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.    )

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Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

☐	Preliminary Proxy Statement

 

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

 

☒	Definitive Proxy Statement

 

☐	Definitive Additional Materials

 

☐	Soliciting Material Pursuant to § 240.14a-12

CADENCE DESIGN SYSTEMS, INC.

 

(Name of Registrant as Specified In Its Charter)

 

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

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(4)	Date Filed:

		NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS

The 2018 Annual Meeting of Stockholders of CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, will be held as follows:

 

When:		Where:
May 3, 2018 1:00 p.m. Pacific Time		Cadence San Jose Campus 2655 Seely Avenue, Building 10 San Jose, California 95134

Items of Business:

The purpose of the 2018 Annual Meeting of Stockholders is to consider and take action on the following:

 

1.

To elect the nine directors named in the proxy statement to serve until the 2019 Annual Meeting of Stockholders and until their successors are elected and qualified, or until the directors’ earlier death, resignation or removal.

 

2.

To approve the amendment of the Omnibus Equity Incentive Plan.

 

3.

To approve the amendment of the Employee Stock Purchase Plan.

 

4.

To vote on an advisory resolution to approve named executive officer compensation.

 

5.

To ratify the selection of KPMG LLP as the independent registered public accounting firm of Cadence for its fiscal year ending December 29, 2018.

 

6.

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

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

Record Date:

Holders of Cadence Design Systems, Inc. common stock at the close of business on March 6, 2018 are entitled to notice of and to vote at the 2018 Annual Meeting of Stockholders and any adjournment or postponement thereof.

How to Vote:

Your vote is important to us. Please cast your vote promptly via the internet, telephone or mail. Specific instructions on how to vote via the internet, telephone or mail or in person are included in the Notice of Internet Availability of Proxy Materials and on the proxy card.

By Order of the Board of Directors,

 

 

James J. Cowie

Sr. Vice President, General Counsel and Secretary

San Jose, California

March 23, 2018

TABLE OF CONTENTS

 

 

 

Proxy Statement			1
Information About the Annual Meeting			1
Corporate Governance			7
Board of Directors			10
Matters to Be Considered at the Annual Meeting			21
Proposal 1: Election of Directors			21
Proposal 2: Approval of the Amendment of the Omnibus Equity Incentive Plan			30
Proposal 3: Approval of the Amendment of the Employee Stock Purchase Plan			40
Proposal 4: Advisory Resolution to Approve Named Executive Officer Compensation			45
Proposal 5: Ratification of the Selection of the Independent Registered Public Accounting Firm			46
Report of the Audit Committee			47
Fees Billed to Cadence by KPMG LLP During Fiscal 2017 and 2016			48
Security Ownership of Certain Beneficial Owners and Management			49
Compensation Discussion and Analysis			52
Compensation Committee Report			71
Compensation Committee Interlocks and Insider Participation			71
Compensation of Executive Officers			72
Potential Payments Upon Termination or Change in Control			82
Equity Compensation Plan Information			89
Pay Ratio Disclosure			90
Certain Transactions			92
Other Matters			95
Appendix A: Cadence Design Systems, Inc. Omnibus Equity Incentive Plan			A-1
Appendix B: Cadence Design Systems, Inc. Employee Stock Purchase Plan			B-1

PROXY STATEMENT

INFORMATION ABOUT THE ANNUAL MEETING

 

 

QUESTIONS AND ANSWERS RELATING TO PROXY MATERIALS

 

1.

Why am I receiving these proxy materials?

The enclosed proxy is solicited on behalf of the Board of Directors of Cadence Design Systems, Inc., a Delaware corporation, for the 2018 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on May 3, 2018, at 1:00 p.m. Pacific Time, or at any adjournment or postponement thereof. The purpose of the Annual Meeting is set forth in this proxy statement and in the accompanying notice of annual meeting.

The Annual Meeting will be held in Building 10 of Cadence’s offices located at 2655 Seely Avenue, San Jose, California 95134.

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

Cadence intends to publish this proxy statement on the investor relations page of its website at www.cadence.com/cadence/investor_relations on or about March 23, 2018.

 

2.

How may I obtain Cadence’s annual report on Form 10-K?

A copy of Cadence’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017 is available free of charge on the internet from the U.S. Securities and Exchange Commission at www.sec.gov and on the investor relations page of Cadence’s website at www.cadence.com/cadence/investor_relations.

 

3.

Why did I receive a Notice of Internet Availability of Proxy Materials instead of a paper copy of the proxy materials? How may I obtain a paper copy of the proxy materials?

Pursuant to the rules adopted by 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. This process expedites stockholders’ receipt of the proxy materials, lowers the costs of the Annual Meeting and helps conserve natural resources.

On or about March 23, 2018, Cadence will mail to each stockholder (other than those stockholders who previously had requested electronic or paper delivery of the proxy materials) a Notice of Internet Availability of Proxy Materials that contains instructions on how to access and review the proxy materials (including Cadence’s proxy statement and annual report) on the internet and how to access a proxy card to vote on the internet or by telephone.

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.

 

4.

How can I access the proxy materials over the internet?

Your Notice of Internet Availability of Proxy Materials will contain instructions on how to access and view the proxy materials on the internet and how to request a paper copy of the proxy materials.

The proxy materials are also available on Cadence’s website at the following address: www.cadence.com/cadence/investor_relations.

 

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5.

I received one copy of the proxy materials. May I get additional copies?

You may request additional copies of Cadence’s Notice of Internet Availability of Proxy Materials and proxy materials by writing to Cadence’s Corporate Secretary at Cadence’s corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134, by calling Cadence’s Investor Relations Group at (408) 944-7100 or by emailing the Investor Relations Group at investor_relations@cadence.com.

 

6.

What if I received a notice from my broker stating that it will be “householding” deliveries to my address? What if I received more than one copy of the Notice of Internet Availability of Proxy Materials and proxy materials?

SEC rules permit companies and intermediaries, such as brokers, to deliver a single copy of certain proxy materials to certain stockholders who share the same address, a practice referred to as “householding.” Some banks, brokers and other nominees will be householding Cadence’s Notice of Internet Availability of Proxy Materials and proxy materials for stockholders who do not participate in electronic delivery of proxy materials, unless contrary instructions are received from the affected stockholders. Once you have received notice from your broker or other nominee holder of your Cadence common stock that the broker or other nominee 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.

QUESTIONS AND ANSWERS RELATING TO VOTING

 

7.

Who may vote at the Annual Meeting?

You may vote if you owned shares of Cadence common stock, $0.01 par value per share, as of the close of business on March 6, 2018, which is the Record Date for the Annual Meeting. At the close of business on the Record Date, Cadence had 283,235,745 shares of common stock outstanding and entitled to vote.

Each share outstanding on the Record Date is entitled to one vote at the Annual Meeting. You are entitled to vote shares that are (i) held directly in your name or (ii) held for you as the beneficial owner in a brokerage account or through a broker, bank or other nominee rather than directly in your name.

 

8.

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

If you own shares of Cadence common stock that are registered directly in your name with Cadence’s transfer agent, Computershare Limited, you are considered the “stockholder of record” of those shares of Cadence common stock.

If you own shares of Cadence common stock that are held through a broker, bank or other nominee (that is, “in street name”), you are considered the “beneficial owner” of those shares of Cadence common stock. In that case, your broker, bank or other nominee is considered the “stockholder of record” with respect to those shares of Cadence common stock, and should be forwarding the proxy materials to you. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote those shares of Cadence common stock.

 

9.

How do I vote my shares if I am a stockholder of record?

If you are a stockholder of record as of the close of business on the Record Date, you have three options for submitting your vote prior to the Annual Meeting: (i) via the internet; (ii) by telephone; or (iii) by mail (by completing, signing, dating and mailing a paper proxy card, which a stockholder can request as outlined in the Notice of Internet Availability of Proxy Materials).

 

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If you attend the Annual Meeting, you may also submit your vote in person, in which case any votes that were previously submitted – whether via the internet, telephone or mail – will be superseded by the vote that is cast at the Annual Meeting.

Whether your proxy is submitted via the internet, telephone or mail, if it is properly completed and submitted and if it is not revoked prior to the Annual Meeting, the shares will be voted at the Annual Meeting in the manner set forth in this proxy statement or as otherwise specified by you.

 

10.

How do I vote my shares if I am a beneficial owner through a broker, bank or other nominee?

As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote, and you are also invited to attend the Annual Meeting. If a broker, bank or other nominee holds your shares, you will receive instructions from them that you must follow in order to have your shares voted.

Shares of Cadence common stock held through a broker, bank or other nominee may be voted in person at the Annual Meeting by you only if you obtain a valid proxy from your broker, bank or other nominee giving you the right to vote the shares.

 

11.

What is the vote required to pass each of the proposals?

Proposal 1 – regarding the election of directors, each director must receive a majority of the votes cast (the number of shares voted “for” a director must exceed the number of votes cast “against” that director), provided that in a contested election, each director must be elected by the affirmative vote of a plurality of the votes cast at the Annual Meeting.

Proposals 2, 3, 4 and 5 – the affirmative vote of a majority of the shares present at the Annual Meeting, either in person or represented by proxy and entitled to vote, is required.

 

12.

Who will bear the cost of this proxy solicitation?

Cadence will bear the entire cost of soliciting proxies, including the preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders by Cadence in connection with the matters to be voted on at the Annual Meeting.

Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding shares of Cadence common stock beneficially owned by others for forwarding to the beneficial owners. Cadence will reimburse persons representing beneficial owners of Cadence common stock for their costs of forwarding solicitation materials to the beneficial owners.

The solicitation of proxies through this proxy statement may be supplemented by telephone, facsimile and use of the internet or personal solicitation by directors, officers or other employees of Cadence and by Georgeson LLC. Cadence has retained Georgeson LLC to solicit proxies for an aggregate fee of approximately $10,500, plus reasonable expenses. No additional compensation will be paid to directors, officers or other employees of Cadence or any of its subsidiaries for their services in soliciting proxies.

 

13.

What are broker non-votes and how are the broker non-votes counted?

Broker non-votes include shares for which a bank, broker or other nominee (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. Broker non-votes are counted as present for purposes of determining the presence of a quorum, but broker non-votes will have no effect on the proposals presented to stockholders.

 

14.

When does a broker have discretion to vote my shares?

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.

 

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Proposal 1 – regarding the election of directors, Proposal 2 – regarding the approval of the amendment of the Omnibus Equity Incentive Plan, Proposal 3 – regarding the approval of the amendment of the Employee Stock Purchase Plan and Proposal 4 – regarding an advisory resolution to approve named executive officer compensation are all considered non-routine matters. Therefore, unless you provide voting instructions to any broker holding shares on your behalf, your broker may not use discretionary authority to vote your shares on Proposals 1, 2, 3 or 4.

Proposal 5 – regarding the ratification of the selection of Cadence’s independent registered public accounting firm is considered a routine matter and brokers are therefore permitted to vote shares held by them without instruction from beneficial owners.

 

15.

How are abstentions counted?

Abstentions are counted as present for purposes of determining the presence of a quorum, but how abstentions affect the outcome of a vote differs based on the proposal.

Proposal 1 – regarding the election of directors, abstentions count neither as a vote “for” nor a vote “against” a director.

Proposals 2, 3, 4 and 5 – abstentions will have the same effect as a vote against that proposal.

 

16.

Can I change a vote I have previously cast?

If you are a stockholder of record, you may change or withdraw your proxy at any time before it is actually voted, irrespective of whether your proxy was submitted via the internet, telephone or mail. Your proxy may be revoked by providing a written notice of revocation or a duly executed proxy bearing a later date to Cadence’s Corporate Secretary at Cadence’s corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134, or it may be revoked by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, be sufficient to revoke a proxy.

If you are a beneficial owner who holds your stock through a bank, broker or other nominee, you must contact the bank, broker or other nominee that holds your shares for specific instructions on how to change or revoke your vote.

 

17.

How does the Board recommend that I vote?

The Board of Directors of Cadence (the “Board”) recommends that you vote:

Proposal 1:   FOR the election of each of the nine director nominees named in this proxy statement;

Proposal 2:   FOR the approval of the amendment of the Omnibus Equity Incentive Plan;

Proposal 3:   FOR the approval of the amendment of the Employee Stock Purchase Plan;

Proposal 4:   FOR the advisory resolution to approve named executive officer compensation; and

Proposal 5:   FOR the ratification of the selection of Cadence’s independent registered public accounting firm.

QUESTIONS AND ANSWERS RELATING TO THE ANNUAL MEETING

 

18.

What constitutes a quorum for the Annual Meeting?

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.

 

19.

Who may attend the Annual Meeting in person?

Stockholders at the close of business on the Record Date as described above, as well as holders of a valid proxy for the Annual Meeting, are entitled to attend the Annual Meeting. Such individuals should be prepared to present photo identification, such as a valid driver’s license or passport, and proof of Cadence stock ownership at the close of business on the Record Date. Stockholders who were not

 

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stockholders of record at the close of business on the Record Date but hold shares through a bank, broker or other nominee on the Record Date should be prepared to present proof of beneficial ownership at the close of business on the Record Date, such as an account statement or similar evidence of ownership. Stockholders will be admitted to the Annual Meeting if they comply with these procedures.

 

20.

Who is the inspector of elections for the Annual Meeting?

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

QUESTIONS AND ANSWERS RELATING TO STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

 

21.

Can stockholders submit proposals for inclusion in Cadence’s proxy materials for the next annual meeting?

Stockholder proposals must comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and must be submitted in writing to Cadence’s Corporate Secretary at Cadence’s corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134 and received no later than November 23, 2018 to be included in the proxy statement and form of proxy relating to the 2019 annual meeting of Cadence stockholders.

 

22.

Can stockholders nominate directors for inclusion in Cadence’s proxy materials for the next annual meeting?

Cadence’s Bylaws provide that, under certain circumstances, director candidates nominated by a stockholder or group of stockholders may be included in Cadence’s annual meeting proxy materials. These proxy access provisions of Cadence’s Bylaws provide, among other things, that a stockholder or group of no more than 20 stockholders seeking to include director candidates in Cadence’s proxy materials must own at least 3% of Cadence’s outstanding shares of common stock continuously for at least the previous three years. The number of stockholder-nominated candidates to be included in any set of proxy materials cannot exceed the greater of two individuals or 20% of the number of directors (rounded down to the nearest whole number), which number may be reduced under certain circumstances, as described in Cadence’s Bylaws. The nominating stockholder or group of stockholders must also deliver the information required by Cadence’s Bylaws and satisfy the other applicable requirements of Cadence’s Bylaws, and each nominee must meet the qualifications set forth in Cadence’s Bylaws.

Notices to include stockholder-nominated candidates in Cadence’s proxy materials for the 2019 annual meeting of stockholders must be submitted in writing to Cadence’s Corporate Secretary at Cadence’s corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134 no later than the close of business on January 3, 2019 and no earlier than the close of business on December 4, 2018. However, if the date of the 2019 annual meeting of Cadence stockholders changes by more than 30 days from the first anniversary of the 2018 Annual Meeting, nomination notices must be submitted in writing to Cadence’s Corporate Secretary no later than the close of business on the tenth day following the first public announcement of the date of the meeting.

 

23.

What is the deadline for stockholders to submit director nominations or other proposals for consideration at the next annual meeting that stockholders do not seek to include in Cadence’s proxy materials?

For director nominations or other business proposals that the stockholder does not seek to include in Cadence’s 2019 proxy materials pursuant to the proxy access provisions set forth in Cadence’s Bylaws or Rule 14a-8 under the Exchange Act, the nominations or proposals must be submitted in writing to Cadence’s Corporate Secretary at Cadence’s corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134 no later than the close of business on February 2, 2019 and no earlier than

 

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the close of business on January 3, 2019, and must otherwise satisfy the requirements set forth in Cadence’s Bylaws. However, if the date of the 2019 annual meeting of Cadence stockholders changes by more than 30 days from the first anniversary of the 2018 Annual Meeting, any such stockholder proposals or nominations must be submitted in writing to Cadence’s Corporate Secretary no later than the close of business on the tenth day 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.

 

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CORPORATE GOVERNANCE

 

 

LETTER FROM THE CHAIRMAN OF THE BOARD

Dear Cadence stockholders:

On behalf of my fellow members of the Board of Directors, I want to thank you for your investment in Cadence. The Board takes its role in providing oversight and direction on your behalf seriously. We are committed to maintaining a strong Board that can provide significant value to our stockholders and management team.

Maintaining a Strong Board Composition

We understand that it is important to have the appropriate composition of the Board that is aligned with the strategic direction and needs of Cadence. To that end, the Board regularly reviews the directors’ skills and expertise and conducts a rigorous annual evaluation process in efforts to continuously improve. For prospective director candidates, the Board seeks individuals with relevant expertise, integrity, experience, skills, judgment and diversity of background that are complementary to Cadence’s industry and business. In July 2017, we added Mary Agnes Wilderotter to our Board. Ms. Wilderotter’s substantial experience as a technology executive and distinguished board service provides Cadence with valuable strategic and operational leadership experience, and further enhances Cadence’s delivery of long-term stockholder value.

Through the diversity of our directors’ experience and expertise, our Board has a multi-faceted understanding of Cadence’s business, strategy, risks and management team in a technology-focused environment that is rapidly changing.

Continuous Focus on Corporate Governance

The Board continually focuses on corporate governance because it is an integral part of the corporate culture at Cadence and is vital to gaining and retaining the trust of our stockholders, employees and customers and the members of the communities in which we work and do business, and helps us to create sustainable value for our stockholders. We reviewed our corporate governance in connection with Cadence’s admission to the S&P 500 in 2017. Based on this review, we proactively adopted proxy access in February 2018, which gives eligible stockholders the right to nominate director candidates to be included in our annual meeting proxy materials.

Stockholder Engagement

We welcome and value feedback from our stockholders. We encourage you to share your feedback with us by writing to us at the address provided in the section of this proxy statement entitled “Communication with Directors.” Periodically throughout the year, we also solicit the views of our key stockholders to better understand their concerns and recommendations with respect to Cadence’s strategy and governance practices and policies. This outreach effort is in addition to the opportunity afforded by our annual meeting to hear the views of our stockholders.

Whether or not you plan to attend the annual meeting in person, please read this proxy statement and vote your shares. We hope that after you have reviewed this proxy statement, you will vote in accordance with the Board’s recommendations. Your vote is important to us.

Again, on behalf of the Board, I thank you for your investment in Cadence and continued interest and support of Cadence.

Sincerely,

 

 

 

John B. Shoven, Ph.D.

Chairman of the Board

 

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CORPORATE GOVERNANCE HIGHLIGHTS

 

Board:
✓ Independent director serving as Chairman of the Board   ✓ Majority independent directors – eight of the nine directors are independent   ✓ Board’s Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee comprised entirely of independent directors   ✓ Election of independent director Mary Agnes Wilderotter to the Board in July 2017   ✓ Annual election of directors by majority votes cast in an uncontested election   ✓ No classified Board structure   ✓ Regular executive sessions of the Board with independent directors   ✓ Annual Board and committee evaluations – overseen by Corporate Governance and Nominating Committee		✓ Annual CEO and senior leadership succession review   ✓ Robust Code of Business Conduct   ✓ Robust insider trading and related party transactions policies   ✓ Committee authority to retain independent advisors   ✓ Stock Ownership Guidelines – each non-employee director required to hold shares of Cadence common stock with a value equal to at least $320,000 within five years of initial appointment or election to the Board   ✓ Direct Board engagement with stockholders and commitment by the Board and management to continued engagement with stockholders   ✓ Board continuing education – new director orientation and continuing education on critical topics and issues
Stockholder Rights:		Compensation:
✓ No “poison pill” (stockholders’ rights plan)   ✓ Action by written consent   ✓ Proxy access		✓ Annual Say-on-Pay stockholder vote   ✓ Clawback Policy   ✓ Prohibition of hedging Cadence securities   ✓ Stock Ownership Guidelines – each executive officer required to hold shares of Cadence common stock with a value equal to at least (i) three times annual base salary for the CEO and (ii) the annual base salary for all other executive officers, in each case within five years of appointment

CORPORATE GOVERNANCE PRACTICES

Cadence is governed by the Board and the committees of the Board, which meet throughout the year. Cadence and its Board are committed to sound corporate governance, which helps Cadence compete more effectively, sustain its success and build long-term stockholder value. The Board and management regularly review and evaluate Cadence’s corporate governance practices. Cadence’s corporate governance documents, including the charters of the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee, the Code of Business Conduct, the Related Party Transaction Policies and Procedures and the Board’s Corporate Governance Guidelines are available on the corporate governance page of Cadence’s website at www.cadence.com. Paper copies of these documents are also available to stockholders upon written request directed to Cadence’s Corporate Secretary at Cadence’s corporate offices located at 2655 Seely Avenue, Building 5, San Jose, California 95134.

 

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Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines, which cover various topics relating to the Board and its activities, including the selection and composition of the Board, Board leadership, compensation of directors, responsibilities of directors, Board access to senior management and outside advisors, meeting procedures, Board and committee responsibilities and other matters. The Corporate Governance and Nominating Committee annually reviews the Corporate Governance Guidelines, which may be amended by the Board at any time, and were most recently amended in February 2018.

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 and others. The Code of Business Conduct applies to all Cadence directors, officers and employees (and those of its subsidiaries), including Cadence’s Chief Executive Officer and Chief Financial Officer. The Code of Business Conduct also applies to certain independent contractors and consultants who work at Cadence’s facilities or at Cadence’s direction. Compliance with the Code of Business Conduct is a condition to continued service or employment with Cadence. The Code of Business Conduct covers topics including integrity, 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.

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. Any waivers for other employees may be granted only by the CEO and the General Counsel or their respective designees. To the extent required under applicable SEC rules, Cadence will disclose material amendments to the Code of Business Conduct and any waiver of its provisions 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 Cadence’s directors and executive officers to further align the interests of the directors and executive officers with the interests of stockholders and to reinforce Cadence’s commitment to sound corporate governance. Each non-employee member of the Board is required to hold shares of Cadence common stock with a value equal to at least $320,000 within five years of the date of his or her initial appointment or election to the Board. Cadence’s CEO is required to hold shares of Cadence common stock with a value equal to three times his or her annual base salary within five years of the date of his or her appointment, and Cadence’s other executive officers are required to hold shares of Cadence common stock with a value equal to his or her annual base salary within five years of the date of his or her appointment.

As of the Record Date, all directors and executive officers met the stock ownership guidelines applicable to them.

Trading/Hedging Restrictions

Cadence’s Securities Trading Policy restricts certain transactions in Cadence securities and prohibits members of the Board, executive officers and other employees from hedging their ownership of Cadence securities, including trading in publicly-traded options, puts, calls or other derivative instruments related to Cadence securities.

 

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BOARD OF DIRECTORS

 

 

BOARD MEMBERSHIP

The Board currently consists of nine members: Mark W. Adams, Susan L. Bostrom, James D. Plummer, Alberto Sangiovanni-Vincentelli, John B. Shoven, Roger S. Siboni, Young K. Sohn, Lip-Bu Tan and Mary Agnes Wilderotter. George M. Scalise served on the Board from 1989 until the 2017 annual meeting of Cadence stockholders, when he retired and did not stand for re-election. Ms. Wilderotter was elected to the Board in July 2017.

DIRECTOR INDEPENDENCE

The Board determines director independence in accordance with the Corporate Governance Guidelines, which require that at least a majority of the Board be “independent directors” within the meaning of the listing standards of the Nasdaq Stock Market. To be “independent” under the Nasdaq listing standards, a director must not have a relationship that, in the opinion of the Board, would interfere with his or her exercise of independent judgment in carrying out the responsibilities of a Cadence director. In determining each director’s independence, the Board considers all relevant facts and circumstances in conjunction with the guidelines provided for under the Nasdaq listing standards.

CURRENT INDEPENDENT DIRECTORS

Among the current members of the Board, the Board has determined that Mses. Bostrom and Wilderotter, Drs. Plummer, Sangiovanni-Vincentelli and Shoven, and Messrs. Adams, Siboni and Sohn are independent directors within the meaning of the Nasdaq listing standards. Mr. Tan, as the CEO of Cadence, is not deemed independent. The Board previously determined that Mr. Scalise, who served on the Board during fiscal 2017, was an independent director within the meaning of the Nasdaq listing standards.

BOARD LEADERSHIP

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

PROCESS FOR SELECTING DIRECTOR NOMINEES AND CANDIDATES

The Corporate Governance and Nominating Committee evaluates and recommends director candidates for nomination by the full Board. The Corporate Governance and Nominating Committee regularly discusses and annually reviews as a committee and with the Board the appropriate skills and characteristics (such as integrity, experience, judgment, diversity of background, independence, ability to commit sufficient time and attention to Board activities, understanding of Cadence’s products, technologies and strategy, and the specific skills set forth under “Director Qualifications, Skills and Experience” below in Proposal 1).

STOCKHOLDER RECOMMENDATIONS OF DIRECTOR CANDIDATES

Stockholders who wish to recommend a prospective nominee for the Board should notify Cadence’s Corporate Secretary or the Corporate Governance and Nominating Committee in writing with the supporting materials

 

10

required by Cadence’s Bylaws as described under “Information About the Annual Meeting” above and any other material the stockholder considers necessary or appropriate. Only candidates nominated in accordance with these procedures are eligible to serve as directors.

DIRECTOR ATTENDANCE

During the fiscal year ended December 30, 2017, the Board held nine meetings, in addition to taking actions by unanimous written consent in lieu of a meeting. Each director attended at least 75% of the meetings of the Board and the committees on which he or she served that were held during the period for which he or she was a director or committee member during fiscal 2017. The Corporate Governance Guidelines encourage directors to attend the annual meeting of stockholders, and all of Cadence’s then-serving directors, except for Mr. Siboni, attended the 2017 annual meeting of Cadence stockholders.

INDEPENDENT DIRECTOR MEETINGS

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

BOARD EVALUATIONS

The Board is committed to reviewing its performance through an annual self-evaluation process. Through the evaluations, the Board assesses its processes, meetings, planning and overall effectiveness. The directors provide feedback on the Board and its committees through questionnaires and interviews with an independent third party. The independent third party reviews the results and feedback provided by the directors and follows up with the directors regarding their evaluations. At the Board meeting in the first quarter of the year, the independent third party, with the Chairman of the Board and the Chair of the Corporate Governance and Nominating Committee, presents the findings to the Board. Any findings that require additional consideration are addressed at subsequent Board and committee meetings.

CEO AND MANAGEMENT SUCCESSION PLANNING

The Board is actively engaged and involved in the succession planning of Cadence’s management. The Compensation Committee regularly discusses and annually reports to the Board with respect to CEO succession planning, including policies for CEO selection and succession in the event of incapacitation, emergency situations, operational needs, retirement or removal of the CEO and evaluations of and development plans for any potential successors to the CEO. In addition, the Compensation Committee, in consultation with the CEO, regularly discusses and annually reviews senior leadership succession planning and reports to the Board with respect to Cadence’s management development program and succession planning.

 

						11

BOARD RISK OVERSIGHT

The Board exercises its risk oversight function through the Board as a whole and through certain of its committees. The Board and the relevant committees seek to understand and oversee the most critical risks facing Cadence. The Board does not view risk in isolation, but considers risk as part of its regular consideration of business decisions and business strategy. The Board as a whole has the ultimate responsibility for the oversight of risk management but has delegated the oversight of certain risks to the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee set forth in the table below.

 

Committee		Primary Areas of Risk Oversight
Audit Committee		Cadence’s financial condition, financial statements, financial reporting process, accounting, internal control and cybersecurity matters
Compensation Committee		Cadence’s overall compensation and senior leadership succession planning practices, policies and programs
Corporate Governance and   Nominating Committee		Cadence’s corporate governance, the composition, structure and evaluation of the Board and its committees, and review and approval of related party policy and transactions

The Board and the relevant committees review with Cadence’s management the risk management practices for which they have oversight responsibility. Since overseeing risk is an ongoing process and inherent in Cadence’s strategic decisions, the Board and the relevant committees also discuss risk throughout the year in relation to specific proposed actions.

STOCKHOLDER ENGAGEMENT

The Board is committed to active engagement with Cadence stockholders. In addition to Cadence management’s regular engagement with Cadence stockholders throughout 2017, the Chairman of the Board, the General Counsel and the Treasurer, on behalf of the Board, met with a number of Cadence stockholders to obtain feedback on key topics, including corporate governance and executive compensation. The Board and Cadence management intend to continue to engage with Cadence stockholders in 2018.

COMMUNICATION WITH DIRECTORS

Stockholders interested in communicating directly with the Board may do so by sending a letter to the following address:

Cadence Design Systems, Inc.

Board of Directors

c/o the Office of the Corporate Secretary

2655 Seely Avenue, Building 5

San Jose, California 95134

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 will be advised of any communication withheld for legal or other considerations as soon as practicable.

 

12

COMMITTEES OF THE BOARD

The Board currently has the following committees: Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, Finance Committee and Strategy Committee. Each of these committees has a written charter that is approved by the Board and available on the corporate governance page of Cadence’s website at www.cadence.com.

The current members and chairs of the committees are identified in the following table:

 

Director		Audit		Compensation		Corporate Governance and Nominating		Finance		Strategy
Mark W. Adams				✓		✓				✓
Susan L. Bostrom				✓		✓
James D. Plummer		✓		✓
Alberto Sangiovanni-Vincentelli						✓				✓
John B. Shoven		✓				✓		✓
Roger S. Siboni						✓		✓
Young K. Sohn										✓
Lip-Bu Tan										✓
Mary Agnes Wilderotter						✓				✓

 

Committee Chair    ✓ Member

Audit Committee

The Board has determined that all three members of the Audit Committee are “independent” as defined by the Nasdaq listing standards applicable to audit committee members and Rule 10A-3 of the Exchange Act. The Board has also determined that Dr. Shoven and Mr. Siboni are “audit committee financial experts” as defined in rules promulgated by the SEC.

The Audit Committee charter was last amended in February 2018 and complies with the Nasdaq listing standards. The duties and responsibilities of the Audit Committee include:

 

•

Appointing, retaining, compensating, evaluating, overseeing and terminating Cadence’s independent registered public accounting firm;

 

•

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

 

•

Reviewing and discussing with the independent registered public accounting firm all relationships or services between Cadence and the independent registered public accounting firm that may impact the objectivity and independence of the independent registered public accounting firm;

 

•

Reviewing audit procedures, the results of the annual audit and any audit problems, difficulties or disagreements;

 

•

Reviewing Cadence’s annual and quarterly financial statements, annual reports on Form 10-K and quarterly reports on Form 10-Q, and recommending to the Board whether the financial statements should be included in Cadence’s annual report on Form 10-K;

 

						13

•

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

 

•

Establishing and overseeing procedures for the receipt, retention and treatment of complaints received by Cadence regarding accounting, internal controls, auditing or violations of federal securities law matters.

The Audit Committee held five meetings during fiscal 2017. See “Report of the Audit Committee” below for more information.

Compensation Committee

The Compensation Committee is currently comprised of four non-employee, independent directors of Cadence, each of whom the Board has determined to be “independent” as defined by the Nasdaq listing standards applicable to compensation committee members and satisfies the applicable independence standards under the Exchange Act for compensation committee service. In addition, all Compensation Committee members are “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), as it existed prior to the passage of the U.S. Tax Cuts and Jobs Act (the “Tax Act”). All Compensation Committee members are also “outside directors” within the meaning of Rule 16b-3 of the Exchange Act. The Board previously determined that Mr. Scalise, who served on the Compensation Committee during fiscal 2017, was “independent” as defined by the Nasdaq listing standards applicable to compensation committee members, an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, as it existed prior to the passage of the Tax Act, and an “outside director” within the meaning of Rule 16b-3 of the Exchange Act.

Although the Compensation Committee may delegate its authority over certain matters to management when it deems it to be appropriate and in the best interests of Cadence, the Compensation Committee did not delegate any authority with respect to the consideration and determination of executive officer compensation in fiscal 2017 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 Cadence’s Senior Executive Bonus Plan, Cadence’s equity-based compensation plans and stock purchase plans, and Cadence’s deferred compensation plans. The Compensation Committee also reviews and recommends to the Board the compensation of Cadence’s directors, and the Compensation Committee did not delegate any authority with respect to the consideration and determination of director compensation in fiscal 2017.

The Compensation Committee charter was last amended in February 2018. The duties and responsibilities of the Compensation Committee include:

 

•

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

 

•

Overseeing the evaluation of Cadence’s management;

 

•

Reviewing at least annually Cadence’s senior leadership succession planning in consultation with the CEO;

 

•

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

 

•

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

 

14

•

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

 

•

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

The Compensation Committee believes that having an outside evaluation of executive officer salary, bonus and equity compensation is a valuable tool for the Compensation Committee and Cadence stockholders. In fiscal 2017, the Compensation Committee retained the services of a compensation consultant, Semler Brossy Consulting Group, LLC, for advice regarding the compensation of Cadence’s executive officers. The Compensation Committee retained Semler Brossy for a number of purposes, including constructing and reviewing peer groups for compensation comparison purposes, performing a competitive assessment of Cadence’s compensation programs, practices and levels for its executive officers and certain other employees and providing information on typical industry practices concerning employment, equity practices, severance and change in control agreements. Semler Brossy has not been engaged to perform any other work for Cadence. Pursuant to the factors set forth in Item 407 of Regulation S-K promulgated by the SEC and the Nasdaq listing standards, the Compensation Committee has reviewed the independence of Semler Brossy and conducted a conflicts of interest assessment, and has concluded that Semler Brossy is independent and Semler Brossy’s work for the Compensation Committee has not raised any conflicts of interest.

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

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

 

•

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

 

•

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

 

•

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

 

•

Caps on bonus awards to limit windfalls; and

 

•

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

 

						15

The Compensation Committee held three meetings during fiscal 2017.

Corporate Governance and Nominating Committee

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

The Corporate Governance and Nominating Committee charter was last amended in February 2018. The duties and responsibilities of the Corporate Governance and Nominating Committee include:

 

•

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

 

•

Considering potential director candidates recommended by Cadence’s management and stockholders in the same manner as nominees identified by the Corporate Governance and Nominating Committee; provided that, with respect to those candidates recommended by stockholders, such stockholders have provided Cadence with a notice that sets forth information as to such stockholders and director candidates in accordance with Cadence’s Bylaws;

 

•

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

 

•

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

 

•

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

 

•

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

 

•

Reviewing and approving any related party transactions and recommending to the full Board for approval policies and procedures for the review, approval and ratification of such transactions and amendments to such policies and procedures; and

 

•

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

The Corporate Governance and Nominating Committee regularly discusses and annually reviews the appropriate size of the Board, whether any vacancies on the Board are expected due to retirement or otherwise, and the need for particular expertise on the Board. If vacancies on the Board are anticipated or otherwise arise, the committee considers potential director candidates, which may come to the committee’s attention through a variety of channels, including current directors, officers, professional search firms, stockholders or other persons. The Corporate Governance and Nominating Committee makes a recommendation to the full Board as to the persons who should be nominated or elected by the Board, and the Board determines whether to reject, elect or nominate the candidate, as the case may be, after considering the recommendation of the committee.

The Corporate Governance and Nominating Committee held three meetings during fiscal 2017.

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 and has the authority to approve those that involve amounts up to $60 million. The Finance Committee charter was last amended in February 2018.

The Finance Committee held three meetings during fiscal 2017.

 

16

Strategy Committee

The Strategy Committee, on behalf of the Board, assists and advises in the strategic planning process and in the development of long-term strategic plans for Cadence. The Strategy Committee charter was last amended in February 2018.

The Strategy Committee held three meetings during fiscal 2017.

COMPONENTS OF DIRECTOR COMPENSATION

The Compensation Committee, with input from its independent compensation consultant, annually reviews and recommends to the Board the compensation program for directors who are not employees of Cadence.    Directors who are Cadence employees, such as Mr. Tan, do not receive additional compensation for their service on the Board. In setting non-employee director compensation, the Compensation Committee considers the competitiveness of Cadence’s director compensation from a number of different perspectives, including average total compensation, aggregate compensation for the full Board and individual director compensation as differentiated by committee membership and leadership roles. The Compensation Committee also reviews Cadence’s director compensation relative to Cadence’s Peer Group, which is also used to determine market levels for executive compensation (see “Compensation Discussion and Analysis” below for more information).

The following table sets forth the components of the non-employee directors’ compensation for fiscal 2017:

 

Compensation Component		Director Compensation
Annual Retainer(1)		$80,000
Chair Fees		$80,000 for Chairman of the Board(2)   $40,000 for Chair of the Audit Committee   $30,000 for Chair of the Compensation Committee and Chair of the Finance Committee   $20,000 for Chair of the Corporate Governance and Nominating Committee and Chair of the Strategy Committee
Meeting Attendance Fees(3)		$2,000 per meeting attended in person   $1,000 per meeting attended via telephone
Incentive Stock Award(4)		Incentive stock award with a grant date fair value of $170,000 for each non-employee director ($220,000 for a non-employee director serving as Chairman of the Board) that fully vests on the first anniversary of the date of grant
New Director Equity Award (one-time grant)(5)		Each non-employee director who joins the Board may be granted incentive stock awards, stock options and restricted stock units (“RSUs”) under the Directors Plan, the amounts of which are determined at the sole discretion of the Board or its designated committee
Stock Ownership Guidelines(6)		Each non-employee director is required to hold shares of Cadence common stock with a value equal to at least $320,000 within five years of initial appointment or election to the Board

 

						17

 

(1)

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

 

(2)	A non-employee director serving as Chairman of the Board is also eligible to receive fees for service as the Chair of any of the Board committees.

 

(3)

No additional compensation is paid when the Board or a committee acts by unanimous written consent in lieu of a meeting. Non-employee directors are also eligible for reimbursement of expenses they incur in connection with attending Board meetings in accordance with Cadence’s expense reimbursement policy.

 

(4)

On February 21, 2017, each then-serving non-employee director (other than the Chairman of the Board) was granted an incentive stock award of 5,521 shares of Cadence common stock under Cadence’s 1995 Directors Stock Incentive Plan (the “Directors Plan”) (which award had a grant date fair value of $170,000) and Dr. Shoven, the non-employee director serving as Chairman of the Board, was granted an incentive stock award of 7,145 shares of Cadence common stock under the Directors Plan (which award had a grant date fair value of $220,000).

 

(5)

On July 1, 2017, Ms. Wilderotter was granted an incentive stock award of 2,538 shares of Cadence common stock under the Directors Plan (which award had a grant date fair value of $85,000) in connection with her initial election to the Board and for the portion of fiscal 2017 during which she would serve on the Board.

 

(6)

As of the Record Date, all directors met the stock ownership guidelines applicable to them. Separately, Cadence’s Securities Trading Policy restricts certain transactions in Cadence securities and prohibits directors from hedging their ownership of Cadence securities, including trading in publicly-traded options, puts, calls or other derivative instruments related to Cadence securities.

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

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

 

18

DIRECTOR COMPENSATION FOR FISCAL 2017

The following table sets forth the compensation earned by Cadence’s non-employee directors for their service on the Board in fiscal 2017:

 

Name		Fees Earned or Paid in Cash ($)				Stock Awards   ($)(1)(2)				Option Awards ($)(3)		All Other Compensation ($)(4)				Total ($)
Mark W. Adams			$111,000				$169,992			$—			$        —				$280,992
Susan L. Bostrom			130,000				169,992			—			20,000				319,992
James D. Plummer			133,000				169,992			—			—				302,992
Alberto Sangiovanni-Vincentelli			103,000				169,992			—			15,031				288,023
George M. Scalise(5)			33,253				169,992			—			6,287				209,532
John B. Shoven			231,000				219,995			—			9,135				460,130
Roger S. Siboni			149,000				169,992			—			10,879				329,871
Young K. Sohn			130,000				169,992			—			—				299,992
Mary Agnes Wilderotter(6)			49,000				84,998			—			—				133,998

 

(1)

In accordance with SEC rules, the amount shown reflects the grant date fair value of stock awards granted during fiscal 2017 calculated pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (Compensation – Stock Compensation) (“FASB ASC 718”). The assumptions used to calculate the valuation of the stock awards for fiscal 2017 are set forth in Note 10 to the Notes to Consolidated Financial Statements in Cadence’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017. The amount shown is based on the price of Cadence common stock on the date the award was granted and does not reflect any fluctuations in the price of Cadence common stock subsequent to the grant date. The amount shown therefore does not reflect the financial benefit that the holder of the award will actually realize upon the vesting of the award.

 

(2)	As of December 30, 2017, the number of unvested shares of restricted stock held by each non-employee director was as follows:

 

 

(3)	No option awards were granted to the non-employee directors during fiscal 2017. As of December 30, 2017, the number of outstanding stock options held by each non-employee director was as follows:

 

 

						19

(4)	All Other Compensation for Ms. Bostrom, Drs. Sangiovanni-Vincentelli and Shoven and Messrs. Scalise and Siboni consists of reimbursements pursuant to the Medical Reimbursement Plan described above.

 

(5)	Mr. Scalise retired and did not stand for re-election at the 2017 annual meeting of Cadence stockholders, which was held on May 4, 2017. The shares of restricted stock granted to Mr. Scalise in fiscal 2017 did not vest because his board service ended before the vesting date.

 

(6)	Ms. Wilderotter was elected to the Board in July 2017.

 

20

MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

The Corporate Governance and Nominating Committee has recommended, and the Board has nominated, the nine nominees named below for election to the Board. Each director elected at the Annual Meeting will hold office until the 2019 annual meeting of Cadence stockholders and until his or her successor is elected and qualified, or until the director’s earlier resignation, removal or death.

Each nominee listed below is currently a Cadence director, and all of the nominees other than Ms. Wilderotter have previously been elected by Cadence stockholders.

DIRECTOR QUALIFICATIONS AND DIVERSITY

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

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

 

						21

DIRECTOR QUALIFICATIONS, SKILLS AND EXPERIENCE

The Corporate Governance and Nominating Committee has determined that it is important for an effective Board to have directors with a balance of the qualifications, skills and experience set forth in the table below.

 

Summary of Qualifications, Skills and Experience

Compensation / Talent Management Experience in compensation, organizational management, leadership, talent development and identifying, recruiting and motivating top talent

✓

✓

✓

✓

✓

✓

✓

✓

✓

Corporate Governance Experience in providing oversight and support of the goals of the Board and management and experience in protection of stockholder interests

✓

✓

✓

✓

✓

✓

✓

✓

✓

Cybersecurity Understanding cybersecurity risks in enterprise operations

✓

✓

✓

Financial Expertise Experience in evaluating financial statements and capital structures and overseeing financial reporting and internal controls

✓

✓

✓

✓

✓

✓

✓

Government / Regulatory / Public Policy Experience in or working with governmental and regulatory organizations

✓

✓

✓

✓

International Experience with global businesses, operations, strategy and customer bases

✓

✓

✓

✓

✓

✓

✓

Marketing Experience in marketing and branding of products and services and identifying and developing new markets for products and services

✓

✓

✓

✓

✓

✓

Operations Current or former executives with significant operating experience, who are able to provide insight into developing, implementing and assessing an enterprise’s operating plan, business and strategy

✓

✓

✓

✓

✓

✓

Risk Management Experience in overseeing risk management and understanding risks faced by enterprise operations

✓

✓

✓

✓

✓

✓

✓

Strategic Planning Experience in providing insight into developing, implementing and assessing businesses and strategy

✓

✓

✓

✓

✓

✓

Technology / Semiconductor / Electronic Design Automation In-depth understanding of electronic design automation, semiconductor and electronics systems technologies; ability to review overall business and strategy, including product development and the acquisition of businesses that offer complementary products, technologies or services

✓

✓

✓

✓

✓

 

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Mark W. Adams Susan L. Bostrom James D. Plummer Alberto Sangiovanni -Vincentelli John B. Shoven Roger S. Siboni Young K. Sohn Lip-Bu Tan Mary Agnes Wilderotter

DIRECTOR NOMINEES

The Corporate Governance and Nominating Committee believes that all nine director nominees listed below are highly qualified and have the qualifications, skills and experience required for service on the Board. The biographies set forth below contain information regarding their qualifications, skills and experience, including term of service as a Cadence director and age as of the Annual Meeting.

 

Mark W. Adams
Occupation: Chief Executive Officer, Lumileds Holding B.V.   Age: 53   Director Since: 2015		Cadence Committees:   •  Compensation •  Corporate Governance and Nominating •  Strategy
Mr. Adams has served as Chief Executive Officer of Lumileds Holding B.V., a light engine technology company, since February 2017. Mr. Adams served as President of Micron Technology, Inc., a semiconductor solutions company, from February 2012 to February 2016. From 2006 to February 2012, Mr. Adams served in a number of positions at Micron Technology, Inc., including interim Chief Financial Officer, Vice President of Worldwide Sales and Vice President of Digital Media. Prior to joining Micron Technology, Inc., Mr. Adams served as Chief Operating Officer of Lexar Media, Inc. in 2006 and as Vice President of Sales and Marketing of Creative Labs, Inc. from 2002 to 2006.   Mr. Adams also serves as a director of Seagate Technology plc.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Financial Expertise •  International •  Marketing •  Operations •  Risk Management •  Strategic Planning •  Technology / Semiconductor / Electronic Design Automation

 

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Susan L. Bostrom
Occupation: Former Executive Vice President, Chief Marketing Officer, Worldwide Government Affairs, Cisco Systems, Inc.   Age: 57   Director Since: 2011		Cadence Committees:   •  Compensation •  Corporate Governance and Nominating •  Strategy (Chair)
Ms. Bostrom served as Executive Vice President, Chief Marketing Officer, Worldwide Government Affairs, of Cisco Systems, Inc., a networking equipment provider, from 2007 to 2011. From 1997 to 2007, Ms. Bostrom served in a number of positions at Cisco Systems, Inc., including Senior Vice President, Chief Marketing Officer, Worldwide Government Affairs, Vice President of the Internet Business Solutions Group and Vice President of Applications and Services Marketing.   Ms. Bostrom also serves as a director of Nutanix, Inc., ServiceNow, Inc., Varian Medical Systems, Inc. and Lucile Packard Children’s Hospital Stanford and is a member of the Advisory Board of the Stanford Institute for Economic Policy Research. Ms. Bostrom served as a director of Rocket Fuel Inc. from 2013 to 2017, Georgetown University from 2010 to 2016 and Marketo, Inc. from 2012 to 2016 and on the Management Board of the Stanford Graduate School of Business from 2010 to 2015.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Government / Regulatory / Public Policy •  International •  Marketing •  Operations •  Strategic Planning

 

James D. Plummer, Ph.D.
Occupation: John M. Fluke Professor of Electrical Engineering, Stanford University   Age: 73   Director Since: 2011		Cadence Committees:   •  Audit •  Compensation •  Corporate Governance and Nominating (Chair)
Dr. Plummer has been a Professor of electrical engineering at Stanford University since 1978 and served as the Dean of the Stanford School of Engineering from 1999 to 2014. Dr. Plummer has received numerous awards for his research and is a member of the National Academy of Engineering. Dr. Plummer directed the Stanford Nanofabrication Facility from 1994 to 2000.   Dr. Plummer served as a director of Intel Corporation from 2005 to 2017 and International Rectifier Corporation from 1994 to 2014.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Financial Expertise •  Risk Management •  Technology / Semiconductor / Electronic Design Automation

 

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Alberto Sangiovanni-Vincentelli, Ph.D.
Occupation: Edgar L. and Harold H. Buttner Professor of Electrical Engineering and Computer Sciences, University of California, Berkeley   Age: 70   Director Since: 1992		Cadence Committees:   •  Corporate Governance and Nominating •  Strategy
Dr. Sangiovanni-Vincentelli was a co-founder of SDA Systems, Inc., a predecessor of Cadence. Dr. Sangiovanni-Vincentelli has been a Professor of electrical engineering and computer sciences at the University of California, Berkeley since 1976. Dr. Sangiovanni-Vincentelli was elected to the National Academy of Engineering in 1998 and received the Kaufman Award from the Electronic Design Automation Consortium in 2001, the IEEE/RSE Wolfson James Clerk Maxwell Medal for his exceptional impact on the development of electronics and electrical engineering or related fields in 2008, the ACM/IEEE A. Richard Newton Technical Impact Award in Electronic Design Automation in 2009 and the EDAA Lifetime Achievement Award in 2012.   Dr. Sangiovanni-Vincentelli also serves as a director of KPIT Technologies Ltd.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Cybersecurity •  International •  Technology / Semiconductor / Electronic Design Automation

 

John B. Shoven, Ph.D.
Occupation: Charles R. Schwab Professor of Economics, Stanford University   Age: 70   Director Since: 1992		Cadence Committees:   •  Audit •  Compensation (Chair) •  Corporate Governance and Nominating •  Finance
Dr. Shoven has served as Chairman of the Board since 2005. Dr. Shoven is the Charles R. Schwab Professor of economics at Stanford University and served as the Director of the Stanford Institute for Economic Policy Research from 1999 to September 2015. He is also a senior fellow and the Chair of the Steering Committee at the Stanford Institute for Economic Policy Research, senior fellow at the Hoover Institution, fellow at 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.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Financial Expertise •  Government / Regulatory / Public Policy •  Risk Management

 

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Roger S. Siboni
Occupation: Private Investor   Age: 63   Director Since: 1999		Cadence Committees:   •  Audit (Chair) •  Corporate Governance and Nominating •  Finance
Mr. Siboni served as Chairman of the Board of Epiphany, Inc., a software company that provided customer relationship management solutions, from 2003 to 2005, and as President and Chief Executive Officer of Epiphany, Inc. from 1998 to 2003. Prior to joining Epiphany, Inc., Mr. Siboni spent more than 20 years at KPMG LLP, including as its Deputy Chairman and Chief Operating Officer.   Mr. Siboni also serves as a director of Coupa Software, Inc. and Dolby Laboratories, Inc. Mr. Siboni served as a director of ArcSight, Inc. from 2009 to 2010 and Marketo, Inc. from 2011 to 2016.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Cybersecurity •  Financial Expertise •  Government / Regulatory / Public Policy •  International •  Marketing •  Operations •  Risk Management •  Strategic Planning

 

Young K. Sohn
Occupation: President and Chief Strategy Officer, Samsung Electronics   Age: 62   Director Since: 2013		Cadence Committees:   •  Finance (Chair) •  Strategy
Mr. Sohn has served as President and Chief Strategy Officer of Samsung Electronics, a consumer electronics company, since 2012. Mr. Sohn also has served as a senior advisor at Silver Lake Management LLC, a private investment firm, since 2012. Mr. Sohn served as a senior advisor at Inphi Corporation, a provider of high-speed mixed signal semiconductor solutions, from 2012 to 2013 and as President and Chief Executive Officer from 2007 to 2012. Prior to joining Inphi Corporation, Mr. Sohn served as President of Agilent Technologies, Inc.’s Semiconductor Group from 2003 until 2005, as Chief Executive Officer of Oak Technology, Inc. from 1999 until it was acquired by Zoran Corporation in 2003, and in executive positions at Quantum Corporation from 1992 to 1999, including co-President and General Manager.   Mr. Sohn also serves on the North American Executive Board for the MIT Sloan School of Management. Mr. Sohn served as a director of ARM Holdings plc from 2007 to 2012, Cymer, Inc. from 2003 to 2013 and Inphi Corporation from 2007 to 2012.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Financial Expertise •  International •  Marketing •  Operations •  Risk Management •  Strategic Planning •  Technology / Semiconductor / Electronic Design Automation

 

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Lip-Bu Tan
Occupation: Chief Executive Officer, Cadence Design Systems, Inc.   Age: 58   Director Since: 2004		Cadence Committees:   •  Strategy
Mr. Tan has served as Chief Executive Officer of Cadence since 2009. From January 2009 to November 2017, Mr. Tan also served as President of Cadence. In 1987, Mr. Tan founded Walden International, an international venture capital firm, and has served as its Chairman since its founding.   Mr. Tan also serves as a director of Hewlett Packard Enterprise Company, Quantenna Communications, Inc., Aquantia Corp. and Semiconductor Manufacturing International Corporation. Mr. Tan does not intend to seek re-election to the board of directors of Semiconductor Manufacturing International Corporation when his current term expires in 2018, and Mr. Tan has resigned from the board of directors of Quantenna Communications, Inc., with such resignation to take effect at their annual meeting of stockholders in 2018. Mr. Tan served as a director of Flextronics International Ltd. from 2003 to 2012, Inphi Corporation from 2002 to 2012, SINA Corporation from 1999 to 2015 and Ambarella, Inc. from 2004 to 2017.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Financial Expertise •  International •  Marketing •  Operations •  Risk Management •  Strategic Planning •  Technology / Semiconductor / Electronic Design Automation

 

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Mary Agnes Wilderotter
Occupation: Former Executive Chairman and Chief Executive Officer of Frontier Communications Corporation   Age: 63   Director Since: 2017		Cadence Committees:   •  Corporate Governance and Nominating •  Strategy
Ms. Wilderotter served in a number of positions at Frontier Communications Corporation, a telecommunications company, including Executive Chairman of the Board of Directors from April 2015 to April 2016 and Chief Executive Officer from November 2004 to April 2015. Ms. Wilderotter served as Senior Vice President of the worldwide public sector in 2004 and Senior Vice President of worldwide business strategy from 2002 to 2004 of Microsoft Corporation, a software company. From 1997 to 2002, Ms. Wilderotter served as President and Chief Executive Officer of Wink Communications, Inc., an interactive telecommunications and media company. Ms. Wilderotter also served as Chairman from November 2012 to November 2014 and as Vice Chairman from October 2010 to October 2012 of the President’s National Security Telecommunications Advisory Committee and served on the President’s Commission on Enhancing National Cybersecurity from April 2016 through December 2016.   Ms. Wilderotter also serves as a director of Costco Wholesale Corporation and Hewlett Packard Enterprise Company. Ms. Wilderotter served as a director of DreamWorks Animation SKG, Inc. from 2015 to 2016, Juno Therapeutics, Inc. from 2014 to 2018, The Procter & Gamble Company from 2009 to 2015 and Xerox Corporation from 2006 to 2015.		Skills & Qualifications:   •  Compensation / Talent Management •  Corporate Governance •  Cybersecurity •  Financial Expertise •  Government / Regulatory / Public Policy •  International •  Marketing •  Operations •  Risk Management •  Strategic Planning

DIRECTOR TENURE

The Corporate Governance and Nominating Committee regularly reviews the tenure of its directors and practices a long-term approach to board refreshment. The Corporate Governance and Nominating Committee believes that in addition to having directors who can provide new perspectives, it is important to have directors who understand Cadence’s industry, business, technology and strategy, the combination of which is essential to long-term value creation for Cadence stockholders.

The following table sets forth the summary of the tenure of the director nominees:

 

Years of Service (as of 2018 Annual Meeting)
0 – 5 Years		5 – 10 Years		10 – 15 Years		15+ Years
• Mark W. Adams   • Mary Agnes Wilderotter		• Susan L. Bostrom • James D. Plummer • Young K. Sohn		• Lip-Bu Tan		• Alberto Sangiovanni-Vincentelli • John B. Shoven • Roger S. Siboni

 

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VOTING INFORMATION AND BOARD RECOMMENDATION

The Board of Directors recommends a vote FOR the election of each director nominee.

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.

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

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

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

 

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PROPOSAL 2: APPROVAL OF THE AMENDMENT OF THE OMNIBUS EQUITY INCENTIVE PLAN

 

 

OVERVIEW

Cadence is requesting that Cadence stockholders approve the amendment of the Omnibus Equity Incentive Plan (as it may be amended and restated, the “Omnibus Plan”). On February 7, 2018, subject to stockholder approval, the Board approved the amendment of the Omnibus Plan. The approval of the amendment of the Omnibus Plan would increase the number of shares of common stock authorized for issuance by 2,000,000 shares and extend the expiration date of the Omnibus Plan to May 3, 2028.

As of February 7, 2018, 10,215,305 shares of common stock remained available for issuance under the Omnibus Plan. The proposed increase in the number of shares authorized for issuance under the Omnibus Plan represents approximately 0.71% of Cadence’s outstanding common stock as of the Record Date.

The Omnibus Plan was initially approved by the stockholders on May 6, 2014, with 14,866,116 authorized shares of common stock reserved for issuance. The Board on February 10, 2015 and the stockholders on May 14, 2015 approved an amendment to the Omnibus Plan to increase the number of shares of common stock authorized for issuance by 7,500,000 shares, the Board on February 9, 2016 and the stockholders on May 5, 2016 approved another amendment and restatement to the Omnibus Plan to increase the number of shares of common stock authorized for issuance by 6,000,000 shares and to extend the expiration date of the Omnibus Plan to May 5, 2026, and the Board on February 22, 2017 and the stockholders on May 4, 2017 approved another amendment and restatement to the Omnibus Plan to increase the number of shares of common stock authorized for issuance by 6,500,000 shares and to extend the expiration date of the Omnibus Plan to May 4, 2027.

REASONS FOR THE PROPOSED INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE AND EXTENSION OF THE EXPIRATION DATE

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

 

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KEY DATA REGARDING SHARE USAGE UNDER CADENCE’S EQUITY PLANS

Outstanding Awards and Share Reserve

The following table includes information regarding outstanding awards and shares available for future awards under Cadence’s equity plans as of February 7, 2018:

 

		1995 Directors Stock Incentive Plan				Omnibus Plan(1)
Total shares underlying outstanding stock options			617,500				5,302,791
Weighted average exercise price of outstanding stock options			$10.54				$25.21
Weighted average remaining contractual life of outstanding stock options, in years			3.72				5.30
Total shares underlying outstanding unvested incentive stock awards and RSUs			82,994				12,182,386
Total shares currently available for grant (stock options, incentive stock awards and RSUs)			520,455				10,215,305

 

(1)

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

This table excludes 256,842 outstanding stock options that were assumed in connection with acquisitions.

Burn Rate

 

•

Three-Year Net Burn Rate

Cadence measures net burn rate as the number of shares underlying awards granted by Cadence in the applicable fiscal year (including the effect of cancellations and forfeitures), divided by the basic weighted average number of shares of common stock outstanding at fiscal year end. Based on this approach, Cadence’s three-year average annual net burn rate is 2.18%, as set forth below.

 

 

(1)

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

 

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(2)

Performance-based incentive stock awards granted in fiscal 2016 and 2017 exclude the 1,250,000 shares and 275,000 shares, respectively, comprising the special long-term performance-based stock awards (“LTP Awards”) granted to the executive officers in such fiscal years. The LTP Awards will be included in the year in which they vest. See “Compensation Discussion and Analysis” and the table entitled “Outstanding Equity Awards at 2017 Fiscal Year End” below for more information. As set forth below, no LTP Awards were granted in fiscal 2015 and none vested in fiscal 2016 or 2017.

 

		LTP Awards Granted				LTP Awards Vested
2017			275,000				0
2016			1,250,000				0
2015			0				0

 

•

Three-Year Weighted Gross Burn Rate

Cadence measures weighted gross burn rate as the number of shares underlying awards granted by Cadence in the applicable fiscal year (converting full value shares to option equivalents and excluding the effect of cancellations and forfeitures), divided by the basic weighted average number of shares of common stock outstanding at fiscal year end. Based on this approach, Cadence’s three-year average annual weighted gross burn rate is 6.58%, as set forth below.

 

 

(1)

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

 

(2)

Performance-based incentive stock awards granted in fiscal 2016 and 2017 exclude the 1,250,000 shares and 275,000 shares, respectively, comprising the LTP Awards granted to the executive officers in such fiscal years. The LTP Awards will be included in the year in which they vest. See “Compensation Discussion and Analysis” and the table entitled “Outstanding Equity Awards at 2017 Fiscal Year End” below for more information. As set forth below, no LTP Awards were granted in fiscal 2015 and none vested in fiscal 2016 or 2017.

 

		LTP Awards Granted				LTP Awards Vested
2017			275,000				0
2016			1,250,000				0
2015			0				0

 

(3)

The calculation in this column places greater weight on full-value awards (that is, incentive stock awards and RSUs) than stock options, using a 3:1 ratio.

 

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Overhang

Cadence calculates overhang as (i) the number of shares underlying all outstanding awards under all equity plans (which, as of February 7, 2018, consisted of 6,177,610 shares underlying vested and unvested stock options, 9,597,520 shares underlying unvested incentive stock awards and 2,667,860 shares underlying unvested RSUs), divided by (ii) the number of shares of Cadence common stock outstanding excluding unvested incentive stock awards (which, as of February 7, 2018, was 273,276,039 shares). Based on this approach, as of February 7, 2018, equity compensation overhang was approximately 6.75%.

SUMMARY OF THE OMNIBUS PLAN

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

General

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

Purpose

The purposes of the Omnibus Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees and consultants of Cadence and its affiliates, and to promote the long-term success of Cadence’s business.

Administration

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

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

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

Eligibility

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

 

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

Employees and consultants of Cadence and its subsidiaries, including Cadence’s executive officers, are eligible to receive awards under the Omnibus Plan. As of the Record Date, Cadence had approximately 7,420 employees.

Shares Subject to the Omnibus Plan

Upon stockholder approval of this proposal, an additional 2,000,000 shares of common stock would be reserved for issuance under the Omnibus Plan. The proposed increase in the number of shares authorized for issuance under the Omnibus Plan represents approximately 0.71% of Cadence’s outstanding common stock as of the Record Date.

As of February 7, 2018, there were 10,215,305 shares of common stock available for issuance under the Omnibus Plan, and there were 17,485,654 shares subject to outstanding awards under the Omnibus Plan and its predecessor plans.

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

Stock Option Provisions

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

 

•

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

 

•

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

 

•

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

 

•

Term. The maximum term of stock options granted under the Omnibus Plan is seven years. However, the maximum term of incentive stock options granted to a 10% stockholder is five years. Stock options

 

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granted under the Omnibus Plan generally terminate three months (twelve months in the case of termination due to death or disability), or such other period of time as determined by the Board, after termination of the optionee’s employment or consulting relationship with Cadence or one of its affiliates.

Incentive Stock Award and Restricted Stock Unit Provisions

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

 

•

Sales Price and Payment of Sales Price. The Board determines the price, if any, at which shares subject to incentive stock awards or shares underlying RSUs are sold or awarded to a participant under the Omnibus Plan, subject to applicable law. The sales price may vary among participants and may be below the fair market value of the shares of common stock on the grant date. The Board also determines the form of consideration that may be used to pay the sales price, if any, of shares subject to incentive stock awards or shares underlying RSUs.

 

•

Vesting. The grant, issuance, retention and/or vesting of shares of incentive stock awards and RSUs granted under the Omnibus Plan occur 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 awards and RSUs may be subject to continued service, the passage of time and/or the performance criteria as the Board deems appropriate as described below. However, if the vesting of the incentive stock awards or RSUs granted to an executive officer is based solely on continued service, the award may not vest in full sooner than three years after the grant date and may not have a vesting schedule more favorable, at any point in time, than what would become vested under a monthly pro rata vesting schedule (i.e., 1/36th per month) over those three years. If vesting of an award granted to an executive officer is also subject to the achievement of performance criteria, the award may not vest in full sooner than one year after the grant date. The Board may accelerate the vesting of incentive stock awards and RSUs in the event of a participant’s termination of service as an employee or consultant, a change in control of Cadence or a similar event.

 

•

Performance Criteria. The Board may establish performance criteria for the grant, vesting or retention of any incentive stock award or RSU, which may be measured based on one or more “qualifying performance criteria” selected by the Board, or any other criteria deemed appropriate by the Board. Under the Omnibus Plan, “qualifying performance criteria” consists of 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 agreement relating to the incentive stock award or RSU (and in each case on a GAAP or non-GAAP basis, if applicable): (a) cash flow (including measures of operating or free cash flow), (b) earnings per share (diluted or basic), (c) earnings per share from continuing operations, (d) earnings (including but not limited to earnings before interest, taxes, depreciation and amortization), (e) return on equity, (f) total stockholder return, (g) return on capital, (h) return on assets or net assets, (i) revenue or revenue growth, (j) income or net income, (k) operating income or net operating income, (l) operating profit or net operating profit, (m) operating margin, (n) return on operating revenue, (o) market share, (p) customer loyalty or satisfaction as measured by a customer loyalty or satisfaction index determined by an independent consultant or expert in measuring such matters, (q) return on investment, (r) stock price, (s) market capitalization, (t) cash from operations, (u) product innovation or release schedule, (v) capital expenditure, (w) working capital, (x) cost of capital, (y) cost reductions, (z) bookings and segments of bookings such as net product bookings, (aa) market penetration, and (bb) technology development or proliferation.

 

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The Board, in its discretion, may reduce the number of shares granted, issued, retainable and/or vested under an incentive stock award or RSU grant on account of either financial performance or personal performance evaluations, despite the satisfaction of any performance criteria. In addition, 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 such laws or provisions affecting reported results; (d) accruals for reorganization and restructuring programs; and (e) any unusual or infrequently occurring items as described in the Financial Accounting Standards Board Accounting Standards Update and/or in management’s discussion and analysis of financial condition and results of operations in Cadence’s annual report to stockholders for the applicable year.

Effect of Certain Corporate Events

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

Adjustment Provisions

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

Duration, Amendment and Termination

The Board may terminate the Omnibus Plan without stockholder approval at any time. If the amendment of the Omnibus Plan is approved by Cadence stockholders, the Omnibus Plan will terminate on May 3, 2028, unless it is sooner terminated. Otherwise, the Omnibus Plan will terminate on May 4, 2027, unless it is sooner terminated. However, any termination of the Omnibus Plan will not adversely affect awards previously granted, and awards will remain in full force and effect unless mutually agreed upon in a writing signed by the participant and Cadence.

The Board may also amend the Omnibus Plan at any time or from time to time. However, if the amendment would require stockholder approval to comply with any securities exchange or national market system listing requirements or any other applicable law, the amendment will not be effective unless approved by the stockholders before or after its adoption by the Board. Any amendment of the Omnibus 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 Omnibus Plan, except as specifically provided in an award agreement, an award may not be transferred by the participant other than by will or by the laws of descent and distribution and, during the lifetime of the participant, may be exercised only by the participant or the participant’s legal representative. However, the participant may designate in writing a third party who may exercise the stock option in the event of the participant’s death.

 

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FEDERAL INCOME TAX INFORMATION

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

Nonstatutory Stock Options

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

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

Cadence will generally be entitled to a deduction to the extent a participant realizes ordinary income upon the exercise of an NSO, except to the extent the deduction limits of Section 162(m) of the Internal Revenue Code apply.

Incentive Stock Options

The Omnibus Plan permits grants of incentive stock options (“ISOs”). ISOs granted under the Omnibus Plan are intended to be eligible for the favorable federal income tax treatment accorded to “incentive stock options” under Section 422 of the Internal Revenue Code. Generally, a participant will not recognize any taxable income at the time of the grant of an ISO. In addition, the participant will not recognize income for regular federal income or employment tax purposes (except for alternative minimum tax purposes) at the time of exercise of an ISO. Cadence is not entitled to a deduction at the time of the grant or 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) in the event that the sales price exceeds the fair market value of the shares on the date of exercise, capital gain equal to the amount by which the sales price of such shares exceeds the fair market value of such shares on the date of exercise; and (iii) in the event that the sales price is less than the exercise price, 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 realizes ordinary income as a result of the disqualifying disposition, except to the extent the deduction limits of Section 162(m) of the Internal Revenue Code apply.

 

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Incentive Stock Awards

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

Cadence will generally be entitled to a deduction equal to the amount of ordinary income recognized by a participant in connection with the grant or vesting, as applicable, of shares of Cadence common stock pursuant to an incentive stock award, except to the extent the deduction limits of Section 162(m) of the Internal Revenue Code apply.

RSUs

Participants who are granted unvested RSUs do not recognize income at the time of the grant. When the award vests or is paid, participants generally recognize ordinary income in an amount equal to the fair market value of any shares delivered and the amount of any cash paid to the participant, and Cadence will receive a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Internal Revenue Code apply.

Section 162(m)

Section 162(m) of the Internal Revenue Code generally limits to $1,000,000 the amount that a publicly held corporation is allowed to deduct each year for the compensation paid to any individual serving as the corporation’s principal executive officer or principal financial officer at any time during the taxable year, the corporation’s three other most highly compensated executive officers, and any individual who was a covered employee of the corporation (or any predecessor) for any taxable year beginning after December 31, 2016.

STOCK PRICE

On the Record Date, the closing price of Cadence common stock as reported by Nasdaq was $38.98.

NEW PLAN BENEFITS

Because the Board has the discretion to grant awards under the Omnibus Plan, it is not possible as of the date of this proxy statement to determine future awards that will be received by executive officers and other employees under the Omnibus Plan. During fiscal 2017, the following awards were granted in the aggregate under the Omnibus Plan: awards for an aggregate of 1,383,500 shares to all current executive officers and an aggregate of 5,312,768 shares to other employees. See the table entitled “Grants of Plan-Based Awards in Fiscal Year 2017” for grants made to each of the named executive officers (as defined below in “Compensation Discussion and Analysis”) during fiscal 2017.

As of February 7, 2018, since the approval of the Omnibus Plan by Cadence stockholders in May 2014, awards covering 28,213,380 shares had been granted under the Omnibus Plan, including awards that were subsequently forfeited (and therefore the shares underlying the awards became available for grant under the Omnibus Plan).

 

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VOTING INFORMATION AND BOARD RECOMMENDATION

The Board recommends a vote FOR approval of the amendment of the Omnibus Plan.

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

 

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PROPOSAL 3: APPROVAL OF THE AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN

 

 

OVERVIEW

Cadence is requesting that stockholders approve the amendment of Cadence’s Employee Stock Purchase Plan (as it may be amended and restated, the “ESPP”). On March 15, 2018, subject to stockholder approval, the Board approved the amendment of the ESPP. The approval of the amendment of the ESPP would increase the number of shares of common stock authorized for issuance by 4,000,000 shares for a total of 78,000,000 shares authorized under the ESPP.

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

The purpose of the amendment of the ESPP is to ensure that Cadence will have a sufficient reserve of common stock under the ESPP to continue to grant purchase rights to its employees. The ESPP provides eligible employees with the opportunity to become Cadence stockholders and participate in Cadence’s success, which aligns the interests of participating employees with those of stockholders. The ESPP also helps to attract and retain employees because employee stock purchase plans are a common benefit offered by Cadence’s competitors and other industry leaders. In addition, approximately three-fourths of Cadence’s eligible employees as of the Record Date were enrolled to participate in the current offering period. As evidenced by the high level of employee participation, Cadence believes that the ESPP is a highly valued benefit that is necessary in order for Cadence to compete with other companies in attracting and retaining employees.

SUMMARY OF THE ESPP

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

Purpose

The purpose of the ESPP is to provide a means by which Cadence can offer its employees, as well as the employees of certain affiliates and related entities designated by the Board, an opportunity to purchase Cadence common stock. In doing so, the ESPP assists Cadence in retaining the services of its employees, securing and retaining the services of new employees, and providing incentives for these persons to exert maximum efforts for the success of Cadence.

The ESPP includes two components: a “423 Component” and a “Non-423 Component.” It is the intention of Cadence to have the 423 Component qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. The provisions of the 423 Component, accordingly, will be construed to extend and limit participation on a uniform and nondiscriminatory basis consistent with the requirements of Section 423. In addition, the ESPP authorizes the grant of rights under a Non-423 Component that does not qualify as an employee stock purchase plan under Section 423. Rights under the Non-423 Component will be granted pursuant to offerings, rules, procedures or sub-plans adopted by the Board designed to achieve tax, securities laws or other objectives for eligible employees, Cadence and designated affiliates and related entities.

Administration

The Board (or its delegate, as described below) administers the ESPP and has the final power to construe and interpret both the ESPP and the rights granted under the ESPP. The Board has the power, subject to the

 

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provisions of the ESPP, to determine when and how rights to purchase Cadence common stock will be granted, the provisions of each offering of these rights (which need not be identical), and whether employees of a designated affiliate or related entity of Cadence will be eligible to participate in the ESPP.

The Board may delegate administration of the ESPP to a committee comprised of not less than two Board members. The Board has delegated administration of the ESPP to the Compensation Committee. As used in this proxy statement solely with respect to describing the terms of the ESPP, the “Board” refers to the Board itself as well as to any committee the Board appoints to administer the ESPP.

Offerings

The Board implements the ESPP by offering participation rights to all eligible employees during offering periods designated by the Board, which shall not exceed 27 months. Currently, each ESPP offering period is six months long, commencing on February 1 and August 1 of each year, and ending on July 31 and January 31, respectively. If February 1 or August 1 is not a trading day, the offering period will commence on the first trading day after February 1 or August 1. If July 31 or January 31 is not a trading day, the offering period will end on the last trading day before July 31 or January 31.

Eligibility

Subject to any additional requirements consistent with the requirements of Section 423 of the Internal Revenue Code (only with respect to the 423 Component), any person employed by Cadence or employed by any affiliate or related entity of Cadence which has been designated by the Board as a “designated company” eligible to participate in the ESPP will be eligible to participate in an offering if the employee was employed by Cadence or a “designated company” on the fifteenth day of the month before the first day of the offering period. The Board may specify that employees must be employed for a minimum period in order to participate in the ESPP, provided that such minimum service period must be less than two years. As of the Record Date, Cadence had approximately 7,420 employees, of which approximately 90% were eligible to participate in the ESPP, including all of Cadence’s executive officers. Cadence’s non-employee directors are not eligible to participate in the ESPP.

No employee is eligible to participate in the 423 Component of the ESPP if, immediately after the grant of purchase rights, the employee would, directly or indirectly, own stock or hold options possessing 5% or more of the total combined voting power or value of all classes of stock of Cadence or of any Cadence parent or subsidiary, including any stock which the employee may purchase under outstanding rights and options. In addition, as required by Section 423 of the Internal Revenue Code, with respect to the 423 Component, no employee may accrue the right to purchase shares under the ESPP at a rate that exceeds $25,000 worth of common stock (determined at the fair market value of the shares at the time the right is granted, which fair market value is based upon the closing price of the shares) for any calendar year in which such right is outstanding. The Board can, and has, imposed further limitations on the rate at which employees may accrue the right to purchase shares under the ESPP, as discussed below.

Rights granted in any offering under the ESPP terminate immediately upon cessation of an employee’s employment for any reason, and Cadence will distribute to a former employee all of his or her accumulated contributions, without interest.

Participation in the ESPP

The Board has the discretion to designate the maximum percentage (of up to 15%) of gross earnings (before withholding of taxes and other amounts) and dollar amount that eligible employees may contribute toward the purchase of common stock under the ESPP, which the Board may modify from time to time. In the current offering period, eligible employees are permitted to contribute a maximum of 7% of their gross earnings (before withholding of taxes and other amounts) or $8,000, whichever is lower, toward the purchase of common stock under the ESPP over a calendar year. Such annual limits will increase to 10% and $10,000, respectively, in the next offering period commencing August 1, 2018.

 

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Upon an employee’s withdrawal from an offering, Cadence will distribute to the employee his or her accumulated contributions, without interest, less any accumulated contributions previously applied to the purchase of common stock on the employee’s behalf during the offering.

Purchase Price

The purchase price at which shares of common stock are sold in an offering under the ESPP shall not be less than the lower of:

 

•

85% of the closing price of a share of common stock on the first day of the offering period; or

 

•

85% of the closing price of a share of common stock on the last day of the offering period.

Purchase of Shares

A participant accumulates the purchase price of the shares by contributions over the course of the offering period. A participant may not make additional payments into his or her account.

In connection with offerings made under the ESPP, the Board may specify a maximum number of shares of common stock an employee may be granted the right to purchase and the maximum number of shares of common stock that may be purchased in that offering by all participants. If the total number of shares to be purchased upon exercise of rights granted in the offering exceeds the maximum aggregate number of shares of common stock available for the offering, the Board will make a pro rata allocation of available shares in a uniform and equitable manner. Unless the employee’s participation is discontinued, his or her right to purchase shares is exercised automatically at the end of the purchase period at the then applicable purchase price.

Shares Subject to the ESPP

Upon stockholder approval of this proposal, an additional 4,000,000 shares of common stock would be reserved for issuance under the ESPP for an aggregate of 78,000,000 shares authorized. An aggregate of 3,309,018 shares were available for issuance as of the Record Date. The proposed increase in the number of shares authorized for issuance under the ESPP represents approximately 1.41% of Cadence’s outstanding common stock as of the Record Date. If rights granted under the ESPP expire, lapse or otherwise terminate without being exercised, the shares of common stock not purchased under the rights again become available for issuance under the ESPP.

Effect of Certain Corporate Events

In the event of a dissolution or liquidation of Cadence, all offerings will terminate prior to the consummation of the proposed transaction or, at the Board’s discretion, the purchase date of any offering will be accelerated so that the outstanding rights may be exercised before or concurrent with the proposed transaction. In the event of a proposed sale of all or substantially all of the assets of Cadence, or the merger of Cadence with or into another corporation where Cadence is not the surviving corporation, all offerings will terminate prior to the consummation of the proposed event, unless the surviving corporation assumes the rights under the ESPP or substitutes similar rights, or the Board, at its discretion, provides that participants may exercise outstanding rights. If the Board makes a right exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board must notify participants that their rights under the ESPP will be fully exercisable for a period of 20 days from the date of such notice, or other period of time as the Board determines.

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 ESPP, and the number of shares and the price per share of common stock covered by each right under the ESPP that has not yet been exercised, will be equitably adjusted for any increase or decrease.

 

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Duration, Amendment and Termination

The Board may suspend or terminate the ESPP without stockholder approval at any time. Unless terminated earlier, the ESPP will terminate when all of the shares reserved for issuance under the ESPP, as increased or adjusted from time to time, have been issued.

The Board may also amend the ESPP at any time. However, any amendment of the ESPP must be approved by the stockholders to the extent stockholder approval is necessary for the ESPP to satisfy Section 423 (with respect to the 423 Component) of the Internal Revenue Code, Rule 16b-3 under the Exchange Act or any Nasdaq or other applicable securities exchange listing requirements. Generally, under the Internal Revenue Code, stockholder approval must be obtained within twelve months before or after its adoption by the Board if the amendment would, among other things:

 

•

increase the number of shares of common stock reserved for issuance under the ESPP; or

 

•

modify the provisions regarding eligibility for participation in the ESPP, but only to the extent that Section 423 of the Internal Revenue Code requires stockholder approval of such modification.

Rights granted before any amendment or termination of the ESPP will not be altered or impaired by any amendment or termination of the ESPP without the consent of the employee to whom such rights were granted or as expressly contemplated in the ESPP.

FEDERAL INCOME TAX INFORMATION

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

423 Component

Rights granted under the 423 Component of the ESPP are intended to qualify for favorable federal income tax treatment associated with an employee stock purchase plan that qualifies under Section 423 of the Internal Revenue Code, which requires stockholder approval of the ESPP and certain amendments.

A participant will be taxed on amounts withheld for the purchase of shares of common stock under the 423 Component of the ESPP as if such amounts were actually received. No other income will be taxable to a participant as a result of participating in the 423 Component of the ESPP until the disposition of the acquired shares, and the effect of taxation will depend on the holding period of the acquired shares.

If there is a specified per participant maximum number of shares that may be purchased during an offering period and if the stock is disposed of more than two years after the first day of the offering period (the “grant date”) and more than one year after the purchase date, if later, then the participant will recognize ordinary income equal to the lesser of:

 

•

the amount, if any, by which the fair market value of the shares at the time of such disposition exceeds the purchase price paid; and

 

•

the amount by which the fair market value of the shares as of the beginning of the offering period exceeds the purchase price determined as of the beginning of the offering period.

Any further gain or any loss will be taxed as a long-term capital gain or loss. Generally, long-term capital gains are currently subject to lower tax rates than ordinary income. Cadence will not be allowed a deduction if the holding

 

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period requirements described in this paragraph are satisfied. If the shares are sold or disposed of before the expiration of either of the two holding periods described above, then the amount by which the fair market value of the shares on the purchase date exceeds the purchase price will be treated as ordinary income at the time of disposition. The balance of any gain will be treated as capital gain. Even if the stock is later disposed of for less than its fair market value on the purchase date, the same amount of ordinary income is attributed to the participant, and a capital loss is recognized equal to the difference between the sales price and the fair market value of the stock on the purchase date. Any capital gain or loss will be short-term or long-term, depending on how long the stock has been held. Cadence will be entitled to a deduction equal to the ordinary income recognized by the employee, but will not be entitled to any deduction with respect to the amount recognized by such employee as capital gain.

Non-423 Component

The Non-423 Component is not intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. A participant will be taxed on amounts withheld for the purchase of shares of common stock under the Non-423 Component of the ESPP as if such amounts were actually received. A participant will also recognize taxable income as a result of purchasing shares under the Non-423 Component of the ESPP. The participant will recognize ordinary income on the purchase date in an amount equal to the difference between the fair market value of the shares purchased on the purchase date and the purchase price paid for the shares and Cadence will be entitled to a corresponding deduction. Upon subsequent resale of the shares, the difference between the sale price and the fair market value on the purchase date will be treated either as a capital gain or loss.

STOCK PRICE

On the Record Date, the closing price of Cadence common stock as reported by Nasdaq was $38.98.

NEW PLAN BENEFITS

Because benefits under the ESPP depend on employees’ voluntary elections to participate and the fair market value of Cadence common stock at various future dates, it is not possible as of the date of this proxy statement to accurately determine future benefits that will be received by executive officers and other employees under the ESPP.

VOTING INFORMATION AND BOARD RECOMMENDATION

The Board recommends a vote FOR approval of the amendment of the ESPP.

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

 

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PROPOSAL 4: ADVISORY RESOLUTION TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

 

 

Pursuant to Section 14A of the Exchange Act, Cadence stockholders are entitled to vote to approve, on an advisory (non-binding) basis, the compensation of Cadence’s named executive officers as disclosed in this proxy statement. This proposal, which is commonly known as the “say-on-pay” proposal, provides stockholders the opportunity to express their views on the named executive officers’ compensation. Although non-binding, the Board and the Compensation Committee value feedback from Cadence stockholders on compensation and will review and consider the voting results when evaluating Cadence’s executive compensation program. At the 2017 annual meeting of Cadence stockholders, approximately 98% of votes cast by Cadence stockholders approved the compensation of the named executive officers as disclosed in the 2017 proxy statement.

In deciding how to vote on this proposal, stockholders are encouraged to read the “Compensation Discussion and Analysis” and the related tables and narrative in this proxy statement for the details of Cadence’s executive compensation program. As described in “Compensation Discussion and Analysis” below, the Board and the Compensation Committee designed Cadence’s executive compensation program to support the long-term success of Cadence and the creation of stockholder value. Cadence’s executive compensation program for fiscal 2017 tied a significant majority of the named executive officers’ compensation to performance and emphasized alignment between long-term equity incentives and Cadence’s stock performance. As a result, the pay-for-performance component in Cadence’s executive compensation program should be considered an important factor in Cadence’s strong performance in fiscal 2017.

In fiscal 2017, Cadence continued to achieve strong financial results and strategic success. Cadence’s total revenue was $1.943 billion in fiscal 2017, a 7% increase over total revenue in fiscal 2016.

The Board and the Compensation Committee believe that the leadership of Cadence’s management team, including Mr. Tan, who was appointed Cadence’s CEO in January 2009, and the other named executive officers, was key to Cadence’s execution and strong performance in fiscal 2017, which contributed to a total stockholder return of 122% over the past three fiscal years and 989% over the past nine fiscal years.

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

RESOLVED, that the compensation paid to Cadence’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K of the Exchange Act, including the “Compensation Discussion and Analysis,” compensation tables and narrative discussion in this proxy statement, is hereby APPROVED.

VOTING INFORMATION AND BOARD RECOMMENDATION

The Board recommends a vote FOR the advisory resolution to approve named executive officer compensation.

The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting is required for approval of the proposal. Abstentions will be treated as being present and entitled to vote on the proposal and, therefore, will have the effect of votes against the proposal. Broker non-votes will be treated as not being entitled to vote on the proposal and, therefore, will not be counted for purposes of determining whether the proposal has been approved.

 

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PROPOSAL 5: RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

The Audit Committee has selected KPMG LLP as Cadence’s independent registered public accounting firm for the fiscal year ending December 29, 2018. Pursuant to the Audit Committee charter, the Audit Committee and the Board have directed management to submit the selection of the independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. KPMG LLP has audited Cadence’s financial statements since fiscal 2002. Representatives from KPMG LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions.

Stockholder ratification of the selection of KPMG LLP as Cadence’s independent registered public accounting firm is not required by Cadence’s Bylaws or otherwise. However, the Board is submitting the selection of KPMG LLP to the stockholders for ratification as a matter of good corporate practice. If Cadence 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.

VOTING INFORMATION AND BOARD RECOMMENDATION

The Board recommends a vote FOR ratification of the selection of KPMG LLP as Cadence’s independent registered public accounting firm.

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

 

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REPORT OF THE AUDIT COMMITTEE

 

 

The Audit Committee is currently comprised of three non-employee directors of Cadence who are “independent” as defined by Nasdaq’s listing standards and the Exchange Act. During fiscal 2017, the Audit Committee was comprised of Mr. Siboni and Drs. Shoven and Plummer. Mr. Siboni served as the Audit Committee’s Chair. The Audit Committee met five times in fiscal 2017.

The Audit Committee operates under a charter that was last amended by the Board in February 2018. The Audit Committee charter is available on the corporate governance page of Cadence’s 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 Cadence’s financial statements, Cadence’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications, independence and performance, and the performance of Cadence’s internal audit function, Cadence’s accounting and financial reporting processes and the audits of Cadence’s financial statements on behalf of the Board.

In this context, the Audit Committee has reviewed and discussed the audited financial statements included in Cadence’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017 with Cadence’s management and KPMG LLP, Cadence’s independent registered public accounting firm. The Audit Committee has also discussed with KPMG LLP the matters required to be discussed under Public Company Accounting Oversight Board auditing standards (Communications with Audit Committees), as well as KPMG LLP’s independence from Cadence and its management. In addition, the Audit Committee has received from KPMG LLP the written report regarding these matters and KPMG LLP’s independence, as required by the Public Company Accounting Oversight Board. The Audit Committee has also considered whether the provision of non-audit services by KPMG LLP to Cadence is compatible with KPMG LLP’s independence.

In reliance on the reviews and discussions referred to above, the current members of the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited financial statements in Cadence’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017 for filing with the SEC.

AUDIT COMMITTEE

Roger S. Siboni, Chair

James D. Plummer

John B. Shoven

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

 

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FEES BILLED TO CADENCE BY KPMG LLP DURING FISCAL 2017 AND 2016

 

 

The following table presents fees incurred by Cadence for professional services rendered by KPMG LLP for the fiscal years ended December 30, 2017 and December 31, 2016:

 

		Fiscal Year Ended December 30, 2017				Fiscal Year Ended December 31, 2016
		(In thousands)
Audit Fees(1)			$4,037			$	2,968
Audit-Related Fees(2)			237				150
Total Audit and Audit-Related Fees			4,274				3,118
Tax Fees(3)			—				37(4)
All Other Fees			—				—
Total Fees			$4,274			$	3,155

 

(1)

Includes fees for the audit of Cadence’s consolidated financial statements in Cadence’s annual report on Form 10-K, fees for the audit of Cadence’s internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, fees for the review of the interim condensed consolidated financial statements in Cadence’s quarterly reports on Form 10-Q and fees for services that are normally provided by KPMG LLP in connection with statutory and regulatory filings or other engagements. The increase in fees for fiscal 2017 was primarily due to fees related to Cadence’s adoption of new revenue recognition requirements pursuant to FASB ASC Topic 606 (Revenue from Contracts with Customers) which required Cadence to implement changes to its processes in fiscal 2017.

 

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

 

(3)	Includes fees for tax compliance, tax advice and tax planning.

 

(4)	Tax fees for fiscal 2016 consisted of tax compliance fees of $35,000 and tax advisory fees of $2,000.

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

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

However, engagements for these pre-approved audit-related and tax services with an estimated cost of more than $250,000 or that exceed the applicable budgeted amount for the pre-approved services must be pre-approved on a case-by-case basis by the Audit Committee or the Chair of the Audit Committee, or, if the Chair is unavailable, another member of the Audit Committee. In addition, any proposed engagement of KPMG LLP for services that are not pre-approved audit-related and tax services as described above must also be pre-approved on a case-by-case basis by the Audit Committee or the Chair of the Audit Committee, or, if the Chair is unavailable, another member of the Audit Committee. The members to whom such authority is delegated must report any approval decisions to the full Audit Committee at its next scheduled meeting. None of the services described in the table above entitled “Fees Billed to Cadence by KPMG LLP During Fiscal 2017 and 2016” were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X of the Exchange Act.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

 

SECURITY OWNERSHIP

The following table sets forth certain information regarding the ownership of Cadence common stock as of March 6, 2018, the Record Date, unless otherwise indicated below, by:

 

•

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

 

•

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

 

•

All directors and director nominees; and

 

•

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

 

		Beneficial Ownership(1)
Beneficial Owner		Number of Shares				Percent of Total
Five Percent Stockholders:
The Vanguard Group(2)			31,602,713				11.16	%
100 Vanguard Blvd. Malvern, PA 19355
Massachusetts Financial Services Company(3)			21,991,971				7.76
111 Huntington Avenue Boston, MA 02199
BlackRock, Inc.(4)			19,702,225				6.96
55 East 52nd Street New York, NY 10055
Directors and Executive Officers:
Mark W. Adams(5)			28,980				*
Susan L. Bostrom(5)(6)			46,026				*
James D. Plummer(5)(7)			101,526				*
Alberto Sangiovanni-Vincentelli(5)			144,519				*
John B. Shoven(5)(8)			381,892				*
Roger S. Siboni(5)			89,120				*
Young K. Sohn(5)			64,026				*
Lip-Bu Tan(5)(9)			3,866,492				1.35
Mary Agnes Wilderotter(5)			7,464				*
John M. Wall(5)			129,435				*
Anirudh Devgan(5)			553,109				*
Surendra Babu Mandava(5)			255,172				*
Neil Zaman(5)			272,285				*
Geoffrey G. Ribar(5)(10)			234,829				*
All current executive officers and directors as a group (15 persons)(11)			6,531,307				2.28

 

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*	Less than 1%

 

(1)

This table is based upon information provided by stockholders pursuant to Schedules 13G filed with the SEC and by Cadence’s executive officers and directors. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, Cadence believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned by such stockholder. Beneficial ownership of greater than 5% of Cadence outstanding common stock reflects ownership as of the most recent date indicated under filings with the SEC as noted below, while beneficial ownership of the executive officers and directors is as of the Record Date. Applicable percentages are based on 283,235,745 shares of Cadence common stock outstanding on the Record Date, adjusted as required by rules promulgated by the SEC.

 

(2)

The Vanguard Group filed Amendment No. 7 to its Schedule 13G with the SEC on February 8, 2018, indicating that it beneficially owns 31,602,713 shares, for which it has sole voting power with respect to 398,100 shares, shared voting power with respect to 63,160 shares, sole dispositive power with respect to 31,153,103 shares and shared dispositive power with respect to 449,610 shares.

 

(3)

Massachusetts Financial Services Company filed Amendment No. 2 to its Schedule 13G with the SEC on February 9, 2018, indicating that it beneficially owns 21,991,971 shares, for which it has sole voting power with respect to 21,499,316 shares, shared voting power with respect to none of the shares, sole dispositive power with respect to 21,991,971 shares and shared dispositive power with respect to none of the shares.

 

(4)

BlackRock, Inc. filed Amendment No. 8 to its Schedule 13G with the SEC on January 29, 2018, indicating that it beneficially owns 19,702,225 shares, for which it has sole voting power with respect to 17,359,929 shares, shared voting power with respect to none of the shares, sole dispositive power with respect to 19,702,225 shares and shared dispositive power with respect to none of the shares.

 

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

 

 

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

 

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

 

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

 

(9)

Includes 1,098,179 shares held by the Lip-Bu Tan and Ysa Loo Trust dated 2/3/1992, of which Mr. Tan and his spouse are trustees and for which Mr. Tan shares voting and investment power with his spouse; 15,000 shares held by A&E Investment LLC, the sole member of which is the Lip-Bu Tan and Ysa Loo Trust dated 2/3/1992 and Mr. Tan and the co-trustee disclaim pecuniary interest in those shares; 7,000 shares held by L Tan & N Lee TTEE, Pacven Walden Inc. 401(k) PSPS, 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 dated 5/19/97 for which Mr. Tan has sole voting and investment power.

 

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(10)	Upon Mr. Wall’s appointment as Senior Vice President and CFO, Mr. Ribar became a Senior Advisor, effective until his expected retirement on March 31, 2018.

 

(11)	Includes 3,080,849 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.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

To Cadence’s knowledge, based solely on a review of the copies of the Section 16(a) reports submitted to Cadence and written representations that no other reports were required during fiscal 2017, all reports required by Section 16(a) applicable to its executive officers and directors and greater than 10% beneficial owners were filed on a timely basis during fiscal 2017.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

This section discusses the compensation program for Cadence’s named executive officers (the “NEOs”). Cadence’s NEOs for fiscal 2017 were the CEO, the CFO, the three most highly compensated executive officers other than the CEO and the CFO, and the former CFO:

 

•

Lip-Bu Tan, CEO

 

•

John M. Wall, Senior Vice President and CFO

 

•

Anirudh Devgan, President

 

•

Surendra Babu Mandava, Senior Vice President of Research and Development, IP Group

 

•

Neil Zaman, Senior Vice President, Worldwide Field Operations

 

•

Geoffrey G. Ribar, Former Senior Vice President and CFO

Messrs. Tan, Devgan, Zaman and Ribar were NEOs for fiscal 2016. Messrs. Mandava and Wall are new NEOs for fiscal 2017, as discussed below.

In January 2017, Mr. Mandava joined Cadence as Senior Vice President of Research and Development, IP Group.

In March 2017, Mr. Devgan was promoted to Executive Vice President of Research and Development, Digital & Signoff Group and System & Verification Group. Subsequently in November 2017, he was promoted to President of Cadence. Mr. Tan relinquished the role of President in connection with Mr. Devgan’s promotion and continues to serve as CEO of Cadence.

In October 2017, Mr. Wall was promoted from Corporate Vice President and Corporate Controller to Senior Vice President and CFO. Upon Mr. Wall’s appointment as Senior Vice President and CFO, Mr. Ribar became a Senior Advisor, effective until his expected retirement in March 2018.

EXECUTIVE SUMMARY

Cadence’s Fiscal 2017 Performance Highlights

In fiscal 2017, Cadence continued to achieve strong financial results and strategic success in a rapidly evolving ecosystem. Cadence remained focused on providing the solutions its customers rely on to design differentiated products, from chips to boards to systems. Under the leadership of Mr. Tan and his management team, Cadence’s record of strong operating results and growth in revenue continued in fiscal 2017, with total revenue increasing 7% from fiscal 2016 to $1.943 billion in fiscal 2017.

In particular, in fiscal 2017, Cadence:

 

•

progressed on its System Design Enablement strategy in several key vertical markets, including strengthening its solutions for cloud and datacenter applications, entering into strategic agreements with key companies in the automotive sector, and expanding its existing relationships with other key customers;

 

•

expanded its ecosystem partnerships to provide increasingly integrated solutions, including a collaboration to bridge system-level design and printed circuit board/chip implementation;

 

•

continued to focus on innovation, with the introduction of eight new products; and

 

•

increased revenue in several business segments, including 10% growth in digital and signoff driven by proliferation of digital and signoff tools with its customers, 18% growth in IP pursuant to a refined strategy, and 11% growth in custom and analog design due to demand for advanced node custom design and simulation solutions for increasingly complex design challenges.

 

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