<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ 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 Section240.14a-11(c) or
Section240.14a-12
CADENCE DESIGN SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
2655 SEELY AVENUE
SAN JOSE, CALIFORNIA 95134
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 6, 1998
------------------------
TO THE STOCKHOLDERS OF
CADENCE DESIGN SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of CADENCE
DESIGN SYSTEMS, INC., a Delaware corporation (the "Company"), will be held on
May 6, 1998, at 3:00 p.m. local time at 2655 Seely Avenue, San Jose, California
95134 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the amendment of the Certificate of Incorporation, as
amended, to increase the number of authorized shares of Common Stock of
the Company from 300,000,000 to 600,000,000.
3. To approve the 1987 Stock Option Plan, as amended, to (a) extend the
term of such plan to May 31, 2007 and (b) increase the number of
authorized shares reserved under the plan from 61,370,100 to 71,370,100,
an increase of 10,000,000 shares.
4. To approve the Senior Executive Bonus Plan.
5. To ratify the selection of Arthur Andersen LLP as independent auditors
of the Company for its fiscal year ending January 2, 1999.
6. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 20, 1998, as
the Record Date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
R.L. Smith McKeithen
SECRETARY
San Jose, California
March 30, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
2655 SEELY AVENUE
SAN JOSE, CALIFORNIA 95134
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1998
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Cadence Design Systems, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on May 6, 1998, at 3:00 p.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at 2655 Seely Avenue, San Jose, California
95134. The Company intends to mail this proxy statement and accompanying proxy
card on or about March 30, 1998, to all stockholders entitled to vote at the
Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request, Corporate Investor Communications, Inc. No
additional compensation will be paid to directors, officers or other regular
employees for such services. If Corporate Investor Communications, Inc. renders
solicitation services, it will be paid its customary fee, estimated to be
approximately $6,500.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March 20,
1998 (the "Record Date") will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on March 20, 1998, the Company had outstanding
and entitled to vote [ 207,666,000 ] shares of Common Stock.
Each holder of record of Common Stock on the Record Date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting.
On October 31, 1997, the Company declared a 2-for-1 stock split effected by
means of a stock dividend paid on November 14, 1997. All share numbers contained
herein give effect to such stock split.
All votes will be tabulated by the inspector of elections appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Except for Proposal 2, broker non-votes
are counted towards a quorum, but are
<PAGE>
not counted for any purpose in determining whether a matter has been approved.
With respect to Proposal 2, abstentions and broker non-votes will have the same
effect as negative votes.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 2655 Seely
Avenue, San Jose, California 95134, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company on or before
November 30, 1998, in order to be included in the proxy statement and proxy
relating to the Company's 1999 Annual Meeting of Stockholders.
PROPOSAL 1
ELECTION OF DIRECTORS
There are eight nominees for the eight Board of Directors (the "Board")
positions presently authorized by the Company's Bylaws, as amended (the
"Bylaws"). Each director to be elected will hold office until the next annual
meeting of stockholders and until his or her successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company, all of the
directors having been elected by the stockholders, with the exception of Mr.
Harding and Mr. Bingham, who were appointed by the Board on October 19, 1997 and
November 5, 1997, respectively.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the eight nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected, and management has no reason to believe that any
nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
2
<PAGE>
NOMINEES
The names of the nominees, and certain information about them (including
their term of service), are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ------------------------------------------------ --- --------------------------------------- -----------
<S> <C> <C> <C>
Carol A. Bartz.................................. 49 Chairman and Chief Executive Officer, 1994
Autodesk, Inc.
H. Raymond Bingham.............................. 52 Executive Vice President and Chief 1997
Financial Officer of the Company
John R. Harding................................. 43 President and Chief Executive Officer 1997
of the Company
Dr. Leonard Y.W. Liu............................ 56 Chairman, Chief Executive Officer and 1989
President, Walker Interactive Systems,
Inc.
Donald L. Lucas................................. 68 Chairman of the Board of the Company 1988
and Private Venture Capital Investor
Dr. Alberto Sangiovanni-Vincentelli............. 50 Professor of Electrical Engineering and 1992
Computer Sciences, University of
California, Berkeley
George M. Scalise............................... 63 President, Semiconductor Industry 1989
Association
Dr. John B. Shoven.............................. 50 Dean of the School of Humanities and 1992
Sciences, Stanford University
</TABLE>
CAROL A. BARTZ has served as Chief Executive Officer and Chairman of the
Board of Autodesk, Inc., a personal computer software company and supplier of
design software, since 1996, serving as its President from May 1992 to September
1996. From 1983 to April 1992, Ms. Bartz served in various positions with Sun
Microsystems, Inc., a manufacturer of UNIX-based professional workstations and
compatible software, including Vice President of Worldwide Field Operations from
July 1990 to April 1992. Ms. Bartz is a director of AirTouch Communications,
Network Appliance, Inc., Cisco Systems, Inc. and BEA Systems, Inc.
H. RAYMOND BINGHAM has served as Executive Vice President since October
1997, Chief Financial Officer of the Company since 1993 and was Senior Vice
President from 1993 to 1997. He has been a director of the Company since
November 1997. Prior to joining the Company, Mr. Bingham was Executive Vice
President and Chief Financial Officer of Red Lion Hotels and Inns, an owner and
operator of a chain of hotels, for eight years. Mr. Bingham is a director of
Sunstone Hotel Investors, Inc. and Integrated Measurement Systems, Inc.
JOHN R. HARDING has served as President and Chief Executive Officer and a
director of the Company since October 1997. He joined the Company in May 1997 as
Senior Vice President, Strategic Business Units. Prior to joining the Company,
Mr. Harding served as President and Chief Executive Officer of Cooper & Chyan
Technology, Inc. ("CCT"), a software tool company, from December 1994 until its
acquisition by the Company in May 1997. Before joining CCT, Mr. Harding was with
Zycad Corporation, an electronic design automation company, as Executive Vice
President, Worldwide Sales and Marketing, from January 1992 to October 1994.
3
<PAGE>
DR. LEONARD Y.W. LIU has served as a director of the Company since 1989. Dr.
Liu has served as Chairman, President and Chief Executive Officer of Walker
Interactive Systems, Inc., a high-end financial software company, since 1995.
From 1993 until 1995, Dr. Liu served as Chief Operating Officer of the Company.
Before joining the Company in 1993, Dr. Liu was Chairman and Chief Executive
Officer of Acer America Corporation and President of Acer Group, a personal
computer manufacturer, from 1989 until 1992. Dr. Liu is also a director of
Trident Microsystems, Inc. and Advanced Semiconductor Engineering, Inc.
DONALD L. LUCAS has served as Chairman of the Board of the Company since
1988. From its inception in 1983 to 1987, Mr. Lucas served as Chairman of the
Board and a director of SDA Systems, Inc., a predecessor of the Company. Mr.
Lucas has been a private venture capital investor since 1960. He is a director
of Amati Communications Corporation, Coulter Pharmaceutical, Inc., Macromedia,
Inc., Oracle Corporation, Transcend Services, Inc. and Tricord Systems,
Incorporated.
DR. ALBERTO SANGIOVANNI-VINCENTELLI has served as a director of the Company
since 1992 and has served as a consultant to the Company since 1994. Dr.
Sangiovanni-Vincentelli has been Professor of Electrical Engineering and
Computer Sciences at the University of California at Berkeley since 1976.
GEORGE M. SCALISE has served as a director of the Company since June 1989.
Mr. Scalise has served as President of the Semiconductor Industry Association,
an association of semiconductor manufacturers and suppliers, since June 1997.
Mr. Scalise served as Executive Vice President and Chief Administrative Officer
of Apple Computer, Inc., a personal computer company, from March 1996 to May
1997. He also served as Senior Vice President of Planning and Development and
Chief Administrative Officer of National Semiconductor Corporation, a
semiconductor manufacturing company, from 1991 to 1996.
DR. JOHN B. SHOVEN has served as a director of the Company since 1992. Dr.
Shoven has been Dean of the School of Humanities and Sciences at Stanford
University since 1993. From 1979 to 1993, Dr. Shoven served as Professor of
Economics at Stanford University. Dr. Shoven also served as Director for the
Center for Economics Policy Research at Stanford University from 1988 to 1993.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended January 3, 1998 (the "Fiscal Year"), the Board
held five meetings. The Board has an Audit Committee, a Compensation Committee,
a Nominating Committee and a Venture Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the Company's
financial statements; review financial and auditing issues of the Company;
recommend to the Board the independent auditors to be retained by the Company;
receive and consider the accountants' comments as to controls, adequacy of staff
and management performance and procedures in connection with audit and financial
controls and make recommendations to the Board. The Audit Committee is composed
of three non-employee directors, Messrs. Lucas and Scalise and Dr. Shoven. It
met four times during the Fiscal Year.
The Compensation Committee reviews and approves the general compensation
plans of the Company, including the Company's stock option, stock purchase and
bonus plans, and determines specific compensation matters, including salaries,
bonuses, stock options and incentive compensation, for the Chief Executive
Officer and all executives who report directly to the Chief Executive Officer.
The Compensation Committee also performs such other functions regarding
compensation as the Board may delegate. The Compensation Committee is composed
of two non-employee directors, Dr. Shoven and Mr. Lucas. It met two times during
the Fiscal Year.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and nominates
specific individuals to be elected as officers of the Company by the Board of
Directors. No procedure has been established for the consideration of
4
<PAGE>
nominees recommended by stockholders. The Nominating Committee for fiscal year
1997 was composed of three directors, Messrs. Lucas and Harding and Dr.
Sangiovanni-Vincentelli. It met two times during the Fiscal Year.
The Venture Committee advises the Board and acts on behalf of the Company in
monitoring the Company's investment in Telos Venture Partners, L.P. The Venture
Committee for 1997 was composed of two non-employee directors, Mr. Lucas and Dr.
Shoven. It met two times during the Fiscal Year.
During the Fiscal Year, each Board member attended 75% or more of the
aggregate number of the meetings of the Board and of 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, respectively.
PROPOSAL 2
APPROVAL OF AMENDMENT OF CERTIFICATE OF INCORPORATION, AS
AMENDED, TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
On February 23, 1998, the Board adopted, subject to stockholder approval, an
amendment to the Company's Certificate of Incorporation, as amended, to increase
the number of authorized shares of Common Stock, par value $.01 per share, from
300,000,000 shares to 600,000,000 shares (the "Amendment").
PURPOSES AND REASONS FOR THE AMENDMENT
The Company has proposed the Amendment because the Board believes it to be
in the best interests of Company to have additional shares of Common Stock
available for issuance for general corporate purposes, including, without
limitation, issuing additional dividends in the form of stock splits, raising
capital, providing equity incentives to employees, officers or directors,
establishing strategic relationships with other companies and expanding the
Company's business or product lines through the acquisition of other businesses
or products. If the Amendment is adopted, the increased number of authorized
shares of Common Stock will be available for issuance from time to time, for
such purposes and consideration and on such terms as the Board may approve, and
no further vote of the stockholders of the Company will be required, except as
may be provided under the Delaware General Corporation Law in certain
circumstances, or as may be required by the rules of the New York Stock Exchange
("NYSE").
On the Record Date, there were [207,666,000] shares of Common Stock
outstanding, and an aggregate of [40,754,792] shares reserved for issuance
pursuant to the exercise of options granted under the Company's 1987 Employee
Stock Option Plan, 1988 Directors Stock Option Plan, 1993 Directors Stock Option
Plan, 1993 Non-Statutory Stock Option Plan, 1995 Directors Stock Option Plan,
1997 Stock Option Plan, Employee Stock Purchase Plan, Gateway Design Automation
Corporation 1986 Stock Option Plan, Automated Systems, Inc. 1988 Stock Option
Plan, High Level Design Systems, Inc. ("HLDS") 1993 Stock Option Plan, HLDS 1995
Special Nonstatutory Stock Option Plan, CCT 1989 Stock Option Plan, CCT 1993
Equity Incentive Plan and Unicad, Inc. Stock Option Plan, and other outstanding
options and warrants to purchase [5,792,650] and [410,400] shares, respectively.
Accordingly, there were [45,376,158] shares of Common Stock available for
issuance on the Record Date. If the Amendment were not to be adopted, the
issuance of additional shares of Common Stock could be impeded by the delay and
expense incident to calling a special meeting of the Company's stockholders to
approve an increase in the number of authorized shares of Common Stock in cases
where such a meeting would not otherwise be required. Although at present the
Board has no other plans to issue additional shares of Common Stock, it desires
to have such shares available to provide additional flexibility to use its
capital stock for future business and financial purposes. The additional shares
may be used, without further stockholder approval, for various purposes as
outlined above.
5
<PAGE>
The terms of the additional shares of Common Stock for which authorization
is sought will be identical with the terms of the shares of Common Stock
currently authorized and outstanding, and the Amendment will not affect the
terms or the rights of the holders of such shares, except for effects incidental
to increasing the number of shares of the Company's Common Stock outstanding,
such as dilution of the earnings per share and voting rights of current holders
of Common Stock. The Common Stock has no cumulative voting, conversion,
preemptive or subscription rights and is not redeemable.
The additional shares of Common Stock that would become available for
issuance if this proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), nevertheless, stockholders should be aware that
approval of this proposal could facilitate future efforts by the Company to
deter or prevent changes in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
then current market prices.
NO DISSENTERS' RIGHTS OF APPRAISAL
Dissenters' rights of appraisal will not be available under Delaware law
with respect to the Amendment.
EFFECTIVENESS OF AMENDMENT
If the proposal is adopted, the Amendment will become effective upon the
filing of an amendment to the Company's Certificate of Incorporation, as
amended, with the Secretary of State of the State of Delaware.
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock will be required to approve this amendment to the
Company's Certificate of Incorporation, as amended. As a result, abstentions and
broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
6
<PAGE>
PROPOSAL 3
APPROVAL OF AMENDMENTS TO 1987 STOCK OPTION PLAN, AS AMENDED
In April 1987, the Board adopted, and the stockholders subsequently
approved, the Company's 1987 Stock Option Plan (the "1987 Plan"). As a result of
a series of amendments, as of March 20, 1998 there were 61,370,100 shares of the
Company's Common Stock authorized for issuance under the 1987 Plan.
At March 20, 1998, options (net of canceled or expired options) covering an
aggregate of [61,234,158] shares of the Company's Common Stock had been granted
under the 1987 Plan, and [135,942] shares (plus any shares that might in the
future be returned to the plans as a result of cancellations or expiration of
options) remained available for future grant under the 1987 Plan. During the
Fiscal Year, under the 1987 Plan, the Company granted to all current executive
officers as a group options to purchase 7,390,000 shares at exercise prices of
$14.9375 to $22.80 per share and no options were granted under the 1987 Plan to
eligible persons other than officers. Non-officer employees of and consultants
to the Company receive grants under the Company's 1993 Non-Statutory Stock
Option Plan and the 1997 Stock Option Plan. At March 20, 1998, [1,692,986] and
[10,969,699] shares of Common Stock, respectively, were available for issuance
under the 1993 Non-Statutory Stock Option Plan and the 1997 Stock Option Plan to
non-officer employees of and consultants to the Company.
On February 23, 1998, the Board approved an amendment to the 1987 Plan,
subject to stockholder approval, to (a) extend the term of the 1987 Plan to May
31, 2007, and (b) to increase the number of authorized shares of Common Stock
reserved for issuance under the 1987 Plan from 61,370,100 to 71,370,100, an
increase of 10,000,000 shares. The Board adopted these amendments to ensure that
the Company can continue to grant stock options to employees at levels
determined appropriate by the Board.
Stockholders are requested in this Proposal 3 to approve the 1987 Plan, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the 1987 Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast and will have the same effect as negative
votes. Broker non-votes are counted towards a quorum, but are not counted for
any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the 1987 Plan are outlined below:
GENERAL
The 1987 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1987 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1987 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1987 Plan was adopted to provide a means by which employees of
(including officers and directors employed by the Company) and consultants to
the Company and any parent or subsidiary corporation could be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
affiliates.
7
<PAGE>
ADMINISTRATION
The Board administers the 1987 Plan unless and until the Board delegates
administration to a Committee consisting of not fewer than two members of the
Board. One or more of these members may be "Non-Employee Directors" (a director
who is receiving no compensation from the Company other than for service on the
Board of Directors or who does not receive such additional compensation which
exceeds the limits specified in the definition of such term under Rule 16b-3 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), or
"Outside Directors" (a director who is not either a current or former officer of
the Company nor a current employee of the Company, and who is receiving no
compensation from the Company other than for service on the Board or who does
not receive such additional compensation which exceeds the limits specified in
the definition of such term under Section 162(m) of the Code). Once appointed,
the Committee will continue to serve until otherwise directed by the Board. At
any time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant options under the 1987 Plan. Members
of the Board who are either eligible for options or have been granted options
may vote on any matters affecting the administration of the 1987 Plan or the
grant of any options thereunder, but may not grant an option to themselves.
However, such member may be counted in determining the existence of a quorum at
a Board meeting during which action is taken with respect to the granting of
such options.
The Board has the power to determine from time to time which of the persons
eligible under the 1987 Plan shall be granted options, the type of options to be
granted, and when and how each option shall be granted, to construe and
interpret the 1987 Plan and options granted under it, and to establish, amend
and revoke rules and regulations for its administration. The Board may correct
any defect in the 1987 Plan or in any option agreement to make the 1987 Plan
fully effective.
ELIGIBILITY
Incentive stock options may be granted under the 1987 Plan only to employees
of the Company. Employees (including officers and directors employed by the
Company) and consultants are eligible to receive nonstatutory stock options
under the 1987 Plan.
No incentive stock option may be granted under the 1987 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company (a "10% Stockholder"), unless the option exercise price is at least
110% of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. In addition, the aggregate fair market value, determined at the time of
grant, of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by an optionee during any calendar
year (under all such other plans of the Company and its affiliates) may not
exceed $100,000.
STOCK SUBJECT TO THE 1987 PLAN
If options granted under the 1987 Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such options again
becomes available for issuance under the 1987 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1987 Plan. Individual option grants may be more or, with respect to certain
provisions, less restrictive as to any or all of the permissible terms described
below.
EXERCISE PRICE; PAYMENT. The exercise price of options granted under the
1987 Plan may not be less than the fair market value of the Common Stock subject
to the option on the date of the option grant, and
8
<PAGE>
in some cases (see "Eligibility" above), may not be less than 110% of such fair
market value. As of March 20, 1998, the closing price of the Company's Common
Stock as reported on the NYSE was $ per share. The fair market value for
purposes of the 1987 Plan is the average of the high and low prices of the
Company's Common Stock as of the grant date as reported on the NYSE.
The exercise price of options granted under the 1987 Plan must be paid by
cash, check, promissory note, other shares of Common Stock having 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 such
methods of payment, or such other consideration and method of payment permitted
under applicable law. In making its determination as to the type of
consideration to accept, the Board considers if acceptance of such consideration
may be reasonably expected to benefit the Company. The particular forms of
consideration available to exercise a specific option are set forth in the terms
of the option agreement for that option.
OPTION EXERCISE. Options granted under the 1987 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
a majority of currently outstanding options under the 1987 Plan vest at the rate
of 25% after the first year and 1/48th per month thereafter during the
optionee's employment or service as a consultant. However, for more recent
option grants, the first option granted to an optionee vests at the rate of 20%
after the first year and 1/60th of the shares each month thereafter, while each
subsequent option granted to that optionee vests at the rate of 1/60th of the
shares each month after the grant date. Shares covered by options granted in the
future under the 1987 Plan may be subject to different vesting terms. The Board
has the power to accelerate the time during which an option may be exercised.
TERM. The maximum term of options under the 1987 Plan is 10 years, except
that for 10% Stockholders (see "Eligibility") the maximum term is five years.
Options under the 1987 Plan generally terminate either 30 days or three months
(or such other period not exceeding three months as determined by the Board)
after termination of the optionee's employment or relationship as a consultant
of the Company or any affiliate of the Company. However, if the optionee dies
while employed by or serving as a consultant of the Company or any affiliate of
the Company, the option may be exercised (to the extent of the right to exercise
that would have accrued had the optionee continued living three months after the
date of death) within three months of the optionee's death by the person or
persons to whom the rights to such option pass by will or by the laws of descent
and distribution. If the optionee dies within one month after termination of
such relationship, the option may be exercised by such persons (but only to the
extent of the right to exercise that had accrued at the date of termination)
within three months of the optionee's death.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1987 Plan or subject to
any option granted under the 1987 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction effected without
receipt of consideration by the Company), the 1987 Plan will be appropriately
adjusted in the class(es) and maximum number of shares subject to the 1987 Plan,
and the outstanding options will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1987 Plan provides that, in the event of a dissolution or liquidation of
the Company, the proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company into another company, options outstanding
under the 1987 Plan will terminate immediately prior to such corporate
transaction, unless the Board specifically provides otherwise. The Board in its
sole discretion may provide that the time during which such options may be
exercised will be accelerated and the options terminated if
9
<PAGE>
not exercised during such time. The acceleration of an option in the event of an
acquisition or similar corporate event may be viewed as an antitakeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
Currently, the 1987 Plan will terminate on January 31, 2002. The Board may
suspend or terminate the 1987 Plan without stockholder approval or ratification
at any time or from time to time. Unless sooner terminated and if approved by
this Proposal, the 1987 Plan will terminate on May 31, 2007.
The Board may also amend the 1987 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within 12 months before or after its adoption by the Board if the
amendment would require stockholder approval in order to comply with Rule 16b-3
of the Exchange Act, Section 422 of the Code or any securities exchange listing
requirement. The Board may submit any other amendment to the 1987 Plan for
stockholder approval, including, but not limited to, amendments intended to
satisfy the requirements of Section 162(m) of the Code regarding the exclusion
of performance-based compensation from the limitation on the deductibility of
compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1987 Plan, except as specifically provided in the terms of a
nonstatutory stock option, an option may not be transferred by the optionee
otherwise than by will or by the laws of descent and distribution, and during
the lifetime of the optionee, may be exercised only by the optionee. In any
case, the optionee may designate in writing a third party who may exercise the
option in the event of the optionee's death.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1987 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term capital gain if the stock is held for more than 18
months, mid-term capital gain if the stock is held for more than one year not
more than 18 months, or short-term capital gain if the stock was held for less
than 12 months. Slightly different rules may apply to optionees who acquire
stock subject to a repurchase option or who are subject to Section 16(b) of the
Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
10
<PAGE>
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
1987 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the stock was held.
Slightly different rules may apply to optionees who acquire stock subject to a
repurchase option or who are subject to Section 16(b) of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options granted under the 1987 Plan, when
combined with all other types of compensation received by a covered employee
from the Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (i) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (ii) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by stockholders. The 1987 Plan has been designed and
administered with the interest that all options satisfy these requirements so
that any ordinary income recognized under these options shall be treated as
"performance-based compensation."
11
<PAGE>
PROPOSAL 4
APPROVAL OF THE SENIOR EXECUTIVE BONUS PLAN
(AN AMENDMENT OF THE CHIEF EXECUTIVE OFFICER BONUS PLAN)
In 1996, the Compensation Committee of the Board (the "Compensation
Committee") adopted, and the stockholders subsequently approved, a cash
incentive bonus plan for the Chief Executive Officer of the Company (the "CEO
Bonus Plan"). The CEO Bonus Plan was intended to serve as the primary method for
providing the Company's Chief Executive Officer with cash incentive
compensation.
In February 1998, the Compensation Committee amended the CEO Bonus Plan,
subject to stockholder approval, to (a) extend eligibility to participate in the
CEO Bonus Plan to those individuals who are part of the senior executive staff
as designated by the Chief Executive Officer (collectively with the Chief
Executive Officer, the "Executives"), (b) to change the name of the CEO Bonus
Plan to the "Senior Executive Bonus Plan," and (c) to authorize the Compensation
Committee to exercise positive discretion to increase the amount of compensation
payable under the Senior Executive Bonus Plan to an Executive who is not a
"covered employee" within the meaning of Section 162(m) of the Code.
The Senior Executive Bonus Plan is being submitted to the stockholders for
approval in order to allow the Company to take a federal income tax deduction
for all cash payments under the Senior Executive Bonus Plan to Executives
without being limited by Section 162(m) of the Code. Section 162(m) of the Code
limits to $1,000,000 per year the deductibility of compensation paid to certain
executive officers of publicly traded corporations (that is, the Chief Executive
Officer and the four highest compensated officers on the last day of the
corporation's taxable year). However, compensation that satisfies the
requirements for "performance-based compensation" is not subject to this limit
and, therefore, is generally deductible by a corporate employer in full. One of
the requirements for this favorable tax treatment is stockholder approval of the
material terms of the proposed performance incentive compensation plan. In the
event that the stockholders approve the Senior Executive Bonus Plan, it has been
designed to permit the Company to treat payments to these certain executive
officers under the Senior Executive Bonus Plan as "performance-based
compensation."
Stockholders are requested in this Proposal 4 to approve the Senior
Executive Bonus Plan, as amended. The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote at the Annual Meeting will be required to approve the Senior Executive
Bonus Plan, as amended. Abstentions will be counted toward the tabulation of
votes cast and will have the same effect as negative votes. Broker non-votes are
counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
The material terms of the Senior Executive Bonus Plan are outlined below:
ELIGIBILITY: Only Executives may participate in the Senior Executive Bonus
Plan.
ADMINISTRATION: The Compensation Committee administers the Senior Executive
Bonus Plan.
NATURE AND AMOUNT OF AWARD: The Senior Executive Bonus Plan provides for
annual cash payments to the Executives. The amount of an annual payment varies
with the degree to which the Company achieves its goal for Earnings Per Share
("EPS") for the fiscal year for which the payment is being made.
If the Company meets the EPS goal for that year, then the Executives will be
paid an amount equal to 100% of their target bonus. If the Company fails to meet
its EPS goal, then the Executives will receive smaller bonuses, or no bonus at
all. If the Company surpasses its EPS goal, then the Executives will receive
larger bonuses. However, in no event will the amount of an annual bonus exceed
$2,000,000 per person. In addition, if an Executive receives a bonus under any
other Company bonus plan, the bonus under the Senior Executive Bonus Plan will
be reduced by the same amount. See "Summary Compensation Table"
12
<PAGE>
for amounts earned by the Executives under the Company's bonus plans for the
fiscal years ended 1997, 1996 and 1995.
The Compensation Committee will establish the Executive's target bonus, EPS
goal, and schedule of adjustment to the target bonuses for the EPS goal for a
given fiscal year within the first 90 days of that fiscal year. However, in the
case of the selection of a new Executive during a fiscal year, these provisions
will be established by the Compensation Committee before the first 25% of the
remainder of that fiscal year has passed.
The Company's EPS performance will be based on the audited financial
statements prepared by the Company's outside accounting firm and will be
determined by applying generally accepted accounting principles and excluding
the impact of any unusual or non-recurring items.
TIMING OF PAYMENT: Any annual payment under the Senior Executive Bonus Plan
will be made only after the Compensation Committee has certified both the
Company's EPS performance and the amount of the bonus to be paid. In addition,
the Executive must remain employed by the Company until the time the bonus is
actually paid, except in the event of the Executive's death or disability.
AMENDMENT AND TERMINATION: The Compensation Committee may terminate the
Senior Executive Bonus Plan at any time, for any or no reason, and may also
amend the Senior Executive Bonus Plan in order to reduce the amount of an
Executive's bonus payment at any time, for any or no reason.
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending January 2, 1999 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Arthur Andersen LLP has
audited the Company's financial statements since 1983. Representatives from
Arthur Andersen 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 Arthur Andersen LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Arthur Andersen LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board, in their discretion, may direct the
appointment of different independent auditors at any time during the year, if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Arthur Andersen LLP. Abstentions will be
counted toward the tabulation of votes cast and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5
13
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 20, 1998 by: (i) all those known by
the Company to be beneficial owners of more than five percent of its Common
Stock; (ii) each of the executive officers named in the Summary Compensation
Table; (iii) each nominee for director; and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)(2)
-------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ---------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Janus Capital Corporation(3)
100 Fillmore St., Ste. 400
Denver, CO 80206...................................................................... 27,289,325 13.14%
Massachusetts Financial Services(4)
500 Boylston Street
Boston, MA 02116...................................................................... 23,563,867 11.35%
FMR Corp.(5)
82 Devonshire Street
Boston, MA 02109...................................................................... 11,703,150 5.64%
Putnam Investment Management Inc.(6)
One Post Office Square, 12th Flr.
Boston, MA 02109 11,583,753 5.58%
John R. Harding(7)...................................................................... 407,734 *
Joseph B. Costello(7)................................................................... 1,116,666 *
John F. Olsen(7)........................................................................ 470,449 *
H. Raymond Bingham(7)................................................................... 821,246 *
Shane V. Robison(7)..................................................................... 170,242 *
Michael W. Bealmear(7).................................................................. 30,000 *
Carol A. Bartz(7)....................................................................... 57,500 *
Leonard Y.W. Liu, Ph.D.(7).............................................................. 180,253 *
Donald L. Lucas(7)(8)................................................................... 363,294 *
Alberto Sangiovanni-Vincentelli, Ph.D.(7)............................................... 384,865 *
George M. Scalise(7).................................................................... 163,102 *
John B. Shoven, Ph.D.(7)................................................................ 271,206 *
All executive officers and directors as a group (15 persons)(7)......................... 3,626,557 2.26%
</TABLE>
- ------------------------
* Less than 1%
(1) On October 31, 1997, the Company declared a 2-for-1 stock split effected by
means of a stock dividend paid on November 14, 1997. All share numbers
contained herein give effect to such stock split.
(2) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13G filed with the Securities and
Exchange Commission (the "SEC"). Unless otherwise indicated in the footnotes
to this table and subject to community property laws where applicable, the
Company believes that each of the stockholders named in this table has sole
voting and investment
14
<PAGE>
power with respect to the shares indicated as beneficially owned. Applicable
percentages are based on [207,666,000] shares outstanding on March 20, 1998,
adjusted as required by rules promulgated by the SEC.
(3) The Company has received an amended Schedule 13G dated February 13, 1998,
indicating that Janus Capital Corporation holds 27,289,325 shares for which
it has shared voting and shared investment power.
(4) The Company has received an amended Schedule 13G dated February 11, 1998,
indicating that Massachusetts Financial Services holds 23,563,867 shares for
which it has sole investment power and 23,392,817 shares for which it has
sole voting power.
(5) The Company has received an amended Schedule 13G dated February 13, 1998,
indicating that FMR Corp. holds 11,703,150 shares for which it has sole
investment power and 1,313,200 shares for which it has sole voting power.
(6) The Company has received a Schedule 13G dated January 20, 1998, indicating
that Putnam Investment Management, Inc. holds 11,583,753 shares for which it
has shared investment power and 305,968 shares for which it has shared
voting power.
(7) Includes shares which certain executive officers and directors of the
Company have the right to acquire within 60 days after the date of this
table pursuant to outstanding options as follows: John R. Harding, 396,804
shares; Joseph B. Costello, 216,666 shares; John F. Olsen, 462,446 shares;
H. Raymond Bingham, 815,266 shares; Shane V. Robison, 169,477 shares;
Michael W. Bealmear, 30,000 shares; Carol A. Bartz, 57,500 shares; Leonard
Y. W. Liu, Ph.D., 168,102 shares; Donald L. Lucas, 262,364 shares; Alberto
Sangiovanni-Vincentelli, Ph.D., 352,906 shares; George M. Scalise, 153,102
shares; John B. Shoven, Ph.D., 271,206 shares; and all executive officers
and directors as a group, 3,594,159 shares.
(8) Includes 100,930 shares held under a trust agreement for the benefit of Mr.
Lucas and his wife.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A)
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company'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 of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the Fiscal Year, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were complied with, except that an amendment to one report
covering one transaction in June 1997 was filed seven days late by Mr. Lucas.
DIRECTOR AND EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company, other than the Chairman of the
Board, receives an annual retainer of $40,000. Mr. Lucas is not paid for his
attendance at meetings of the Board, but is paid an annual retainer of $120,000,
$35,000 and $35,000, for his service as Chairman of the Board, Chairman of the
Venture Committee and Chairman of the Audit Committee, respectively. Dr. Shoven,
in addition to his $40,000 Board retainer, is paid an annual retainer of $35,000
for his service as Chairman of the Compensation Committee. During the fiscal
year ended January 3, 1998, the total compensation paid to non-employee
directors was $441,750, of which $80,750 was retainer fees for the first quarter
of 1998. The
15
<PAGE>
members of the Board of Directors are also eligible for reimbursement for their
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy. Directors who are executive officers of the Company do not
receive additional compensation for their service on the Board.
Each "Non-Employee Director" of the Company also receives stock option
grants under the 1995 Directors Stock Option Plan. A "Non-Employee Director" is
defined in the 1995 Directors Stock Option Plan as a director of the Company and
its affiliates who is not otherwise an employee of the Company or any affiliate.
Only Non-Employee Directors of the Company are eligible to receive options under
the 1995 Directors Stock Option Plan. Options granted under the 1995 Directors
Stock Option Plan are intended by the Company not to qualify as incentive stock
options under the Code.
Under the 1995 Directors Stock Option Plan, each person who is first elected
to be a Non-Employee Director after October 3, 1995 is automatically granted an
option to purchase the number of shares of Common Stock of the Company equal to
5,625 multiplied by the number of calendar quarters occurring between the date
on which such person begins serving as a director of the Company and the first
April 1 occurring after the date on which such person begins serving as a
director of the Company. These initial grants vest in full one year following
the grant date.
In addition, on April 1 of each year, commencing on April 1, 1998, each
Non-Employee Director is automatically granted an option to purchase the
following number of shares of the Common Stock of the Company: (a) 22,500 shares
of Common Stock of the Company; (b) 11,250 shares of Common Stock of the
Company, provided that on such date the Non-Employee Director is also serving as
the Chairman of the Board of one Committee of the Board AND is a member of at
least one additional committee of the Board (but is not serving as the Chairman
of the Board); and (c) 22,500 shares of Common Stock of the Company, provided
that on such date the Non-Employee Director is also serving as the Chairman of
the Board. On January 30 of each year, commencing in 1998, the Non-Employee
Director who on that date is then serving as the Chairman of the Board and has
completed five years of service as the Chairman of the Board automatically
receives a one-time grant of an option to purchase 101,250 shares of Common
Stock of the Company. All such additional option grants vest in full one year
following the grant date.
Each Non-Employee Director who is a member of the Venture Committee of the
Board is, on the later of October 3, 1995 or the date of his or her initial
selection to serve on the Venture Committee of the Board, automatically granted
an additional option to purchase 33,250 shares of Common Stock of the Company.
The Non-Employee Director who is serving as the Chairman of the Venture
Committee of the Board is, on the later of October 3, 1995 or the date of his or
her initial selection to serve as the Chairman of the Venture Committee of the
Board, granted an additional option to purchase 33,750 shares of Common Stock of
the Company. All options granted to the Venture Committee vest over three years
in equal annual installments.
As of March 20, 1998, 30,000 options had been exercised under the 1995
Directors Stock Option Plan and 776,250 were outstanding at exercise prices
ranging from $8.56 to $19.75 per share.
The Company has a consulting agreement with Dr. Sangiovanni-Vincentelli.
Pursuant to such consulting agreement, during the Fiscal Year Dr.
Sangiovanni-Vincentelli received cash compensation of $200,000. See "Certain
Transactions."
EMPLOYMENT CONTRACTS
On October 19, 1997, the Company entered into an employment agreement (the
"Employment Agreement") with John R. Harding, which supersedes an employment
agreement with Mr. Harding entered into in 1996. The Employment Agreement
provides, among other things, for the employment of Mr. Harding as President and
Chief Executive Officer of the Company at an initial base salary of $500,000 per
year. Under the Employment Agreement, Mr. Harding is also eligible for
participation in the Senior Executive Bonus Plan (formerly, the CEO Bonus Plan)
at an annual target bonus of $500,000 per year. The
16
<PAGE>
target bonus was prorated for the balance of 1997. The Employment Agreement also
provides for the grant of a stock option for 600,000 shares of the Company's
Common Stock. The option was granted by the Compensation Committee of the Board
to Mr. Harding on October 28, 1997. The Employment Agreement also provides for
the indemnification of Mr. Harding in accordance with the terms of the indemnity
agreement entered into between the Company and Mr. Harding. Additionally, under
the terms of the Employment Agreement, Mr. Harding will receive such pension,
profit sharing and fringe benefits as the Board of Directors of the Company may,
from time to time, determine to provide for the key executives of the Company.
Mr. Harding's employment by the Company will terminate immediately upon Mr.
Harding's receipt of a written notice of termination by the Company, upon the
Company's receipt of written notice of termination by Mr. Harding, or upon Mr.
Harding's permanent disability or death. In the event Mr. Harding's employment
with the Company is terminated other than (1) for "cause" (such as Mr. Harding's
gross misconduct, fraud, or material breach), or (2) on account of the permanent
disability of Mr. Harding, or (3) by a voluntary termination by Mr. Harding for
other than "good reason" (which term includes an involuntary demotion, an
involuntary reduction in compensation (including base compensation, target bonus
and fringe benefits) of more than 10%, or an involuntary relocation of more than
50 miles), then the Company shall pay an amount equal to one year's base salary
at the time of termination to Mr. Harding in one lump sum payment. The Company
shall also pay Mr. Harding's target bonus for the year of termination (which
target bonus shall be not less than $500,000) to Mr. Harding in one lump sum
payment. Additionally, all of the unvested options held by Mr. Harding on the
date of such termination that would have vested over the succeeding 24 month
period shall immediately vest and become exercisable in full. The options shall
remain exercisable for the period specified in such options.
Should a "change of control" in the ownership of the Company occur, then if
Mr. Harding's employment with the Company is terminated other than (1) for
"cause," or (2) on account of total disability, or (3) by a voluntary
termination by Mr. Harding for other than "good reason," which covered
termination must occur within 13 months after a change in control, then the
Company shall pay an amount equal to two years' base salary for Mr. Harding at
the time of his termination in one lump sum payment. The Company shall also pay
twice Mr. Harding's target bonus for the year of termination (which annual
target bonus shall be no less than $500,000) as in effect immediately prior to
such termination. Additionally, all unvested options held by Mr. Harding on the
date of such "change in control" shall immediately vest and become exercisable
in full and shall remain exercisable for the period specified in such options.
In the event that the severance and other benefits provided to Mr. Harding
constitute "parachute payments" subject to federal excise tax, then Mr.
Harding's benefits under the "change of control" provisions will be payable
either (a) in full, or (b) as to such lesser amount which would result in no
excise tax, whichever amount leaves Mr. Harding with the greatest amount of
benefits on an after-tax basis.
Effective November 1, 1997, the Company entered into a part-time employment
agreement (the "Part-Time Employment Agreement") with Mr. Joseph B. Costello,
the Company's former President and Chief Executive Officer, whereby Mr. Costello
remains a part-time employee of the Company through July 15, 1998. Pursuant to
the terms of the Part-Time Employment Agreement, Mr. Costello will provide up to
20 hours of service per month to the Company and will be paid a monthly salary
of $2,500. Under the terms of the Part-Time Employment Agreement, Mr. Costello
will not accrue vacation time or receive Company benefits. During the period of
part-time employment, options to purchase shares of the Company's Common Stock
held by Mr. Costello will continue to vest. In addition, pursuant to the terms
of the Part-Time Employment Agreement, Mr. Costello will remain subject to the
Employment Invention and Confidential Information Agreement originally entered
into between the Company and Mr. Costello on September 17, 1984. In the event
that the Company terminates Mr. Costello's employment for cause, the Company's
obligation to pay Mr. Costello a monthly salary, as well the continued vesting
on Mr. Costello's stock options, shall cease.
17
<PAGE>
The Company has entered into executive severance agreements (the "Severance
Agreements") with each of Messrs. Olsen, Bingham, Robison, Murphy and Bealmear
(the "Executives"). In the event that an Executive's employment with the Company
is terminated other than (1) for "cause" (such as the Executive's gross
misconduct, fraud, or material breach of the Executive's contractual obligations
to the Company) by the Company, or (2) on account of the permanent disability of
the Executive, or (3) by a voluntary termination by the Executive for other than
"good reason" (which term includes an involuntary relocation of more than 50
miles, a reduction in compensation (including base compensation, target bonus
and fringe benefits) of more than 10%, or an involuntary demotion), then the
Company shall pay to the Executive an amount equal to one year's base salary for
the respective Executive at the time of termination in one lump sum payment. The
Company shall also pay the Executive's target bonus for the year of termination
to the Executive in one lump sum payment. Additionally, all of the unvested
options held by the Executive on the date of such termination that would have
vested over the succeeding 24 month period shall immediately vest and become
exercisable in full. The options shall remain exercisable for the period
specified in such options.
Should a "change of control" in the ownership of the Company occur, then, if
an Executive's employment with the Company is terminated other than (1) for
"cause," or (2) on account of total disability, or (3) by a voluntary
termination by the Executive for other than "good reason," which covered
termination must occur within 13 months after a "change in control," then the
Company shall pay to the Executive an amount equal to two years' base salary for
the respective Executive at the time of termination in one lump sum payment. The
Company shall also pay twice the Executive's target bonus for the year of
termination as in effect immediately prior to such termination. Additionally,
all of the unvested options held by the Executive on the date of such "change in
control" shall immediately vest and become exercisable in full and shall remain
exercisable for the period specified in such options.
In the event that the severance and other benefits provided to the Executive
constitute "parachute payments" subject to federal excise tax, then the
Executive's benefits under the "change of control" provisions will be payable
either (a) in full, or (b) as to such lesser amount which would result in no
excise tax, whichever amount leaves the Executive with the greatest amount of
benefits on an after-tax basis.
18
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years 1995, 1996 and 1997,
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer and its other four most highly compensated executive officers at January
3, 1998 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
---------------------- NUMBER OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1)($) BONUS($) UNDERLYING OPTIONS(#) COMPENSATION($)(2)
- -------------------------------------- --------- ----------- --------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
John R. Harding(3) ................... 1997 238,898 508,000 1,600,000 11,980(4)(5)
President and Chief Executive
Officer (from 10/19/97); Executive
Vice President Strategic Business
Units
Joseph B. Costello(6) ................ 1997 583,893 0 1,000,000 49,261(4)(7)
President and Chief Executive 1996 600,000 873,000 -- 2,250(8)
Officer (resigned 10/19/97) 1995 550,000 803,500 -- 5,115(9)(10)
John F. Olsen ........................ 1997 281,250 660,000 400,000 3,200(4)
Executive Vice President Worldwide 1996 275,000 397,000 56,250 2,250(8)
Sales 1995 260,000 393,900 -- 4,000(9)(10)
H. Raymond Bingham ................... 1997 312,500 600,000 400,000 8,969(4)(7)
Executive Vice President and Chief 1996 300,000 361,000 -- 2,250(8)
Financial Officer 1995 300,000 359,000 -- 4,154(9)(10)
Shane V. Robison(11) ................. 1997 305,769 468,000 400,000 8,969(4)(7)
Executive Vice President Engineering 1996 300,000 253,000 18,750 2,250(8)
1995 130,769 151,000 281,250 --
Michael W. Bealmear(12) .............. 1997 166,667 600,000 1,000,000 5,944(4)(7)
Executive Vice President Worldwide
Services
</TABLE>
- ------------------------
(1) Includes amounts deferred pursuant to Section 401(k) of the Code.
(2) For a description of other contracts between the Company and the Named
Executive Officers see "Certain Transactions."
(3) Employment commenced May 1997.
(4) Includes Company contributions in 1997 to 401(k) savings plan of $3,200 for
Messrs. Olsen, Bingham, Robison, and Costello; $2,825 for Mr. Harding and
$2,867 for Mr. Bealmear.
(5) Includes $9,155 due to forgiveness of interest for loan assumed as part of
Cooper & Chyan Technology, Inc. acquisition. The loan was repaid in full.
(6) Effective November 1, 1997, the Company entered into the Part-Time
Employment Agreement with Mr. Costello, whereby he remains a part-time
employee of the Company through July 15, 1998. See "Employment Contracts."
19
<PAGE>
(7) Includes value of accrued but unused vacation converted into cash and
donated by executive to charity: $46,061 for Mr. Costello, $5,769 for Mr.
Bingham, $5,769 for Mr. Robison and $3,077 for Mr. Bealmear.
(8) Represents Company contributions in 1996 to 401(k) savings plan.
(9) Includes Company contributions in 1995 to 401(k) savings plan of $3,000.
(10) Includes value of accrued but unused vacation converted into cash and
donated by executive to charity: $2,115 for Mr. Costello, $1,000 for Mr.
Olsen and $1,154 for Mr. Bingham.
(11) Employment commenced in July 1995.
(12) Employment commenced August 1997.
STOCK OPTION GRANTS AND EXERCISES
During the Fiscal Year, the Company granted options to its executive
officers under the 1987 Plan. For the number of shares subject to outstanding
options and a description of the 1987 Plan, see Proposal 2.
The following tables show for the Fiscal Year, certain information regarding
options granted to, exercised by, and held at year end by, the Named Executive
Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS GRANTED STOCK PRICE APPRECIATION
OPTIONS TO EMPLOYEES IN EXERCISE OR FOR OPTION TERM(1)
GRANTED FISCAL BASE PRICE EXPIRATION --------------------------
NAME (#)(2) YEAR(%) ($/SH) DATE 5%($) 10%($)
- -------------------------------- -------------- --------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John R. Harding................. 400,000 2.3 17.31 05/09/07 4,362,750 11,010,750
1,200,000 7.0 22.80 10/28/07 17,234,437 43,496,437
Joseph B. Costello.............. 1,000,000(3) 5.8 15.25 04/11/07 9,607,500 24,247,500
John F. Olsen................... 400,000 2.3 15.25 04/11/07 3,843,000 9,699,000
H. Raymond Bingham.............. 400,000 2.3 15.25 04/11/07 3,843,000 9,699,000
Shane V. Robison................ 400,000 2.3 15.25 04/11/07 3,843,000 9,699,000
Michael W. Bealmear............. 700,000 4.0 14.94 06/06/07 6,587,437 16,625,437
300,000 1.7 22.80 10/28/07 4,308,609 10,874,109
</TABLE>
- ------------------------
(1) Calculated on the assumption that the market value of the underlying stock
increases at the stated values compounded annually for the ten-year term of
the option.
(2) Initial option grants generally vest over a five-year period, with 20% of
the shares subject to the options vesting after one year and 1/60th of the
shares subject to the options vesting each month thereafter. Subsequent
option grants generally vest at the rate of 1/60th of the shares shares
subject to the option each month following the grant date. The options have
a ten year term. The Board of Directors may reprice or accelerate the
options under the terms of the Plans.
(3) This option grant is subject to five-year vesting at the rate of 20% of the
shares subject to the option at the end of one year following the April 12,
1997 grant date and 1/60th of the shares subject to the option each month
thereafter. Effective November 1, 1997, the Company entered into the
Part-Time Employment Agreement with Mr. Costello, whereby he remains a
part-time employee of the Company and his options will continue to vest
through July 15, 1998. See "Employment Contracts."
20
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
SHARES UNDERLYING
ACQUIRED UNEXERCISED OPTIONS VALUE OF UNEXERCISED
ON VALUE AT 1/3/98 IN-THE-MONEY OPTIONS
EXERCISE REALIZED EXERCISABLE/ AT 1/3/98 EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE(#) UNEXERCISABLE($)(2)
- ----------------------------------------- ---------- ------------ ------------------- ----------------------
<S> <C> <C> <C> <C>
John R. Harding.......................... 170,000 3,965,450 331,804/1,160,000 7,042,864/2,120,625
Joseph B. Costello(3).................... 2,987,504 66,258,376 0/1,000,000 0/9,375,000
John F. Olsen............................ 230,000 4,691,510 347,029/542,971 6,887,012/6,156,477
H. Raymond Bingham....................... 300,000 6,473,955 808,600/400,000 18,148,569/3,750,000
Shane V. Robison......................... 190,000 2,634,933 107,029/642,971 1,680,875/7,679,458
Michael W. Bealmear...................... 0 0 10,000/990,000 18,281/7,311,406
</TABLE>
- ------------------------
(1) Value realized is based upon the fair market value of the Company's Common
Stock on the date of exercise less the exercise price and does not
necessarily indicate that the optionee sold such stock.
(2) The fair market value of the Company's Common Stock at January 3, 1998
($24.625) less the exercise price of the options.
(3) Effective November 1, 1997, the Company entered into the Part-Time
Employment Agreement with Mr. Costello, whereby he remains a part-time
employee of the Company through July 15, 1998. See "Employment Contracts."
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee Report on Executive Compensation shall not be
deemed to be incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act of 1933,
as amended ("1933 Act") or under the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
The Compensation Committee (the "Committee") of the Board of Directors is
composed of two non-employee directors of the Company. The members of the
Committee are Mr. Lucas and Dr. Shoven. Although Mr. Costello attended some
meetings at the invitation of the Committee, he did not participate, and Mr.
Harding will not participate, in deliberations that relate to his own
compensation.
COMPENSATION COMMITTEE POLICY
The Committee typically establishes base salary levels and target bonuses
for the Chief Executive Officer ("CEO") and other executive officers of the
Company (who report directly to the CEO of the Company) at or about the
beginning of each fiscal year. The Committee acts on behalf of the Board of
Directors to establish the general compensation policy of the Company for all
executive officers of the Company. The Committee administers the equity
incentive plans, including the Bonus Plan for Executive Officers (the "Bonus
Plan") and the 1987 Plan (and in 1998 will administer the Senior Executive Bonus
Plan). The Committee believes that the compensation of the CEO and the Company's
other executive officers should be greatly influenced by the Company's
performance. Consistent with this philosophy, a designated portion of the
compensation of each executive is contingent upon corporate performance and
adjusted where appropriate, based on an executive's performance against personal
performance objectives. Long-term equity incentives for executive officers are
provided through the granting of stock options under the 1987 Plan. Stock
options generally have value for the executive only if the price of the
Company's
21
<PAGE>
Common Stock increases above the fair market value on the grant date and the
executive remains in the Company's employ for the period required for the shares
to vest.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee in reliance on the
Radford Survey (the "Survey") of the prevailing competitive salaries in the
technology sector for similar positions and by evaluating those salary standards
against the achievement by the Company of its corporate goals. The compensation
of the Company's executive officers was compared to equivalent data in the
Survey and competitive market compensation levels to determine base salary,
target bonuses and target total cash compensation. Practices of such companies
with respect to stock option grants were also reviewed and compared. In
preparing the performance graph for its 1998 Proxy Statement, the Company used
the Standard & Poor's Technology Sector Index (the "S&P TS Index") as its
published line of business index.
The Survey companies selected were intended to match the Company closely in
terms of such things as product or industry, geography and revenue levels. A
significant percentage of the companies in the Survey base, for instance, had
average sales that closely approximate the Company's revenue level. A portion of
the companies in the S&P TS Index were included in the Survey. The balance of
the S&P TS Index companies, however, were too large or of a different business
profile, and would have incorrectly increased the market compensation
comparisons used to adjust executive officer salaries. The additional companies
in the Survey base were felt to be relevant by the Company's independent
compensation consultants because they compete for executive talent with the
Company, notwithstanding the fact that they are not included in the S&P TS
Index.
1997 EXECUTIVE COMPENSATION
BASE COMPENSATION. The foregoing information, together with the CEO's
recommendation of base salary and target bonus for 1997 for each executive
officer, other than the CEO, was presented to the Committee in February 1997.
The Company sets its salaries for executive officers, including the CEO, at
about the seventy-fifth percentile of the range of salaries paid by the
companies referred to above. The Committee reviewed the recommendations of the
CEO and the performance and market data outlined above and established a base
salary level to be effective January 1, 1997 for each executive officer and the
CEO (see specific report on CEO compensation below).
INCENTIVE COMPENSATION. The Bonus Plan is established by the Board of
Directors at the start of each year. As more fully discussed below, the
Committee reviewed and approved the 1997 Company performance targets to be used
for purposes of bonus determination, which targets were included in the
Company's 1997 operating plan as approved by the full Board of Directors. The
Committee in its discretion assigns a target bonus to each executive officer,
approves Company performance objectives to be used for bonus determination,
approves the overall structure and mechanics of the Bonus Plan, and after the
end of the year, in its discretion approves individual performance factors for
all executive officers except the CEO, who participated only in the CEO Bonus
Plan, the terms of which are described later. As a general rule, provided that
such threshold Company performance levels are achieved, the target bonus pool
(the sum of participants' target bonuses) and individual target bonuses are
adjusted on the basis of the percentage relationship of actual to targeted EPS.
In addition, in the Committee's discretion, each executive officer's target
bonus is further adjusted to take account of individual performance. In January
1998, the Committee determined bonus awards for 1997 for executive officers
covered by the Bonus Plan. Bonuses were determined with reference to the EPS
targets and individual performance. The Committee determined that bonuses should
be paid to executive officers for all of the annual target bonus, adjusted for
individual performance, established in February 1997.
STOCK OPTIONS. Stock options typically have been granted to executive
officers when the executive first joins the Company, in connection with a
significant change in responsibilities and, occasionally, to achieve equity
within a peer group. The Committee may grant additional stock options to
executives to
22
<PAGE>
continue to retain such executives and provide incentives. The number of shares
subject to each stock option granted is based on anticipated future contribution
and ability to impact corporate and/or business unit results, past performance
or consistency within the executive's peer group. The Survey data was also used
for general comparison purposes in determining stock option grants to executive
officers. The stock options generally become exercisable over a five-year period
and are granted at a price that is equal to the fair market value of the
Company's Common Stock on the date of grant. In 1997, stock options were
granted, at the Committee's discretion, to four executive officers who were not
Named Executive Officers and to the six Named Executive Officers, as either
incentives for these individuals to become employees or to align their interests
with those of the stockholders, taking into account the number of shares of the
Company's Common Stock and options to purchase Common Stock held by each such
executive officer.
1997 CEO COMPENSATION
Compensation for the CEO is determined through a process similar to that
discussed above for other executive officers of the Company.
In January 1997, the Committee established a base salary for Mr. Costello
which exceeded his 1996 base salary by 8.3%. The Committee also established at
that time a target bonus for Mr. Costello under the CEO Bonus Plan. The 1997
base salary level and target bonus were based, at the Committee's discretion,
upon a number of factors, including (a) the Company's EPS objectives for 1997,
(b) individual performance objectives established by the Committee for Mr.
Costello for 1997, and (c) the market compensation data discussed above.
Mr. Costello's base salary, target bonus, EPS goal, and schedule of
adjustment to the target bonus for EPS goal for a given fiscal year were
established by the Committee within the first 90 days for that fiscal year.
The determination of Mr. Costello's actual bonus for 1997 was fixed under
the CEO Bonus Plan. Under the CEO Bonus Plan, no bonus is payable unless the CEO
is employed by the Company as CEO on the date that bonus checks are distributed
for that fiscal year. Mr. Costello resigned from the Company on October 19,
1997. Therefore, he did not receive a bonus for 1997, since the bonuses were
paid in February 1998.
Mr. Costello was awarded a stock option grant on April 11, 1997 for 500,000
shares of the Company's Common Stock, which subsequently became a grant for
1,000,000 shares after the Company's 2-for-1 stock split in October 1997. The
Compensation Committee, in determining the number of shares for the grant, took
into account market data from the Survey, as well as the fact that Mr. Costello
had not received an option award since September 1993.
As set forth in the Employment Agreement, Mr. Harding's base salary was
established on October 19, 1997 by the Compensation Committee at $500,000 per
year, effective October 19, 1997, the day he became the CEO. On the same date,
the Committee also established a target bonus for the balance of 1997 for Mr.
Harding under the CEO Bonus Plan. The 1997 base salary level and target bonus
were based, at the Committee's discretion, upon similar factors as described
above for Mr. Costello's base salary and target bonus, reduced proportionally
for the period of time in 1997 that Mr. Harding served as the CEO. See
"Executive Compensation--Employment Contracts."
As set forth in the Employment Agreement, the determination of Mr. Harding's
actual bonus for 1997 was fixed under the CEO Bonus Plan at $500,000 per year,
prorated for the period from October 19, 1997 through January 3, 1998. The
amount of an annual bonus payment varies with the degree to which the Company
achieves its goal for EPS for the fiscal year for which payment is being made.
If the Company meets the EPS goal for a given year, then pursuant to the CEO
Bonus Plan and the Employment Agreement, Mr. Harding will be paid an amount
equal to 100% of his target bonus. If the Company fails to meet its EPS goal,
then Mr. Harding will receive a smaller bonus, or no bonus at all. If the
Company
23
<PAGE>
surpasses its EPS goal, then Mr. Harding will receive a larger bonus. However,
in no event shall the amount of an annual bonus exceed $2,000,000.
In January 1998, in accordance with the terms of the Employment Agreement,
the Committee applied the formula in the CEO Bonus Plan and, based upon such
formula, determined that Mr. Harding was entitled to the full 1997 bonus
specified under the CEO Bonus Plan for the period that he was CEO. Mr. Harding
also received a bonus under the Company's Bonus Plan for his period of
employment from May 16, 1997 to October 19, 1997 as Executive Vice President of
the Company. The total bonus amount paid to Mr. Harding was $508,000.
Mr. Harding was awarded a stock option grant on May 9, 1997 for 200,000
shares of the Company's Common Stock upon joining the Company (400,000 shares
post-split). In addition, pursuant to the terms of the Employment Agreement, Mr.
Harding was awarded an option to purchase 600,000 shares of the Company's Common
Stock (1,200,000 post-split) on October 28, 1997 after his election as CEO. With
respect to both stock option grants, the Compensation Committee, in determining
the size of the awards, took into account market data from companies similar to
the Company, as well as the number of options previously awarded to Mr. Harding.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986. The
Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the Code,
which limits deductions for certain executive compensation in excess of $1
million in any given year. Certain types of compensation are deductible only if
performance criteria are specified in detail and payments are contingent on
stockholder approval of the compensation arrangement. The Company believes that
it is in the best interests of its stockholders to structure compensation
arrangements to achieve deductibility under Section 162(m), except where the
benefit of such deductibility is outweighed by the need for flexibility or the
attainment of other corporate objectives. The Committee will continue to monitor
issues concerning the deductibility of executive compensation and will take
appropriate action if and when it is warranted. To this end, the Company's CEO
Bonus Plan has been amended and expanded in scope, as of February 23, 1998, as
the Senior Executive Bonus Plan in order to satisfy more broadly the
requirements of Section 162(m). If the Senior Executive Bonus Plan, as amended,
is approved by the stockholders at the Company's Annual Meeting, all awards
under the plan to the Company's key executive officers should be deductible
under Section 162(m) (see Proposal 4). Since corporate objectives may not always
be consistent with the requirements for full deductibility, the Committee is
prepared, if it deems appropriate, to enter into compensation arrangements under
which payments may not be deductible under Section 162(m). Thus, deductibility
will not be the sole factor used by the Committee in ascertaining appropriate
levels or modes of compensation.
COMPENSATION COMMITTEE
John B. Shoven, Chairman
Donald L. Lucas
24
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on December 31, 1992 for (i) the Company's Common Stock, (ii) the
Standards & Poor's 500 Composite Index (the "S&P 500"), and (iii) the Standard &
Poor's Technology Sector Index (the "S&P TS"). All values assume reinvestment of
the full amount of all dividends and are calculated as of December 31 of each
year:
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG CADENCE DESIGN SYSTEMS, INC., THE S&P INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CADENCE S & P 500 S & P TECHNOLOGY
<S> <C> <C> <C>
DESIGN SYSTEMS, INC. SECTOR**
12/31/92 $100 $100 $100
12/31/93 54 110 123
12/31/94 96 112 143
12/30/95 295 153 207
12/28/96 405 189 293
1/3/98 525 252 369
</TABLE>
* $100 invested on 12/31 in stock or index,
including reinvestment of dividends.
**Fiscal year ending January 3.
- ------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the Exchange Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
25
<PAGE>
CERTAIN TRANSACTIONS
The Company's Bylaws provide that the Company shall indemnify its directors,
officers and employees to the fullest extent permitted by Delaware General
Corporation Law. The Company's Bylaws also authorize the Board of Directors of
the Company to cause the Company to enter into indemnification contracts with
its directors, officers and employees and to purchase insurance on behalf of any
person it is permitted to indemnify. Pursuant to these provisions of the
Company's Bylaws, the Company has entered into indemnity agreements (the
"Indemnity Agreements") with each of Messrs. Harding, Olsen, Bingham, Robison,
Murphy and Bealmear (the "Agents").
Each Indemnity Agreement provides, among other things, that the Company will
indemnify each Agent to the extent provided therein, for expenses, witness fees,
damages, judgments, fines and amounts paid in settlement and any other amounts
that the Agent becomes legally obligated to pay because of any claim or claims
made against or by him in connection within any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, to which the Agent is or may be made a party by
reason of his position as a director, officer, employee or other agent of the
Company, and otherwise as may be provided to the Agent by the Company under the
non-exclusivity provisions of the Delaware General Corporation Law and the
Company's Bylaws.
Prior to becoming the President and Chief Executive Officer of the Company
in October 1997, Mr. Harding entered into a contract to purchase a home in
Cambridge, Massachusetts for $1,700,000. The Company assumed Mr. Harding's
obligations under the contract of purchase for the Cambridge home. In March of
1998, the Company sold the home for a sale price in excess of the $1,700,000 and
refunded Mr. Harding the deposit he placed on the home.
Pursuant to a consulting agreement with the Company, Dr.
Sangiovanni-Vincentelli was compensated in the amount of $200,000 for consulting
services provided to the Company in 1997. Dr. Sangiovanni-Vincentelli's services
to the Company consisted of providing technical direction and strategic advice
to the Company. Dr. Sangiovanni-Vincentelli has provided consulting services to
the Company on an annual basis since 1994, and will render similar services to
the Company in 1998.
All transactions from December 29, 1996 to the present between the Company
and any current executive officer or director have been approved by a majority
of the disinterested members of the Company's Board of Directors. Any future
transactions with officers, directors or affiliates will be approved by a
majority of the disinterested members of the Board of Directors and will be on
terms that are no less favorable to the Company than could be obtained from
unaffiliated third parties and that may reasonably be expected to benefit the
Company.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
R.L. Smith McKeithen
SECRETARY
March 30, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1998 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, CADENCE DESIGN
SYSTEMS, INC., 2655 SEELY AVENUE, SAN JOSE, CALIFORNIA 95134.
26
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
1987 STOCK OPTION PLAN
AS ADOPTED APRIL 24, 1987
AS AMENDED MAY 4, 1993
AS AMENDED AUGUST 1, 1996 TO BECOME EFFECTIVE AUGUST 15, 1996
AS AMENDED FEBRUARY 5, 1997
AS APPROVED BY STOCKHOLDERS MAY 1, 1997
AS AMENDED FEBRUARY 23, 1998
AS APPROVED BY STOCKHOLDERS [MAY 6,] 1998
TERMINATION DATE: [MAY 21, 2007]
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the employees of the Company
and any parent or subsidiary corporations, and to promote the success of the
Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"non-statutory stock options," at the discretion of the Board and as reflected
in the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(f) "CONSULTANT" shall mean any consultants, independent contractors
or advisers (provided that such persons render bona fide services not in
connection with the offering and sale of securities in capital raising
transactions) rendering services to the Company or a Parent or Subsidiary.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the
absence of any interruption of termination of service, whether as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence.
1
<PAGE>
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee or other compensation paid solely on account of
service as a director by the Company shall not be sufficient to constitute
"employment" by the Company.
(i) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(j) "OPTION" shall mean a stock option granted pursuant to the Plan.
(k) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(l) "OPTIONEE" shall mean an Employee or Consultant who receives an
Option.
(m) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Internal Revenue Code of
1986, as amended.
(n) "PLAN" shall mean this 1987 Stock Option Plan.
(o) "RULE 16b-3" shall mean Rule 16b-3 of the Securities Exchange Act
of 1934, as amended, or any successor to Rule 16b-3, as in effect when
discretion is being exercised with respect to the Plan.
(p) "SHARE" shall mean a share of Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986, as amended.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the number of shares reserved for issuance under the Plan is
seventy-one million three hundred seventy thousand one hundred (71,370,100)
shares of Common Stock. Shares issued under the Plan may be authorized, but
unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Board of Directors of the Company shall
administer the Plan.
The Board of Directors may appoint a Committee consisting of not
less than two members of the Board of Directors to administer the Plan on behalf
of the Board of
2
<PAGE>
Directors, subject to such terms and conditions as the Board of Directors may
prescribe. One or more of these members may be "Non-Employee Directors" (a
director who is receiving no compensation from the Company other than for
service on the Board of Directors or who does not receive such additional
compensation which exceeds the limits specified in the definition of such
term under Rule 16b-3) or "Outside Directors" (a director who is not either a
current or former officer of the Company nor a current employee of the
Company, and who is receiving no compensation from the Company other than for
service on the Board of Directors or who does not receive such additional
compensation which exceeds the limits specified in the definition of such
term under Section 162(m) of the Code). Once appointed, the Committee shall
continue to serve until otherwise directed by the Board of Directors. From
time to time the Board of Directors may increase the size of the Committee
and appoint additional members thereof, remove members (with or without
cause), and appoint new members in substitution therefor, fill vacancies
however caused and remove all members of the Committee, and thereafter
directly administer the Plan. Notwithstanding anything in this Section 4 to
the contrary, at any time the Board or the Committee may delegate to a
committee of one or more members of the Board of Directors the authority to
grant Options to all Employees and Consultants or any portion or class
thereof.
Members of the Board who are either eligible for Options or have
been granted Options may vote on any matters affecting the administration of the
Plan or grant of any Options pursuant to the Plan, except that no such member
shall act upon the granting of an Option to himself, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting of Options to him.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422 of the Internal Revenue Code of 1986, as
amended, or "non-statutory stock options"; (ii) to determine, upon review of
relevant information and in accordance with Section 8(b) of the Plan, the fair
market value of the Common Stock; (iii) to determine the exercise price per
share of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the Employees or
Consultants to whom, and the time or times at which, Options shall be granted
and the number of shares to be represented by each Option; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the
Plan; (vii) to determine the terms and provisions of each Option granted (which
need not be identical) in accordance with the Plan, and, with the consent of the
holder thereof with respect to any adverse change, modify or amend each Option;
(viii) to accelerate or defer (the latter with the consent of the Optionee) the
exercise date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Board; and (x) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
3
<PAGE>
5. ELIGIBILITY. Options may be granted only to Employees or Consultants
as defined in Section 2 hereof. An Employee or Consultant who has been granted
an Option may, if he is otherwise eligible, be granted an additional Option or
Options.
Incentive Stock Options may only be granted to Employees. The
aggregate fair market value (determined at the time the Option is granted) of
the stock with respect to which Incentive Stock Options are exercisable for the
first time by such individual during any calendar year (under this Plan or under
any other incentive stock option plan of the Company or any Parent or Subsidiary
of the Company) shall not exceed $100,000. To the extent that the grant of an
Option exceeds this limit, the portion of the Option that exceeds such limit
shall be treated as a non-statutory stock option.
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment or consultancy by the Company, nor shall it interfere
in any way with his right or the Company's right to terminate his employment at
any time or his consultancy pursuant to the terms of the Consultant's agreement
with the Company.
No person shall be eligible to be granted Options covering more than
2,216,702 shares of Common Stock in any calendar year (such number representing
2.5% of the issued and outstanding Common Stock of the Company entitled to vote
as of the record date for the 1997 Annual Meeting of Stockholders). The
foregoing limit shall be adjusted pursuant to the provisions of Section 11.
6. TERM OF THE PLAN. The Plan became effective upon its adoption by the
Board of Directors. Subsequently amended, the Plan shall continue in effect
until May 21, 2007 unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years from
the date of grant thereof or such shorter term as may be provided in the Stock
Option Agreement. However, in the case of an Incentive Stock Option granted to
an Employee who immediately before the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter time as may be provided in the Stock Option Agreement.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(1) Granted to an Employee who, immediately before the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the fair market value per Share on the date of grant.
4
<PAGE>
(2) Granted to any Employee, the per Share exercise price
shall be no less than 100% of the fair market value per Share on the date of
grant.
(ii) In the case of an Option granted on or after the effective
date of registration of any class of equity security of the Company pursuant to
Section 12 of the Exchange Act and prior to six months after the termination of
such registration, the per Share exercise price shall be not less than 100% of
the fair market value per Share on the date of grant.
(iii) Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or non-statutory stock option) may be granted with an
exercise price lower than set forth in the preceding paragraphs if such Option
is granted pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code.
(b) The fair market value shall be determined by the Board in its
discretion: PROVIDED HOWEVER, that where there is a public market for the Common
Stock, the fair market value per Share shall be the average of the high and low
prices of the Common Stock on the date of grant, as reported on the New York
Stock Exchange.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Board and may consist entirely of cash, check, promissory note, other Shares
of Common Stock having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said option shall be
exercised, or any combination of such methods of payment, or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be
5
<PAGE>
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 11 of the
Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If an
employee ceases to serve as an Employee or Consultant, he may, but only within
thirty (30) days (or such other period of time not exceeding three (3) months as
is determined by the Board) after the date he ceases to be an Employee or
Consultant of the Company, exercise his Option to the extent that he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the date of such termination, or if
he does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(c) DEATH OF OPTIONEE. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised at any time within three (3) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living three (3) months after the date of death; or
(ii) within one (1) month after the termination of Continuous
Status as an Employee or Consultant, the Option may be exercised, at any time
within three (3) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination.
10. NON-TRANSFERABILITY OF OPTIONS. Except as otherwise expressly
provided in the terms of an individual Option which is a non-statutory stock
option, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. Notwithstanding the foregoing, the person to
whom the Option is granted may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionee, shall thereafter be entitled to exercise the Option.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be
6
<PAGE>
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or the payment of a stock
dividend with respect to the Common Stock or any other increase or decrease
in the number of issued shares of Common Stock effected without receipt of
consideration by the Company; PROVIDED, HOWEVER, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustments shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, the Option will terminate immediately prior to the consummation
of such proposed action, unless otherwise provided by the Board. The Board
may, in the exercise of its sole discretion in such instances, declare that
any Option shall terminate as of a date fixed by the Board and give each
Optionee the right to exercise his Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise
be exercisable. If the Board, at its sole discretion, permits acceleration
as to all or any part of the Optioned Stock, the aggregate fair market value
(determined at the time an Option is granted) of stock with respect to which
Incentive Stock Options first become exercisable in the year of such
dissolution, liquidation, sale of assets or merger cannot exceed $100,000.
Any remaining accelerated Incentive Stock Options shall be treated as
non-statutory stock options.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or
any listing requirements of any securities exchange or national market system on
which the Common Stock is traded.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not adversely affect Options already granted and
such Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of the law, including without
7
<PAGE>
limitation, the Securities Act of 1933, as amended; the Securities Exchange
Act of 1934, as amended; the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the Shares may then be
listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company. Such a representation is required by any of
the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
8
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
SENIOR EXECUTIVE BONUS PLAN
EFFECTIVE AS OF JANUARY 1, 1996
AMENDED EFFECTIVE AS OF JANUARY 1, 1998
The purpose of the Senior Executive Bonus Plan (the "Plan") is to motivate and
reward that individual who is serving as the Company's Chief Executive Officer
("CEO") and the individuals who are part of the senior executive staff as
designated by the CEO (collectively the "Executives") in order to improve the
Company's profitability and achieve the established corporate goals of the
Company. The Plan provides for a cash payment after the end of the Company's
fiscal year ending December 31, 1996 and after the end of each subsequent fiscal
year. The Company's financial performance for a given fiscal year will be based
on the audited financial statements prepared by the Company's outside accounting
firm. Amounts paid under the Plan are intended to be "performance-based
compensation" within the meaning of section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the Plan shall be interpreted in
accordance with that intent.
The Compensation Committee of the Board of Directors will establish the target
bonus amount for each Executive for a given fiscal year within the first ninety
(90) days of that fiscal year. The target bonus amount shall be a percentage of
the Executive's base salary for that fiscal year (expressed as a fixed dollar
amount), which base salary shall also be established by the Compensation
Committee of the Board of Directors within the first ninety (90) days of that
fiscal year.
The Executive's actual bonus for a given fiscal year shall be determined by the
Company's achievement of the Earnings Per Share ("EPS") target established by
the Compensation Committee of the Board of Directors for a given fiscal year
within the first ninety (90) days of that fiscal year. For purposes of the
Plan, "Earnings Per Share" shall be determined by applying generally accepted
accounting principles ("GAAP") and excluding the impact of any significant
unusual or non-recurring items. If the Earnings Per Share target is equalled by
the Company's performance, then the Executive's actual bonus shall be equal to
the target bonus amount for such year. If the Company's performance exceeds the
Earnings Per Share target, then the Executive's actual bonus shall be greater
than the target bonus amount for such year. If the Company's performance fails
to reach the Earnings Per Share target, then the Executive's actual bonus shall
be less than the target bonus amount for such year, and in some cases it is
possible that no bonus may be paid. The schedule setting forth the relationship
between the Company's financial performance for a given fiscal year expressed in
terms of Earnings Per Share and the Executive's actual bonus shall be
established by the Compensation Committee of the Board of Directors for a given
fiscal year within the first ninety (90) days of that fiscal year.
In the event that the Company's actual Earnings Per Share for a fiscal year
falls between two of the numbers for Earnings Per Share selected by the
Compensation Committee of the Board of Directors on the schedule ("EPS
Numbers"), then the percentage of the Executive's target bonus amount which will
be paid as the Executive's actual bonus (the "amount percentage") shall be
determined by the sum of the following two percentages: (1) the "amount
percentage" matched
1.
<PAGE>
with the lower of the two EPS Numbers on the schedule plus (2) the product
(rounded to the nearest full percentage point) of the number of percentage
points between the "amount percentages" for the two EPS Numbers, multiplied
by a fraction, the numerator of which is the difference between the Company's
actual Earnings Per Share and the lower EPS Number and the denominator of
which is the number of cents between the two EPS Numbers.
Notwithstanding the foregoing, the Compensation Committee may exercise positive
discretion to increase the amount of compensation payable under the Plan that
would otherwise be due upon attainment of a goal for an Executive who is not a
"covered employee" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code").(1)
In no event may the Executive's actual bonus for a given fiscal year exceed
$2,000,000.
The Executive's actual bonus for a given fiscal year shall be reduced by the
amount that the Executive receives with respect to the same fiscal year under
the terms of any other Company bonus plan for that fiscal year.
The Compensation Committee of the Board of Directors shall certify the amount of
the Executive's actual bonus for a given fiscal year in writing prior to
payment.
Any individual who serves as the Company's Chief Executive Officer for a given
fiscal year shall automatically be eligible to participate in the Plan. If an
individual becomes an Executive during a fiscal year, that individual's target
bonus amount, base salary, EPS target, and schedule of adjustments to the target
bonus amount based upon actual EPS results, shall be established by the
Compensation Committee before the first 25% of the remainder of that fiscal year
has elapsed. These determinations of the Compensation Committee shall be
applied to the period of time remaining in the fiscal year after the individual
became an Executive, or such shorter period of time within the fiscal year
determined by the Compensation Committee. In order to receive a bonus payment
under the Plan for a given fiscal year, the individual must be employed by the
Company on the date that bonus checks are distributed for that fiscal year, or
have terminated employment prior to that time on account of death or disability.
- ----------------------
(1) Section 162(m) of the Code precludes a deduction under chapter 1 of the
Code by any publicly held corporation for compensation paid to any covered
employee to the extent that the compensation for the taxable year exceeds
$1,000,000. "Covered employee" generally means any individual who, on the
last day of the taxable year, is the chief executive officer of the
corporation or is acting in such capacity, or is among the four highest
compensated officers (other than the chief executive officer). The deduction
limit does not apply to qualified performance-based compensation that meets
certain requirements. One of these requirements is that there is a
preestablished performance goal that states, in terms of an objective formula
or standard, the method for computing the amount of compensation payable to
the employee if the goal is attained. The terms of such an objective formula
or standard must preclude discretion to increase the amount of compensation
payable that would otherwise be due upon attainment of the goal, although the
compensation committee may reduce or eliminate the compensation or other
economic benefit that was due upon attainment of the goal as long as the
exercise of such negative discretion with respect to one employee does not
result in any increase in the amount payable to another employee.
2.
<PAGE>
The Compensation Committee of the Board of Directors may terminate the Plan
at any time, for any or no reason, and may also amend the Plan in order to
reduce the amount of the Executive's bonus payment at any time, for any or no
reason. The Compensation Committee of the Board of Directors shall be
responsible for all matters of interpretation of the terms of the Plan,
including the authority to make decisions regarding matters not expressly
addressed in the Plan, and the decision of the Compensation Committee shall
be final and binding on all persons having an interest in the Plan.
3.
<PAGE>
PROXY PROXY
CADENCE DESIGN SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1998
The undersigned hereby appoints John R. Harding, H. Raymond Bingham and
R. L. Smith McKeithen, or any of them, each with power of substitution, to
attend and to represent the undersigned at the Annual Meeting of Stockholders
of Cadence Design Systems, Inc. (the "Company") to be held at Cadence Design
Systems, Inc., 2655 Seely Road, San Jose, California on May 6, 1998 at 3:00 p.m.
local time and any continuation or adjournment thereof, and to vote the number
of shares of stock of the Company the undersigned would be entitled to vote if
personally present at the meeting in accordance with the instructions set forth
on this proxy card. Any proxy heretofore given by the undersigned with respect
to such stock is hereby revoked.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
THE SHARES WILL BE VOTED AS DIRECTED ON REVERSE. IN THE ABSENCE OF DIRECTION,
THIS PROXY WILL BE VOTED FOR THE EIGHT NOMINEES FOR ELECTION AND FOR PROPOSALS
2, 3, 4, 5 and 6.
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. 0
<TABLE>
<S> <C> <C> <C> <C> <C>
4. Approval of the Senior For Against Abstain
Executive Bonus Plan. 0 0 0
1. ELECTION OF DIRECTORS For Withhold For All 5. Ratification of selection For Against Abstain
NOMINEES: Carol A. Bartz, H. Raymond All All Except of Arthur Andersen 0 0 0
Bingham, John R. Harding, Leonard Y.W. Liu, 0 0 0 LLP, as independent auditors
Donald L. Lucas, Alberto Sangiovanni- of the Company for the
Vincentelli, George M. Scalise, and fiscal year ending
John B. Shoven. (INSTRUCTION: To January 2, 1999.
withhold authority to vote for any
individual nominee, write that
nominee's name on the space provided below)
_______________________________ 6. Other such business as may For Abstain
(Except nominees written above) properly come before the 0 0
meeting or any adjournment
thereof.
2. Approval of the amendment to For Against Abstain The undersigned
the Company's Certificate of 0 0 0 hereby acknowledges
Incorporation to increase the authorized receipt of: (a)
number of shares of the Company's Notice of Annual
Common Stock from 300,000,000 to 600,000,000. Meeting of
Stockholders of
3. Approval of amendments to the For Against Abstain the Company, (b)
Company's 1987 Stock Option Plan, 0 0 0 accompanying and
as amended. (c) Annual Report
to Stockholders for
the year ended
January 3, 1998.
Dated: _____________________, 1998
Signature(s):
__________________________________
__________________________________
Please sign exactly as your name(s) appear on
your stock certificate.
</TABLE>
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT
IN THE ENCLOSED ENVELOPE.
