
Lip-Bu Tan
|
|
|
$
|
|
|
$
|
|
|
|
$
|
119
|
|
|
$
|
|
|
|
$
|
84,731
|
|
Kevin S. Palatnik
|
|
|
106,096
|
|
|
|
|
|
|
|
330,402
|
|
|
|
|
|
|
|
2,836,333
|
|
Geoffrey G. Ribar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Bruggeman II
|
|
|
21,355
|
|
|
|
|
|
|
|
1,434
|
|
|
|
|
|
|
|
22,789
|
|
Thomas A. Cooley
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charlie Huang
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mr. Palatnik contributed $106,096 and Mr. Bruggeman
contributed $21,355 to the Deferred Compensation Plan during
fiscal 2010 and such amounts were reported in the Summary
Compensation Table as fiscal 2010 compensation. |
|
(2) |
|
Of these balances, the following amounts were reported in
Summary Compensation Tables in prior-year proxy statements
beginning with the fiscal 2006 proxy statement:
Mr. Tan $0; Mr. Palatnik
$499,536; |
60
|
|
|
|
|
Mr. Ribar $0; Mr. Bruggeman
$0; Mr. Cooley $0; and
Mr. Huang $0. The information in this footnote
is provided to clarify the extent to which amounts payable as
deferred compensation represent compensation reported in our
prior proxy statements, rather than additional currently earned
compensation. |
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL AND
EMPLOYMENT CONTRACTS
The information below describes certain compensation that would
have become payable under existing plans and contractual
arrangements assuming a termination of employment or assuming a
change in control that is combined with a termination of
employment had occurred on January 1, 2011 (based upon the
closing price of Cadence common stock on December 31, 2010
(the last business day of Cadences fiscal 2010) of
$8.26 per share), given the compensation and service levels of
the Named Executive Officers, other than Mr. Palatnik. In
addition to the benefits described below, upon any termination
of employment, each of the Named Executive Officers, other than
Mr. Palatnik, would also be entitled to the amount shown in
the Aggregate Balance at Last FYE column of the
Nonqualified Deferred Compensation for Fiscal Year 2010 table
above. Because Mr. Palatnik terminated his employment with
Cadence during the fiscal year, the actual terms of his
separation are discussed separately, following the narrative
discussion and tables describing the arrangements for the other
Named Executive Officers.
Employment
Terms
Messrs. Bruggeman,
Cooley, Huang and Tan
As of January 1, 2011, Cadence had an employment agreement
with each of Messrs. Bruggeman, Cooley, Huang and Tan. The
employment agreements generally provide for the payment of
benefits if the executives 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
also provide for enhanced 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 executives resignation other than in connection
with a constructive termination.
For purposes of the employment agreements, cause,
constructive termination, change in
control and permanent disability are defined
as follows.
Cause generally means an executives:
|
|
|
|
|
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, after written
notice is delivered to the executive of such breach;
|
|
|
|
material breach of Cadences Employee Proprietary
Information and Inventions Agreement (as defined in the
employment agreement);
|
|
|
|
material failure/refusal to perform the assigned duties, and,
where such failure/refusal is curable; 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 Messrs. Huang and Tan, a material adverse change,
without the executives written consent, in the
executives authority, duties or title causing the
executives position to be of materially less stature or
|
61
|
|
|
|
|
responsibility (for Mr. Tan such material adverse change
shall be deemed to occur if he is removed from his current
position);
|
|
|
|
|
|
for Messrs. Bruggeman and Cooley, it is if he is removed
from his executive position and ceases to be identified as an
executive officer of Cadence for purposes of the rules
promulgated under Section 16 of the Exchange Act;
|
|
|
|
for Messrs. Bruggeman, Cooley and Huang, any change,
without the executives written consent, to the
executives reporting structure causing the executive to no
longer report to the CEO;
|
|
|
|
for Messrs. Bruggeman, Cooley, Huang and Tan a reduction,
without the executives written consent, in the
executives base salary in effect by more than 10% or a
reduction by more than 10% in the executives stated target
bonus in effect under a bonus plan;
|
|
|
|
a relocation of the executives 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
|
|
|
|
for Messrs. Bruggeman, Cooley and Tan, 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 Cadences 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
Cadences 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;
|
|
|
|
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 Cadences 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 Cadences 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 executives
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
62
Release Agreement in exchange for his execution and delivery of
that agreement. These transition agreements provide for the
following payments and benefits:
|
|
|
|
|
continued employment by Cadence, for up to one year after the
executives 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 Cadences medical, dental and
vision insurance plans, at Cadences expense;
|
|
|
|
accelerated vesting, as of the date of the executives
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 years base salary at the
highest rate in effect during the executives 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 years base salary at the
highest rate in effect during the executives employment,
payable 30 days following termination of the transition
agreement.
|
In addition, the employment agreements provide that if, within
three months before or 13 months after a change in
control, an executives employment is terminated
without cause or the executive terminates his
employment in connection with a constructive
termination (any such termination, a Change in
Control Termination), then, in exchange for the
executives execution and delivery of the transition
agreement, all of the executives outstanding and unvested
equity compensation awards will immediately vest in full. All
other provisions of the transition agreement described in the
paragraph above remain unchanged, except that the executives
shall receive, in addition: (i) a lump-sum payment equal to
50% of one years base salary at the highest rate in effect
during the executives 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
years base salary at the highest rate in effect during the
executives employment, payable 30 days following
termination of the transition agreement. As discussed in more
detail in Compensation Discussion and Analysis
Section 280G of the Internal Revenue Code of 1986,
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.
Under the employment agreements, if the executives
employment is terminated due to the executives 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 executives
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
executives 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
Cadences medical, dental and vision insurance plans, at
Cadences expense.
|
63
Under the employment agreement with Mr. Tan, with respect
to any equity awards granted in the first year of his service as
CEO (including his sign-on grants), the vesting of such awards
(to the extent then unvested) shall continue after he ceases to
serve as CEO if he voluntarily resigns his position as CEO other
than in the event of a constructive termination so
long as he continues to serve Cadence as an employee, director
or consultant, with such additional vesting continuing until the
lesser of 18 months or the number of full months he served
as CEO.
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 Cadences 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 Cadences obligation to provide the then
unpaid portion of the affected executives termination
benefits.
Mr. Ribar
Mr. Ribar became a Cadence employee in September 2010. As
of January 1, 2011, Cadence did not have an employment
agreement with Mr. Ribar. Mr. Ribars offer
letter does not contain any provisions relating to payment upon
termination of employment or a change in control combined with a
termination of employment.
In addition to the benefits described above and quantified
below, Cadence provides each of its benefits-eligible US-based
employees, including each of the Named Executive Officers, with
life insurance in an amount equal to the lesser of two times the
employees annual target cash compensation (base salary
plus target bonus) or $2,000,000, which, as of January 1,
2011, for Messrs. Tan, Ribar, Bruggeman, Cooley and Huang
was $2,000,000, $1,225,000, $1,225,000, $1,488,000, and
$1,400,000, respectively.
The tables below set forth the estimated value of the potential
payments to the Named Executive Officers, assuming the
executives employment had terminated on January 1,
2011 (based upon the closing price of Cadence common stock on
December 31, 2010 (the last business day of Cadences
fiscal 2010) of $8.26 per share) under an employment
agreement or offer letter agreement in effect at that time, and,
for purposes of the second table below, that a change in control
of Cadence had also occurred on that date. Amounts are reported
without any reduction for possible delay in the commencement or
timing of payments.
Potential
Payments and Benefits Upon a Termination of Employment by
Cadence
Without Cause or by Executive in Connection with a Constructive
Termination Not
in Connection with a Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lump Sum
|
|
Lump Sum
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
Payment
|
|
Company-
|
|
|
|
Vesting of
|
|
|
|
|
Transition
|
|
(7 Months
|
|
(13 Months
|
|
Paid
|
|
Vesting of
|
|
Restricted
|
|
|
|
|
Period
|
|
After
|
|
After
|
|
COBRA
|
|
Stock
|
|
Stock
|
|
Pre-Tax
|
|
|
Salary
|
|
Termination)
|
|
Termination)
|
|
Premiums
|
|
Options
|
|
Awards
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)
|
|
Lip-Bu Tan
|
|
$
|
24,000
|
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
27,964
|
|
|
$
|
3,283,838
|
|
|
$
|
2,477,992
|
|
|
$
|
7,013,794
|
|
Geoffrey G. Ribar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Bruggeman II
|
|
|
24,000
|
|
|
|
350,000
|
|
|
|
262,500
|
|
|
|
31,054
|
|
|
|
145,950
|
|
|
|
192,739
|
|
|
|
1,066,243
|
|
Thomas A. Cooley
|
|
|
24,000
|
|
|
|
425,000
|
|
|
|
318,750
|
|
|
|
31,054
|
|
|
|
289,450
|
(3)
|
|
|
244,364
|
|
|
|
1,332,618
|
|
Charlie Huang
|
|
|
24,000
|
|
|
|
400,000
|
|
|
|
300,000
|
|
|
|
1,908
|
|
|
|
289,450
|
(4)
|
|
|
268,450
|
|
|
|
1,283,808
|
|
|
|
|
(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 |
64
|
|
|
|
|
December 31, 2010 (the last business day of Cadences
fiscal 2010) of $8.26 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. |
|
(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, 2010 of $8.26 per share. |
|
(3) |
|
This amount does not include Mr. Cooleys out of
the money option to purchase 3,750 shares of Cadence
common stock that would have been subject to acceleration
because the stock option has an exercise price significantly
higher than $8.26 per share (the closing price of Cadence common
stock on December 31, 2010) and the acceleration would have
had no value. |
|
(4) |
|
This amount does not include Mr. Huangs out of
the money options to purchase 20,209 shares of
Cadence common stock that would have been subject to
acceleration because these stock options have an exercise price
significantly higher than $8.26 per share (the closing price of
Cadence common stock on December 31, 2010) and the
acceleration would have had no value. |
Potential
Payments and Benefits Upon a Termination of Employment by
Cadence
Without Cause or by Executive in Connection with a Constructive
Termination for
Good Reason Within 3 Months Prior to or 13 Months Following a
Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lump Sum
|
|
Lump Sum
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
Payment
|
|
Company-
|
|
|
|
Vesting of
|
|
|
|
|
Transition
|
|
(7 Months
|
|
(13 Months
|
|
Paid
|
|
Vesting of
|
|
Restricted
|
|
|
|
|
Period
|
|
After
|
|
After
|
|
COBRA
|
|
Stock
|
|
Stock
|
|
Pre-Tax
|
|
|
Salary
|
|
Termination)
|
|
Termination)
|
|
Premiums
|
|
Options
|
|
Awards
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)
|
|
Lip-Bu Tan
|
|
$
|
24,000
|
|
|
$
|
900,000
|
|
|
$
|
900,000
|
|
|
$
|
27,964
|
|
|
$
|
5,197,699
|
|
|
$
|
3,372,814
|
|
|
$
|
10,422,477
|
|
Geoffrey G. Ribar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Bruggeman II
|
|
|
24,000
|
|
|
|
525,000
|
|
|
|
393,750
|
|
|
|
31,054
|
|
|
|
437,384
|
|
|
|
440,531
|
|
|
|
1,851,719
|
|
Thomas A. Cooley
|
|
|
24,000
|
|
|
|
637,500
|
|
|
|
478,125
|
|
|
|
31,054
|
|
|
|
713,595
|
(3)
|
|
|
502,481
|
|
|
|
2,386,755
|
|
Charlie Huang
|
|
|
24,000
|
|
|
|
600,000
|
|
|
|
450,000
|
|
|
|
1,908
|
|
|
|
713,595
|
(4)
|
|
|
543,772
|
|
|
|
2,333,275
|
|
|
|
|
(1) |
|
These amounts are calculated based on the number of shares of
Cadence common stock that would have been subject to
acceleration upon a change in control multiplied by the
difference between the closing price of Cadence common stock on
December 31, 2010 (the last business day of Cadences
fiscal 2010) of $8.26 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, 2010 of $8.26 per share. |
|
(3) |
|
This amount does not include Mr. Cooleys out of
the money option to purchase 5,313 shares of Cadence
common stock that would have been subject to acceleration upon a
change in control because the stock option has an exercise price
significantly higher than $8.26 per share (the closing price of
Cadence common stock on December 31, 2010) and the
acceleration would have had no value. |
|
(4) |
|
This amount does not include Mr. Huangs out of
the money options to purchase 21,459 shares of
Cadence common stock that would have been subject to
acceleration upon a change in control because these stock
options have an exercise price significantly higher than $8.26
per share (the closing price of Cadence common stock on
December 31, 2010) and the acceleration would have had no
value. |
65
Potential
Payments and Benefits Upon a Termination of Employment by Reason
of Death or
due to Permanent Disability
The table below sets forth the estimated value of the potential
payments to each Named Executive Officer, assuming the
executives employment had terminated on January 1,
2011 by reason of the executives death or permanent
disability. Amounts are reported without any reduction for
possible delay in the commencement or timing of payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company- Paid
|
|
|
|
|
|
|
|
|
|
|
COBRA Premiums
|
|
|
|
|
|
Pre-Tax Total
|
|
|
|
|
(Upon Termination
|
|
|
|
Vesting of
|
|
(Upon Termination of
|
|
Pre-Tax Total
|
|
|
of Employment due
|
|
Vesting of
|
|
Restricted
|
|
Employment due
|
|
(Upon Termination of
|
|
|
to Permanent
|
|
Stock
|
|
Stock
|
|
to Permanent
|
|
Employment due
|
|
|
Disability)
|
|
Options
|
|
Awards
|
|
Disability)
|
|
to Death)
|
Name
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)
|
|
($)
|
|
Lip-Bu Tan
|
|
$
|
27,964
|
|
|
$
|
3,283,838
|
|
|
$
|
2,477,992
|
|
|
$
|
5,789,794
|
|
|
$
|
5,761,830
|
|
Geoffrey G. Ribar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Bruggeman II
|
|
|
31,054
|
|
|
|
145,950
|
|
|
|
192,739
|
|
|
|
369,743
|
|
|
|
338,689
|
|
Thomas A. Cooley
|
|
|
31,054
|
|
|
|
289,450
|
(3)
|
|
|
244,364
|
|
|
|
564,868
|
|
|
|
533,814
|
|
Charlie Huang
|
|
|
1,908
|
|
|
|
289,450
|
(4)
|
|
|
268,450
|
|
|
|
559,808
|
|
|
|
557,900
|
|
|
|
|
(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, 2010 (the
last business day of Cadences fiscal 2010) of $8.26 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, 2010 of $8.26 per share. |
|
(3) |
|
This amount does not include Mr. Cooleys out of
the money option to purchase 3,750 shares of Cadence
common stock that would have been subject to acceleration
because the stock option has an exercise price significantly
higher than $8.26 per share (the closing price of Cadence common
stock on December 31, 2010) and the acceleration would have
had no value. |
|
(4) |
|
This amount does not include Mr. Huangs out of
the money options to purchase 20,209 shares of
Cadence common stock that would have been subject to
acceleration because these stock options have an exercise price
significantly higher than $8.26 per share (the closing price of
Cadence common stock on December 31, 2010) and the
acceleration would have had no value. |
EXECUTIVE
TRANSITION AND RELEASE AGREEMENT WITH MR. PALATNIK
On September 24, 2010, Cadence entered into an Executive
Transition and Release Agreement with Mr. Palatnik,
referred to in this proxy statement as the Transition Agreement.
The Transition Agreement provides for the termination of his
position as Senior Vice President and Chief Financial Officer at
Cadence as of November 1, 2010, and that from
November 1, 2010 through February 28, 2011,
Mr. Palatnik remain a full-time employee of Cadence unless
such period were terminated earlier. Effective March 1,
2011, Mr. Palatnik transitioned into part-time status, and
will be paid a monthly salary of $4,000 (commencing on the first
payroll date after October 1, 2011) until the
Termination Date, which is the earliest to occur of
(i) the date on which Mr. Palatnik resigns from all
employment with Cadence, (ii) the date on which Cadence
terminates Mr. Palatniks employment due to the breach
of his duties or obligations under the Transition Agreement, or
(iii) February 28, 2012. Until the Termination Date,
Mr. Palatnik is required to comply with non-solicitation
and non-competition provisions in favor of Cadence.
In exchange for Mr. Palatniks services through
February 28, 2011, a release of claims and return of
certain documents, materials and files related to Cadence, the
Transition Agreement provides for Mr. Palatniks
continued receipt of his base salary and eligibility to receive
bonus compensation for fiscal year 2010, the immediate vesting
on March 1, 2011 of all of his outstanding, unvested equity
compensation awards that otherwise would have vested
66
on or before February 28, 2012, and the forfeiture of all
of his other outstanding, unvested equity compensation awards
In addition, should Mr. Palatnik elect to continue coverage
under Cadences medical, dental and vision insurance plans
pursuant to COBRA, Cadence will pay his COBRA premium from
March 1, 2011 until the Termination Date.
Further, provided that Mr. Palatnik does not resign from
employment with Cadence and Cadence does not terminate his
employment due to the breach of his duties or obligations under
the Transition Agreement, and provided the former executive
delivers additional releases to Cadence, the following lump-sum
payments will be made: (i) on or about the thirtieth (30th)
day following the date that is six months after the Transition
Commencement Date, a $450,000 lump-sum payment and (ii) on
or about the thirtieth (30th) day following the Termination
Date, a $337,000 lump-sum payment.
EQUITY
COMPENSATION PLAN INFORMATION
The following table provides information about Cadences
equity compensation plans, including its equity incentive plans
and employee stock purchase plans, as of January 1, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
Remaining Available
|
|
|
Number of Securities
|
|
Weighted-Average
|
|
for Future Issuance
|
|
|
to be Issued Upon
|
|
Exercise Price of
|
|
Under Equity
|
|
|
Exercise of
|
|
Outstanding
|
|
Compensation Plans
|
|
|
Outstanding Options,
|
|
Options, Warrants
|
|
(Excluding Securities
|
Plan Category
|
|
Warrants and Rights
|
|
and Rights
|
|
Reflected in Column (a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
6,718,898
|
(1)
|
|
$
|
7.61
|
|
|
|
15,797,343
|
(2)
|
Equity compensation plans not approved by security holders
|
|
|
17,208,947
|
(3)
|
|
|
13.99
|
|
|
|
8,309,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,927,845
|
|
|
$
|
12.20
|
|
|
|
24,107,319
|
|
|
|
|
(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 7,328,154 shares available for
issuance under the ESPP as of January 1, 2011. |
|
(3) |
|
This amount excludes 1,949,174 shares subject to issuance
upon exercise of options assumed in connection with acquisitions
at a weighted average exercise price of $11.72. Cadence does not
grant additional options under the assumed plans. |
Cadences 1993 Nonstatutory Stock Incentive Plan, which is
referred to in this proxy statement as the 1993 Plan, its 1997
Nonstatutory Stock Incentive Plan, which is referred to in this
proxy statement as the 1997 Plan, and its 2000 Plan (which
collectively are referred to below as the Plans) provide for the
issuance of nonstatutory stock options, restricted stock,
restricted stock units, 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. As of January 1, 2011:
|
|
|
|
|
Under the 1993 Plan, there were options to purchase
10,000 shares outstanding with a weighted average exercise
price of $4.20, no shares subject to unvested restricted stock
grants and 845,932 shares remaining available for grant of
the 24,750,000 shares reserved for issuance;
|
|
|
|
Under the 1997 Plan, there were options to purchase
4,073,740 shares outstanding with a weighted average
exercise price of $9.34, 1,347,479 shares subject to
unvested restricted stock grants and 1,203,457 shares
remaining available for grant of the 30,000,000 shares
reserved for issuance; and
|
67
|
|
|
|
|
Under the 2000 Plan, there were options to purchase
13,125,207 shares outstanding with a weighted average
exercise price of $15.44, 6,200,654 shares subject to
unvested restricted stock grants and 6,260,587 shares
remaining available for grant of the 50,000,000 shares
reserved for issuance.
|
Taken together, the three Cadence equity compensation plans not
approved by security holders, the 1993 Plan, the 1997 Plan, and
the 2000 Plan, had options to purchase 17,208,947 shares
outstanding with a weighted average exercise price of $13.99,
7,584,133 shares subject to unvested restricted stock
grants and 8,309,976 shares remaining available for grant
of the total 104,750,000 shares reserved for issuance under
the Plans.
The exercise price of options granted under the Plans may 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 since
January 1, 2007, the fair market value is the closing price
of Cadence common stock on the grant date. Options granted to
new employees under the Plans generally become exercisable 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 current employees under the Plans generally
become exercisable over a four-year period, vesting in 48 equal
monthly installments. Options granted under the Plans prior to
October 1, 2006 generally expire ten years from the grant
date, and options granted under the Plans since October 1,
2006 expire seven years from the grant date. Awards of
restricted stock granted under the Plans vest at the times and
in installments determined by the Board. 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 restricted stock awards granted under the Plans
are subject to the terms and conditions determined by the Board.
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 set forth therein.
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 in any calendar year;
|
|
|
|
Cadence 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 less than 10% 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 for which Cadence has filed an Annual Report on
Form 10-K
or proxy statement) an executive officer, director or nominee
for election as a director;
|
|
|
|
Greater than 5% beneficial owner of Cadence common stock; or
|
|
|
|
Immediate family member of the foregoing, which includes a
persons spouse, parents, stepparents, children,
stepchildren, siblings, mothers- and
fathers-in-law,
sons- and
daughters-in-law,
and brothers- and sisters- in law and anyone residing in such
persons 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 committees 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 partys interest in the transaction and whether the
interested transaction
68
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
pre-approved or ratified the following categories of interested
transactions:
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Any employment by Cadence of an executive officer of Cadence if:
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The related compensation is required to be reported in
Cadences proxy statement under the SECs compensation
disclosure requirements, or
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The executive officer is not an immediate family of another
executive officer or director of Cadence, the related
compensation would be reported in Cadences proxy statement
under the SECs compensation disclosure requirements if the
executive officer was a named executive officer and the
Compensation Committee approved (or recommended that the Board
approve) such compensation;
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Any compensation paid to a director if the compensation is
required to be reported in Cadences proxy statement under
the SECs compensation disclosure requirements;
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Any transaction with another company in which the related
persons only relationship is as a non-executive employee,
director or beneficial owner of less than 10% of that
companys shares, if the amount involved does not exceed
the greater of $1,000,000 or 2% of that companys total
annual revenues;
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Any charitable contribution by Cadence to a charitable
organization, foundation or university at which a related
persons only relationship is as a non-executive employee
or director, if the amount involved does not exceed the lesser
of $100,000 or 2% of the charitable organizations total
annual receipts;
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Any transaction where the related persons 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
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Any transaction with a related party involving services as a
bank depositary of funds, transfer agent, registrar, trustee
under an indenture or similar services.
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In addition, the Board has delegated to the Chairman 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.
TRANSACTIONS
WITH RELATED PARTIES
The spouse of Mr. Huang has been employed by Cadence since
1990 and has held various engineering positions during her
employment, and is presently an architect. The total
compensation of Mr. Huangs spouse for the services
provided to Cadence in fiscal 2010 as an employee was $186,148,
which was calculated in the same manner as total compensation in
the Summary Compensation Table and included the calculation of
the fair value of her equity grant pursuant to FASB ASC 718
based on the price of Cadence common stock on the date the stock
award was granted.
INDEMNIFICATION
AGREEMENTS
Cadences Bylaws provide that Cadence will indemnify its
directors and officers to the fullest extent permitted by the
Delaware General Corporation Law. Cadences 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
69
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
Cadences Bylaws.
OTHER
MATTERS
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, which is referred to in
this proxy statement as Section 16(a), requires the
directors and executive officers of Cadence, and persons who
beneficially own more than 10% of a registered class of
Cadences 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
regulation to furnish Cadence with copies of all
Section 16(a) forms they file.
To Cadences knowledge, based solely on a review of the
copies of the reports furnished to us and written
representations that no other reports were required, all
Section 16(a) filing requirements applicable to its
executive officers and directors and greater than 10% beneficial
owners were complied with on a timely basis.
STOCKHOLDER
PROPOSALS AND NOMINATIONS
From time to time, Cadence 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 Cadences proxy statement and
form of proxy in connection with the annual meeting of
stockholders. Stockholder proposals must be submitted in writing
to the Corporate Secretary of Cadence no later than
November 29, 2011 to be included in the proxy statement and
form of proxy relating to Cadences 2012 Annual Meeting of
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 Cadences
proxy statement and form of proxy.
Alternatively, under Cadences Bylaws, any director
nominations or other business proposals which the stockholder
does not seek to include in Cadences 2012 proxy statement
and form of proxy pursuant to
Rule 14a-8
under the Exchange Act must be submitted in writing to
Cadences Corporate Secretary no later than
February 10, 2012, nor earlier than January 11, 2012,
and must otherwise satisfy the requirements set forth in
Cadences Bylaws. If the date of the 2012 Annual Meeting of
Stockholders changes by more than 30 days from the
anniversary date of the 2011 Annual Meeting of Stockholders,
stockholder proposals or nominations must be submitted in
writing to Cadences 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 stockholders 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
candidates written consent to being named in the proxy
statement as a nominee and to serving as a director if elected;
(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 Cadences 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 proxy at the meeting to propose the nomination for director
or other business, (iv) the class and number of shares of
Cadence common stock beneficially owned (within the meaning of
70
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
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 stockholders 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 Cadences 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 Cadences
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 brought under
Rule 14a-8
under the Exchange Act) at an annual meeting pursuant to the
terms set forth in Cadences 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 Chairman 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
Cadences Bylaws and, if any proposed nomination or
business is not in compliance with Cadences 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 2011 Annual Meeting of Stockholders. 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
James J. Cowie
Sr. Vice President, General Counsel and Secretary
March 28, 2011
A COPY OF CADENCES ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 1, 2011 CAN BE FOUND ON THE
INTERNET AT
HTTP://WWW.CADENCE.COM/COMPANY/INVESTOR_RELATIONS/INDEX.ASPX
OR, IF A STOCKHOLDER REQUESTED A PAPER COPY, IT IS BEING
DELIVERED WITH THIS PROXY STATEMENT, AND IS ALSO AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS,
CADENCE DESIGN SYSTEMS, INC., 2655 SEELY AVENUE, BUILDING 5, SAN
JOSE, CALIFORNIA 95134.
71
APPENDIX A
CADENCE
DESIGN SYSTEMS, INC.
AMENDED
AND RESTATED 2000 EQUITY INCENTIVE PLAN
Adopted
January 1, 2000
Amended and Restated February 2, 2007
Amended July 30, 2007 (stockholder approval not
required)
Amended and Restated March 16, 2011 (pending approval by
stockholders)
Termination Date: March 16, 2021
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 Companys 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) Board shall mean the Committee, if
one has been appointed, or the Board of Directors, if no
Committee is appointed.
(c) Board of Directors shall mean the
Board of Directors of the Company.
(d) Code shall mean the
U.S. Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder.
(e) 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.
(f) Common Stock shall mean the common
stock of the Company.
(g) Company shall mean
Cadence Design
Systems, Inc., a Delaware corporation.
(h) 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).
However, the term Consultant shall not include
members of the Board of Directors.
(i) 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 or the chief executive officer of the Company 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.
(j) Employee shall mean any person
employed by the Company or any Affiliate.
(k) Exchange Act shall mean the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
(l) 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.
A-1
(m) Incentive Stock means shares of
Common Stock granted to a Participant pursuant to
Section 10 hereof.
(n) Incentive Stock Option shall mean an
Option intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code.
(o) 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.
(p) 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
Stock Award Agreement.
(q) Optioned Stock shall mean the Common
Stock subject to an Option.
(r) Parent shall mean a parent
corporation of the Company, whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(s) Participant shall mean an Employee
or Consultant who receives a Stock Award.
(t) Plan shall mean this Amended and
Restated 2000 Equity Incentive Plan, as amended from time to
time.
(u) Prior Plans shall mean the Cadence
Design Systems, Inc. 1993 Nonstatutory Stock Incentive Plan, as
amended, and the Cadence Design Systems, Inc. 1997 Nonstatutory
Stock Incentive Plan, as amended.
(v) Restricted Stock Unit means a Stock
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.
(w) Securities Act means the Securities
Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
(x) Share shall mean a share of Common
Stock, as may be adjusted in accordance with Section 12 of
the Plan.
(y) Stock Award shall mean any right
granted under the Plan, including an Option, an award of
Incentive Stock or a Restricted Stock Unit.
(z) Stock Award Agreement means a
written agreement between the Company and a holder of a Stock
Award or other instrument evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement
shall be subject to the terms and conditions of the Plan.
(aa) 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, the Common Stock that
may be issued pursuant to Stock Awards shall not exceed in the
aggregate 57,500,000 shares of Common Stock, together with
reserved shares of Common Stock that are not subject to a grant
or as to which the Stock Award granted has been forfeited under
the Prior Plans as of March 16, 2011.
(b) Reversion of Shares to the Share
Reserve. If any Stock Award 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 Stock Award shall revert to and
again become available for issuance under the Plan. If the
Company repurchases any unvested shares of Common Stock acquired
pursuant to a Stock Award, such repurchased shares of Common
Stock shall revert to and again become available for issuance
under the Plan. Additionally, Shares subject to a Stock Award
under this Plan may not again be made available for issuance
under this 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 a Stock Award or (iii) shares repurchased on the open
market with the proceeds of an Option exercise.
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(c) Source of Shares. The shares of
Common Stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
(d) Tax Code Limits. The aggregate number
of Shares that may be issued pursuant to the exercise of
Incentive Stock Options granted under this Plan shall not exceed
57,500,000, 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. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors. 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 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 Stock Awards to all
Employees and Consultants or any portion or class thereof. 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 Stock 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 Stock Award shall be subject to the form
of Stock Award Agreement theretofore approved by the Board of
Directors or the Committee. No such officer shall designate
himself or herself as a recipient of any Stock 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 Stock Awards under the Plan;
(ii) to determine the exercise, sales or purchase price per
share of Stock Awards to be granted, which exercise 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, Stock
Awards shall be granted, the number of Shares to be represented
by each Stock Award, and the terms of such Stock 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 Stock
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 Stock Award;
(vii) to accelerate or defer (the latter with the consent
of the Participant) the exercise date and vesting of any Stock
Award; (viii) to adopt any
sub-plan to
the Plan for grants of Stock 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 Stock
Awards; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant
of a Stock 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 Stock Award Agreement, in a
manner and to the extent it shall deem necessary or expedient to
make the Plan fully effective.
(c) Effect of Boards Decision. All
decisions, determinations and interpretations of the Board shall
be final and binding on all Participants and any other holders
of any Stock Awards granted under the Plan.
5. Eligibility. Stock Awards may be
granted only to Employees or Consultants. An Employee or
Consultant who has been granted a Stock Award may, if he or she
is otherwise eligible, be granted an additional Stock Award.
Notwithstanding the foregoing, no Employee or Consultant who is
an executive officer of the Company within the meaning of
Section 16 of the Exchange Act, who is a member of the
Board of Directors or who beneficially owns 10% or more of the
Companys Common Stock shall be entitled to receive the
grant of a Stock Award under the Plan unless the Stock Award
will be granted to a person not previously employed by the
Company
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as a material inducement to such persons becoming an
employee of the Company. 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 Participants right or the
Companys or any Affiliates right to terminate the
Participants employment at any time, except as provided
otherwise in an employment agreement or under applicable law, or
the Participants consultancy pursuant to the terms of the
Consultants agreement with the Company or any Affiliate.
6. Term of the Plan. The Plan
became effective upon its adoption by the Board of Directors on
March 16, 2011. The Plan shall continue in effect until the
tenth anniversary of its adoption by the Board of Directors
unless sooner terminated under Section 14 of the Plan.
7. Term of Option; Vesting Provisions.
(a) Option Term. The term of each Option
shall be seven (7) years from the date of grant thereof or
such shorter term as may be provided in the applicable Stock
Award Agreement.
(b) Vesting Provisions. The terms on
which each Option shall vest shall be determined by the Board in
its discretion, and shall be set forth in the Stock Award
Agreement relating to each such Option. Without limiting the
discretion of the Board, vesting provisions may include
time-based vesting or vesting based on achievement of
performance or other criteria. The provisions of this
Section 7(b) are subject to any Option provisions governing
the minimum number of Shares as to which an Option may be
exercised.
8. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share
exercise price for the Shares to be issued pursuant to exercise
of an Option shall be such price as is determined by the Board,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option, the per Share
exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall not be less than 100% of the Fair
Market Value per Share on the date of grant.
(iii) Notwithstanding the provisions of Section 8(a),
an Option (whether an Incentive Stock Option or Nonstatutory
Stock Option) may be granted with an exercise price lower than
set forth in this Section 8(a) if such Option is granted
pursuant to an assumption or substitution for another option in
a manner satisfying the provisions of Section 424(a) of the
Code.
(b) Consideration. Subject to applicable
law, the consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of
cash, check, promissory note, shares of Common Stock having a
Fair Market Value on the date of exercise equal to the aggregate
exercise price of the Shares as to which said Option shall be
exercised, or any combination of such methods of payment, or
such other consideration and method of payment for the issuance
of Shares as may be determined by the Board. In making its
determination as to the type of consideration to accept, the
Board shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
(c) No Repricing without Stockholder
Approval. Other than in connection with a change
in the Companys capitalization (as described in
Section 12), the Company shall not, without stockholder
approval, (i) reduce the exercise price of such Option,
(ii) exchange such Option for cash, another Stock Award or
a new Option with a lower exercise price or (iii) otherwise
reprice such Option.
A-4
9. Exercise of Options.
(a) Procedure for Exercise; Rights as a
Stockholder. Any Option granted hereunder shall
be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with
respect to the Company
and/or the
Participant, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full
payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under
Section 8(b) of the Plan. Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of
the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 12 of
the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares that thereafter may be available, both
for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.
(b) Termination of Status as an Employee or
Consultant. If a Participant ceases to serve as
an Employee or Consultant for any reason other than death or
disability, the Participant may, but only within such period of
time ending on the earlier of (i) three (3) months (or
such other period of time as is determined by the Board) after
the date the Participant ceases to be an Employee or Consultant
or (ii) the expiration of the term of the Option, exercise
the Option to the extent that the Participant was entitled to
exercise it at the date of such termination. To the extent that
the Participant was not entitled to exercise the Option at the
date of such termination, or if the Participant does not
exercise such Option (which the Participant was entitled to
exercise) within the time specified herein, the Option shall
terminate.
(c) Extension of Termination Date. A
Participants Stock Award Agreement may also provide that
if the exercise of the Option following the termination of the
Participants Continuous Service as an Employee or
Consultant (other than upon the Participants death or
disability) would be prohibited at any time solely because the
issuance of Shares would violate the registration requirements
under the Securities Act, then the Option shall terminate on the
expiration of a period of three (3) months after the
termination of the Participants Continuous Service as an
Employee or Consultant during which the exercise of the Option
would not be in violation of such registration requirements.
(d) Death of Participant. In the event of
the death of a Participant during the term of the Option who is
at the time of the Participants death an Employee or
Consultant and who shall have been in Continuous Status as an
Employee or Consultant since the date of grant of the Option,
the Option may be exercised at any time within the period of
time ending on the earlier of (i) twelve (12) months
(or such other period of time as is determined by the Board)
following the date of death or (ii) the expiration of the
term of the Option, by the Participants estate or by a
person who acquired the right to exercise the Option by bequest
or inheritance, to the extent that the Participant was entitled
to exercise it at the date of such termination. To the extent
that the Participant was not entitled to exercise the Option at
the date of such termination, or if the Option is not exercised
(to the extent the Participant was entitled to exercise) within
the time specified herein, the Option shall terminate.
(e) Disability of Participant. In the
event of the disability of a Participant during the term of the
Option who is at the time of his or her disability an Employee
or Consultant and who shall have been in Continuous Status as an
Employee or Consultant since the date of grant of the Option,
the Participant (or the Participants legal guardian or
conservator) may, but only within the period of time ending on
the earlier of (i) twelve (12) months (or such other
period of time as is determined by the Board) after the date the
Participant ceases to be an Employee or Consultant on account of
such disability or (ii) the expiration of the term of the
Option, exercise the Option to the extent that the Participant
was entitled to exercise it at the date of such termination. To
the extent that the Participant was not entitled to exercise the
Option at the date of such termination, or if the Participant
does not exercise such Option (which the Participant was
entitled to exercise) within the time specified herein, the
Option shall terminate.
A-5
10. Incentive Stock and Restricted Stock Units.
(a) General. Incentive Stock is an award
or issuance of shares of Common Stock under the Plan, the grant,
issuance, retention, vesting
and/or
transferability of which is subject during specified periods of
time to such conditions (including continued service or
performance conditions) and terms as the Board deems
appropriate. Restricted Stock Units are awards denominated in
units of Shares under which the issuance of Shares is subject to
such conditions (including continued employment or performance
criteria) and terms as the Board deems appropriate. Unless
determined otherwise by the Board, each Restricted Stock Unit
will be equal to one Share and will entitle a Participant to
either the issuance of Shares or payment of an amount of cash
determined with reference to the value of Shares.
(b) Stock Award Agreement. Each Stock
Award Agreement relating to Incentive Stock or Restricted Stock
Units shall contain provisions regarding (i) the number of
shares of Common Stock subject to such award or a formula for
determining such number, (ii) the purchase price of the
Shares, if any, and the means of payment for the Shares,
(iii) the performance criteria, if any, and level of
achievement of these criteria that shall determine the number of
Shares granted, issued, retainable
and/or
vested, (iv) such terms and conditions on the grant,
issuance, vesting
and/or
forfeiture of the Shares as may be determined from time to time
by the Board, (v) restrictions on the transferability of
the Shares and (vi) such further terms and conditions in
each case not inconsistent with the Plan as may be determined
from time to time by the Board. Shares of Incentive Stock may be
issued in the name of the Participant and held by the
Participant or held by the Company, in each case as the Board
may provide.
(c) Sales Price. Subject to the
requirements of applicable law, the Board shall determine the
price, if any, at which shares of Incentive Stock or Shares
underlying Restricted Stock Units shall be sold or awarded to a
Participant, which price may vary from time to time and among
Participants and which may be above or below the Fair Market
Value of such shares at the date of grant or issuance.
(d) Share Vesting. The grant, issuance,
retention
and/or
vesting of shares of Incentive Stock and Restricted Stock Units,
as applicable, shall be at such time and in such installments as
determined by the Board. The Board shall have the right to make
the timing of the grant
and/or the
issuance, ability to retain
and/or
vesting of shares of Incentive Stock and Restricted Stock Units
subject to continued service, passage of time
and/or such
performance criteria as deemed appropriate by the Board.
Notwithstanding the foregoing, the Board may accelerate vesting
(in a Stock Award Agreement or otherwise) of any Stock Award in
the event of a Participants termination of service as an
Employee or Consultant, a Change in Control or other similar
event.
(e) Transferability. Shares of Incentive
Stock and Restricted Stock Units shall be transferable by the
Participant only upon such terms and conditions as are set forth
in the applicable Stock Award Agreement, as the Board shall
determine in its discretion, so long as the Incentive Stock or
Restricted Stock Units, as applicable, awarded under the Stock
Award Agreement remains subject to the terms of the Stock Award
Agreement.
(f) Discretionary
Adjustments. Notwithstanding satisfaction of any
performance goals, the number of shares granted, issued,
retainable
and/or
vested under an award of Incentive Stock or Restricted Stock
Units, as applicable, on account of either financial performance
or personal performance evaluations may be reduced by the Board
on the basis of such further considerations as the Board shall
determine.
(g) Voting Rights. Unless otherwise
determined by the Board, Participants holding shares of
Incentive Stock granted hereunder may exercise full voting
rights with respect to those shares during the period of
restriction. With respect to Shares underlying Restricted Stock
Units, Participants shall have no voting rights unless and until
such Shares are reflected as issued and outstanding shares on
the Companys stock ledger.
(h) Dividends and
Distributions. Participants in whose name an
Award of Incentive Stock is granted shall be entitled to receive
all dividends and other distributions paid with respect to the
Shares underlying such Award, unless determined otherwise by the
Board. Participants in whose name an Award of Restricted Stock
Units is granted shall not be entitled to receive dividends or
other distributions paid with respect to the Shares underlying
such Award, unless determined otherwise by the Board. The Board
will determine whether any such dividends or distributions will
be automatically reinvested in additional Shares or will be
payable in cash; provided that such additional Shares
and/or cash
shall be subject to the same restrictions and vesting conditions
as the Award with respect to which they were distributed.
Notwithstanding anything herein to the contrary, in no event
shall dividends or dividend equivalents be currently payable
with respect to unvested or unearned Awards subject to
performance criteria.
A-6
11. Non-Transferability of Stock
Awards. Except as otherwise expressly provided in
the terms of the applicable Stock Award Agreement, a Stock Award
may not be sold, pledged, assigned, hypothecated, transferred or
otherwise disposed of in any manner other than by will or by the
laws of descent or distribution and may be exercised, during the
lifetime of the Participant, only by the Participant or the
Participants legal representative. Notwithstanding the
foregoing, the Participant may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a
third party who, in the event of the death of the Participant,
shall thereafter be entitled to exercise the Stock Award.
12. Adjustments upon Changes in Capitalization or
Change in Control. The number of Shares covered
by each outstanding Stock Award, and the number of Shares which
have been authorized for issuance under the Plan but as to which
no Stock Awards have yet been granted or which have been
returned to the Plan upon cancellation, expiration, forfeiture
or other termination of a Stock Award, as well as the price per
Share covered by each such outstanding Stock Award, shall be
equitably adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split or
the payment of a stock dividend with respect to the Common Stock
or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been
effected without receipt of consideration. Such
adjustments shall be made by the Board, whose determination in
that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
shares of Common Stock subject to a Stock Award. Such adjustment
shall be designed to comply with Section 409A and 424 of
the Code or, except as otherwise expressly provided in
Section 3(d) of this Plan, may be designed to treat the
Shares available under the Plan and subject to Awards as if they
were all outstanding on the record date for such event or
transaction or to increase the number of such Shares to reflect
a deemed reinvestment in Shares of the amount distributed to the
Companys securityholders.
For purposes of the Plan, a Change in Control shall
be deemed to occur upon the consummation of any one of the
following events: (a) a sale of all or substantially all of
the assets of the Company; (b) a merger or consolidation in
which the Company is not the surviving corporation (other than a
transaction the principal purpose of which is to change the
state of the Companys incorporation or a transaction in
which the voting securities of the Company are exchanged for
beneficial ownership of at least 50% of the voting securities of
the controlling acquiring corporation); (c) a merger or
consolidation in which the Company is the surviving corporation
and less than 50% of the voting securities of the Company that
are outstanding immediately after the consummation of such
transaction are beneficially owned, directly or indirectly, by
the persons who owned such voting securities immediately prior
to such transaction; (d) any transaction or series of
related transactions after which any person (as such term is
defined in Section 13(d)(3) of the Exchange Act), other
than any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary of the Company,
becomes the beneficial owner of voting securities of the Company
representing 40% or more of the combined voting power of all of
the voting securities of the Company; (e) during any period
of two consecutive years, individuals who at the beginning of
such period constitute the membership of the Companys
Board of Directors (Incumbent Directors) cease for
any reason to have authority to cast at least a majority of the
votes which all directors on the Board of Directors are entitled
to cast, unless the election, or the nomination for election by
the Companys stockholders, of a new director was approved
by a vote of at least two-thirds of the votes entitled to be
cast by the Incumbent Directors, in which case such director
shall also be treated as an Incumbent Director in the future; or
(f) the liquidation or dissolution of the Company.
In the event of a Change in Control, then: (a) any
surviving or acquiring corporation shall assume Stock Awards
outstanding under the Plan or shall substitute similar awards
(including an option to acquire the same consideration paid to
stockholders in the transaction described in this
Section 12 for those outstanding Options under the Plan),
or (b) in the event any surviving or acquiring corporation
refuses to assume such Stock Awards or to substitute similar
awards for those outstanding under the Plan, (i) with
respect to Stock Awards held by persons then performing services
as Employees or Consultants, the vesting of such Stock Awards
and the time during which such Stock Awards may be exercised
shall be accelerated prior to such event and the Stock Awards
terminated if not exercised after such acceleration and at or
prior to such event, and (ii) with respect to any other
Options outstanding under the Plan, such Options shall be
terminated if not exercised prior to such event.
A-7
13. Miscellaneous.
(a) Acceleration of Exercisability and
Vesting. The Board shall have the power to
accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part
thereof will vest in accordance with the Plan, notwithstanding
the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest. If
the Board, at its sole discretion, permits acceleration as to
all or any part of a Stock Award, the aggregate Fair Market
Value (determined at the time Stock Award is granted) of stock
with respect to which Incentive Stock Options first become
exercisable in the year of such dissolution, liquidation, sale
of assets or merger cannot exceed $100,000. Any remaining
accelerated Incentive Stock Options shall be treated as
Nonstatutory Stock Options.
(b) Additional Restrictions on Stock
Awards. Either at the time a Stock Award is
granted or by subsequent action, the Board may, but need not,
impose such restrictions, conditions or limitations as it
determines appropriate as to the timing and manner of any
resales by a Participant or other subsequent transfers by an
Participant of any Shares issued under a Stock Award, including
without limitation (i) restrictions under an insider
trading policy, (ii) restrictions designed to delay
and/or
coordinate the timing and manner of sales by Participants, and
(iii) restrictions as to the use of a specified brokerage
firm for such resales or other transfers.
(c) Stockholder Rights. No Participant
shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of Common Stock
subject to a Stock Award unless and until such Participant has
satisfied all requirements for exercise
and/or
vesting of the Stock Award pursuant to its terms and said Shares
have been issued to the Participant.
(d) Investment Assurances. The Company
may require a Participant, as a condition to exercising or
acquiring Common Stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the
Participants knowledge and experience in financial and
business matters
and/or to
employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and
business matters and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits
and risks of the Stock Award; and (ii) to give written
assurances satisfactory to the Company stating that the
Participant is acquiring Common Stock subject to the Stock Award
for the Participants own account and not with any present
intention of selling or otherwise distributing the Common Stock.
The foregoing requirements, and any assurances given pursuant to
such requirements, shall be inoperative if (1) the issuance
of the shares of Common Stock upon exercise of the Option or
acquisition of Common Stock under the Plan has been registered
under a then currently effective registration statement under
the Securities Act or (2) as to any particular requirement,
a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then
applicable securities laws. The Company may, upon advice of
counsel to the Company, place legends on stock certificates
issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer
of the Common Stock represented thereby.
(e) Withholding Obligations. To the
extent provided by the terms of a Stock Award Agreement, the
Participant may satisfy any federal, state, local or foreign
income, social insurance, payment on account or other tax
withholding obligation relating to a Stock Award by any of the
following means (in addition to the Companys right to
withhold from any compensation paid to the Participant by the
Company or an Affiliate) or by a combination of such means:
(i) tendering a cash payment; (ii) authorizing the
Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result
of the Stock Award, provided, however, that no shares of Common
Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to
the Company owned and unencumbered shares of Common Stock.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board
may at any time terminate the Plan or amend the Plan from time
to time in such respects as the Board may deem advisable;
provided, however, that no amendment shall be effective unless
approved by the stockholders of the Company to the extent
stockholder approval is necessary for the Plan to satisfy any
listing requirements of any securities exchange or national
market system on which the Common Stock is traded or any other
applicable law.
A-8
(b) Effect of Amendment or
Termination. Any such amendment or termination of
the Plan shall not adversely affect Stock Awards already granted
and such Stock Awards shall remain in full force and effect as
if the Plan had not been amended or terminated, unless mutually
agreed otherwise between the Participant and the Board, which
agreement must be in writing and signed by the Participant and
the Company.
15. Conditions Upon Issuance of
Shares. Shares shall not be issued pursuant to a
Stock Award unless the exercise of the Option, if applicable,
and the issuance and delivery of such Shares pursuant the Stock
Award shall comply with all relevant provisions of the law,
including without limitation, the Securities Act, the Exchange
Act and the requirements of any stock exchange or national
market system upon which the Shares may then be listed, foreign
securities and exchange control laws and shall be further
subject to the approval of counsel for the Company with respect
to such compliance.
16. Liability of Company. The
Company and any Affiliate which is in existence or hereafter
comes into existence shall not be liable to a Participant or
other persons as to:
(a) The non-issuance or sale of Shares as to which the
Company has been unable to obtain from any regulatory body
having jurisdiction the authority deemed by the Companys
counsel to be necessary to the lawful issuance and sale of any
Shares hereunder; or
(b) Any tax consequence expected, but not realized, by any
Participant or other person due to the receipt, exercise or
settlement of any Stock Award granted hereunder.
17. Reservation of Shares. The
Company, during the term of the Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient
to satisfy the requirements of the Plan. The Companys
inability to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Companys
counsel to be necessary for the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Stock Award Agreement. All
Stock Awards shall be evidenced by written award agreements in
such form as the Board shall approve.
19. Choice of Law. The law of the
State of Delaware, without regard to its conflict of laws rules,
shall govern all questions concerning the construction, validity
and interpretation of the Plan.
20. Section 409A. It is
intended that any Stock Awards issued to U.S. taxpayers
pursuant to this Plan and any Stock Award Agreement shall not
constitute deferrals of compensation within the
meaning of Section 409A of the Code and, as a result, shall
not be subject to the requirements of Section 409A of the
Code. The Plan and each Stock Award Agreement or other written
document establishing the terms and conditions of a Stock Award
are to be interpreted and administered in a manner consistent
with these intentions. However, no guarantee or commitment is
made that the Plan, any Stock Award Agreement or any other
written document establishing the terms and conditions of a
Stock Award shall be administered in accordance with the
requirements of Section 409A of the Code, with respect to
amounts that are subject to such requirements, or that the Plan,
any Stock Award Agreement or any other written document
establishing the terms and conditions of a Stock Award shall be
administered in a manner that avoids the application of
Section 409A of the Code, with respect to amounts that are
not subject to such requirements.
21. Required Delay in Payment on Account of a
Separation from Service. Notwithstanding any
other provision in this Plan, any Stock Award Agreement or any
other written document establishing the terms and conditions of
a Stock Award, if any Stock Award recipient is a specified
employee (as defined in Treasury Regulations
Section 1.409A-1(i)),
as of the date of his or her Separation from Service
(as defined in authoritative IRS guidance under
Section 409A of the Code), then, to the extent required by
Treasury Regulations
Section 1.409A-3(i)(2),
any payment made to the Stock Award recipient on account of his
or her Separation from Service shall not be made before a date
that is six months after the date of his or her Separation from
Service. The Board may elect any of the methods of applying this
rule that are permitted under Treasury Regulations
Section 1.409A-3(i)(2)(ii).
A-9
APPENDIX B
SENIOR
EXECUTIVE BONUS PLAN
1. Purpose.
The purpose of the Senior Executive Bonus Plan (the
Plan) is to motivate and reward that individual who
is serving as the Chief Executive Officer (the CEO)
of Cadence Design Systems, Inc. (the Company) and
the individuals who are part of the senior executive staff as
designated by the CEO (collectively, the Executives)
in order to improve the Companys profitability and achieve
the established corporate goals of the Company. Under the Plan,
an Executive may be awarded for each fiscal year of the Company,
or a portion thereof, a performance bonus, described in
Section 4 hereof, which is intended to constitute
performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Code).
2. Eligibility.
In addition to the CEO, those individuals who are part of the
senior executive staff as designated by the CEO, at the
CEOs discretion, shall be eligible to participate in the
Plan. Other than the CEO, no person is automatically entitled to
participate in the Plan in any fiscal year, or portion thereof.
Participation in the Plan during any fiscal year, or portion
thereof, does not entitle a participant to participate in the
Plan or any similar plan in the future.
3. Administration of the Plan.
The Plan shall be administered by the Compensation Committee of
the Board of Directors of the Company (the Compensation
Committee) which shall consist of at least two independent
directors of the Company who satisfy the requirements of
Section 162(m) of the Code. The Compensation Committee
shall have the sole discretion and authority to:
(i) administer and interpret the Plan in accordance with
Section 162(m) of the Code as appropriate;
(ii) prescribe the terms and conditions of any awards
granted under the Plan; (iii) adopt rules and guidelines
for the administration of the Plan that are consistent with the
Plan; and (iv) interpret, amend or revoke any such rules
and guidelines. The decisions of the Compensation Committee
shall in every case be final and binding on all persons having
an interest in the Plan.
4. Performance Bonus Amounts.
For each fiscal year, the performance bonus amount payable to
each Executive under this Section 4 is intended to
constitute performance-based compensation for purposes of
Section 162(m) of the Code and shall be based on a target
bonus, in turn based on one or more relevant performance
criteria and the extent to which targets identified for such
criteria are realized. The Compensation Committee shall, for
each fiscal year, approve the target bonus amount for each
Executive, the relevant performance criteria, the respective
targets for such criteria, and the bonus amounts payable
depending upon if and the extent to which such targets are
realized, in accordance with the following rules;
(i) The relevant performance criteria shall include, either
individually or in combination, applied to the Company as a
whole or to individual units thereof, and measured either
absolutely or relative to a designated group of companies or
relative to a pre-established target or a previous years
results (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.
B-1
(ii) To the extent consistent with Section 162(m) of
the Code, the Compensation Committee (A) may appropriately
adjust any evaluation of performance under a performance
criteria to eliminate the effects of charges for restructurings,
discontinued operations, extraordinary items and all items of
gain, loss or expense determined to be extraordinary or unusual
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 the 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 the Companys financial
statements or notes to the financial statements, and
(B) may appropriately adjust any evaluation of performance
under a performance criteria to exclude any of the following
events that occurs during a performance period: (i) asset
write-downs, (ii) litigation, claims, judgments or
settlements, (iii) the effect of changes in tax law or
other such laws or provisions affecting reported results,
(iv) accruals for reorganization and restructuring programs
and (v) accruals of any amounts for payment under this Plan
or any other compensation arrangement maintained by the Company.
(iii) As determined by the Compensation Committee, any
given performance criterion may be measured over all or part of
the fiscal year. If for a fiscal year the Compensation Committee
determines to use only performance criteria measurable over the
entire fiscal year, then it must identify in writing within
ninety (90) days after the beginning of the fiscal year the
target bonus, and the selected performance criteria and targets.
If for any fiscal year the Compensation Committee determines to
use at least one performance criterion to be measured over less
than the entire fiscal year, then the performance bonus for the
fiscal year shall be the bonus calculated for such short
performance period or, if more than one performance period per
fiscal year is involved, then the sum of the bonuses calculated
separately for each short performance period ending with or
within the fiscal year. In that case, on or before the date
which represents 25 percent of the total number of days in
such short performance period, the Compensation Committee shall
identify in writing the target bonus, the selected performance
criteria, and the targets applicable to such period.
(iv) The Compensation Committee may in its discretion
direct that any performance bonus be reduced below the amount as
calculated above. Further, the Compensation Committee may in its
discretion increase the amount of compensation otherwise payable
to any Executive upon satisfaction of the designated targets if
such Executive is not covered by Section 162(m) of the Code.
5. The Payment of Bonuses.
Notwithstanding the foregoing, the maximum aggregate amount
payable under this Plan to any Executive for any fiscal year as
a performance bonus shall be $5,000,000. The bonus or bonuses
for a fiscal year (including all short performance periods
ending with or within such year) shall be paid as soon as
practicable following the approval of such bonuses following the
end of such year or short performance period, as the case may
be. No performance bonus under Section 4 hereof shall be
paid unless and until the Compensation Committee makes a
certification in writing that the performance criteria and
targets have been satisfied as required by Section 162(m)
of the Code. Further, unless otherwise provided in a written
agreement with an Executive, the Executive must be employed by
the Company on the date that bonus payments are distributed for
a fiscal year or short performance period, as the case may be,
or have terminated employment prior to that time solely on
account of death or disability. If an Executive is entitled to
payment of a performance bonus under Section 4 hereof, but
was not employed by the Company for the entire fiscal year or
short performance period, as the case may be, he or she may, at
the discretion of the Compensation Committee, receive a prorated
amount of the bonus amount payable as though he or she were
employed for the entire year determined as follows: (i) if
the performance period for such bonus is the entire fiscal year,
the full year bonus amount shall be multiplied by a fraction,
the numerator of which is the number of days the Executive was
employed by the Company during the fiscal year and the
denominator of which is the number of days in the entire fiscal
year; or (ii) if the bonus for the fiscal year represents
the bonus or sum of bonuses computed separately for each short
period within the fiscal year, then the bonus otherwise payable
for each short period shall be multiplied by a fraction, the
numerator of which is the number of days the Executive was
employed by the Company during such short period and the
denominator of which is the total number of days in such short
period.
6. Amendment and Termination.
The Compensation Committee may terminate the Plan at any time,
for any and no reason, and may also amend the Plan in order to
reduce the amount of any Executives bonus payments at any
time, for any or no reason.
B-2
7. Cadence Design Systems, Inc. Clawback
Policy.
All amounts earned under the Plan and paid on or after
January 1, 2010 are subject to the Cadence Design Systems,
Inc. Clawback Policy as in effect from time to time, a current
copy of which may be requested from the Company at any time, and
the terms and conditions of which are hereby incorporated by
reference into this Plan.
8. Section 409A of the Code.
To the extent applicable, it is intended that this Plan and any
awards granted hereunder either be exempt from the requirements
of, or else comply with the requirements of, Section 409A
of the Code and any related regulations or other guidance
promulgated with respect to such Section by the
U.S. Department of the Treasury or the Internal Revenue
Service. Any provision that would cause any award granted
hereunder to incur additional taxes under Section 409A of
the Code shall have no force or effect until amended to comply
with Section 409A of the Code, which amendment may be
retroactive to the extent permitted by Section 409A of the
Code.
9. No Right to Employment, Reelection or Continued
Service.
Nothing in this Plan or a bonus granted hereunder shall
interfere with or limit in any way the right of the Company to
terminate any participants employment, service on the
Board of Directors or service for the Company at any time or for
any reason not prohibited by law, nor shall this Plan or a bonus
granted hereunder itself confer upon any participant any right
to continue his or her employment or service for any specified
period of time. Neither a bonus awarded hereunder nor any
benefits arising under this Plan shall constitute an employment
contract with the Company.
10. Unfunded Plan.
The Plan is intended to be an unfunded plan. Participants are
and shall at all times be general creditors of the Company with
respect to their bonus awards, if any. If the Compensation
Committee or the Company chooses to set aside funds in a trust
or otherwise for the payment of bonuses under the Plan, such
funds shall at all times be subject to the claims of the
creditors of the Company in the event of its bankruptcy or
insolvency.
B-3
APPENDIX C
CADENCE
DESIGN SYSTEMS, INC.
AMENDED AND RESTATED 1987 STOCK INCENTIVE PLAN
Adopted April 24, 1987
Amended and Restated February 2, 2007 (approved by
stockholders)
Amended February 2, 2007 (approved by stockholders)
Amended July 30, 2007 (stockholder approval not
required)
Amended March 16, 2011 (pending approval by
stockholders)
Termination Date: March 16, 2021
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 Companys 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) Board shall mean the Committee, if
one has been appointed, or the Board of Directors, if no
Committee is appointed.
(c) Board of Directors shall mean the
Board of Directors of the Company.
(d) Code shall mean the Internal Revenue
Code of 1986, as amended, and the Treasury Regulations
promulgated thereunder.
(e) 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.
(f) Common Stock shall mean the common
stock of the Company.
(g) Company shall mean
Cadence Design
Systems, Inc., a Delaware corporation.
(h) 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).
(i) 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.
(j) Employee shall mean any person,
including officers and directors, employed by the Company or any
Affiliate. The payment of a directors 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.
(k) Exchange Act shall mean the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
(l) Fair Market Value means, with
respect to any relevant date prior to January 1, 2007, the
average of the high and low prices 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, and, with respect to any relevant date on or after
January 1, 2007, the closing price of the Common Stock on
such date, as reported on
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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.
(m) Incentive Stock means shares of
Common Stock granted to a Participant pursuant to
Section 10 hereof.
(n) Incentive Stock Agreement means a
written agreement between the Company and a holder of an award
of Incentive Stock evidencing the terms and conditions of an
individual Incentive Stock grant. Each Incentive Stock Agreement
shall be subject to the terms and conditions of the Plan.
(o) Incentive Stock Option shall mean an
Option intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code.
(p) 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.
(q) 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
Stock Option Agreement.
(r) Optioned Stock shall mean the Common
Stock subject to an Option.
(s) Parent shall mean a parent
corporation of the Company, whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) Participant shall mean an Employee
or Consultant who receives a Stock Award.
(u) Plan shall mean this Amended and
Restated 1987 Stock Incentive Plan, as amended from time to time.
(v) 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 a Stock 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.
(w) Restricted Stock Unit means a Stock
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.
(x) Restricted Stock Unit Agreement
means a written agreement between the Company and a holder of an
award of Restricted Stock Units evidencing the terms and
conditions of an individual Restricted Stock Unit grant. Each
Restricted Stock Unit Agreement shall be subject to the terms
and conditions of the Plan.
(y) 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.
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(z) Securities Act means the Securities
Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
(aa) Share shall mean a share of Common
Stock, as may be adjusted in accordance with Section 12 of
the Plan.
(bb) Stock Award shall mean any
right granted under the Plan, including an Option, an award of
Incentive Stock, or a Restricted Stock Unit.
(cc) Stock Award Agreement means
a written agreement between the Company and a holder of a Stock
Award evidencing the terms and conditions of an individual Stock
Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) Stock Option Agreement means a
written agreement between the Company and a holder of an Option
award evidencing the terms and conditions of an individual
Option grant. Each Stock Option Agreement shall be subject to
the terms and conditions of the Plan.
(ee) 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 seventy-nine
million three hundred seventy thousand one hundred (79,370,100)
shares of Common Stock; provided, however, that no more than
five million (5,000,000) shares of Common Stock authorized under
the Plan may be issued pursuant to Awards of Incentive Stock or
Restricted Stock Units.
(b) Issuance of Shares. If a Stock Award
should expire, become unexercisable, be forfeited or otherwise
terminate for any reason without having been exercised in full,
the then unpurchased or forfeited Shares that were subject
thereto shall, unless the Plan shall have been terminated,
become available for future grant under the Plan; provided,
however, that if a Stock Award is canceled, forfeited or treated
as having been canceled for purposes of Section 162(m) of
the Code, then the canceled Stock Award shall count against the
maximum number of shares for which a Stock Award may be granted
to any person under the terms of the Plan. Additionally, Shares
subject to a Stock Award under this Plan may not again be made
available for issuance under this 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 a Stock 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 Stock 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
Stock 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 79,370,100, 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 (i.e., a
director who is receiving no compensation from the Company other
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than for service on the Board of Directors or who does not
receive such additional compensation which exceeds the limits
specified in the definition of such term under
Rule 16b-3
and otherwise meets the requirement under
Rule 16b-3
for non-employee directors) or Outside
Directors (i.e., a director who is not either a current or
former officer of the Company nor a current employee of the
Company, and who is receiving no compensation from the Company
other than for service on the Board of Directors or who does not
receive such additional compensation which exceeds the limits
specified in the definition of such term under
Section 162(m) of the Code). Once appointed, the Committee
shall continue to serve until otherwise directed by the Board of
Directors. 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 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 Stock Awards to all Employees and Consultants or any
portion or class thereof. Members of the Board of Directors who
are either eligible for Stock Awards or have been granted Stock
Awards may vote on any matters affecting the administration of
the Plan or grant of any Stock Awards pursuant to the Plan,
except that no such member shall act upon the granting of a
Stock Award to himself, but any such member may be counted in
determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting
of Stock Awards to him or her.
(b) Powers of the Board. Subject to the
provisions of the Plan, the Board shall have the authority, in
its discretion: (i) to grant Stock Awards under the Plan;
(ii) to determine the exercise or sales price per share of
Stock Awards to be granted, which exercise 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, Stock
Awards shall be granted, the number of Shares to be represented
by each Stock Award, and the terms of such Stock 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 Stock
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 Stock Award;
(vii) to accelerate or defer (the latter with the consent
of the Participant) the exercise date and vesting of any Stock
Award; (viii) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant
of a Stock Award previously granted by the Board; and
(ix) 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 Stock Award Agreement, in a
manner and to the extent it shall deem necessary or expedient to
make the Plan fully effective.
(c) Effect of Boards Decision. All
decisions, determinations and interpretations of the Board shall
be final and binding on all Participants and any other holders
of any Stock Awards granted under the Plan.
5. Eligibility. Stock Awards may be
granted only to Employees or Consultants. An Employee or
Consultant who has been granted a Stock Award may, if he or she
is otherwise eligible, be granted an additional Stock 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 Participants right or the
Companys or any Affiliates right to terminate the
Participants employment at any time or the
Participants consultancy pursuant to the terms of the
Consultants agreement with the Company or any Affiliate.
6. Term of the Plan. The Plan
became effective upon its adoption by the Board of Directors.
Subsequently amended, the Plan shall continue in effect until
March 16, 2021 unless sooner terminated under
Section 14 hereof.
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7. Term of Option; Vesting Provisions.
(a) Option Term. The term of each Option
shall be seven (7) years from the date of grant thereof or
such shorter term as may be provided in the applicable Stock
Option Agreement. However, in the case of an Incentive Stock
Option granted to an Employee, who immediately before the
Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the
date of grant thereof or such shorter time as may be provided in
the applicable Stock Option Agreement.
(b) Vesting Provisions. The terms on
which each Option shall vest shall be determined by the Board in
its discretion, and shall be set forth in the Stock Option
Agreement relating to each such Option. Without limiting the
discretion of the Board, vesting provisions may include
time-based vesting or vesting based on achievement of
performance or other criteria. Performance criteria may, but
need not, be based on Qualifying Performance Criteria. The
provisions of this Section 7(b) are subject to any Option
provisions governing the minimum number of Shares as to which an
Option may be exercised.
8. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share
exercise price for the Shares to be issued pursuant to exercise
of an Option shall be such price as is determined by the Board,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(1) Granted to an Employee who, immediately before the
grant of such Incentive Stock Option, owns stock representing
more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.