Definitive Proxy Statement
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.            )

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

 

¨ Preliminary Proxy Statement

 

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

 

x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material Pursuant to §240.14a-12

 

LOGO

Synopsys, 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)(1) 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:

 

 

 


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LOGO

Notice of 2014 Annual Meeting of Stockholders

April 2, 2014

Dear Stockholder,

You are cordially invited to attend the 2014 Annual Meeting of Stockholders of Synopsys, Inc., a Delaware corporation, which will be held on April 2, 2014, at 8:00 a.m. Pacific Time at our office located at 1030 West Maude Avenue, Sunnyvale, California 94085. We are holding the meeting for the following purposes, which are more fully described in the attached Proxy Statement:

 

  1. To elect nine directors nominated by our Board of Directors to hold office until the next annual meeting of stockholders or until their successors have been elected.

 

  2. To approve our 2006 Employee Equity Incentive Plan, as amended, in order to, among other items, increase the number of shares available for issuance under that plan by 7,500,000 shares and extend the term of that plan by ten years.

 

  3. To approve an amendment to our Employee Stock Purchase Plan to, among other items, increase the number of shares available for issuance under that plan by 5,000,000 shares.

 

  4. To approve an amendment to our 2005 Non-Employee Directors Equity Incentive Plan to extend the term of that plan by ten years.

 

  5. To hold an advisory vote to approve executive compensation.

 

  6. To ratify the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending November 1, 2014.

 

  7. To consider any other matters that may properly come before the meeting.

All of our stockholders of record at the close of business on February 4, 2014 are entitled to attend and vote at the annual meeting. A list of registered stockholders entitled to vote at the meeting will be available at our office located at 700 East Middlefield Road, Mountain View, California 94043, for ten days prior to the meeting and at the meeting location during the meeting.

Whether or not you plan to attend the annual meeting, we urge you to cast your vote. For most items being put to a vote, if you do not provide voting instructions via the Internet, by telephone, or by returning the proxy card or voting instruction card, your shares will not be voted. Please vote as promptly as possible. Every stockholder vote is important.

Sincerely yours,

 

LOGO

Erika Varga McEnroe

Interim General Counsel and

Corporate Secretary

Mountain View, California

February 14, 2014

 

 

Important Notice Regarding the Internet Availability of Proxy Materials

for the Annual Meeting to Be Held on April 2, 2014

 

The Proxy Statement and our 2013 Annual Report on Form 10-K will be available at

http://materials.proxyvote.com/871607 on or about February 18, 2014

 


Table of Contents

Table of Contents

 

     Page  

About the Annual Meeting

     1   

Proposal 1—Election of Directors

     7   

Corporate Governance

     13   

Proposal 2—Approval of Our 2006 Employee Equity Incentive Plan, as Amended

     19   

Proposal 3—Approval of an Amendment to Our Employee Stock Purchase Plan

     33   

Proposal 4—Approval of an Amendment to Our 2005 Non-Employee Directors Equity Incentive Plan

     39   

Proposal 5—Advisory Vote to Approve Executive Compensation

     46   

Executive Compensation and Related Information

     47   

Compensation Discussion and Analysis

     47   

Compensation Risk Assessment

     66   

Summary Compensation Table

     67   

Grants of Plan-Based Awards

     69   

Outstanding Equity Awards at Fiscal 2013 Year-End

     71   

Option Exercises and Stock Vested in Fiscal 2013

     73   

Non-Qualified Deferred Compensation

     74   

Potential Payments Upon Termination of Employment or Change of Control

     76   

Director Compensation

     79   

Compensation Committee Interlocks and Insider Participation

     81   

Compensation Committee Report

     81   

Equity Compensation Plan Information

     82   

Proposal 6—Ratification of Selection of Independent Registered Public Accounting
Firm

     83   

Fees and Services of Independent Registered Public Accounting Firm

     83   

Audit Committee Pre-Approval Policies and Procedures

     83   

Audit Committee Report

     85   

Security Ownership of Certain Beneficial Owners and Management

     86   

Section 16(a) Beneficial Ownership Reporting Compliance

     88   

Review, Approval or Ratification of Transactions with Related Persons

     88   

Certain Relationships and Related Transactions

     88   

Other Matters

     89   

Appendix A—2006 Employee Equity Incentive Plan, as Amended

     A-1   

Appendix B—Employee Stock Purchase Plan, as Amended

     B-1   

Appendix C—2005 Non-Employee Directors Equity Incentive Plan, as Amended

     C-1   


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LOGO

Proxy Statement for the 2014 Annual Meeting of Stockholders

To be Held April 2, 2014

We are providing these proxy materials to you in connection with Synopsys’ 2014 Annual Meeting of Stockholders to be held on Wednesday, April 2, 2014 at 8:00 a.m. Pacific Time at our office located at 1030 West Maude Avenue, Sunnyvale, California 94085 (referred to in this Proxy Statement as the Annual Meeting).

This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the Annual Meeting. Please read it carefully.

 

About the Annual Meeting

 

Q: Why did I receive a notice about Synopsys, Inc.’s proxy materials?

 

A: Since you owned common stock of Synopsys, Inc. at the close of business on February 4, 2014, the Record Date, you are considered a stockholder. Our Board of Directors is soliciting proxies for the Annual Meeting. Accordingly, we are providing you with access to our proxy materials in order to solicit your vote at the Annual Meeting.

The Notice of Internet Availability of Proxy Materials, this Proxy Statement, the accompanying proxy card or voting instruction form and our 2013 Annual Report on Form 10-K were distributed and made available on or about February 18, 2014.

 

Q: Why did I receive a two-page notice instead of the proxy materials themselves and how can I get the materials?

 

A: We are pleased to continue to take advantage of the Securities and Exchange Commission rule that allows companies to furnish proxy materials to their stockholders over the Internet. As a result, we are mailing to most of our stockholders a two-page Notice of Availability of Proxy Materials instead of a printed copy of all of the proxy materials. The Notice of Availability of Proxy Materials you received provides instructions on how to access our proxy materials and submit your vote on the Internet and also instructs you on how to request a printed copy of our proxy materials. We believe this process of sending a two-page notice reduces the environmental impact of printing and distributing hard copy materials and lowers our costs.

 

Q: Why did I receive a full set of proxy materials in the mail instead of a two-page notice?

 

A: If you previously requested printed copies of the proxy materials, we have provided you with printed copies of the proxy materials instead of a two-page Notice of Availability of Proxy Materials. If you would like to reduce the environmental impact and the costs incurred by us in mailing proxy materials, you may elect to receive all future proxy materials electronically via email or the Internet.

To sign up for electronic delivery, please follow the instructions to vote using the Internet provided with your proxy materials and on your proxy card or voting instruction form, and, when prompted, indicate that you agree to receive or access stockholder communications electronically in the future.

 

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Q: What proposals will be presented at the Annual Meeting and what are the voting recommendations of the Board of Directors?

 

A: The proposals that will be presented at the Annual Meeting and our Board’s voting recommendations are set forth in the table below:

 

Proposal

   Board’s Voting
Recommendation

1.      To elect nine directors nominated by our Board of Directors to hold office until the next annual meeting of stockholders or until their successors have been elected

   For all nominees

2.      To approve our 2006 Employee Equity Incentive Plan, as amended, in order to, among other items, increase the number of shares available for issuance under that plan by 7,500,000 shares and extend the term of that plan by ten years

   For

3.      To approve an amendment to our Employee Stock Purchase Plan to, among other items, increase the number of shares available for issuance under that plan by 5,000,000 shares

   For

4.      To approve an amendment to our 2005 Non-Employee Directors Equity Incentive Plan to extend the term of that plan by ten years

   For

5.      Advisory vote to approve executive compensation

   For

6.      To ratify the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending November 1, 2014

   For

We will also consider any other business that properly comes before the Annual Meeting. As of the Record Date, we are not aware of any other matters to be submitted for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, the persons named in the enclosed proxy card or voting instruction form will vote the shares they represent using their best judgment.

 

Q: When and where will the Annual Meeting be held?

 

A: The Annual Meeting will be held on April 2, 2014, at 8:00 a.m. Pacific Time at our office located at 1030 West Maude Avenue, Sunnyvale, California 94085. A map and directions are provided on the back of this Proxy Statement.

 

Q: How can I attend the Annual Meeting?

 

A: You will be admitted to the Annual Meeting if you were a Synopsys stockholder or joint holder as of the close of business on February 4, 2014, or you have authority to vote under a valid proxy for the Annual Meeting. You should be prepared to present photo identification for admittance. In addition, if you are a stockholder of record, your name will be verified against the list of stockholders of record prior to admittance to the Annual Meeting. If you are a beneficial owner, you should provide proof of beneficial ownership on the Record Date, such as an account statement covering February 4, 2014, a copy of the voting instruction form provided by your broker, trustee, or nominee, or other similar evidence of ownership. If you are a stockholder who is a natural person and not an entity, you and your immediate family members will be admitted to the Annual Meeting, provided you and they comply with the above procedures.

 

Q: Who can vote?

 

A:

If you are a stockholder of record or a beneficial owner who owned our common stock at the close of business on the Record Date of February 4, 2014, you are entitled to attend and vote

 

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  at the Annual Meeting. For further details on how to vote, please see the questions below. As of the Record Date, 154,052,966 shares of our common stock were outstanding and entitled to vote. You are entitled to one vote for each share of common stock you held on the Record Date. The names of stockholders of record entitled to vote at the Annual Meeting will be available to stockholders entitled to vote for ten days prior to the Annual Meeting for any purpose relevant to the Annual Meeting. This list can be viewed between the hours of 9:00 a.m. and 5:00 p.m. at our principal executive offices at 700 East Middlefield Road, Mountain View, California 94043.

Whether or not you plan to attend the Annual Meeting, we urge you to submit your proxy.

 

Q: What is the difference between a stockholder of record and a beneficial owner?

 

A: Stockholder of Record: If on the Record Date your shares were registered directly in your name with our transfer agent, Computershare Investor Services, then you are a stockholder of record.

Beneficial Owner: If on the Record Date your shares were held through a broker, bank, or other agent and not in your name, then you are the beneficial owner of our common stock. If you are a beneficial owner, your shares are held in street name, as is the case for most of our stockholders.

 

Q: How can I vote if I am a stockholder of record?

 

A: There are four ways to vote:

 

   

In person. If you are a stockholder of record, you may vote in person at the Annual Meeting. We will provide a ballot to you when you arrive.

 

   

Via the Internet. You may vote by proxy via the Internet by following the instructions provided in the proxy card or Notice of Availability of Proxy Materials.

 

   

By Telephone. If you received printed copies of the proxy materials, you may vote by proxy by calling the toll free number found on the proxy card. If you only received a Notice of Availability of Proxy Materials and wish to vote by proxy over the telephone, you may do so by first requesting printed copies of the proxy materials by mail by following the instructions in the Notice of Availability of Proxy Materials and then calling the toll free number found on the proxy card.

 

   

By Mail. If you received printed copies of the proxy materials, you may vote by proxy by filling out the proxy card and sending it back in the envelope provided. If you only received a Notice of Availability of Proxy Materials and wish to vote by proxy via mail, you may do so by first requesting printed copies of the proxy materials by mail by following the instructions in the Notice of Availability of Proxy Materials and then filling out the proxy card and sending it back in the envelope provided.

Whether or not you plan to attend the meeting, we urge you to vote by proxy.

 

Q: How can I vote if I am the beneficial owner?

 

A: There are four ways to vote:

 

   

In person. If you are a beneficial owner and you wish to vote in person at the Annual Meeting, you must obtain a legal proxy from the organization that holds your shares. Please contact that organization for instructions regarding obtaining a legal proxy.

 

   

Via the Internet. You may vote by proxy via the Internet by following the instructions provided in the voting instruction form or Notice of Availability of Proxy Materials.

 

   

By Telephone. If you received printed copies of the proxy materials, you may vote by proxy by calling the toll free number found on the voting instruction form. If you only received a Notice of Availability of Proxy Materials and wish to vote by proxy over the telephone, you may do so by first requesting printed copies of the proxy materials by mail by following the instructions in the Notice of Availability of Proxy Materials and then calling the toll free number found on the voting instruction form.

 

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By Mail. If you received printed copies of the proxy materials, you may vote by proxy by filling out the voting instruction form and sending it back in the envelope provided. If you only received a Notice of Availability of Proxy Materials and wish to vote by proxy via mail, you may do so by first requesting printed copies of the proxy materials by mail by following the instructions in the Notice of Availability of Proxy Materials and then filling out the voting instruction form and sending it back in the envelope provided.

As a beneficial owner, you are also invited to attend the Annual Meeting. However, since you are not a stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a legal proxy from the organization that holds your shares.

 

Q: What votes can I cast for the proposals?

 

A: With respect to Proposal 1, you may either vote “For” all the nominees to our Board of Directors or you may “Withhold” your vote for any nominee you specify. With respect to Proposals 2, 3, 4, 5, and 6 you may vote “For” or “Against,” or “Abstain” from voting. An abstention will not be counted as either a vote cast “For” or “Against” Proposals 2, 3, 4, 5, and 6.

 

Q: What if I don’t give specific voting instructions?

 

A: If you indicate a choice on your proxy on a particular matter to be acted upon, the shares will be voted as indicated. If you are a stockholder of record and you return a signed proxy card but do not indicate how you wish to vote, the proxy holders will vote your shares in the manner recommended by our Board of Directors on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting. If you do not return the proxy card, your shares will not be voted and will not be deemed present for the purpose of determining whether a quorum exists.

If you are a beneficial owner and the organization holding your account does not receive instructions from you as to how to vote those shares, under the rules of various national and regional securities exchanges, that organization may exercise discretionary authority to vote on routine proposals but may not vote on non-routine proposals. As a beneficial owner, you will not be deemed to have voted on such non-routine proposals. The shares that cannot be voted by brokers on non-routine matters are called broker non-votes. Broker non-votes will be deemed present at the Annual Meeting for purposes of determining whether a quorum exists for the Annual Meeting. Broker non-votes will make a quorum more readily obtainable but will not otherwise affect the outcome of the vote of any proposal.

 

Q: Which proposals in this Proxy Statement are considered “routine” or “non-routine”?

 

A: The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2014 (Proposal 6) is a matter considered routine under applicable rules. A broker or other nominee may generally vote on routine matters, and therefore no broker non-votes are expected to exist in connection with Proposal 6.

The election of directors (Proposal 1), the proposal to approve our 2006 Employee Equity Incentive Plan, as amended (Proposal 2), the proposal to approve an amendment to our Employee Stock Purchase Plan (Proposal 3), the proposal to approve an amendment to our 2005 Non-Employee Directors Equity Incentive Plan (Proposal 4), and the advisory vote to approve executive compensation (Proposal 5) are matters considered non-routine under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore there may be broker non-votes on Proposals 1, 2, 3, 4, and 5.

 

Q: What if I change my mind and want to revoke my proxy?

 

A:

If you are a stockholder of record, you may revoke your proxy at any time before the Annual Meeting by delivering a written notice of revocation or a duly executed proxy card bearing a later date to our principal executive offices at 700 East Middlefield Road, Mountain View,

 

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  California 94043, attention Corporate Secretary. Such notice or later dated proxy must be received by us prior to the Annual Meeting. You may also revoke your proxy by attending the Annual Meeting and voting in person.

If you are a beneficial owner, please contact your broker, bank or other agent for instructions on how to revoke your proxy.

 

Q: What is a quorum?

 

A: We need a quorum of stockholders to hold our Annual Meeting. A quorum exists when at least a majority of the outstanding shares entitled to vote as of the Record Date are represented at the Annual Meeting either in person or by proxy. Your shares will be counted towards the quorum only if a valid proxy or vote is submitted. Stockholders who vote “Abstain” on any proposal and discretionary votes by brokers, banks and related agents on routine proposals will be counted towards the quorum requirement.

 

Q: Who is paying for this solicitation?

 

A: Synopsys will bear the cost of soliciting proxies. We have retained D.F. King & Co., Inc. to assist us in soliciting proxies, for which we will pay D.F. King & Co., Inc. a fee of approximately $11,500 plus out-of-pocket expenses. We will also reimburse brokerage firms and other persons representing beneficial owners of shares for their reasonable expenses in forwarding solicitation material to such beneficial owners. We will furnish copies of solicitation material to such brokerage firms and other representatives. Proxies may also be solicited personally or by telephone, facsimile or email by our directors, officers and employees without additional compensation.

 

Q: I received notice that communications to my address are being householded. What does that mean?

 

A: The Securities and Exchange Commission has adopted rules that permit companies and intermediaries (for example, brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement or Notice of Availability of Proxy Materials addressed to those stockholders. A number of brokers with account holders who are our stockholders “household” our proxy materials in this manner. If you have received notice from your broker that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, 2013 Annual Report on Form 10-K or Notice of Availability of Proxy Materials, please notify your broker and our investor relations department in writing at 700 East Middlefield Road, Mountain View, California 94043, by email at invest-info@synopsys.com or by telephone at (650) 584-4257. If you currently receive multiple copies of the Notice of Availability of Proxy Materials or proxy statement at your address and would like to request householding of your communications, please contact your broker, bank or other agent.

 

Q: I also have access to Synopsys, Inc.’s 2013 Annual Report on Form 10-K. Is that a part of the proxy materials?

 

A: Our Annual Report on Form 10-K for the fiscal year ended November 2, 2013, as filed with the Securities and Exchange Commission on December 20, 2013, accompanies this Proxy Statement. These documents constitute our Annual Report to Stockholders and are being made available to all stockholders entitled to receive notice of and to vote at the Annual Meeting. Except as otherwise stated, the 2013 Annual Report on Form 10-K is not incorporated into this Proxy Statement and should not be considered proxy solicitation material.

 

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Q: Where can I find the voting results of the meeting?

 

A: The preliminary voting results will be announced at the Annual Meeting. The final results will be published in a Current Report on Form 8-K, which we will file with the Securities and Exchange Commission by April 8, 2014.

 

Q: How can I make a proposal to be voted on at next year’s annual meeting of stockholders?

 

A: To be considered for inclusion in the proxy materials for next year’s annual meeting of stockholders, your proposal must be submitted in writing by October 21, 2014 to Corporate Secretary, Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043, and must comply with all applicable requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (referred to in this Proxy Statement as the Exchange Act). If you wish to submit a proposal that is not to be included in next year’s proxy materials, but that may be considered at the annual meeting of stockholders to be held in 2015, you must do so in writing following the above instructions not earlier than the close of business on September 21, 2014 and not later than the close of business on October 21, 2014. We advise you to review our Bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations, including the different notice submission date requirements in the event our annual meeting for 2015 is held more than 30 days before or after April 2, 2015. The section titled “Director Nominations” on page 17 of this Proxy Statement provides additional information on the director nomination process.

 

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Proposal 1: Election of Directors

We are asking our stockholders to vote for the re-election of our directors at the Annual Meeting. Each of our directors stands for election on an annual basis. We do not have a classified or staggered Board of Directors. The Corporate Governance and Nominating Committee of our Board of Directors (referred to in this Proxy Statement as the Governance Committee), consisting solely of independent directors as determined by the Board under applicable NASDAQ listing standards, recommended each of our nine current directors for nomination by our full Board. Based on that recommendation, our Board has nominated those directors for election at the Annual Meeting.

Provided that there is a quorum at the Annual Meeting, the nine nominees receiving the highest number of “For” votes of the shares present in person or represented and entitled to vote at the Annual Meeting will be elected as directors. In the event a nominee is unable or declines to serve as a director, the proxies will be voted at the Annual Meeting for any nominee who may be designated by our Board to fill the vacancy. As of the date of this Proxy Statement, our Board is not aware of any nominee who is unable or will decline to serve as a director. Each director to be elected at the Annual Meeting will serve until our next annual meeting of stockholders and until his or her successor is elected and qualified or, if earlier, the director’s death, resignation or removal.

You may either vote “For” all the nominees or you may “Withhold” your vote for any nominee you specify. Unless marked otherwise, proxies returned to us will be voted for each of the nominees named below. If you hold your shares through a bank, a broker or other holder of record, you must instruct your bank, broker or other holder of record to vote so that your vote can be counted for this Proposal 1.

Proposal 1 is an uncontested election. In addition to the voting requirements under Delaware law described above, our Corporate Governance Guidelines provide that in an uncontested election, any nominee for director who receives a greater number of votes “Withheld” from his or her election than votes “For” such election will, promptly following certification of the stockholder vote, submit to our Board a letter of resignation for consideration by the Governance Committee. Our Board, after taking into consideration the recommendation of the Governance Committee, will determine whether to accept the director’s resignation. Synopsys will publicly disclose the decision reached by our Board and the reasons for such decision.

 

 

Our Board of Directors Recommends that You Vote

“FOR” All Nominees

 

Nominees

Information regarding the nominees, including information they have furnished as to their principal occupations, certain other directorships they hold, or have held, and their ages as of the Record Date, February 4, 2014, is set forth below. The section titled “Director Nominations” on page 17 of this Proxy Statement provides additional information on the director nomination process. The nominee descriptions below and the section titled “Director Qualifications” on page 17 of this Proxy Statement contain information about the skills and other qualifications that led the Governance Committee to determine that these nominees should serve as our directors.

Other than Dr. de Geus and Dr. Chan, all nominees are independent as determined by the Board under the applicable listing standards of the NASDAQ Global Select Market. There are no family relationships among any of the director nominees, directors and/or any of Synopsys’ executive officers.

 

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Aart J. de Geus

Co-Chief Executive Officer and
Chairman of the Board

 

Age: 59

 

Director since 1986

  Public Company Directorships: Applied Materials, Inc.

Dr. de Geus co-founded Synopsys and has served as Chairman of our Board of Directors since February 1998 and Chief Executive Officer since January 1994. He has served as Co-Chief Executive Officer with Dr. Chi-Foon Chan since May 2012. Since the inception of Synopsys in December 1986, Dr. de Geus has held a variety of positions, including President, Senior Vice President of Engineering and Senior Vice President of Marketing. He has served as a director since 1986, and served as Chairman of our Board from 1986 to 1992 and again from 1998 until present. Dr. de Geus has also served on the board of directors of Applied Materials, Inc. since July 2007.

As a co-founder of Synopsys, Dr. de Geus has led Synopsys for 27 years, and is considered a pioneer in the electronic design automation (referred to as EDA in this Proxy Statement) industry. Dr. de Geus brings to our Board a unique and thorough understanding of our business, industry and culture. He provides strong executive leadership and vision and maintains a global network of customer and industry relationships. Dr. de Geus also provides our Board with public company board experience.

 

Chi-Foon Chan

Co-Chief Executive Officer and President

 

Age: 64

 

Director since 1998

Dr. Chan has served as our Co-Chief Executive Officer since May 2012 and as our President and a member of our Board of Directors since February 1998. Prior to his appointment as our Co-Chief Executive Officer, he served as our Chief Operating Officer since April 1997. Dr. Chan joined Synopsys in May 1990 and has held various senior management positions, including Executive Vice President, Office of the President from September 1996 to February 1998 and Senior Vice President, Design Tools Group from February 1994 to April 1997. Dr. Chan has also held senior management and engineering positions at NEC Electronics and Intel Corporation.

Dr. Chan brings to our Board senior executive-level leadership, strategic, and operational expertise with Synopsys as well as the EDA industry. Dr. Chan has been with Synopsys for over 23 years and served as our Chief Operating Officer and President for over 14 years before being appointed Co-Chief Executive Officer, providing our Board with a thorough understanding of our business, operations and technology strategies. He has extensive knowledge of the overall EDA industry landscape, and he provides particular expertise in the Asia-Pacific region. Dr. Chan also provides our Board extensive research and development and engineering experience in the semiconductor industry gained from his leadership positions at NEC and Intel.

 

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Alfred Castino

Age: 61

 

Director since 2007

 

Synopsys Committees: Audit

Public Company Directorships: Digital River, Inc.

Mr. Castino has been a member of our Board of Directors since May 2007. Mr. Castino has been an independent business consultant since August 2008. From August 2002 to August 2008, Mr. Castino served as Senior Vice President and Chief Financial Officer of Autodesk, Inc., a provider of design software for the manufacturing, building and construction, and media and entertainment markets. Mr. Castino has also held the Chief Financial Officer position at Virage, Inc. and PeopleSoft, Inc. Mr. Castino has served on the board of directors of Digital River, Inc. since July 2010.

As the former Chief Financial Officer of Autodesk, Mr. Castino led the financial management of a large public technology company, providing our Board with executive-level expertise in the financial management of software companies and financial expertise in general. Mr. Castino understands the challenges of managing complex global organizations from his leadership positions at Autodesk, Virage and PeopleSoft, and also brings public company board experience to our Board.

 

Bruce R. Chizen

Age: 58

 

Director since 2001

 

Synopsys Committees: Compensation (Chair), Governance

Public Company Directorships: Oracle Corporation

Mr. Chizen has been a member of our Board of Directors since April 2001. He is currently an independent consultant and has served as Senior Adviser to Permira Advisers LLP since July 2008 and Venture Partner with Voyager Capital since July 2009. From November 2007 to November 2008, Mr. Chizen served as a strategic adviser to Adobe Systems Incorporated, a provider of design, publishing and imaging software for print, Internet and dynamic media production. From December 2000 to November 2007, he served as Adobe’s Chief Executive Officer and served as its President from April 2000 to January 2005. He previously held various other positions at Adobe dating to 1994. Mr. Chizen has served on the board of directors of Oracle Corporation since July 2008 and served on the board of directors of Adobe from December 2000 to April 2008.

Mr. Chizen has significant expertise in the management of complex global organizations. As the former Chief Executive Officer of Adobe, Mr. Chizen provides our Board with executive-level insight into the challenges associated with operating in a high technology industry and a multi-billion dollar company. Additionally, Mr. Chizen brings significant financial, product management and marketing expertise, which he gained through various leadership positions at Adobe. Mr. Chizen also provides extensive public company board experience to our Board.

 

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Deborah A. Coleman

Age: 61

 

Director since 1995

 

Synopsys Committees: Audit (Chair)

Former Public Company Directorships Held in Last Five Years: Applied Materials, Inc.

Ms. Coleman has been a member of our Board of Directors since November 1995. Ms. Coleman is a general partner of SmartForest Ventures, a venture capital firm, which she co-founded in June 2000. Ms. Coleman has held various senior executive-level positions throughout her career, including Chairman, Chief Executive Officer and President of Merix Corporation, a manufacturer of printed circuit boards, and Chief Financial Officer and Vice President of Operations of Apple, Inc. Ms. Coleman served on the board of directors of Applied Materials, Inc. from March 1996 to March 2009.

Ms. Coleman has significant experience leading large public technology companies. She brings to our Board executive-level management and financial expertise. Additionally, Ms. Coleman provides our Board with extensive operations and manufacturing experience through her leadership positions at Merix and Apple. Having served over ten years as a director of Applied Materials, Ms. Coleman brings extensive public company board experience, as well as a thorough understanding of the semiconductor industry, to our Board.

 

Chrysostomos L. “Max” Nikias

Age: 61

 

Director since 2011

 

Synopsys Committees: Compensation

Former Public Company Directorships Held in Last Five Years: Tutor Perini Corp.

Dr. Nikias has been a member of our Board of Directors since July 2011. Since August 2010, Dr. Nikias has served as President of the University of Southern California (USC). Dr. Nikias previously served as USC’s provost and chief academic officer from 2005 through 2010 and as dean of USC’s Viterbi School of Engineering from 2001 through 2005. From 1996 through 2001, he was the founding director of the NSF-funded Integrated Media Systems Center. Dr. Nikias has worked as a consultant for numerous corporations and the U.S. government, including the U.S. Department of Defense. Dr. Nikias is a fellow of the American Academy of Arts & Sciences, a member of the National Academy of Engineering, a fellow of the Institute of Electrical and Electronics Engineers (IEEE) and the American Association for the Advancement of Science (AAAS), and a charter fellow of the National Academy of Inventors. Dr. Nikias served on the board of directors of Tutor Perini Corporation from September 2008 to September 2009.

As President of USC, Dr. Nikias oversees the operations of a major private research university, and he brings leadership and technical expertise to our Board. Dr. Nikias has extensive experience in directing engineering research and development programs, as well as a deep understanding of global technology trends. A recognized scholar in the fields of digital signal processing and communications systems, among others, Dr. Nikias also provides our Board with broad engineering knowledge.

 

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John Schwarz

Age: 63

 

Director since 2007

 

Synopsys Committees: Governance (Chair)

Public Company Directorships: Teradata Corp.

Former Public Company Directorships Held in Last Five Years: SuccessFactors, Inc., Business Objects, S.A.

Mr. Schwarz has been a member of our Board of Directors since May 2007. Since May 2010, Mr. Schwarz has served as co-founder and Chief Executive Officer of Visier Inc., a business analytics software firm. Mr. Schwarz previously served on the executive board of SAP AG from March 2008 to February 2010. Mr. Schwarz was the Chief Executive Officer of Business Objects S.A., a provider of business intelligence software and services, from September 2005 through its acquisition by SAP in January 2008, and he served as the Chief Executive Officer of SAP’s Business Objects unit through February 2010. Mr. Schwarz served on Business Objects’ board of directors from January 2006 until its acquisition. Mr. Schwarz has also served as the President and Chief Operating Officer of Symantec Corporation and as President and Chief Executive Officer of Reciprocal Inc. Mr. Schwarz previously spent 25 years at IBM Corporation, where he was most recently General Manager of IBM’s Industry Solutions Unit. Mr. Schwarz has served as a director at Teradata Corporation since September 2010 and at SuccessFactors, Inc. from September 2010 to June 2011.

As the former Chief Executive Officer of Business Objects, Mr. Schwarz led a large international software company and brings to our Board extensive management expertise and knowledge of the software industry. Mr. Schwarz understands the complexities of leading a global organization and operating in international markets. Mr. Schwarz also provides our Board with public company board experience.

 

Roy Vallee

Age: 61

 

Director since 2003

 

Synopsys Committees: Audit

Public Company Directorships: Teradyne, Inc.

Former Public Company Directorships Held in Last Five Years: Avnet, Inc.

Mr. Vallee has been a member of our Board of Directors since February 2003. From July 2011 to November 2012, Mr. Vallee served as Executive Chairman of the board of directors of Avnet, Inc., a global semiconductor/electronics products and IT distributor. From June 1998 to July 2011, Mr. Vallee served as Avnet’s Chief Executive Officer and Chairman of the board of directors. Mr. Vallee also previously served as Avnet’s Vice Chairman, President, and Chief Operating Officer. Since February 2000, Mr. Vallee has served on the board of directors of Teradyne, Inc. Mr. Vallee also serves as Deputy Chairman of the Board of Directors of the Federal Reserve Bank of San Francisco.

Mr. Vallee provides our Board with significant executive-level leadership expertise, as well as a thorough understanding of the semiconductor industry. Mr. Vallee led Avnet for over 14 years, as CEO and Executive Chairman, and has keen insight into the challenges of managing a public technology company in a highly competitive industry. Mr. Vallee also brings public company board experience to our Board, as well as experience with economic development and government relations through his membership in the Federal Reserve.

 

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Steven C. Walske

Lead Independent Director

 

Age: 61

 

Director since 1991

  Synopsys Committees: Compensation, Governance

Mr. Walske has been a member of our Board of Directors since December 1991. Mr. Walske has been Managing Director of Myriad Investments, LLC, a private equity firm specializing in investments in software companies, since June 2000. Mr. Walske served as Chief Business Strategist of Parametric Technology Corporation from June 2000 until June 2005. From 1986 through June 2000, Mr. Walske held several executive-level positions at Parametric Technology Corporation, including Chief Executive Officer, President and Chairman of the board of directors. Mr. Walske served on the board of directors of BladeLogic, Inc. from November 2002 to April 2008, holding the Chairman position from September 2005 to April 2008.

As a private equity investor, Mr. Walske provides our Board with financial and strategic planning expertise, as well as extensive knowledge of the software industry and other high technology industries. Having served as the former Chief Executive Officer of Parametric Technology Corporation, Mr. Walske brings product development and executive-level management expertise as well as an understanding of complex global organizations. As a long-time member of the boards of directors of Parametric and BladeLogic, Mr. Walske provides our Board with extensive public company board experience.

 

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Corporate Governance

Corporate Governance Guidelines

Our Board of Directors is committed to sound and effective corporate governance practices. Accordingly, our Board has adopted Corporate Governance Guidelines, which are intended to describe the governance principles and procedures by which the Board functions. Our Board regularly reviews and evaluates these guidelines. Among other matters, the Corporate Governance Guidelines cover board composition, board membership criteria, director responsibilities, board committees, evaluation of our Co-Chief Executive Officers, board self-assessment and succession planning. The Corporate Governance Guidelines are available on our website at:

http://www.synopsys.com/Company/AboutSynopsys/CorporateGovernance/Pages/GovGuidelines.aspx.

Copies of the Corporate Governance Guidelines are also available in print upon written request to Investor Relations, Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043.

Code of Ethics and Business Conduct

Our Board of Directors is committed to ethical business practices and, therefore, we have adopted a Code of Ethics and Business Conduct applicable to all of our Board members, employees and executive officers, including our Co-Chief Executive Officers (Co-Principal Executive Officers), Chief Financial Officer (Principal Financial Officer) and Vice President, Corporate Controller (Principal Accounting Officer). The Code of Ethics and Business Conduct is available on our website at:

http://www.synopsys.com/Company/AboutSynopsys/CorporateGovernance/Documents/EthicsBusConduct.pdf .

Synopsys intends to satisfy the public disclosure requirements regarding (1) any amendments to the Code of Ethics and Business Conduct, or (2) any waivers under the Code of Ethics and Business Conduct given to Synopsys’ Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer by posting such information on its website at:

http://www.synopsys.com/Company/AboutSynopsys/CorporateGovernance/Pages/Ethics.aspx.

Board Leadership Structure

Our Board of Directors believes it is important to have flexibility in selecting our Chairman and board leadership structure. Accordingly, our Corporate Governance Guidelines allow for the positions of Chairman and Chief Executive Officer to be held by the same person. The Board of Directors believes that it is currently in the best interest of Synopsys and its stockholders for Dr. de Geus to serve in both roles. Dr. de Geus co-founded Synopsys and has extensive knowledge of Synopsys, its industry and its culture. He has successfully guided Synopsys through both strong and challenging periods, and his ability to speak as Chairman and Co-CEO provides strong, authoritative leadership for Synopsys.

Our guidelines also provide for the appointment of a Lead Independent Director in the event that the positions of Chairman and CEO are held by the same person, and Mr. Walske has served in that role since 2004. The responsibilities of our Lead Independent Director include:

 

   

Establishing the agenda for regular Board meetings;

 

   

Serving as chairperson of regular Board meetings when the Chairman is unavailable;

 

   

Presiding over executive sessions;

 

   

Serving as liaison between the Co-CEOs and the independent directors; and

 

   

Encouraging dialogue between the independent directors and management.

Our Board believes the role of Lead Independent Director provides an appropriate balance in Synopsys’ leadership to the combined role of Chairman and CEO, and that the responsibilities given to the Lead Independent Director help ensure a strong, independent and active Board.

 

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Director Independence

Our Corporate Governance Guidelines require that a majority of our Board qualifies as independent directors in accordance with applicable federal securities laws and the listing standards of the NASDAQ Global Select Market. Currently, each member of our Board, other than our Co-Chief Executive Officer and Chairman of the Board, Aart de Geus, and Co-Chief Executive Officer and President, Chi-Foon Chan, is an independent director. All standing committees of the Board are composed entirely of independent directors, in each case under NASDAQ’s independence definition. The NASDAQ definition includes a series of objective tests to determine independence, including that the director not be an employee of the company and not have engaged in various types of business dealings with the company. In addition, the Board has made a subjective determination as to each independent director that no relationship exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In making these determinations, the Board reviewed and discussed information provided by the directors and Synopsys with regard to each director’s business and other activities as they may relate to Synopsys and our management. This information included commercial transactions that we entered into, or proposed entering into, in fiscal 2013 with Oracle Corporation; SanDisk Corporation; Teradyne, Inc.; the University of California, Berkeley; Visier, Inc. and Xerox Corporation. Our non-employee directors or their immediate family members have relationships with these companies. We consider each of these transactions to be at arms’ length and in the ordinary course of business. We do not consider any of these transactions to be related-person transactions requiring disclosure under the rules of the Securities and Exchange Commission.

Based on this review and consistent with our independence criteria, the Board has affirmatively determined that the following directors, all of whom are standing for election to our Board, are independent: Alfred Castino, Bruce R. Chizen, Deborah A. Coleman, Chrysostomos L. “Max” Nikias, John Schwarz, Roy Vallee and Steven Walske.

Board Meetings and Committees

Our Board of Directors held four meetings during fiscal 2013. During the year, our Board maintained an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee (referred to in this Proxy Statement as the Governance Committee). All such committees have written charters which are available on our website at:

http://www.synopsys.com/Company/AboutSynopsys/CorporateGovernance/Pages/BoardCommittees.aspx.

The following table summarizes the current composition of our Board committees:

 

   Director  

   Audit
Committee
   Compensation
Committee
   Governance 
Committee

  Aart J. de Geus, Chairman of the Board

        

  Chi-Foon Chan

        

  Alfred Castino

        

  Bruce R. Chizen

      Chair   

  Deborah A. Coleman

   Chair      

  Chrysostomos L. “Max” Nikias

        

  John G. Schwarz

         Chair

  Roy Vallee

        

  Steven C. Walske, Lead Independent Director

          

  Total committee meetings held in fiscal 2013

   10    7    4

 

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During fiscal 2013, our Audit Committee held ten meetings. The current members are Ms. Coleman (Chair), Mr. Castino, and Mr. Vallee. The Audit Committee acts on behalf of our Board, performing financial oversight responsibilities relating to (1) the integrity of our financial statements, financial reporting processes and systems of internal accounting and financial controls, (2) our internal audit function, (3) the annual independent audit of our financial statements, (4) the engagement of our independent registered public accounting firm and evaluation of their performance and independence, (5) compliance with legal and regulatory requirements that pertain to our financial statements, internal controls over financials reporting, and disclosure controls, and (6) evaluation of enterprise risk issues. All members of our Audit Committee are considered independent under the applicable requirements of the Securities and Exchange Commission and the listing standards of the NASDAQ Global Select Market. Our Board has determined that Ms. Coleman, Mr. Castino and Mr. Vallee each qualifies as an “audit committee financial expert” within the meaning of the regulations of the Securities and Exchange Commission.

During fiscal 2013, our Compensation Committee held seven meetings. The current members are Mr. Chizen (Chair), Dr. Nikias and Mr. Walske. The Compensation Committee reviews and approves our general compensation policies, sets compensation levels for our executive officers (including our Co-CEOs) and administers our equity incentive plan, employee stock purchase plan, deferred compensation plans and 401(k) plan. All members of our Compensation Committee are considered independent under the applicable requirements of the Securities and Exchange Commission and the listing standards of the NASDAQ Global Select Market. The Compensation Committee’s processes for determining executive compensation are set forth under “Compensation Discussion and Analysis” beginning on page 47.

During fiscal 2013, our Governance Committee held four meetings. The current members are Mr. Schwarz (Chair), Mr. Chizen and Mr. Walske. All members of our Governance Committee are considered independent under the applicable listing standards of the NASDAQ Global Select Market. The Governance Committee identifies and recommends to our Board candidates for membership on our Board and Board committees, reviews Board performance, oversees matters of corporate governance, and reviews such other matters relating to our management as it deems appropriate. Our Governance Committee’s policy regarding consideration of director candidates submitted by stockholders is set forth below under “Director Nominations.” The Governance Committee recommended the nine nominees for election to our Board at the Annual Meeting.

Each director attended at least 75% of all Board and applicable committee meetings that were held in fiscal 2013.

Executive Sessions

The independent directors meet in executive sessions without management directors or management present. These sessions take place prior to or following regularly scheduled Board meetings. The directors met in such sessions four times during fiscal 2013.

Risk Oversight

Our Board is responsible for the oversight of our company-wide risk management efforts and delegates the assessment and implementation of our day-to-day risk management policies to our management. Our Board is directly involved in overseeing risk management issues related to significant matters such as our overall business strategy, major strategic transactions and executive officer succession through its regular communications with management.

Additionally, each of our standing Board committees, namely the Audit Committee, the Compensation Committee and the Governance Committee, have individual oversight responsibilities:

 

   

Our Audit Committee oversees our financial reporting and controls, as well as the work performed by our independent registered public accounting firm and our internal audit function. The Audit Committee regularly discusses with management and our independent registered public accounting firm the major risks related to our financial reporting and

 

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controls, and the steps taken to monitor and control our exposure to those risks. In addition, under the supervision of the Audit Committee, we have established an anonymous and confidential ethics reporting system, which encourages and allows any employee to submit concerns directly to senior management and the Audit Committee. Our Audit Committee also oversees risks relating to our investments, financing activities, taxes and world-wide insurance programs and is responsible for reviewing and approving related person transactions.

 

   

Our Compensation Committee is responsible for overseeing risks related to our cash and equity compensation programs and practices. Our Compensation Committee aims to establish compensation policies and practices that motivate contributions to long-term stockholder value and do not promote unnecessary or excessive risk-taking. For additional information regarding the Compensation Committee’s assessment of our compensation-related risk, please see the section of this Proxy Statement titled “Compensation Risk Assessment” on page 66.

 

   

Our Governance Committee is responsible for overseeing risks related to our overall corporate governance, as well as any potential issues related to the composition and structure of our Board of Directors and its committees. In this regard, our Governance Committee conducts an annual evaluation of our Board and Board committees and periodically reviews Board member and executive officer succession plans. It also reviews and makes recommendations with respect to our corporate governance policies and principles, and the chairperson may investigate concerns raised through our confidential ethics reporting system, as applicable to our Board and its committees.

Share Ownership Guidelines

In order to better align the interests of our Board members and management with the interests of our stockholders, our Board of Directors first adopted share ownership guidelines in fiscal 2003. Under the current guidelines, non-employee directors are expected to achieve a share ownership level with a value equal to three times the amount of each non-employee director’s annual cash retainer (excluding compensation for committee service) or 15,000 shares, within three years of initial election as a director, and maintain such ownership level, as measured each year on the date of the annual meeting of stockholders, so long as they serve in the position of director.

These guidelines recommend that covered members of management achieve share ownership levels within four years of appointment and maintain such ownership level so long as they serve in such positions as follows: Co-Chief Executive Officer—50,000 shares; Chief Financial Officer—10,000 shares; Senior Vice Presidents—10,000 shares; General Counsel—10,000 shares; all other Vice Presidents who are members of our “Corporate Staff”—7,500 shares; and Chief Accounting Officer—2,500 shares.

Each covered person is expected to meet the applicable guidelines within four years of becoming a covered person. The guidelines do not require any covered person to exercise stock options or to purchase shares of our common stock on the open market solely to meet these guidelines. However, when stock options are exercised, when restricted stock or restricted stock units vest, or when shares are purchased under our Employee Stock Purchase Plan, the guidelines recommend that the covered person retain a number of shares of common stock equal to the lesser of 25% of the net value of shares of common stock acquired or vested (after deducting the exercise price, if any, and taxes at an assumed tax rate), or a number of shares necessary to reach such person’s applicable common share ownership guideline amount.

As of February 4, 2014, each director was compliant with the share ownership guidelines, or had not yet served for three years since his election as a director. Similarly, as of February 4, 2014, each of our named executive officers, excluding Mr. Cabrera who resigned from Synopsys as of January 31, 2014, held the requisite number of shares and accordingly was compliant with the share ownership guidelines.

 

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Stockholder Communications with our Board of Directors

Stockholders who wish to communicate with our Board of Directors or one or more individual members of our Board may do so by sending written communications addressed to: Corporate Secretary, Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043. All stockholder communications we receive that are addressed to our Board of Directors will be compiled by our Corporate Secretary and forwarded to the specified director(s), if any. If the correspondence is not addressed to a particular director, such correspondence will be forwarded, depending on the subject matter, to the Chairperson of the Audit Committee, Compensation Committee, or Governance Committee.

Board Attendance at Stockholders’ Meetings

Synopsys encourages director attendance at our annual stockholder meetings, but does not require attendance. Attendance by phone is permitted. All directors attended the 2013 Annual Meeting of Stockholders.

Director Qualifications

The Governance Committee has no stated specific or minimum qualifications that must be met by a Board candidate, and the Governance Committee uses the same selection criteria regardless of whether the candidate has been recommended by a stockholder or identified by the Governance Committee. All candidates for election or re-election should (1) have sufficient experience in the EDA, semiconductor, electronics or technology industries to enable them to effectively help create and guide our business strategy, (2) be prepared to participate fully in Board activities, including preparation for, attendance at and active participation in, meetings of our Board of Directors, (3) not hold positions that would conflict with their responsibilities to us, (4) have a high degree of personal integrity and interpersonal skills, and (5) be prepared to represent the best interests of all of our stockholders and not just one particular constituency. Our Governance Committee also considers diversity in its assessment of potential candidates, including diversity of professional experience, education, skills and opinions, as well as diversity of personal background. Finally, the listing standards of the NASDAQ Global Select Market and our own corporate guidelines require that at least a majority of the members of our Board qualify as independent directors in accordance with such standards.

The Governance Committee also believes that it is beneficial for at least one member, and preferably multiple members, of our Board to meet the criteria for an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission. The Governance Committee also deems it to be appropriate for certain members of management to serve on our Board to provide our Board with an internal perspective on the operations, management and culture of our business. When evaluating a candidate for Board membership, the Governance Committee does not assign specific weight to any of these factors. At a minimum, a director’s qualifications, in light of the above-mentioned criteria, are considered each time the director is nominated or re-nominated for Board membership.

Director Evaluations

On an annual basis, the Governance Committee conducts an evaluation of our Board of Directors, the functioning of the committees and each individual member of our Board.

Director Nominations

The Governance Committee considers candidates for Board membership suggested by our Board members and management. The Governance Committee has, on occasion, retained third-party executive search firms to identify independent director candidates. The Governance Committee will consider persons recommended by our stockholders in the same manner as a nominee recommended by Board members, management, or a third-party executive search firm. After completing the evaluation and review, the Governance Committee makes a recommendation to the full Board as to the persons who should be nominated to our Board of Directors, and our Board determines and approves the nominees after considering the recommendation and report of the Governance Committee.

 

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Stockholders seeking to recommend a prospective nominee should follow the instructions under the heading “Stockholder Communications with our Board of Directors.” There are no recent material changes to the procedures by which stockholders may recommend nominees for our Board. Stockholder submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating stockholder is a beneficial or record owner of our stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. The Governance Committee did not receive any stockholder nominations during fiscal 2013 or through the date of this Proxy Statement.

Each director candidate recommended for election at the Annual Meeting is an existing director seeking re-election to our Board of Directors and was previously elected by our stockholders.

 

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Proposal 2: Approval of Our 2006 Employee Equity Incentive Plan, as Amended

We are asking our stockholders to approve our 2006 Employee Equity Incentive Plan, as amended (referred to in this Proxy Statement as the 2006 Employee Plan), primarily to accomplish the following:

 

   

To increase the number of shares of common stock available for issuance under the 2006 Employee Plan by 7,500,000 shares, representing approximately 4.9% of our shares of common stock outstanding as of January 13, 2014; and

 

   

To extend the term of the plan by another ten years.

We are proposing the share increase and plan extension to enable us to continue offering effective equity compensation to our employees, allowing us to continue to take advantage of the critical motivation and retention benefits that equity compensation provides.

Our Board of Directors approved the 2006 Employee Plan, as amended, in December 2013, subject to stockholder approval. If approved by our stockholders, the amended 2006 Employee Plan will become effective as of the Annual Meeting date.

Approval of the 2006 Employee Plan, as amended, requires the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting, and voting on this Proposal 2, to vote “For” this Proposal 2. Abstentions will not be counted as either votes cast “For” or “Against” Proposal 2.

 

 

Our Board of Directors Recommends that You Vote

“FOR” the Approval of the 2006 Employee Plan, as Amended

 

Purpose and Background

The primary goals of the amendment of our 2006 Employee Plan are to provide us with a sufficient reserve of common stock to offer appropriate incentives to our employees and to extend the term of the plan, which is otherwise due to expire on March 2, 2016, for another ten years. Like all technology companies, we actively compete for highly qualified employees, especially technical employees. Our equity program is a key component of our strategy to attract and retain key individuals, and the share requirements of our equity program have grown with our company. Each year, the Compensation Committee of our Board of Directors and our management review our overall compensation strategy and determine the allocations of cash and equity compensation in light of our pay-for-performance philosophy. We continue to believe that equity compensation is a critical component to motivate key employees and that it effectively aligns employee compensation with stockholder interests. The 2006 Employee Plan is the sole available plan for granting equity compensation to our employees. If the amended 2006 Employee Plan is not approved and we are unable to grant equity compensation in the future, we may need to consider other compensation alternatives, such as increasing cash compensation.

We are committed to effectively managing our equity compensation share reserve while minimizing stockholder dilution. For this reason, we carefully manage both our gross burn rate and net burn rate. Gross burn rate reflects equity awards granted during the fiscal year divided by the number of shares outstanding. Net burn rate reflects equity awards granted during the fiscal year less equity awards cancelled and returned to the plan (net equity grants), divided by the number of shares outstanding. We endeavor to achieve a gross burn rate that approximates the average rate for our peer group companies as well as for the software and services industry more generally, and that our burn rates are within the limits published by independent shareholder advisory groups, such as Institutional Shareholder Services (referred to in this Proxy Statement as ISS). While there are several methodologies to arrive at burn rates, using current ISS methodology, our gross burn rates for the last three years are well within the guidelines published by ISS. Detailed information about equity awards issued in fiscal 2013 as well as other relevant information is set forth below.

 

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We note that the cornerstone of our compensation philosophy, as discussed in the Compensation Discussion and Analysis beginning on page 47, is pay for performance and in that regard, more than half of the value of the target equity grants to our named executive officers in fiscal 2013 was in performance-based RSU grants, and the balance was in stock option grants directly linked to the appreciation of our stock price. We also note that our 2006 Employee Plan includes additional provisions that are designed to protect our stockholders’ interests and to reflect corporate governance best practices, including:

 

   

Stockholder approval required for additional shares. The 2006 Employee Plan does not contain an annual “evergreen” provision that provides for automatic increases of shares on an ongoing basis. The 2006 Employee Plan instead authorizes a fixed number of shares, and stockholder approval is required for any increase in the number of shares.

 

   

No discounted stock options or stock appreciation rights. The 2006 Employee Plan requires that all stock options and stock appreciation rights must have an exercise price equal to or greater than the fair market value of our common stock on the date of grant.

 

   

Repricing not allowed. The 2006 Employee Plan expressly prohibits the repricing of equity awards—including the cancellation and re-grant of outstanding equity awards—without prior stockholder approval.

 

   

Reasonable share counting provisions. In general, when awards lapse or are cancelled, the shares reserved for those awards are returned to the share reserve and become available for future awards. However, shares of common stock that are tendered to us in payment of the exercise price of an award or that are withheld to cover tax withholding obligations are not returned to our share reserve.

 

   

7-Year Term. All equity awards granted under the 2006 Employee Plan have a term of no more than seven years. In 2009, we amended the 2006 Employee Plan to establish seven years as the maximum permissible term for all equity awards, thereby limiting the potential for unproductive overhang.

 

   

Fungible Share Reserve. The 2006 Employee Plan has a fungible share reserve, which increases the rate at which the share reserve is depleted for restricted stock and restricted stock unit awards, in order to minimize stockholder dilution.

Historical Grant Information

No awards have been granted or promised with respect to the additional 7,500,000 shares requested. Awards under our 2006 Employee Plan are made at the discretion of our Board of Directors or the Compensation Committee and are therefore not determinable at this time. The following tables set forth detailed information about our historical equity compensation practices.

 

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Awards Granted to Certain Individuals and Groups under the 2006 Employee Plan

The following table shows, for each of the named executive officers and the various groups indicated, the number of stock options and restricted stock units granted under the 2006 Employee Plan during fiscal 2013:

 

Name

   Number of
Restricted Stock
 Units Granted(1) 
    Number of
 Stock Options  
Granted(2)
 

Aart J. de Geus

     53,300 (3)      160,000   

Co-Chief Executive Officer and Chairman of the Board of Directors

    

Chi-Foon Chan

     53,300 (3)      160,000   

Co-Chief Executive Officer and President

    

Brian M. Beattie

     18,300 (3)      55,000   

Chief Financial Officer

    

Joseph W. Logan

     20,000 (3)      60,000   

Executive Vice President, Worldwide Sales and Corporate Marketing

    

Brian E. Cabrera

     10,800 (3)      57,500   

General Counsel

    

All executive officers as a group (5 persons)

     155,700 (3)      492,500   

All directors who are not executive officers as a group (7 persons)

     —         —    

All employees, excluding executive officers, as a group (8,573 persons as of Nov. 2, 2013)(4)

     1,524,290        1,211,350   

 

(1) For informational purposes, the aggregate numbers of restricted stock units granted under the 2006 Employee Plan, since its adoption through January 13, 2014, to Dr. de Geus, Dr. Chan, Mr. Beattie, Mr. Logan, Mr. Cabrera, all executive officers as a group, all directors who are not executive officers as a group, and all employees (excluding executive officers) as a group were 500,233; 333,400; 166,800; 151,100; 88,500; 1,240,033; none; and 9,615,040, respectively. Of those aggregate grant numbers for Dr. de Geus, Dr. Chan, Mr. Beattie, Mr. Logan, Mr. Cabrera, and all executive officers as a group, 34,900; 34,900; 13,800; 14,500; 7,900; and 106,000 restricted stock units, respectively, are eligible to vest only upon the achievement of pre-established performance goals.
(2) For informational purposes, the aggregate numbers of stock option awards granted under the 2006 Employee Plan, since its adoption through January 13, 2014, to Dr. de Geus, Dr. Chan, Mr. Beattie, Mr. Logan, Mr. Cabrera, all executive officers as a group, all directors who are not executive officers as a group, and all employees (excluding executive officers) as a group were 1,476,600; 996,100; 506,900; 509,800; 348,400; 3,837,800; none; and 10,967,854, respectively.
(3) These restricted stock units required the achievement of pre-established performance goals prior to any vesting of the awards.
(4) Equity grants in fiscal 2013 under the 2006 Employee Plan were made to an aggregate of 2,169 employees, excluding persons who were executive officers as of the end of fiscal 2013.

 

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Additional Information

The following table provides certain additional information regarding all of our equity plans (except our Employee Stock Purchase Plan):

 

     As of 1/13/14  

Total Stock Options Outstanding

     7,581,196   

Total Restricted Stock Unit Awards Outstanding

     3,837,523   

Total Common Stock Outstanding

     153,957,511   

Weighted-Average Exercise Price of Stock Options Outstanding

     $28.46   

Weighted-Average Remaining Duration of Stock Options Outstanding

     4.60 years   

Total Shares Available for Grant under the 2006 Employee Plan

     7,281,267   

Total Shares Available for Grant under the 2005 Director Plan

     340,747   

 

     As of 2/4/14
(the Record Date)
 

Total Common Stock Outstanding

     154,052,966   

Information for Burn Rate Calculations

The following table provides detailed information regarding the activity related to our equity plans (except our Employee Stock Purchase Plan) for fiscal 2013.

 

    Fiscal 2013  

Stock Options Granted by Synopsys(1)

    1,703,850   

Restricted Stock Units Granted by Synopsys(2)

    1,679,990   

Restricted Stock Awards Granted by Synopsys(3)

    24,717   

Stock Options Cancelled

    182,097   

Restricted Stock Units Cancelled(4)

    140,636   

Restricted Stock Awards Cancelled

      

Weighted-Average Common Stock Outstanding

    153,318,989   

Common Stock Outstanding at Fiscal Year End

    154,169,232   

 

(1) Granted under the 2006 Employee Plan. Does not include options to purchase 158,335 shares assumed in an acquisition.
(2) Granted under the 2006 Employee Plan, and represents the actual number of restricted stock units granted, prior to the application of the fungible share reserve ratio.
(3) Granted under the 2005 Director Plan, which does not contain a fungible share reserve ratio. Represents the actual number of restricted stock awards granted.
(4) Represents the actual number of restricted stock units cancelled, prior to the reverse application of the fungible share reserve ratio.

Description of the 2006 Employee Plan, as Amended

The material terms and provisions of the 2006 Employee Plan, as amended, are summarized below. This summary, however, does not purport to be a complete description of the 2006 Employee Plan. The following summary of the 2006 Employee Plan is qualified in its entirety by reference to the complete text of the 2006 Employee Plan, a copy of which is included as an appendix to this Proxy Statement. Any stockholder that wishes to obtain a paper copy of the plan document may do so by written request to: Corporate Secretary, Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043.

 

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As further described in this Proposal 2, the 2006 Employee Plan has been amended to provide for:

 

   

an increase in the share reserve and incentive stock option limits,

 

   

an extension of the term of the plan by another ten years, and

 

   

certain clarifying amendments to eliminate potential ambiguities.

General

The 2006 Employee Plan was originally adopted by our Board of Directors in March 2006 and approved by stockholders in April 2006 as a successor plan to prior stock option plans for our employees. The 2006 Employee Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, stock appreciation rights, and other forms of equity compensation (collectively referred to in this Proxy Statement as equity awards). The 2006 Employee Plan also provides the ability to grant performance equity awards and performance cash awards (together referred to in this Proxy Statement as performance awards), which enable our Compensation Committee to use performance criteria in establishing specific targets to be attained as a condition to the vesting of awards.

Incentive stock options granted under the 2006 Employee Plan are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code (referred to in this Proxy Statement as the Code). Non-statutory stock options granted under the 2006 Employee Plan are not intended to qualify as incentive stock options under the Code. See “Federal Income Tax Information” below for a discussion of the tax treatment of equity awards.

Purpose

The 2006 Employee Plan provides eligible employees and consultants with the opportunity to benefit from increases in the value of our common stock. This creates an incentive for such individuals to exert maximum efforts toward our success, thereby aligning their interests with the interests of our stockholders.

Administration

The 2006 Employee Plan provides that our Board of Directors has the authority to construe and interpret the 2006 Employee Plan and to determine the persons to whom and the dates on which equity awards will be granted, the number of shares of common stock to be subject to each equity award, the time or times during the term of each equity award within which all or a portion of the award may be exercised, the exercise, purchase, or strike price of each equity award, the type of consideration permitted to exercise or purchase each equity award, and other terms of the equity awards.

Our Board of Directors has the authority to delegate some or all of the administration of the 2006 Employee Plan to a committee or committees composed of members of our Board. In the discretion of our Board of Directors, a committee may consist solely of two or more “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act or solely of two or more “outside directors” within the meaning of Section 162(m) of the Code. The 2006 Employee Plan also permits delegation of administration of the plan to one or more executive officers with respect to grants to employees of Synopsys and its subsidiaries. Our Board of Directors has delegated to the Compensation Committee administration of the 2006 Employee Plan with respect to stock option and restricted stock unit awards to executive officers and restricted stock unit awards to our other employees. Our Board of Directors has delegated to each of our Co-Chief Executive Officers, as both officers and members of our Board of Directors, administration of the 2006 Employee Plan with respect to stock option awards to employees other than executive officers, subject to specified limitations and restrictions.

Eligibility

General. As of January 13, 2014, Synopsys had 8,699 employees, all of whom were eligible to participate under the 2006 Employee Plan. Our non-employee directors are not eligible to receive any awards under the 2006 Employee Plan.

 

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Incentive Stock Options. Incentive stock options may be granted under the 2006 Employee Plan only to employees (including executive officers) of Synopsys and its affiliates. The aggregate maximum number of shares of common stock that may be issued pursuant to the exercise of incentive stock options will be 75,997,248 shares of common stock. No incentive stock option may be granted under the 2006 Employee 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 Synopsys or its affiliates, unless the exercise price of such stock option is at least 110% of the fair market value of the stock subject to the stock option on the date of grant and the term of the stock option does not exceed five years from the date of grant. In addition, the aggregate fair market value, determined on the date of grant, of the shares of common stock with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year (under the 2006 Employee Plan and any other equity plans of Synopsys and its affiliates) may not exceed $100,000 (any excess of such amount shall be treated as non-statutory stock options).

Non-Statutory Stock Options, Restricted Stock, Restricted Stock Units and Other Awards. Non-statutory stock options, restricted stock, restricted stock units and all other types of equity awards and performance awards authorized under the 2006 Employee Plan may be granted to employees (including executive officers) and consultants of Synopsys and its affiliates.

Individual Limit. No person may be granted stock options or stock appreciation rights under the 2006 Employee Plan covering more than 1,000,000 shares of common stock during any calendar year. Stockholder approval of this Proposal 2 will also constitute a re-approval of the 1,000,000-share limitation for purposes of Section 162(m) of the Code. This limitation allows us to grant stock options or stock appreciation rights under the 2006 Employee Plan that may be exempt from the $1,000,000 limitation on the income tax deductibility of compensation paid to covered executive officers under Section 162(m) of the Code.

Stock Subject to the 2006 Employee Plan

As of January 13, 2014, 7,281,267 shares of common stock were available for future grants under the 2006 Employee Plan. If this Proposal 2 is approved by our stockholders, an additional 7,500,000 shares will be available for future grants under the 2006 Employee Plan. Assuming the stockholders approve this Proposal 2, a total of 75,997,248 shares of our common stock will have been reserved for issuance under the 2006 Employee Plan.

The number of shares of common stock available for issuance under the 2006 Employee Plan is currently reduced by one share for each share of common stock issued pursuant to a stock option or a stock appreciation right and by 1.5 shares for each share of common stock issued on or after April 3, 2012 pursuant to restricted stock awards, restricted stock unit awards or other awards (excluding options and stock appreciation rights).

If a stock option or stock appreciation right award expires or otherwise terminates without being fully exercised, if shares subject to a restricted stock award or restricted stock unit award are forfeited to or repurchased by us, or if an equity award is settled in cash, the shares not issued under those awards, or the shares forfeited to or repurchased by us, become available for subsequent issuance under the 2006 Employee Plan. Such returning shares increase the number of shares available for issuance under the 2006 Employee Plan by one share if they were issued pursuant to a stock option or stock appreciation right and by 1.5 shares if they were issued pursuant to restricted stock awards, restricted stock unit awards or other awards (excluding options and stock appreciation rights).

If shares subject to an award granted under the 2006 Employee Plan are not delivered to a participant because:

 

   

an equity award is exercised through a reduction in the number of shares subject to the equity award (a “net exercise”),

 

   

the appreciation distribution upon exercise of a stock appreciation right is paid in shares of common stock, or

 

   

shares are withheld in satisfaction of applicable withholding taxes,

 

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then those shares do not become available for subsequent issuance under the 2006 Employee Plan. If the exercise price of a stock option is satisfied by a participant tendering previously held shares, the tendered shares do not become available for subsequent issuance under the 2006 Employee Plan.

Terms of Stock Options

We may grant stock options under the 2006 Employee Plan pursuant to stock option agreements adopted by our Board of Directors or a duly authorized committee. The following is a description of the permissible terms of stock options under the 2006 Employee Plan. Individual stock option agreements may be more restrictive as to any or all of the permissible terms described below.

Exercise Price. The exercise price of incentive stock options and non-statutory stock options may not be less than 100% of the fair market value of the stock subject to the stock option on the date of grant and, in some cases (see “Eligibility” above), may not be less than 110% of such fair market value.

As of February 4, 2014, the closing price of our common stock as reported on the NASDAQ Global Select Market was $39.11 per share.

Consideration. The stock option exercise price may, at the discretion of our Board of Directors, be paid in cash or by check, pursuant to a broker-assisted cashless exercise, by delivery of other shares of Synopsys common stock, pursuant to a net exercise arrangement, or in any other form of legal consideration acceptable to our Board of Directors.

Vesting. Stock options granted under the 2006 Employee Plan vest, or become exercisable, as determined by our Board of Directors. Vesting typically occurs during the optionholder’s continued service with Synopsys or an affiliate, whether such service is in the capacity of an employee, director or consultant (collectively referred to as service) and regardless of any change in the capacity of the optionholder, or upon achievement of quantitative or qualitative goals determined by the plan administrator. Shares covered by different stock options may be subject to different vesting terms.

Term. Under the current 2006 Employee Plan, the maximum term of a stock option is seven years, except that in certain cases (see “Eligibility” above) the maximum term is five years.

Termination of Service. Stock options generally terminate three months after termination of a participant’s service unless:

 

   

the stock option agreement by its terms specifically provides otherwise,

 

   

termination is due to the participant’s disability, in which case the stock option may be exercised (to the extent the stock option was exercisable at the time of the termination of service) at any time within 12 months of termination,

 

   

the participant dies before the participant’s service has terminated, or the participant dies within a specified period after termination of service, in which case the stock option may be exercised (to the extent the stock option was exercisable at the time of the participant’s death) within 12 months of the participant’s death by the person or persons to whom the rights to such stock option have passed, or

 

   

the participant is terminated for cause (as defined under the 2006 Employee Plan), in which case the stock option terminates immediately and will cease to be exercisable (whether vested or unvested).

The stock option term may be extended in the event that exercise of the stock option following termination of service is prohibited by applicable securities laws. In no event, however, may a stock option be exercised beyond the expiration of its term.

 

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Restrictions on Transfer. A participant generally may not transfer a stock option other than by will, by the laws of descent and distribution, or pursuant to a domestic relations order. During the lifetime of the participant, only the participant may exercise a stock option (except in instances pursuant to a domestic relations order). A participant may also designate a beneficiary who may exercise a stock option following the participant’s death.

Terms of Restricted Stock

We may grant restricted stock awards under the 2006 Employee Plan pursuant to restricted stock award agreements adopted by our Board of Directors or a duly authorized committee. Restricted stock awards are shares of our common stock that may be subject to restrictions, such as vesting requirements.

Consideration. Our Board of Directors may grant restricted stock awards in consideration for past or future services rendered to Synopsys or an affiliate, or any other form of legal consideration acceptable to our Board.

Vesting. Shares of stock acquired under a restricted stock award may, but need not, be subject to a repurchase option in favor of Synopsys or forfeiture to Synopsys in accordance with a vesting schedule as determined by our Board of Directors.

Termination of Service. Upon termination of a participant’s service, Synopsys may repurchase or otherwise reacquire any forfeited shares of stock that have not vested as of such termination under the terms of the applicable restricted stock award.

Terms of Restricted Stock Units

We may grant restricted stock unit awards under the 2006 Employee Plan pursuant to restricted stock unit award agreements adopted by our Board of Directors or a duly authorized committee. Restricted stock units represent the value of a fixed number of shares of Synopsys common stock on the date of grant.

Consideration. Our Board of Directors may grant restricted stock units in consideration for past or future services rendered to Synopsys or an affiliate, or any other form of legal consideration acceptable to our Board.

Vesting. Restricted stock units vest at the rate or on the terms specified in the restricted stock unit award agreement as determined by our Board of Directors.

Settlement. Restricted stock units may be settled by the delivery of shares of Synopsys common stock, cash, or any combination as determined by our Board of Directors. At the time of grant, our Board of Directors may impose additional restrictions or conditions that delay the delivery of stock or cash subject to the restricted stock unit award after vesting.

Termination of Service. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participant’s termination of service.

Terms of Stock Appreciation Rights

We may grant stock appreciation rights under the 2006 Employee Plan pursuant to stock appreciation rights agreements adopted by our Board of Directors or a duly authorized committee. A stock appreciation right is a right to receive the excess value over the strike price of a fixed number of shares. Individual stock appreciation right agreements may be more restrictive as to any or all of the permissible terms described below. Each stock appreciation right is denominated in shares of common stock equivalents but may be settled in cash.

Term. The maximum term of stock appreciation rights is seven years.

Strike Price. The strike price of stock appreciation rights may not be less than 100% of the fair market value of the common stock equivalents subject to the stock appreciation rights on the date of grant.

 

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Exercise. Upon exercise of a stock appreciation right, Synopsys will pay the participant an amount equal to the excess of the aggregate fair market value on the date of exercise of a number of common stock equivalents with respect to which the participant is exercising the stock appreciation right, over the strike price determined by our Board of Directors on the date of grant. The appreciation distribution upon exercise of a stock appreciation right may be paid in cash, shares of our common stock, or any other form of consideration determined by our Board of Directors.

Vesting. Stock appreciation rights vest and become exercisable at the rate specified in the stock appreciation right agreement as determined by our Board of Directors.

Termination of Service. Stock appreciation rights generally terminate three months after termination of a participant’s service unless:

 

   

the stock appreciation rights agreement by its terms specifically provides otherwise,

 

   

termination is due to the participant’s disability, in which case the stock appreciation right may be exercised (to the extent vested at the time of the termination of service) at any time within 12 months of termination,

 

   

the participant dies before the participant’s service has terminated, or within a specified period after termination of service, in which case the stock appreciation right may be exercised (to the extent vested at the time of the participant’s death) within 12 months of the participant’s death by the person or persons to whom the rights to such stock appreciation right have passed, or

 

   

the participant is terminated for cause (as defined under the 2006 Employee Plan), in which case the stock appreciation right terminates immediately and will cease to be exercisable (whether vested or unvested).

The term of a stock appreciation right may be extended in the event that exercise following termination of service is prohibited by applicable securities laws. In no event may a stock appreciation right be exercised beyond the expiration of its term.

Terms of Other Stock Awards

Our Board of Directors may grant other equity awards based in whole or in part by reference to the value of our common stock. Subject to the provisions of the 2006 Employee Plan, our Board has the authority to determine the persons to whom and the dates on which such other equity awards will be granted, the number of shares of common stock (or cash equivalents) to be subject to each award, and other terms and conditions of such awards. Such awards may be granted either alone or in addition to other equity awards granted under the 2006 Employee Plan. These awards may not have a term in excess of seven years from the date of grant.

Terms of Performance Awards

General. Our Board of Directors may grant performance equity awards and performance cash awards that qualify as performance-based compensation that is not subject to the income tax deductibility limitations imposed by Section 162(m) of the Code, if the award is approved by the Compensation Committee and the grant or vesting of the award is tied solely to the attainment of performance goals during a designated performance period.

Performance Goals. To preserve the possibility that the compensation attributable to awards may qualify as performance-based compensation that will not be subject to the $1,000,000 limitation on the income tax deductibility of the compensation paid per covered executive officer imposed under Section 162(m) of the Code, the Compensation Committee has the authority to structure one or more such awards so that stock or cash will be issued or paid pursuant to the award only upon the achievement of certain pre-established performance goals that are based on criteria that have already been approved by our stockholders. Performance goals for awards granted under the 2006 Employee Plan may be based on any one of, or combination of, the following criteria: (a) earnings per share; (b) earnings before interest, taxes and depreciation; (c) earnings before interest, taxes, depreciation

 

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and amortization (EBITDA); (d) net earnings; (e) return on equity; (f) return on assets, investment, or capital employed; (g) operating margin; (h) gross margin; (i) operating income; (j) net income (before or after taxes); (k) net operating income; (l) net operating income after tax; (m) pre- and after-tax income; (n) pre-tax profit; (o) operating cash flow; (p) orders (including backlog) and revenue; (q) orders quality metrics; (r) increases in revenue or product revenue; (s) expenses and cost reduction goals; (t) improvement in or attainment of expense levels; (u) improvement in or attainment of working capital levels; (v) market share; (w) cash flow; (x) cash flow per share; (y) share price performance; (z) debt reduction; (aa) implementation or completion of projects or processes; (bb) customer satisfaction; (cc) stockholders’ equity; (dd) quality measures; (ee) “Non-GAAP Net Income” (meaning net income excluding (1) the amortization of acquired intangible assets, (2) the impact of stock-based compensation expense, (3) acquisition-related costs, (4) other non-recurring significant items, such as the effect of tax or legal settlements with the Internal Revenue Service and restructuring charges, and (5) the income tax effect of non-GAAP pre-tax adjustments from the provision for income taxes); and (ff) to the extent that an award is not intended to comply with Section 162(m) of the Code, any other measures of performance selected by our Board of Directors.

Performance goals may be set on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to internally generated business plans, the performance of one or more comparable companies or the performance of one or more relevant indices. Adjustments may be made in the method of calculating the attainment of performance goals as follows: (i) to exclude restructuring and/or other nonrecurring charges (including but not limited to the effect of tax or legal settlements); (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; (v) to exclude stock-based compensation expense determined under generally accepted accounting principles; (vi) to exclude any other unusual, non-recurring gain or loss or extraordinary item; (vii) to respond to, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (viii) to respond to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; (ix) to exclude the dilutive effects of acquisitions or joint ventures; (x) to assume that any business divested by Synopsys achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (xi) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common shareholders other than regular cash dividends; (xii) to reflect a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code); (xiii) to reflect any partial or complete corporate liquidation; (xiv) to exclude the effect of in-process research and development expenses; and (xv) to exclude the income tax effect of non-GAAP pre-tax adjustments from the provision for income taxes.

Annual Limitation. The maximum benefit to be received by a participant in any calendar year attributable to performance equity awards may not exceed 1,000,000 shares of common stock. The maximum benefit to be received by a participant in any calendar year attributable to performance cash awards granted pursuant to the 2006 Employee Plan may not exceed $2,000,000.

Stockholder approval of this Proposal 2 will also constitute a re-approval of the foregoing performance criteria, permitted adjustments for calculating performance goal attainment, and limitations for purposes of Section 162(m) of the Code.

Changes to Capital Structure

In the event any change is made to the outstanding shares of our common stock without receipt of consideration (whether through a stock split, reverse stock split or other changes in the capital structure), appropriate adjustments will be made to the class of securities issuable under the 2006

 

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Employee Plan, the maximum number of securities issuable under the 2006 Employee Plan, the incentive stock option limitation, the maximum award that one person may be granted in a calendar year under the 2006 Employee Plan, and the number, class and price per share under outstanding equity awards under the 2006 Employee Plan.

Corporate Transactions; Changes in Control

Unless otherwise provided in a written agreement between Synopsys or an affiliate and a participant, or unless otherwise expressly provided by our Board of Directors at the time of grant of an equity award, in the event of significant corporate transactions, outstanding equity awards under the 2006 Employee Plan may be assumed, continued or substituted by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute such equity awards, then:

 

   

with respect to any such equity awards that are held by individuals then performing services for Synopsys or its affiliates, the vesting and exercisability provisions of such equity awards will be accelerated in full and such awards will be terminated if not exercised prior to the effective date of the corporate transaction and any reacquisition or repurchase rights will lapse (contingent upon the effectiveness of the corporate transaction),

 

   

all other outstanding equity awards will be terminated if not exercised prior to the effective date of the corporate transaction, except that certain equity awards, such as restricted stock awards, may have their reacquisition or repurchase rights assigned to the surviving or acquiring entity (or its parent company) in the corporate transaction, though if such reacquisition or repurchase rights are not assigned, then such equity awards will become fully vested, and

 

   

no vested restricted stock unit award will terminate without being settled by delivery of shares of common stock, their cash equivalent or in any other form of consideration, as determined by the Board of Directors, prior to the effectiveness of the corporate transaction.

A significant corporate transaction will be deemed to occur in the event of:

 

   

a sale of all or substantially all of the consolidated assets of Synopsys and its subsidiaries,

 

   

a sale of at least 90% of the outstanding securities of Synopsys,

 

   

a merger, consolidation or similar transaction in which Synopsys is not the surviving corporation, or

 

   

a merger, consolidation or similar transaction in which Synopsys is the surviving corporation, but shares of Synopsys outstanding common stock are converted into other property by virtue of the corporate transaction.

The 2006 Employee Plan provides, at the discretion of our Board of Directors, that the holder of an outstanding equity award that would otherwise terminate if not exercised prior to the corporate transaction may surrender such equity award in exchange for a payment equal to the excess of the value of the property that the holder would have received upon exercise of the equity award immediately prior to the corporate transaction, over the exercise price otherwise payable in connection with the equity award. Additionally, the 2006 Employee Plan provides our Board of Directors with the discretion to grant individual equity awards that vest as to all or any portion of the shares subject to the equity award in connection with a change of control transaction. No such equity awards have been granted by our Board of Directors.

The acceleration of an equity award in the event of an acquisition or similar corporate event may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of Synopsys.

 

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Duration, Termination and Amendment

Our Board of Directors may suspend or terminate the 2006 Employee Plan without stockholder approval or ratification at any time. If this Proposal 2 is approved by our stockholders, the term of the 2006 Employee Plan will be extended by an additional ten years and will expire on April 1, 2026, unless terminated sooner by our Board. Our Board may amend or modify the 2006 Employee Plan at any time, subject to any required stockholder approval. To the extent required by applicable law or regulation, stockholder approval will be required for any amendment that:

 

   

materially increases the number of shares available for issuance under the 2006 Employee Plan,

 

   

materially expands the class of individuals eligible to receive awards under the 2006 Employee Plan,

 

   

materially increases the benefits accruing to the participants under the 2006 Employee Plan or materially reduces the price at which shares of common stock may be issued or purchased under the 2006 Employee Plan,

 

   

materially extends the term of the 2006 Employee Plan, or

 

   

expands the types of awards available for issuance under the 2006 Employee Plan.

Our Board of Directors also may submit to stockholders any other amendment to the 2006 Employee Plan, including 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.

Federal Income Tax Information

The following is a summary of the principal United States federal income taxation consequences to participants and Synopsys with respect to participation in the 2006 Employee Plan. This summary is not intended to be exhaustive, and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside.

Incentive Stock Options. Incentive stock options granted under the 2006 Employee Plan are intended to qualify for the favorable federal income tax treatment accorded “incentive stock options” under the Code. There generally are no federal ordinary income tax consequences to the participant or Synopsys by reason of the grant or exercise of an incentive stock option. However, the exercise of an incentive stock option may increase the participant’s alternative minimum tax liability, if any.

The excess, if any, of the fair market value of the incentive stock option shares on the date of exercise over the exercise price is an adjustment to income for purposes of the alternative minimum tax. Alternative minimum taxable income is determined by adjusting regular taxable income for certain items, increasing that income by certain tax preference items and reducing this amount by the applicable exemption amount.

If a participant holds stock acquired through exercise of an incentive stock option for more than two years from the date on which the stock option was granted and more than one year after the date the stock option was exercised for those shares, any gain or loss on a disposition of those shares (referred to in this Proxy Statement as a qualifying disposition) will be a long-term capital gain or loss. Upon such a qualifying disposition, Synopsys will not be entitled to any income tax deduction.

Generally, if the participant disposes of the stock before the expiration of either of those holding periods (referred to in this Proxy Statement as a disqualifying disposition), then at the time of disposition the participant 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 participant’s actual gain, if any, on the purchase and sale. The participant’s additional gain or any loss upon the disqualifying disposition will be a capital gain or loss, which will be long-term or short-term depending on whether the stock was held for more than one year after exercise.

 

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To the extent the participant recognizes ordinary income by reason of a disqualifying disposition, generally Synopsys will be entitled (subject to the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to a corresponding income tax deduction in the tax year in which the disqualifying disposition occurs.

Non-Statutory Stock Options. No taxable income is recognized by a participant upon the grant of a non-statutory stock option. Upon exercise of a non-statutory stock option, the participant will recognize ordinary income equal to the excess, if any, of the fair market value of the purchased shares on the exercise date over the exercise price paid for those shares. Generally, Synopsys will be entitled (subject to the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to an income tax deduction in the tax year in which such ordinary income is recognized by the participant. Synopsys will be required to satisfy certain tax withholding requirements applicable to such income.

Upon disposition of the stock, the participant 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 acquisition of the stock. Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year after exercise.

Restricted Stock Awards. Upon receipt of a restricted stock award, the participant will recognize ordinary income equal to the excess, if any, of the fair market value of the shares on the date of issuance over the purchase price, if any, paid for those shares. Synopsys will be entitled (subject to the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to a corresponding income tax deduction in the year in which such ordinary income is recognized by the participant.

However, if the shares issued upon the grant of a restricted stock award are unvested and subject to repurchase by Synopsys in the event of the participant’s termination of service prior to vesting in those shares, the participant will not recognize any taxable income at the time of issuance, but will have to report as ordinary income, as and when Synopsys’ repurchase right lapses, an amount equal to the excess of (a) the fair market value of the shares on the date the repurchase right lapses, over (b) the purchase price, if any, paid for the shares. The participant may, however, elect under Section 83(b) of the Code to include as ordinary income in the year of issuance an amount equal to the excess of (a) the fair market value of the shares on the date of issuance, over (b) the purchase price, if any, paid for such shares. If the Section 83(b) election is made, the participant will not recognize any additional income as and when the repurchase right lapses. The participant and Synopsys will be required to satisfy certain tax withholding requirements applicable to such income. Synopsys will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time the shares are issued. In general, the deduction will be allowed for the taxable year in which such ordinary income is recognized by the participant.

Upon disposition of the stock acquired upon the receipt of a restricted stock award, the participant 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 issuance (or vesting) of the stock. Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year.

Restricted Stock Unit Awards. No taxable income is recognized upon receipt of a restricted stock unit award. The participant will generally recognize ordinary income in the year in which the shares subject to that unit are actually vested and issued to the participant in an amount equal to the fair market value of the shares on the date of issuance. The participant and Synopsys will be required to satisfy certain tax withholding requirements applicable to such income. Synopsys will be entitled (subject to the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time the shares are issued. In general, the deduction will be allowed for the taxable year in which such ordinary income is recognized by the participant.

 

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Stock Appreciation Rights. No taxable income is realized upon the receipt of a stock appreciation right. Upon exercise of the stock appreciation right, the fair market value of the shares (or cash in lieu of shares) received is recognized as ordinary income to the participant in the year of such exercise. Generally, with respect to employees, Synopsys is required to withhold from the payment made on exercise of the stock appreciation right or from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Generally, Synopsys will be entitled (subject to the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to an income tax deduction in the year in which such ordinary income is recognized by the participant.

Potential Limitation on Deductions. Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to each covered employee exceeds $1,000,000. It is possible that compensation attributable to awards, when combined with all other types of compensation received by a covered employee from Synopsys, may cause this limitation to be exceeded in any particular year. However, certain kinds of compensation, including qualified “performance-based compensation”, are disregarded for purposes of the deduction limitation.

Below is a summary of the material conditions under which certain equity awards qualify as performance-based compensation that is exempt from the $1,000,000 deduction limitation in accordance with Section 162(m) of the Code:

 

   

Stock Options and Stock Appreciation Rights. Compensation paid to covered employees that is attributable to stock options and stock appreciation rights will qualify as performance-based compensation if (a) such awards are granted by a compensation committee or committee of our Board of Directors comprised solely of “outside directors,” (b) the 2006 Employee Plan contains a per-employee limitation on the number of shares for which such awards may be granted during a specified period, (c) the per-employee limitation is approved by our stockholders, and (d) the exercise or strike price of the award is no less than the fair market value of the stock on the date of grant.

 

   

Restricted Stock Awards, Restricted Stock Unit Awards, Performance Equity Awards and Performance Cash Awards. Compensation paid to covered employees that is attributable to restricted stock awards, restricted stock unit awards, performance equity awards, and performance cash awards will qualify as performance-based compensation, provided that: (a) the award is granted by a compensation committee comprised solely of “outside directors,” (b) the award is granted (or vests) only upon the achievement of an objective performance goal established in writing by the compensation committee while the outcome is substantially uncertain, (c) the compensation committee certifies in writing prior to the grant or vesting of the award that the performance goal has been satisfied, and (d) stockholders have approved the material terms of the award (including the class of employees eligible for such award, the business criteria on which the performance goal is based, and the maximum amount, or formula used to calculate the amount, payable upon attainment of the performance goal).

 

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Proposal 3: Approval of an Amendment to Our Employee Stock Purchase Plan

We are asking our stockholders to approve an amendment of our Employee Stock Purchase Plan (referred to in this Proposal 3 as the Purchase Plan) primarily to increase the number of shares available for issuance under the Purchase Plan by 5,000,000, representing approximately 3.2% of our shares of common stock outstanding as of January 13, 2014. We adopted the Purchase Plan so we could offer employees of Synopsys and eligible affiliates the opportunity to purchase Synopsys common stock at a discounted price as an incentive for continued employment and to help align their interests with those of our stockholders. We are proposing an increase in the number of shares available for issuance under the Purchase Plan to enable us to continue providing this benefit to new and current employees.

Our Board of Directors approved this amendment in December 2013, subject to stockholder approval. If approved by our stockholders, the amendment to our Purchase Plan will become effective as of the Annual Meeting date.

Approval of the amendment to our Purchase Plan requires the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting, and voting on this Proposal 3, to vote “For” this Proposal 3. Abstentions will not be counted as either votes cast “For” or “Against” this Proposal 3.

 

 

Our Board of Directors Recommends that You Vote

“FOR” the Approval of an Amendment to Our Employee Stock Purchase Plan

 

Purpose and Background

The Purchase Plan is designed to provide our eligible employees and those of our designated subsidiaries and affiliates with the opportunity to purchase shares of our common stock on periodic purchase dates through accumulated payroll deductions. The Purchase Plan is designed to allow U.S.-based employees to make such purchases in a manner that receives favorable tax treatment under Section 423 of the U.S. Internal Revenue Code (referred to in this Proxy Statement as Section 423). Our Board of Directors, or its delegate, may approve offerings under the Purchase Plan that are not intended to qualify for such favorable tax treatment under Section 423, including, without limitation, offerings in which eligible employees who are not subject to U.S. tax laws may participate.

Our management believes that maintaining a competitive employee stock purchase plan is an important element in recruiting, motivating and retaining our employees. The Purchase Plan is designed to more closely align the interests of our employees with those of our stockholders by encouraging employees to invest in our common stock, and to help our employees share in our success through the appreciation in value of such purchased stock. The Purchase Plan together with our equity plans are important employee retention and recruitment vehicles. As of the close of enrollment for our most recent semi-annual purchase period under the Purchase Plan, August 30, 2013, there were approximately 4,867 employees participating in the Purchase Plan, representing approximately 77.4% of our employees who are eligible to participate in the Purchase Plan.

As our company has grown, so have the share requirements of our Purchase Plan. As of January 13, 2014, an aggregate of 3,737,342 shares of common stock remained available for future issuance under the Purchase Plan. We estimate that, with an increase of 5,000,000 shares, we will have a sufficient number of shares of common stock to cover purchases under the Purchase Plan for approximately two years. Consequently, our Board of Directors has, subject to stockholder approval, increased the aggregate number of shares issuable under the Purchase Plan by 5,000,000 shares of common stock. Our Board of Directors believes it is in the best interests of Synopsys and our stockholders to continue to provide our employees with the opportunity to acquire an ownership interest in Synopsys through their participation in the Purchase Plan.

 

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Description of the Employee Stock Purchase Plan, as Amended

The material terms and provisions of the Purchase Plan, as amended, are summarized below. This summary, however, does not purport to be a complete description of the Purchase Plan. The following summary of the Purchase Plan is qualified in its entirety by reference to the complete text of the Purchase Plan, a copy of which is included as an appendix to this Proxy Statement. Any stockholder that wishes to obtain a paper copy of the plan document may do so by written request to: Corporate Secretary, Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043.

As further described in this Proposal 3, the Purchase Plan has been amended to provide for:

 

   

an increase in the Purchase Plan’s share reserve, and

 

   

certain clarifying amendments to eliminate potential ambiguities.

Administration

Our Board of Directors, or its delegate, has the power, subject to the terms of the Purchase Plan, to set the provisions of each offering of purchase rights, and to determine whether employees of any of our subsidiary companies or other affiliates will be eligible to participate in an offering. Our Board of Directors may delegate such authority in accordance with applicable law. References in this Proposal 3 to our Board of Directors refer to the Board or its delegate, as applicable. The Compensation Committee of our Board of Directors has been delegated authority to approve the terms of offerings under the Purchase Plan and to otherwise administer the Purchase Plan. As plan administrator, the Compensation Committee has full authority to adopt rules and procedures for the Purchase Plan and to interpret its provisions. The day-to-day administrative functions of the Purchase Plan have been delegated to our Shareholder Services Department. All costs and expenses incurred in plan administration are paid by Synopsys without charge to participants.

Share Reserve

The total number of shares of common stock currently reserved for issuance over the term of the Purchase Plan is 35,700,000. As of January 13, 2014, an aggregate of 31,962,658 shares of common stock have been issued to employees under the Purchase Plan, and 3,737,342 shares of common stock remained available for future issuance. Assuming that this Proposal 3 is approved by the stockholders, the total number of shares of common stock reserved for issuance under the Purchase Plan will be increased to 40,700,000 shares. The shares of common stock issuable under the Purchase Plan may be made available from authorized but unissued shares of common stock or from shares of common stock we reacquire, including shares of common stock repurchased on the open market. If any right to purchase shares of common stock terminates for any reason without having been exercised, the shares of common stock not purchased under such right will again become available for issuance under the Purchase Plan.

In the event any change is made to our outstanding common stock (whether by reason of any stock dividend, stock split, combination of shares, or other change affecting the outstanding common stock as a class without our receipt of consideration), our Board of Directors will make appropriate adjustments to (1) the maximum number and class of securities issuable under the Purchase Plan, (2) the maximum share purchase limitations in effect under any offering, and (3) the number and class of securities and the purchase price per share in effect under each outstanding purchase right. Such adjustments will be designed to preclude any dilution or enlargement of rights and benefits under the Purchase Plan.

Eligibility

Only our employees and employees of our designated affiliates are eligible to participate in the Purchase Plan. Our Board of Directors will determine the particular eligibility requirements for participation in an offering. For offerings that are intended to qualify under Section 423, our Board of Directors is not permitted to exclude employees who work more than twenty (20) hours per week or more than five (5) months per calendar year. For offerings that are not intended to qualify under

 

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Section 423, our Board of Directors has the ability to determine that it is necessary or desirable to exclude certain employees by location from participation in our international offerings in order to reflect or comply with local laws or conditions. As of the close of enrollment for our most recent semi-annual purchase period under the Purchase Plan, August 30, 2013, Synopsys had approximately 6,292 employees who were eligible to participate in the Purchase Plan.

Offerings

Shares of common stock are offered under the Purchase Plan through a series of offerings with a duration determined by our Board of Directors, provided that in no event may an offering have a duration that exceeds 27 months. Each offering consists of one or more purchase periods, with purchase dates determined by our Board of Directors prior to the commencement of that offering. Consistent with historical practice, our current offerings consist of a series of overlapping offering periods, each with a duration of twenty-four (24) months. Offerings begin on the first business day of March and on the first business day of September each year. Accordingly, two separate offerings begin in each calendar year.

Our Board of Directors may provide that if the fair market value per share of our common stock on the first day of a subsequent purchase period within a particular offering is less than or equal to the fair market value per share of our common stock on the start date of that offering, then the offering will terminate immediately and the participants will automatically be enrolled in a new offering that begins on the first day of such purchase period.

When an eligible employee elects to participate in an offering, he or she is electing to exercise a purchase right to acquire shares of common stock on each purchase date within the offering. On the purchase date, all payroll deductions and any other permitted contributions collected from the participant are automatically applied to the purchase of common stock, subject to certain limitations. Consistent with historical practice, current purchase periods are semi-annual and run from the first business day in March to the last business day in August each year and from the first business day in September each year to the last business day in February in the immediately succeeding year. Accordingly, shares of common stock are purchased on the last business day in February and August each year with the payroll deductions collected from the participants for the purchase period ending with each such semi-annual purchase date.

Purchase Price

The purchase price of the shares of common stock purchased on behalf of each participant on each purchase date is the lower of 85% of (1) the fair market value per share on the start date of the offering in which the participant is enrolled or (2) the fair market value per share on the applicable purchase date of such offering. The fair market value per share on any particular date under the Purchase Plan is the closing price per share on such date reported on the NASDAQ Global Select Market. As of February 4, 2014, the fair market value determined on such basis was $39.11 per share.

Payroll Deductions and Stock Purchases

Each participant authorizes periodic payroll deductions of a percentage of his or her earnings, as defined in the offering, to be applied to the acquisition of shares of common stock on the purchase dates. Accordingly, on each purchase date, the accumulated payroll deductions of each participant are automatically applied to the purchase of whole shares of common stock at the purchase price in effect for the participant for that purchase date. The maximum percentage of earnings that the participant may have deducted and contributed toward the purchase of shares during an offering will be established by our Board of Directors and set forth in the offering document, but in no event may it exceed 15% of the participant’s earnings attributable to payroll periods applicable to the offering as established by our Board of Directors. Consistent with historical practice, the current offerings authorize a maximum contribution of up to the lesser of (a) 10% of a participant’s earnings or (b) $7,500 per purchase period.

 

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Other Limitations

The Purchase Plan imposes certain limitations upon a participant’s rights to acquire shares of common stock for offerings that are intended to qualify under Section 423, including the following:

 

   

Purchase rights granted to a participant may not permit such individual to purchase more than $25,000 worth of shares of common stock (valued at the time each purchase right is granted) for each calendar year in which those purchase rights are outstanding.

 

   

Purchase rights may not be granted to any individual if such individual would, immediately after the grant, own or hold outstanding options or other rights to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the stock of us or any of our affiliates.

Consistent with our historical practice, the current offerings also impose the following limitations:

 

   

The maximum number of shares that may be purchased by any participant on any purchase date is 4,000 shares.

 

   

The maximum payroll deduction that may be applied toward the purchase of shares on any purchase date is USD $7,500 per participant.

Termination of Employment

Generally, purchase rights granted pursuant to any offering under the Purchase Plan terminate immediately upon cessation of employment for any reason, including death, and we will refund all accumulated payroll deductions to the terminated employee or his or her beneficiary, as applicable, without interest (unless otherwise required by applicable law).

Stockholder Rights

No participant has any stockholder rights with respect to the shares of common stock covered by a purchase right under the Purchase Plan until the shares of common stock are actually purchased on the participant’s behalf. Other than stock splits and other recapitalizations described above, no adjustment will be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase.

Assignability

Purchase rights are not assignable or transferable by a participant other than by will or by the laws of descent and distribution following the participant’s death, and during the participant’s lifetime, the purchase rights may be exercised only by the participant.

Change in Ownership

In the event a change in ownership of Synopsys occurs, all outstanding purchase rights will automatically be exercised immediately prior to the effective date of such change in ownership. The purchase price in effect for each participant will be equal to 85% of the lower of (1) the fair market value per share on the start date of the offering in which the participant is enrolled at the time the change in ownership occurs or (2) the fair market value per share immediately prior to the effective date of such change in ownership.

A change in ownership will be deemed to occur in the event of (1) a sale, merger or other reorganization in which Synopsys is not the surviving corporation or (2) a reverse merger in which we are the surviving corporation, but in which more than 50% of our outstanding voting stock is transferred to holders different from those who held our stock immediately prior to such transaction.

Share Pro Ration

Should the total number of shares of common stock to be purchased pursuant to outstanding purchase rights on any particular date exceed either (1) the maximum number of shares of common stock purchasable in total by all participants on any one purchase date as in effect under an offering or

 

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offerings, or (2) the number of shares of common stock then available for issuance under the Purchase Plan, then our Board of Directors will make a pro rata allocation of the available shares of common stock in as nearly a uniform manner as practicable and equitable. In such an event, the plan administrator will refund the accumulated payroll deductions of each participant, to the extent in excess of the purchase price payable for the shares of common stock prorated to such individual. Consistent with our historical practice, under our current offerings the maximum number of shares of common stock purchasable in total by all participants on any one purchase date is 2,000,000.

Amendment and Termination

Our Board of Directors may amend, alter, suspend, discontinue, or terminate the Purchase Plan at any time, including amendments to outstanding purchase rights. However, our Board of Directors must seek stockholder approval of any plan amendment to the extent necessary to satisfy applicable laws or listing requirements. For example, under currently applicable laws and listing requirements our Board of Directors may not, without stockholder approval, amend our Purchase Plan to (1) increase the number of shares of common stock issuable under the Purchase Plan, (2) alter the purchase price formula so as to reduce the purchase price, or (3) materially increase the benefits accruing to participants or materially modify the requirements for eligibility to participate in the Purchase Plan.

Plan Benefits

Participation in the Purchase Plan is voluntary and each eligible employee makes his or her own decision whether and to what extent to participate in the Purchase Plan. In addition, our Board of Directors has not approved any grants of purchase rights that are conditioned on stockholder approval of the amendment to our Purchase Plan. Accordingly, we cannot currently determine the benefits or number of shares that will be received in the future by individual employees or groups of employees under the Purchase Plan. Our non-employee directors are not eligible to participate in the Purchase Plan.

The table below shows, as to the listed individuals and specified groups, the number of shares of common stock purchased under the Purchase Plan during fiscal 2013.

 

Name and Position

   Number of
Purchased Shares
 of Common Stock(1) 
 

Aart J. de Geus

     692   

Co-Chief Executive Officer and Chairman of the Board of Directors

  

Chi-Foon Chan

     692   

Co-Chief Executive Officer and President

  

Brian M. Beattie

     692   

Chief Financial Officer

  

Joseph Logan

     —    

Executive Vice President, Worldwide Sales and Corporate Marketing

  

Brian Cabrera

     692   

General Counsel

  

All executive officers as a group (5 persons)

     2,768   

All directors who are not executive officers as a group (7 persons)(2)

     —    

All employees, excluding executive officers, as a group

     2,112,652   

 

(1) For informational purposes, the aggregate numbers of shares of common stock purchased under the Purchase Plan, since its adoption through January 13, 2014, by Dr. de Geus, Dr. Chan, Mr. Beattie, Mr. Logan, Mr. Cabrera, all executive officers as a group, all directors who are not executive officers as a group, and all employees (excluding executive officers) as a group were 27,440; 27,440; 6,510; none; 6,045; 67,435; none; and 31,895,223, respectively.
(2) Non-employee directors are not eligible to participate in the Purchase Plan.

 

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U.S. Federal Tax Consequences

The following is a summary of the principal U.S. federal income taxation consequences to us and our employees with respect to participation in the component of the Purchase Plan intended to qualify as an “employee stock purchase plan” within the meaning of Section 423. This summary is not intended to be exhaustive and does not discuss the income tax laws of any foreign jurisdictions where a participant may reside or the taxation consequences with respect to participation in any component of the Purchase Plan not intended to meet the requirements of Section 423.

General. The Purchase Plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423, so that purchase rights exercised under the Purchase Plan may qualify as qualified purchases under Section 423. Under such an arrangement, no taxable income will be recognized by a participant, and no deductions will be allowable to us, upon either the grant or the exercise of the purchase rights. Taxable income will not be recognized until there is a sale or other disposition of the shares of common stock acquired under the Purchase Plan or in the event the participant should die while still owning the purchased shares of common stock.

Disqualifying Disposition. If the participant sells or otherwise disposes of the purchased shares of common stock within two years after the start date of the offering period in which such shares were acquired or within one year after the actual purchase date of those shares, then the participant will recognize ordinary income equal to the amount by which the fair market value of the shares of common stock on the purchase date exceeded the purchase price paid for those shares, and Synopsys will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal in amount to such excess. The participant will also recognize capital gain to the extent the amount realized upon the sale or disposition of the shares of common stock exceeds the sum of the aggregate purchase price paid for those shares of common stock and the ordinary income recognized upon their disposition.

Qualifying Disposition. If the participant sells or disposes of the purchased shares of common stock more than two years after the start date of the offering period in which the shares of common stock were acquired and more than one year after the actual purchase date of those shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the lesser of (1) the amount by which the fair market value of the shares of common stock on the sale or disposition date exceeded the purchase price paid for those shares of common stock or (2) fifteen percent (15%) of the fair market value of the shares of common stock on the start date of that offering period. Any additional gain or loss upon the disposition will be taxed as a long-term capital gain or loss. We will not be entitled to an income tax deduction with respect to such disposition.

Death. If the participant still owns the purchased shares at the time of death, the lesser of (1) the amount by which the fair market value of the shares on the date of death exceeds the purchase price or (2) fifteen percent (15%) of the fair market value of the shares on the start date of the offering period in which those shares of common stock were acquired will constitute ordinary income in the year of death.

 

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Proposal 4: Approval of an Amendment to

Our 2005 Non-Employee Directors Equity Incentive Plan

We are asking our stockholders to approve an amendment to our 2005 Non-Employee Directors Equity Incentive Plan (referred to in this Proposal 4 as the Directors Plan) in order to extend the expiration date of the plan by ten years. We believe that the Directors Plan assists us in attracting and retaining exceptional candidates to serve as independent directors on our Board. We are proposing to extend the term of the Directors Plan in order to enable us to continue to take advantage of these important recruiting and retention benefits.

Our Board of Directors approved this amendment in December 2013, subject to stockholder approval. If approved by our stockholders, the amendment to the Directors Plan will become effective as of the Annual Meeting date.

Approval of the amendment to the Directors Plan requires the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting, and voting on this Proposal 4, to vote “For” this Proposal 4. Abstentions will not be counted as either votes cast “For” or “Against” this Proposal 4.

 

 

Our Board of Directors Recommends that You Vote

“FOR” the Approval of an Amendment to

Our 2005 Non-Employee Directors Equity Incentive Plan

 

Purpose and Background

The purpose of the proposed amendment to the Directors Plan is to extend its term by an additional ten years. If our stockholders do not approve this amendment, the Directors Plan will expire on the day before our 2015 Annual Meeting of Stockholders. Approval of the amendment will enable us to continue to provide equity incentives to the non-employee members of our Board of Directors, which will assist us in attracting and retaining highly qualified individuals to serve on our Board. Seven of our nine director nominees are non-employee directors eligible to participate in the Directors Plan. If the Directors Plan is not extended, we may be less competitive for the services of qualified outside directors.

Description of Directors Plan, as Amended

The material terms and provisions of the Directors Plan, as amended, are summarized below. This summary, however, does not purport to be a complete description of the Directors Plan. The following summary is qualified entirely by reference to the complete text of the Directors Plan, a copy of which is included as an appendix to this Proxy Statement. Any stockholder that wishes to obtain a paper copy of the plan document may do so by written request to: Corporate Secretary, Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043.

General

The Directors Plan provides for the automatic grant of non-statutory stock options and/or restricted stock awards (collectively referred to in this Proposal 4 as the Stock Awards) to new and continuing non-employee members of our Board. Non-statutory stock options granted under the Directors Plan are not intended to qualify as incentive stock options under the Internal Revenue Code (referred to in this Proxy Statement as the Code). See “Federal Income Tax Information” for a discussion of the tax treatment of Stock Awards.

Administration

All Stock Awards granted under the Directors Plan are made in strict compliance with the express provisions of the Directors Plan. Our Board has the authority to construe and interpret the Directors Plan and the Stock Awards granted under it, and to establish rules for its administration.

 

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The Directors Plan expressly prohibits our Board from approving any option re-pricing program under the Directors Plan whereby stock options are surrendered in exchange for any new Stock Awards with a lower exercise or purchase price, without first obtaining stockholder approval of such program. This restriction does not include a prohibition on pro rata adjustments to reflect stock splits and other similar corporate events.

Eligibility

Participation in the Directors Plan is limited to non-employee members of our Board who are elected or appointed to our Board. Seven of our nine director nominees are non-employee directors eligible to participate in the Directors Plan. Non-employee directors are not eligible to receive equity awards under any of our other equity compensation plans or those of any of our affiliates.

Stock Subject to the Directors Plan

An aggregate of 750,000 shares of our common stock are authorized for issuance under the Directors Plan. As of January 13, 2014, 340,747 shares were available for future grants under the Directors Plan. If an award granted under the Directors Plan expires or is cancelled without having been fully exercised or vested, the unvested or cancelled shares of common stock subject to such award become available for subsequent issuance under the Directors Plan. As of January 13, 2014, 82,898 shares of our common stock were issuable pursuant to outstanding stock options and 52,595 shares of restricted stock were unvested and subject to forfeiture.

Grant of Stock Awards

The Directors Plan provides for the automatic grant of Stock Awards to non-employee members of our Board over their period of service on our Board as follows: (1) an initial option grant, (2) an annual award (in the form of an option grant and/or restricted stock grant) and (3) an interim option grant (if an individual is appointed to our Board at an irregular time).

Initial Option Grant. Each non-employee member of our Board who is first elected or appointed automatically receives a non-statutory stock option to purchase 30,000 shares of our common stock (referred to in this Proposal 4 as the Initial Option Grant) at the time of his or her initial election or appointment to our Board. Each Initial Option Grant vests in four equal installments on the dates immediately preceding each of the first four annual meetings of stockholders following the date of grant, subject to continued Board service through such vesting date.

Interim Option Grant. Each non-employee director who is appointed to our Board on a date that is (1) not the date of an annual meeting of stockholders and (2) less than 11 months since the most recent annual meeting of stockholders, automatically receives, in addition to the Initial Option Grant described above, a non-statutory stock option to purchase shares of our common stock (referred to in this Proposal 4 as the Interim Option Grant) at the time of his or her initial appointment to our Board. The number of shares subject to each Interim Option Grant is determined so that the aggregate fair value of the option as determined under the option pricing model used to estimate the value of stock-based compensation in our financial statements is equal to (1) the annual cash retainer that would have been paid had the director been appointed to our Board at the most recent annual meeting of stockholders, but (2) reduced on a pro rata basis for each month prior to the grant date during which that person did not serve on our Board at any time during such month. As a result, the fair value of the option on the grant date is equal to the cash retainer the director would have earned for serving on our Board for the applicable portion of the year. Each Interim Option Grant vests in a series of 36 successive equal monthly installments upon the director’s completion of each additional month of Board service following the grant date.

Annual Awards. On the date of each annual meeting of stockholders, each non-employee member of our Board who is re-elected to our Board at such annual meeting is automatically granted a stock award (referred to in this Proposal 4 as the Annual Award). The Annual Award may be in the form of an option grant, in the form of a restricted stock grant, or partially in the form of a restricted

 

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stock grant and partially in the form of a stock option grant, as determined by the Board no later than December 31st of the calendar year immediately preceding the annual meeting of stockholders. In addition, our Board has the authority to authorize the issuance of restricted stock units in lieu of restricted stock for the Annual Award, with shares to be delivered when shares would have otherwise vested pursuant to the restricted stock grant. The Annual Award has a total fair market value on the date of grant (determined without regard to any vesting restriction) equal to the annual cash retainer then payable to each non-employee director, which is currently $125,000.

 

   

Annual Option Grant. The number of shares of our common stock subject to the portion of the Annual Award that is in the form of an option grant (referred to in this Proposal 4 as the Annual Option Grant) is determined such that the aggregate fair value of the option, as determined under the option pricing model used to determine the value of stock-based compensation in our financial statements, is equal to the annual cash retainer then payable to each non-employee director minus the fair market value of the Annual Restricted Stock Grant (described below), if any, that is also to be issued to the director. Each Annual Option Grant vests in a series of 36 successive equal monthly installments upon the director’s completion of each additional month of Board service following the grant date.

 

   

Annual Restricted Stock Grant. The number of shares of our common stock subject to the portion of the Annual Award that is in the form of restricted stock or restricted stock units (in either case, referred to in this Proposal 4 as the Annual Restricted Stock Grant) is determined such that the aggregate fair market value of the annual restricted stock grant on the date of grant (determined without regard to any vesting restriction) is equal to the annual cash retainer then payable to each non-employee director minus the fair value of the Annual Option Grant, if any, that is also to be issued to the director. Each Annual Restricted Stock Grant vests in three equal annual installments on the dates immediately preceding each of the first three annual meetings of stockholders following the date of grant, subject to provision of continued Board service through each vesting date.

Terms of Stock Options

Exercise PriceThe exercise price of stock options granted under the Directors Plan is 100% of the fair market value of the common stock on the grant date. As of February 4, 2014, the closing price of our common stock as reported on the NASDAQ Stock Market was $39.11 per share.

Consideration. The exercise price of stock options granted under the Directors Plan may be paid, to the extent permitted by applicable law and the stock option agreement, in (1) cash or check, (2) by delivery of other shares of our common stock, (3) pursuant to a broker-assisted cashless exercise arrangement, or (4) pursuant to a net exercise arrangement.

Vesting. Options granted under the Directors Plan generally vest and become exercisable over the director’s continued service on our Board, specifically in four equal installments for the Initial Option Grant and 36 monthly installments for Annual Option Grants and Interim Option Grants. If a non-employee director’s service on our Board terminates due to permanent disability or death, the option may be exercised for an additional number of shares in which the director would have vested had he or she continued in Board service until the next annual meeting of stockholders.

Term. The maximum term of options granted under the Directors Plan is seven years.

Termination of Service. If a non-employee director’s service on our Board terminates, options granted under the Directors Plan generally terminate six months after termination of Board service, unless (1) termination from our Board is due to an individual’s permanent disability, in which case the option, to the extent vested at the date of termination, may be exercised for 12 months following termination, (2) an individual dies while serving on our Board or at any time within six months following termination of service on our Board, in which case the option, to the extent vested at the date of termination, may be exercised for 12 months following the date of death by the person or persons to whom the rights to exercise such option have passed, (3) issuance of the shares would violate

 

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Securities Act registration requirements, in which case the option may be exercised for six months following the date that such issuance would not violate Securities Act registration requirements, or (4) sale of the exercised option shares would violate our insider trading policy, in which case the option may be exercised for six months following the date that such sale of exercised shares would not violate our insider trading policy. In no event, however, may an option be exercised beyond the expiration of its term.

Restrictions on Transfer. Options granted under the Directors Plan may not be transferred except by will or the laws of descent and distribution or as otherwise set forth in the applicable stock option agreement.

Terms of Restricted Stock Awards

Consideration. Restricted stock awards (including any restricted stock units) are granted in consideration for past or future services rendered to us.

Issuance of Shares. Restricted stock award shares may be issued immediately upon grant. Restricted stock awards shares may also be issued upon vesting of the award or upon a later specified date or event pursuant to a restricted stock unit award. At the time of grant, our Board determines whether the shares are to be issued immediately upon grant or issued upon a later date or event pursuant to a restricted stock unit award.

Vesting. Annual Restricted Stock Grants under the Directors Plan vest in equal annual installments over three years of continued service on our Board. Accordingly, shares issued under a restricted stock award are subject to forfeiture back to us (or cancellation of the restricted stock unit award) should an individual terminate service from our Board before vesting. If a non-employee director’s service on our Board terminates due to permanent disability or death, the award vests on an accelerated basis for that additional number of shares in which the participant would have vested had he or she continued in Board service until the next annual meeting of stockholders.

Termination of Service. Upon termination of a non-employee director’s service on our Board, any shares of common stock or stock units that have not vested as of the date of such termination are immediately forfeited back to us.

Restrictions on Transfer. Shares of restricted stock and stock unit awards granted under the Directors Plan may not be transferred except as set forth in the applicable restricted stock agreement or stock unit award agreement.

Changes to Capital Structure

If any change is made to the outstanding shares of our common stock without our receipt of consideration (whether through a stock split or other specified change in our capital structure), appropriate adjustments will be made to: (1) the maximum number and/or class of securities issuable under the Directors Plan, (2) the number and/or class of securities for which Stock Awards are to be subsequently made to both new and continuing non-employee directors, and (3) the number and/or class of securities and the exercise price per share in effect under each outstanding Stock Award under the Directors Plan. These adjustments will prevent the dilution or enlargement of benefits for participants.

Corporate Transactions; Changes in Control

In the event of a corporate transaction, the vesting of each outstanding Stock Award will automatically accelerate in full unless the stock option or our reacquisition rights with respect to the restricted stock award are assumed by or assigned to the successor corporation or its parent corporation. In the event an outstanding option is not assumed prior to the corporate transaction, such option will terminate and cease to remain outstanding if not exercised prior to the effective date of the corporate transaction. For purposes of the Directors Plan, a corporate transaction will be deemed to

 

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occur in the event of (1) a merger or consolidation in which we are not the surviving corporation, (2) the sale of all or substantially all of our assets in complete liquidation or dissolution of us or (3) any merger in which we are the surviving entity but become more than a 50%-owned subsidiary of another corporation.

In the event of a change in control, each Stock Award under the Directors Plan will automatically vest as to all shares subject to the Stock Award immediately prior to the effective date of the change in control. For purposes of the Directors Plan, a change in control will be deemed to occur in the event there is (1) the successful completion of a tender or exchange offer for securities possessing more than 50% of the total combined voting power of our outstanding securities, or (2) a change in the majority of our Board without the approval of the incumbent directors or their approved successors over a period of twenty-four (24) consecutive months or less.

The acceleration of vesting of Stock Awards in the event of a corporate transaction or change in our ownership or control may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of Synopsys.

Duration, Termination and Amendment

Our Board may suspend or terminate the Directors Plan without stockholder approval or ratification at any time. Unless terminated sooner, the Directors Plan is scheduled to terminate on the day immediately prior to the date of our 2015 Annual Meeting of Stockholders. If our stockholders approve the amendment to the Directors Plan, the Directors Plan shall expire on the day immediately prior to our 2025 Annual Meeting of Stockholders.

Our Board may amend or modify the Directors Plan at any time, subject to any required stockholder approval. Stockholder approval is required for any amendment that would (1) modify the requirements as to eligibility for participation (to the extent such modification requires stockholder approval in order to comply with Rule 16b-3 of the Exchange Act or any securities exchange listing requirements; (2) increase the number of shares reserved for issuance under the Directors Plan; or (3) change any other provision of the Directors Plan in any other way if such change requires stockholder approval in order to comply with Rule 16b-3 of the Exchange Act or any securities exchange listing requirements.

Plan Benefits

Because the amount of Stock Awards granted to our non-employee directors under the Directors Plan will depend upon the amount of the annual cash retainer payable to our non-employee directors in the future, it is not possible to determine the benefits that will be received by our non-employee directors in the future under the Directors Plan. The following table shows, for each of our named executive officers and the various groups indicated, the number of shares of restricted stock and stock options to purchase common stock granted under the Directors Plan during fiscal 2013.

 

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Awards Granted to Certain Individuals and Groups under the Directors Plan in Fiscal 2013

 

Name and Position

   Number of
 Shares of Restricted 
Stock  Granted(1)
     Number of
Options Granted(2) 
 

Aart J. de Geus

     —          —    

Co-Chief Executive Officer and Chairman of the Board of Directors

     

Chi-Foon Chan

     —          —    

Co-Chief Executive Officer and President

     

Brian M. Beattie

     —          —    

Chief Financial Officer

     

Joseph Logan

     —          —    

Executive Vice President, Worldwide Sales and Corporate Marketing

     

Brian Cabrera

     —          —    

General Counsel

     

All executive officers as a group (5 persons)(3)

     —          —    

All directors who are not executive officers as a group
(7 persons)

     24,717         —    

All employees, excluding executive officers, as a group(3)

     —          —    

 

(1) For informational purposes, the aggregate numbers of shares of restricted stock granted under the Directors Plan since its adoption through January 13, 2014, to Mr. Castino, Mr. Chizen, Ms. Coleman, Dr. Nikias, Mr. Schwarz, Mr. Vallee, Mr. Walske, and all directors who are not executive officers as a group were 29,859; 47,311; 47,311; 7,558; 29,859; 47,311; 47,311; and 256,520, respectively.
(2) For informational purposes, the aggregate numbers of stock option awards granted under the Directors Plan since its adoption through January 13, 2014, to Mr. Castino, Mr. Chizen, Ms. Coleman, Dr. Nikias, Mr. Schwarz, Mr. Vallee, Mr. Walske, and all directors who are not executive officers as a group were 40,751; none; none; 42,147; 40,751; none; none; and 123,649, respectively.
(3) Employees, including executive officers, are not eligible to participate in the Directors Plan.

U.S. Federal Income Tax Consequences

The following is a summary of the principal U.S. federal income taxation consequences to non-employee directors and us with respect to participation in the Directors Plan. This summary is not intended to be exhaustive, and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside.

Non-Statutory Stock Options. No taxable income is generally recognized by a participant upon the grant or vesting of a non-statutory stock option under the Directors Plan. Upon exercise of a non-statutory stock option, the participant will recognize ordinary income equal to the excess, if any, of the fair market value of the purchased shares on the exercise date over the exercise price paid for those shares. Generally, we will be entitled to a corresponding income tax deduction in the tax year in which such ordinary income is recognized by the participant.

Upon disposition of the common stock, the participant will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such common stock plus any amount recognized as ordinary income upon acquisition of the stock. Such gain or loss will be long-term or short-term depending on whether the common stock was held for more than one year.

 

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Restricted Stock AwardsUpon the grant of a restricted stock award which is unvested and subject to reacquisition by us in the event of the participant’s termination of service prior to vesting in those shares, the participant will not recognize any taxable income at the time of issuance, but will have to report as ordinary income, as and when our reacquisition right lapses, an amount equal to the fair market value of the shares on the dates the reacquisition right lapses. The participant may, however, elect under Section 83(b) of the Code to include as ordinary income in the year of issuance an amount equal to the fair market value of the shares on the date of issuance. If the Section 83(b) election is made, the participant will not recognize any additional income as and when the reacquisition right lapses. We will be entitled to a corresponding income tax deduction in the tax year in which such ordinary income is recognized by the participant.

Upon disposition of the common stock acquired upon the receipt of a restricted stock award, the participant will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such common stock plus any amount previously recognized as ordinary income in respect of such common stock. Such gain or loss will be long-term or short-term depending on whether the common stock was held for more than one year.

Restricted Stock Unit Awards. No taxable income is generally recognized upon receipt of a restricted stock unit award under the Directors Plan. In general, the participant will recognize ordinary income in the year in which the shares to be issued in respect of that unit are issued in an amount equal to the fair market value of the shares on the issuance date. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant. In general, the deduction will be allowed for the taxable year in which such ordinary income is recognized by the participant.

 

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Proposal 5: Advisory Vote to Approve Executive Compensation

We are requesting our stockholders to provide advisory approval of the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the narrative discussion set forth on pages 47 to 78 of this Proxy Statement. This non-binding advisory vote is commonly referred to as a “say-on-pay” vote.

 

 

Our Board of Directors Recommends that You Vote

“FOR” the Compensation of Our Named Executive Officers

As Disclosed in this Proxy Statement

 

Background

At last year’s annual meeting, we provided our stockholders with the opportunity to cast an advisory vote regarding the compensation of our named executive officers as disclosed in the proxy statement for the 2013 Annual Meeting of Stockholders. At our 2013 Annual Meeting, our stockholders overwhelmingly approved the proposal, with more than 98% of the shares that were voted in favor of the proposal.

We hold a stockholder say-on-pay vote annually, as elected by our Board of Directors and consistent with a past advisory vote by our stockholders. Accordingly, this year we are again asking our stockholders to vote “For” the compensation of our named executive officers as disclosed in this Proxy Statement.

Our Compensation Committee, which is responsible for designing and administering our executive compensation program, has designed our executive compensation program to provide a competitive and internally equitable compensation and benefits package that reflects company performance, job complexity and the value provided, while also promoting long-term retention, motivation and alignment with the long-term interests of Synopsys’ stockholders. Synopsys has maintained profitability and increased revenue each year since fiscal 2006, and we believe the compensation program for our named executive officers has been instrumental in helping Synopsys achieve strong financial performance in the challenging macroeconomic environment over the past few years.

We encourage you to carefully review the “Compensation Discussion and Analysis” beginning on page 47 of this Proxy Statement for additional details on Synopsys’ executive compensation, including Synopsys’ compensation philosophy and objectives, as well as the processes our Compensation Committee used to determine the structure and amounts of the compensation of our named executive officers in fiscal 2013.

We are asking you to indicate your support for the compensation of our named executive officers as described in this Proxy Statement. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we are asking you to vote, on an advisory basis, “For” the following resolution at the Annual Meeting:

RESOLVED, that the compensation paid to Synopsys, Inc.’s named executive officers, as disclosed pursuant to the Securities and Exchange Commission’s compensation disclosure rules, including the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth on pages 47 to 78 of this Proxy Statement, is hereby approved.”

This advisory resolution will be approved if the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting, and voting on this Proposal 5, vote “For” this Proposal 5. Abstentions will not be counted as either votes cast “For” or “Against” this Proposal 5.

While the results of this advisory vote are not binding, the Compensation Committee will consider the outcome of the vote in making future compensation decisions for named executive officers and may take more immediate action as a result of the vote.

 

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Executive Compensation and Related Information

Compensation Discussion and Analysis

 

 

This section explains how we compensate our named executive officers (NEOs). Our fiscal 2013 NEOs are:

 

•    Aart J. de Geus, Co-Chief Executive Officer and Chairman of the Board of Directors

 

•    Chi-Foon Chan, Co-Chief Executive Officer and President

 

•    Brian M. Beattie, Chief Financial Officer

 

•    Joseph W. Logan, Executive Vice President, Worldwide Sales and Corporate Marketing

 

•    Brian E. Cabrera, General Counsel

 

Executive Summary

Synopsys grew revenue and remained profitable for the eighth straight year in fiscal 2013. Our revenue increased 12% over fiscal 2012, despite continued instability and uncertainty in the global economy. Our ongoing and future success requires that we continue to cultivate executive talent to lead our business and engage our global workforce. To this end, we seek to design an executive compensation program that is competitive and internally equitable. We try to ensure that our executive compensation reflects company performance, job complexity, and the value provided, while also promoting long-term retention and motivation. We believe our executive compensation policies have been important in helping us achieve strong financial performance in difficult economic times.

We are led by Dr. de Geus, an electronic design automation (EDA) pioneer who co-founded Synopsys more than 27 years ago, and Dr. Chan, who has launched numerous key aspects of our business, including our intellectual property business, and has been with Synopsys for more than 23 years. We rely on the expertise of Drs. de Geus and Chan and all our NEOs to help us continue to build stockholder value.

Fiscal 2013 Executive Compensation Highlights

The cornerstone of our compensation philosophy is pay for performance. We closely align the compensation paid to our NEOs with our achievement of both short- and long-term financial goals. In fiscal 2013, performance-based compensation made up approximately 90% of the actual direct compensation of Dr. de Geus and Dr. Chan, our Co-CEOs, and approximately 81% of the actual direct compensation of our other NEOs.

Our NEOs receive a base salary, equity awards, and potentially earn a cash incentive payment, each determined by the Compensation Committee of our Board of Directors. The equity awards consist of stock options and performance-based restricted stock units (PRSUs) that require the achievement of a performance goal in order to be earned. Whether or not our NEOs earn cash incentive payments is determined by the achievement of performance goals under our Executive Incentive Plan (EIP). These performance goals support our primary financial objectives of (i) achieving profitable revenue growth and (ii) creating a stable and predictable future revenue stream. Our EIP requires a minimum achievement of 90% of our goals before any payment can be earned, a threshold we believe is above that of our peer companies.

In setting target compensation for our NEOs for fiscal 2013, our Compensation Committee made a notable change for Dr. Chan, who had been promoted from Chief Operating Officer to Co-CEO during the previous year. Although Dr. Chan had been promoted in May 2012, he requested that the Compensation Committee postpone considering any change to his pay until fiscal 2013. In determining fiscal 2013 compensation for his new role as our Co-CEO, the Compensation Committee reviewed research by its compensation consultant on pay at other companies using a Co-CEO leadership

 

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model. The research indicated that, for each core element of compensation and for overall pay, Co-CEOs were paid equally in most instances. The Compensation Committee further determined that Dr. Chan and Dr. de Geus had made equal contributions, and taken on equal responsibilities, in their roles as Co-CEOs. Finally, Dr. de Geus himself recommended that the Co-CEOs be treated as an executive unit and paid equally, requesting that his own pay be reduced to achieve pay parity. The Compensation Committee agreed and decided to set target compensation for our Co-CEOs equally for fiscal 2013, raising Dr. Chan’s target compensation and lowering that of Dr. de Geus.

Fiscal 2013 was a strong year for Synopsys, exceeding our company goals in many areas. On average, we overachieved the performance goals set under our EIP, and we surpassed the performance goal for our PRSUs.

Despite that overachievement, Dr. de Geus’ total direct compensation declined as compared to fiscal 2012. In addition to the requested reductions in his target compensation to accommodate equal Co-CEO pay, Dr. de Geus recommended, as he had in past years, that our Compensation Committee reduce his actual cash incentive payment to maintain parity with our executive team. Dr. Chan joined Dr. de Geus’ recommendation with respect to his own cash incentive payment. The Compensation Committee honored their wishes, and both Co-CEOs received the same cash incentive payment as in fiscal 2012.

Dr. Chan’s total direct compensation rose by approximately 14% over last year because of increases in base salary and equity grants made as a result of his promotion. Total direct compensation for Mr. Beattie was relatively flat compared to fiscal 2012. Mr. Logan’s total direct compensation rose in fiscal 2013, primarily as a result of an increased PRSU grant, as well as a special promotional cash bonus awarded to him in recognition of his promotion to Executive Vice President after the end of fiscal 2013, based on his fiscal 2013 achievements. Mr. Cabrera’s total direct compensation increased primarily due to a stock option grant awarded to him in July 2013 in recognition of a promotion he received during fiscal 2013.

Stockholders’ Say-on-Pay in 2013

In 2013, we held our third annual advisory stockholder vote on our executive compensation. Last year’s proxy statement detailed our fiscal 2012 executive compensation as well as important compensation decisions for fiscal 2013, including the decision to compensate our Co-CEOs equally, as well as fiscal 2013 NEO base salaries, amounts of equity grants (except for a subsequent promotional grant for Mr. Cabrera), and the selection of metrics that would be used in determining achievement of performance-based compensation.

More than 98% of the shares that were voted approved our executive compensation as disclosed in last year’s proxy statement. Our Compensation Committee considered our stockholders’ votes in deciding the final amounts of our NEOs’ cash incentive payments for fiscal 2013. The Compensation Committee also factored in our stockholders’ say-on-pay approval in deciding to maintain a similar compensation philosophy for fiscal 2014.

Important Executive Compensation Policies and Governance Practices

Our Compensation Committee believes our current executive compensation policies are effective in advancing our strategic plans, reasonable in relation to our peer group and responsible in encouraging our NEOs to work for meaningful stockholder returns without taking unnecessary or excessive risks. The highlights of our compensation program include:

 

   

Fixed compensation for fiscal 2013 was only 11% of target total direct compensation for our highest-paid executives, our Co-CEOs Dr. de Geus and Dr. Chan, and 21% for our other NEOs as a group, ensuring that the vast majority of NEO target total direct compensation was performance-based for fiscal 2013.

 

   

Total direct compensation for our NEOs is generally targeted between the 50th and 60th percentiles of our peer group at full achievement of performance goals.

 

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Our Executive Incentive Plan encourages our NEOs to address current fiscal year revenue and operating margin, as well as revenue in future years, promoting a predictable revenue stream and minimizing incentives for risky business practices with short-term impact.

 

   

Our performance-based RSUs direct our NEOs to achieve a specified non-GAAP net income target for the current fiscal year to earn a maximum award, and encourage retention through time-based vesting over the following three years.

 

   

Our NEO change of control agreements are “double trigger”—NEOs do not receive a payment simply due to a change of control and do not receive a payment if they continue to be employed in a similar role after the change of control.

 

   

The “double trigger” change of control salary continuation and cash incentive award payments potentially owed to our NEOs do not exceed two times their annual target cash compensation.

The following compensation governance practices support and regulate our compensation program:

 

   

Our Compensation Committee is composed solely of independent directors.

 

   

The Compensation Committee directly retains a compensation consultant the Committee has determined to be independent, using the factors set out in applicable SEC and NASDAQ rules. The Compensation Committee reviews this determination on an annual basis.

 

   

Our Board of Directors elected to hold an annual advisory say-on-pay vote, and our Compensation Committee considers the outcome of the annual advisory vote in making compensation decisions.

 

   

In 2003, Synopsys adopted Stock Ownership Guidelines for our NEOs and members of the senior leadership team in order to further link their near-term decisions to Synopsys’ long-term success. At the end of fiscal 2013, Dr. de Geus held 637,763 shares of our common stock, valued (as of the end of fiscal 2013) at over 40 times his annual base salary. Dr. Chan held 189,021 shares, valued (as of the end of fiscal 2013) at over 10 times his annual base salary.

 

   

Since December 2008, we have maintained a clawback policy for the recovery of performance-based compensation in the event of a substantial financial restatement.

 

   

Our NEOs are prohibited from engaging in hedging transactions in Synopsys stock, holding Synopsys stock in a margin account, and pledging Synopsys stock as collateral for a loan.

 

   

We believe Synopsys’ executive compensation policies are structured to discourage inappropriate risk-taking by our executives. The Compensation Risk Assessment located after this Compensation Discussion and Analysis describes our Compensation Committee’s assessment that the risks arising from our company-wide compensation programs are reasonable, in the best interest of our stockholders, and not likely to have a material adverse effect on Synopsys.

Our Compensation Philosophy

We have designed our executive compensation program to attract, motivate and retain a team of highly qualified executives who will drive technological and business success. In order to motivate and reward our NEOs for work that improves our long-term business performance and increases stockholder value, we have developed the following compensation objectives:

 

   

Provide competitive compensation that attracts and retains top-performing NEOs

 

   

Link NEO compensation to the success of our business objectives

 

   

Motivate NEOs to achieve results that exceed our strategic plan targets

 

   

Align the interests of NEOs and stockholders through the managed use of long-term incentives

 

   

Promote teamwork among NEOs by considering internal fairness in setting compensation levels

 

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Pay for Performance. Underlying these objectives is our pay-for-performance philosophy. We believe that the majority of each NEO’s target total direct compensation should be “performance-based”—that is, contingent upon the overall performance of our business. As shown in the graph below, we structure our compensation mix such that approximately 90% of the target total direct compensation of our highest-paid NEOs—Dr. de Geus and Dr. Chan—is performance-based. Approximately 80% of target total direct compensation is performance-based for our other NEOs as a group. We believe this direct link between pay and performance is an effective way to motivate our NEOs to achieve key financial objectives and, ultimately, increase stockholder value.

 

LOGO

Role of Compensation Committee. Our Compensation Committee is responsible for determining NEO compensation. The Compensation Committee, which is composed of three independent directors, meets regularly throughout the year. In the first quarter of each fiscal year, the Compensation Committee reviews and approves:

 

   

The level of achievement of financial performance goals for the prior fiscal year;

 

   

Annual incentive compensation, if earned, based on that prior fiscal year achievement;

 

   

Annual financial performance goals for the current fiscal year; and

 

   

The level and mix of NEO target compensation for the current fiscal year.

Role of Compensation Committee Consultant. Our Compensation Committee directly retained the services of Radford, an Aon Hewitt company, as an independent compensation consultant for fiscal 2013. Radford has served the Compensation Committee in this role since September 2006. The Compensation Committee may replace Radford or hire additional consultants at any time. The Compensation Committee retains sole authority to appoint and compensate Radford and to oversee its work for the Committee. Synopsys pays the fees for the services provided by Radford to the Compensation Committee. In fiscal 2013, the services provided by Radford included:

 

   

Assisting in the selection of our peer group companies and applicable benchmarks;

 

   

Providing compensation survey data to benchmark NEO compensation, including research regarding Co-CEO pay practices at other companies employing that leadership model;

 

   

Helping the Compensation Committee interpret compensation data;

 

   

Advising on the reasonableness and effectiveness of our NEO compensation levels and programs; and

 

   

Assisting in the review of the NEO compensation disclosure in this Proxy Statement.

In addition, in 2013, Radford conducted a detailed review of our cash and equity compensation plans compared to market practices among our peers, to provide an independent view of the risks associated with our compensation programs, including those for our NEOs.

 

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In addition to the fees we paid Radford for services provided to our Compensation Committee, we also paid $56,000 in fees to Radford during fiscal 2013 for access by our Human Resources department to Radford’s general employee compensation benchmarking data. After considering the factors set forth in Rule 10C-1(b)(4) under the Exchange Act and NASDAQ Listing Rule 5605(d)(3)(D), including a review of the access fees described above and Radford’s representations to the Compensation Committee regarding each factor, the Committee determined that Radford was independent.

Peer Group Comparisons. Our Compensation Committee reviews compensation data from a specific group of companies that are similar to us in scale and organizational complexity to establish market-based guidelines for the compensation of our NEOs. For fiscal 2013, the Compensation Committee selected the peer group companies listed below because they: (1) were business or labor market competitors in the software (excluding gaming and e-commerce) or fabless semiconductor industries; (2) generated annual revenues between $700 million and $3 billion; (3) had a market capitalization between $2 billion and $12 billion; and (4) had approximately 2,000 to 10,000 employees. At the time of the selection in June 2012, Synopsys had annual revenue for the previous fiscal year of approximately $1.54 billion, a market capitalization of approximately $4.14 billion, and, as of the end of the previous fiscal year, approximately 6,800 employees.

 

Altera Corporation   ANSYS, Inc.   Autodesk, Inc.   BMC Software, Inc.(1)  

Cadence Design

Systems, Inc.

Cypress Semiconductor

Corporation

 

Informatica

Corporation

 

KLA-Tencor Corporation

 

Linear Technology Corporation

 

LSI Corporation

Marvell Technology Group Ltd.

 

Mentor Graphics

Corporation

 

Microchip Technology Inc.

 

Nuance Communications, Inc.

 

Parametric Technology

Corporation

Red Hat, Inc.   TIBCO Software Inc.  

Trimble

Navigation Ltd.

  Xilinx, Inc.  

 

(1) BMC Software, Inc. was acquired by a group of private equity buyers on September 10, 2013.

Consistent with fiscal 2012, our Compensation Committee selected a range between the 50th and 60th percentiles of our peer group as a general guideline for fiscal 2013 NEO total direct compensation, total cash compensation, and equity compensation. With respect to the specific elements of cash compensation, the Compensation Committee used the 25th to 50th percentiles of our peer group to set base salaries for Mr. Beattie, Mr. Logan, and Mr. Cabrera. The Compensation Committee set the base salaries of Drs. de Geus and Chan, our Co-CEOs, below the 25th percentile of peers. In selecting targets for our performance-based cash incentive compensation program, which are expressed as a percentage of base salary, the Compensation Committee set percentages above the 75th percentile of our peers. The Compensation Committee believes that offsetting a lower base salary with a higher performance-based cash compensation opportunity, especially in the case of Drs. de Geus and Chan, reinforces our commitment to pay for performance. Furthermore, as mentioned above, total cash compensation for our NEOs still remains generally targeted between the 50th and 60th percentiles of our peers.

Our Compensation Committee believes that peer group comparisons are useful guidelines to measure the competitiveness of our compensation practices. The Compensation Committee maintains discretion, however, to set levels of NEO compensation above or below peer levels based upon distinguishing factors such as individual performance, an NEO’s level of experience and responsibilities, internal pay equity, and our compensation budget.

 

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Peer Group Research Regarding Co-CEO Compensation. In determining fiscal 2013 target compensation for Dr. de Geus and Dr. Chan, our Co-CEOs, the Compensation Committee reviewed a unique, additional set of peer group companies—companies that also used a Co-CEO leadership model. Radford compiled a list of companies with Co-CEOs and researched their pay practices by core element of compensation as well as overall compensation. Because of the limited set of companies employing the Co-CEO leadership model, the Compensation Committee was not able to refine the list using the same criteria used to generate our peer group companies listed above. Pay practices at the following companies were researched by Radford:

 

•     American Financial Group, Inc.

 

 

•     Primerica, Inc.

 

•     Apollo Group, Inc.

 

 

•     Research in Motion, Ltd.

 

•     Chipotle Mexican Grill, Inc.

 

 

•     Stewart Information Services Corporation

 

•     Emeritus Corporation

 

Radford’s research indicated that, for each core element of compensation and for total compensation, Co-CEOs were paid equally in most instances. The Compensation Committee considered this data in deciding to set equal target compensation for Dr. de Geus and Dr. Chan in fiscal 2013.

Role of Management. Our Compensation Committee discusses NEO performance assessments and compensation targets with Dr. de Geus and our Senior Vice President of Human Resources. To assess Co-CEO performance, the Compensation Committee oversees a comprehensive assessment process facilitated by our Senior Vice President of Human Resources. We also have an executive compensation team that provides background on company budgetary constraints and internal pay equity to help the Compensation Committee understand Radford’s recommendations in those contexts. No NEO is present for Compensation Committee decisions related to his individual compensation.

Tally Sheets. Prior to approving target compensation levels for the upcoming fiscal year, our Compensation Committee reviews tally sheets for each NEO to review how each core element of compensation relates to other elements and to total pay. The tally sheets summarize target total direct compensation, as well as potential payments upon change of control or, if applicable, involuntary termination. The tally sheets also summarize historical compensation for our NEOs, allowing the Compensation Committee to review NEO wealth accumulation.

Annual Say-on-Pay Vote. Our stockholders have the opportunity to cast an annual advisory vote on our NEO compensation (say-on-pay vote)—see Proposal 5 on page 46 of this Proxy Statement. At each of the past three annual meetings, over 97% of the shares voted approved our NEO compensation. Although the vote is non-binding, the Compensation Committee considers the results of the say-on-pay vote when making compensation decisions, allowing our stockholders to provide input on our compensation philosophy, policies and practices.

Core Elements of NEO Direct Compensation

Our three core elements of NEO direct compensation are base salary, a cash incentive payment opportunity and equity awards.

Base Salary. Base salaries compensate our NEOs for expected levels of day-to-day performance. Our Compensation Committee believes that base salaries should be determined by each individual’s role and responsibilities, our financial projections and budget for the coming year and historical salary levels. In addition, the Compensation Committee uses the 25th to 50th percentiles of our peer group as a general guideline for NEO base salaries, and uses a benchmark below the 25th percentile as a general guideline for the individual base salary levels for Drs. de Geus and Chan.

Cash Incentive Payment. We use annual cash incentive compensation to align NEO performance with near-term financial objectives. These cash incentive payments can be paid to NEOs only if we achieve our annual financial performance goals, which advance our long-term strategic plans

 

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and, ultimately, stockholder value. Our Compensation Committee grants cash incentive compensation opportunities under our 2006 Employee Equity Incentive Plan, as amended, which was most recently approved by our stockholders in April 2013. The Compensation Committee calculates whether cash incentive opportunities have been earned according to our Executive Incentive Plan—162(m) (EIP), which was approved by the Compensation Committee in January 2010. While our intention is that these cash incentive payments are exempt under Section 162(m) of the Internal Revenue Code, we cannot guarantee deductibility and reserve the discretion to pay non-deductible amounts.

Executive Incentive Plan. The EIP is designed to permit us to pay “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code. Under the EIP, our Compensation Committee approves a target cash incentive payment for the fiscal year, our annual objective performance goals, and a payout matrix that determines how much of the target payment may be paid at each level of achievement of our performance goals. After the end of the fiscal year, the Compensation Committee applies an objective payment formula provided by the EIP to calculate the amount of potential cash incentive payments. The EIP gives the Compensation Committee the discretion to reduce, but not to increase, these potential payments. Furthermore, the EIP caps actual cash incentive payments at the lesser of $2,000,000 or 200% of the NEO’s applicable target, regardless of how much we may have overachieved against our annual performance goals. Our 2006 Employee Equity Incentive Plan also includes this $2,000,000 shareholder-approved cap.

Target Cash Incentive Payment. A target cash incentive payment is the amount of cash incentive compensation that an NEO could earn if we achieve our performance goals. Targets are expressed as a percentage of an NEO’s base salary. For fiscal 2013, our Compensation Committee increased Dr. Chan’s target from 170% to 220% in recognition of his new role as our Co-CEO, and lowered Dr. de Geus’ target from 240% to 220%, with his recommendation, in order to make both Co-CEOs’ targets the same. Otherwise, with the exception of an increase in Mr. Cabrera’s target from 60% to 70% in fiscal 2011, the Compensation Committee has not changed target cash incentive levels for the past five fiscal years.

Our NEOs’ fiscal 2013 target cash incentive payments are below:

 

NEO

   Target Cash Incentive  Payment
(% of Base Salary)

Aart J. de Geus

   220%

Chi-Foon Chan

   220%

Brian M. Beattie

   125%

Joseph W. Logan

   145%

Brian E. Cabrera

     70%

Our Compensation Committee views cash incentive payments as a critical tool for implementing our pay-for-performance philosophy. The Compensation Committee compares each NEO’s target against peer group benchmarks every year to help evaluate whether it is a competitive and effective incentive. The Compensation Committee generally used percentages above the 75th percentile of our peer group as a guide in selecting target levels for fiscal 2013. For our NEOs, the target cash incentive opportunity offsets a base salary that is targeted at a lower peer group benchmark, generally the 25th to 50th percentile of peers and, for Drs. de Geus and Chan, below the 25th percentile. The Compensation Committee believes this emphasis on performance-based compensation in the cash compensation mix for our NEOs reinforces our commitment to pay-for-performance and recognizes our NEOs’ key roles in guiding our performance.

Performance Goals. The EIP requires our Compensation Committee to set annual performance goals based on revenue, operating margin, and revenue backlog. We must reach a high level of achievement of these equally-weighted goals, which the EIP refers to as Corporate Financial Goals, before any cash incentive payment may be earned. In addition, under the EIP, the Compensation Committee sets a further revenue backlog goal called a Revenue Predictability Goal that, if fully

 

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achieved, can increase NEO cash incentive payments through a multiplier. The Compensation Committee believes the numbers it sets for each of these goals are challenging but not so unrealistic as to encourage excessive or unnecessary risk-taking. Our Corporate Financial Goals and Revenue Predictability Goal for fiscal 2013 are below:

 

Corporate Financial Goals

 

Fiscal 2013 Target

Current fiscal year revenue

  Fiscal 2013 revenue: $1.975 billion

Current fiscal year non-GAAP operating margin(1)

  Fiscal 2013 non-GAAP operating margin:  24.7%

Following fiscal year revenue backlog(2)

  Fiscal 2014 revenue backlog:  $1.355 billion

Revenue Predictability Goal

 

Fiscal 2013 Target

Second following fiscal year revenue backlog(2)

  Fiscal 2015 revenue backlog:  *(3)

 

 

(1) Non-GAAP operating margin is GAAP operating margin adjusted to eliminate the effect of stock compensation, acquisition-related costs, amortization of intangible assets, certain unusual events and the income tax effect of pre-tax non-GAAP adjustments.

 

(2) Revenue backlog for a particular year is the portion of committed orders not yet recognized as revenue but that we expect to be recognized in that particular year, measured as of the end of the current fiscal year.

 

(3) We consider our second-year revenue backlog target to be confidential, and the disclosure of this target would cause us competitive harm. In general, our Compensation Committee sets revenue backlog targets that it believes to be challenging but attainable in the absence of a further deterioration in macroeconomic conditions. Second-year revenue backlog targets were achieved in fiscal 2010 through fiscal 2012, but not in fiscal 2009.

The EIP uses current fiscal year revenue and non-GAAP operating margin to focus our NEOs on revenue growth and cost control for the current fiscal year, while the EIP goals based on two subsequent years of revenue backlog direct our NEOs to address near-term future revenue and revenue predictability. We believe the exclusive use of corporate performance metrics, rather than a mix of corporate and individual metrics, fosters teamwork among our NEOs and reflects the importance of company-wide performance to stockholder value. Furthermore, we consider these performance metrics to be superior indicators of our recent financial performance and future prospects. Our Compensation Committee believes the consistent application of these measures, which have been used for six straight fiscal years, allows our NEOs to focus on sustained performance rather than short-term accomplishments.

Payout Matrix. Each year, our Compensation Committee approves a payout matrix that determines, within boundaries established by the EIP, what percentage of target cash incentive payments can be paid out at each level of achievement of our Corporate Financial Goals. The EIP requires a minimum average achievement of 90% of our Corporate Financial Goals before our NEOs can earn any cash incentive payment. Furthermore, according to the EIP, the payout matrix may not award more than 67.5% of a target payment for that 90% achievement threshold.

The EIP is structured in this way to provide a limited payment opportunity when performance goals are narrowly missed. We believe this limits our exposure to excessive risk-taking that can arise with “all or nothing” performance conditions. We believe this minimum 90% achievement level is above peer practice. It is also 10% above the minimum achievement level for our broad-based employee incentive compensation plans, which allows employees to earn incentive pay before executives.

 

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For fiscal 2013, our Compensation Committee approved a payout matrix that allows our NEOs to earn 100% of their target cash incentive payments if we achieve an average of 100% of our Corporate Financial Goals, which is consistent with incentive compensation plans for our other employees. The following table provides excerpts from the fiscal 2013 payout matrix.

Fiscal 2013 Payout Matrix

 

Average Achievement of

Corporate Financial Goals

  

Corporate Financial

Payout Factor(1)

<90%

          0%

90%

     67.5%

100%

      100%

103%

   112.7%

³125%

      150%

 

 

(1) We round our average achievement to the nearest quarter percent and use straight-line interpolation to calculate the exact payout factor for achievement levels that fall in between levels specified in the matrix. For example, if we achieve our Corporate Financial Goals at an average of 101.75% then the Corporate Financial Payout Factor is 107.39%.

EIP Payment Formula. After the end of our fiscal year, our Compensation Committee certifies whether performance goals were met and uses the following formula from the EIP to calculate potential cash incentive payments:

 

LOGO

 

Factor   How It Works   Levels for Fiscal 2013   Objective

LOGO

  We calculate the average achievement of our three Corporate Financial Goals and match it with the corresponding Corporate Financial Payout Factor in our payout matrix (see above).   See Fiscal 2013 Payout Matrix, above.   Each of the three Corporate Financial Goals is equally weighted in order to emphasize not only current fiscal year financial goals but also near-term future revenue.

LOGO

  If we achieve more than 100% of our Revenue Predictability Goal, the EIP multiplies potential cash incentive payments by a Revenue Predictability Payout Factor. Under-performance does not decrease potential payments.   This factor could range from 100% to 150% depending on the level of overachievement of our Revenue Predictability Goal.   Our Compensation Committee believes this factor encourages our NEOs to achieve a stable and predictable future revenue stream.

LOGO

  If the average achievement of our Corporate Financial Goals is above 100%, a multiplier (the CFG Multiplier) is applied to potential cash incentive payments.   The CFG Multiplier was 1.10, if achieved.   Our Compensation Committee believes the CFG Multiplier encourages our NEOs to maximize their efforts to achieve outstanding results for our stockholders.

Note: Every cash incentive payment is capped by the EIP at the lesser of $2,000,000 or 200% of the NEO’s target.

 

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Actual Cash Incentive Payments. Actual cash incentive payments are only approved after our Compensation Committee has reviewed the potential cash incentive payment calculations and considered other relevant information not incorporated into the EIP payment formula, such as the impact of major acquisitions during the year, individual performance, and affordability. The Compensation Committee is empowered to reduce potential cash incentive payments, regardless of whether any multiplier has been earned. The Compensation Committee may not increase potential payments, and in no event can an actual cash incentive payment exceed the lesser of $2,000,000 or 200% of the NEO’s target cash incentive payment.

Equity Awards. We believe that equity awards align the interests of our NEOs with the long-term interests of our stockholders. Equity awards help us retain our NEOs for the long term through an incentive that rewards long-term value creation measured by our stock price, as well as through time-based vesting that requires the long-term service of an NEO to fully realize an award.

Our Compensation Committee grants equity awards to our NEOs under our 2006 Employee Plan. Currently, the Compensation Committee grants our NEOs stock options with time-based vesting and performance-based restricted stock units (PRSUs), which are eligible to vest only upon achievement of pre-established performance criteria and are subject to time-based vesting thereafter.

The size of equity awards granted to each NEO is based on an estimated target dollar value. Our Compensation Committee uses values between the 50th and 60th percentiles of our peer group, both on a dollar value basis and a percentage of company equity basis, giving equal weight to each, for general guidance. The Compensation Committee also considers our financial projections and equity budget for the coming year, as well as each individual NEO’s role and responsibilities in order to reflect internal pay equity between NEOs and our employees in general.

After choosing the general target value for each NEO’s equity awards, our Compensation Committee seeks to allocate the dollar value roughly equally between stock options and PRSUs. The Compensation Committee believes this ratio is appropriate because it encourages our NEOs to focus both on near-term results, by requiring the achievement of a near-term performance condition for the PRSUs to vest, and on long-term value creation, since stock options and PRSUs reward sustained increases in our stock price. To determine the actual number of stock option shares to be granted for fiscal 2013, the Compensation Committee used a Black-Scholes option-pricing model, and to determine the target PRSU award size to be granted, the Compensation Committee used a ratio of one PRSU share for every three stock option shares granted, which the Committee believes is within current standard market practice, and assumed, for purposes of setting the target, that 100% of the PRSUs’ performance condition would be achieved. The grant date value of the equity awards does not represent the actual value that may be realized by an NEO upon vesting or exercise of such awards.

Stock Options. Our Compensation Committee believes that stock options are an important form of long-term incentive compensation because they are only valuable if our stock price increases over time. As a result, our NEOs’ interests are directly linked to our long-term business objectives. The Compensation Committee generally grants stock options at a pre-scheduled meeting, and the exercise price is the closing price of our common stock for that date as reported on the NASDAQ Global Select Market, as described in more detail in “Equity Grant Timing Policy,” below. Stock options typically vest based on continued service over four years.

PRSUs. The Compensation Committee believes that PRSUs further align the interests of our NEOs with the interests of our stockholders because the value of each PRSU increases or decreases directly with our stock price. Additionally, since a PRSU share is more valuable than a share subject to a stock option, we can better manage stockholder dilution by awarding fewer PRSUs relative to stock options. Following our overall philosophy of pay for performance, the Compensation Committee only grants NEOs restricted stock units that are subject to performance criteria, except in the case of new-hire, promotional or special recognition awards. In fiscal 2013, there were no new-hire, promotional or special recognition restricted stock unit awards for our NEOs.

 

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Each year, the Compensation Committee selects a non-GAAP net income goal for PRSUs. Non-GAAP net income is GAAP net income adjusted for stock compensation expense, acquisition-related costs, amortization of intangible assets, certain unusual events and the income tax effect of pre-tax non-GAAP adjustments. Our fiscal 2013 goal was non-GAAP net income of $350.3 million. The Compensation Committee uses non-GAAP net income because it is an important measure of our success that is distinct from other metrics used in our EIP, such as revenue and operating margin.

Each PRSU grant is made at the maximum amount of shares that can be earned if we fully achieve our non-GAAP net income goal. The actual number of shares that are earned and eligible to vest depends on the level of achievement of our goal, and achievement below 95% results in the cancellation of the entire award:

Percentage Achievement of PRSU Non-GAAP Net Income Performance Goal

 

LOGO

 

 

(1) If we achieve between 95% and 100% of our performance goal, then between 50% and 100% of the PRSU award is earned and eligible to vest. The exact amount of shares earned is calculated by linear interpolation.

 

(2) 100% of the PRSU award is earned and eligible to vest if we achieve 100% or more of our performance goal. No additional shares are earned if we exceed our performance goal.

The Compensation Committee rewards performance levels between 95% and 100% to provide our NEOs with a partial award for substantially achieving our non-GAAP net income goal. The Compensation Committee believes this limits excessive risk-taking that can be encouraged by a single “all or nothing” performance condition.

All PRSUs remain subject to time-based vesting. If the performance goal is achieved, only 25% of the earned PRSU shares vest at the end of the performance year. The remaining earned PRSU shares vest annually over the following three years, provided the NEO continues to remain employed by Synopsys, which encourages retention and long-term focus.

Actual Fiscal 2013 NEO Compensation

In fiscal 2013, approximately 90% of the actual direct compensation of Dr. de Geus and Dr. Chan, our Co-CEOs and highest-paid NEOs, was performance-based, and approximately 81% of the actual direct compensation of our other NEOs was performance-based. We achieved an average of 103.4% of our Corporate Financial Goals under our EIP, and exceeded the Revenue Predictability Goal by more than 38%, thus helping create greater stability for future revenue streams. We also fully achieved the fiscal 2013 non-GAAP net income performance goal for the PRSU awards granted to our NEOs and, as a result, the awards were fully earned and eligible to vest.

Despite the overachievement of our performance goals, Dr. de Geus’ total direct compensation declined compared to fiscal 2012. This was due to reductions in Dr. de Geus’ equity awards, as measured by grant date fair value. Dr. de Geus had recommended these reductions, as well as a

 

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reduction in his target cash incentive payment for fiscal 2013, and our Compensation Committee approved them, in order to set his target compensation equally with that of Dr. Chan, our other Co-CEO. But in addition, as in the previous three fiscal years, Dr. de Geus further requested that the Compensation Committee reduce his actual cash incentive payment in order maintain parity with our other executives. The Compensation Committee honored his request, and thus Dr. de Geus received the same incentive cash payment as in the last three fiscal years.

Dr. Chan’s total direct compensation was approximately 14% higher in fiscal 2013 than in fiscal 2012, commensurate with his promotion to Co-CEO. In setting Dr. Chan’s target compensation for fiscal 2013, our Compensation Committee reviewed research by Radford on pay at other companies using a Co-CEO leadership model. The research indicated that, for each core element of compensation and for overall compensation, Co-CEOs were paid equally in most instances. The Compensation Committee further determined that Dr. Chan and Dr. de Geus had made equal contributions, and taken on equal responsibilities, in their roles as Co-CEOs. Finally, the Compensation Committee also took into account Dr. de Geus’ request that the Co-CEOs be treated as an executive unit.

Using the stockholder-approved fiscal 2012 target compensation of Dr. de Geus as a guide, the Compensation Committee decided to set Dr. Chan’s target compensation equal to Dr. de Geus’ for fiscal 2013. The Compensation Committee increased Dr. Chan’s fiscal 2013 base salary, target cash incentive payment, and equity awards, as measured by grant date fair value. Nonetheless, Dr. Chan also requested that the Compensation Committee reduce his actual cash incentive payment to keep parity with the rest of our executive team. The Compensation Committee also honored this request, and Dr. Chan received the same incentive cash payment as Dr. de Geus.

Total direct compensation rose for each of our remaining NEOs principally due to increases in equity grants, as measured by grant date fair value, particularly in the case of Mr. Cabrera, who received an additional stock option grant in recognition of a promotion he received during fiscal 2013. Mr. Logan also received a special promotional cash bonus in recognition of his promotion to Executive Vice President, which contributed to the increase in Mr. Logan’s total direct compensation over fiscal 2012.

Base Salary. For fiscal 2013, the Compensation Committee increased Dr. Chan’s base salary by approximately 11% on account of his promotion to Co-CEO, bringing it equal with Dr. de Geus’ base salary while still below the 25th percentile of our peer group. The Compensation Committee also raised Mr. Logan’s salary by approximately 6% to remain competitive with his peers. His base salary continued to be within the 25th to 50th percentiles of our peer group.

The Compensation Committee kept base salaries flat for our other NEOs because the Committee believed they remained appropriate for each NEO’s role and responsibilities and remained within the 25th to 50th percentile range. Our philosophy uses this range as a guideline for fixed cash compensation, and uses a range below the 25th percentile as a guideline for our Co-CEOs, in order to emphasize the role of performance-based compensation in our NEOs’ total cash compensation mix.

 

LOGO

 

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Cash Incentive Payment. Our achievement against our EIP performance goals in fiscal 2013 was as follows:

 

Corporate Financial Goals

  Weight   Fiscal 2013 Target   Fiscal 2013 % Achieved

Fiscal 2013 revenue

  33.33%   $1.975 billion   99.4%

Fiscal 2013 non-GAAP operating margin

  33.33%   24.7%   97.2%

Fiscal 2014 revenue backlog(1)

  33.34%   $1.355 billion   113.6%

Revenue Predictability Goal

  Weight   Fiscal 2013 Target   Fiscal 2013 % Achieved

Fiscal 2015 revenue backlog(1)

    *(2)   138.9%

 

(1) Revenue backlog for a particular year is the portion of committed orders not yet recognized as revenue but that we expect to be recognized in that particular year, measured as of the end of the current fiscal year.

 

(2) We consider our second-year revenue backlog target to be confidential, and the disclosure of this target would cause us competitive harm.

For fiscal 2013, our Compensation Committee had increased Dr. Chan’s target cash incentive payment from 170% to 220% of base salary in recognition of his new role as our Co-CEO, and lowered Dr. de Geus’ target from 240% to 220%, with his recommendation, in order to make both Co-CEOs’ targets the same. Although Mr. Logan’s target level had not changed from 145% of base salary, his target payment for fiscal 2013 increased due to the approximate 6% raise in his base salary as described above. All other NEO targets were unchanged.

In December 2013, our Compensation Committee met with Dr. de Geus to discuss the fiscal 2013 performance of each of the other NEOs, calculate potential cash incentive payments, and determine the actual incentive payments. Based on our overachievement of EIP performance goals, the calculation of cash incentive payments using the EIP’s payment formula would have yielded awards of approximately 188% of our NEOs’ target payments. However, to meet budgetary goals, the Compensation Committee, with Dr. de Geus’ recommendation, reduced total EIP awards below this level. Nearly all of the reduction came at the expense of the awards for Dr. de Geus and Dr. Chan, who had each previously requested that their cash incentive payments be lowered to maintain parity with their executive team, as discussed in further detail below.

The Compensation Committee agreed with Dr. de Geus’ assessment of the individual contributions of our other NEOs. As a result, the Compensation Committee determined the following:

Brian Beattie, Chief Financial Officer—Under Mr. Beattie’s leadership, we achieved earnings per share results that exceeded expectations, helped by his careful expense management in fiscal 2013. Our operating cash flow also exceeded our expectations for fiscal 2013. Mr. Beattie continued to prudently manage our cash in the face of an unstable global economic environment, overseeing our continued repayment of borrowings under our revolving credit facility and supervising roughly $145 million in share buybacks during fiscal 2013.

Joseph Logan, Executive Vice President of Worldwide Sales and Corporate Marketing—Mr. Logan assumed responsibility for our global marketing organization during fiscal 2013. He led our marketing and sales teams in the ongoing integration of new technologies from the many acquisitions concluded during our last few fiscal years, while continuing to effectively promote our existing platforms and tools. Under Mr. Logan’s leadership, we delivered revenue backlog significantly above plan.

In recognition of his achievements in fiscal 2013, Mr. Logan was promoted from Senior Vice President to Executive Vice President in December 2013, and the Compensation Committee decided to award him a special, one-time cash bonus of $100,000 in recognition of his promotion.

 

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Brian Cabrera, General Counsel—Mr. Cabrera received a promotion in fiscal 2013 in recognition of his continued strong leadership of our legal, ethics and compliance, and corporate affairs initiatives. Mr. Cabrera continued to lead our principled approach to corporate governance and compliance and oversaw a significant expansion of our patent portfolio in fiscal 2013.

At its December meeting, our Compensation Committee further reviewed a comprehensive assessment of the performance of our Co-CEOs that included feedback from our other independent directors. Drs. de Geus and Chan were not present for the discussion of their performance during the meeting. The Compensation Committee reached the following conclusions:

Dr. Chi-Foon Chan, Co-Chief Executive Officer and President —Dr. Chan continued to strengthen our customer relationships, leading to important customer wins and renewals, and provided critical guidance in our Asian markets.

Aart J. de Geus, Co-Chief Executive Officer and Chairman of the Board of Directors—Under Dr. de Geus’ guidance, we extended our technology leadership in our core business. Together with Dr. Chan, Dr. de Geus provided outstanding leadership in fiscal 2013, helping to grow our core business and pursue adjacent markets.

The Compensation Committee noted that, as Dr. de Geus had done in past years, the Co-CEOs had requested that their potential cash incentive payments, calculated to be $2,000,000 for each Co-CEO based on the achievement of our fiscal 2013 performance goals, be reduced by $500,000 apiece to maintain greater parity with our executive team. The Co-CEOs wished to emphasize that our success continues to depend on teamwork and, accordingly, requested that the 25% reductions in their incentive payments be reallocated to employees other than our NEOs. The Compensation Committee honored their request.

After careful consideration, the Compensation Committee approved the following fiscal 2013 cash incentive payments for Dr. de Geus and our other NEOs:

 

NEO

   Target Cash Incentive
Payment
     Actual Cash Incentive
Payment
 

Aart J. de Geus

   $ 1,100,000       $ 1,500,000   

Chi-Foon Chan

   $ 1,100,000       $ 1,500,000   

Brian M. Beattie

   $ 500,000       $ 900,000   

Joseph W. Logan

   $ 551,000       $ 1,033,000   

Brian E. Cabrera

   $ 247,100       $ 447,000   

Equity Awards. The table below provides the grant date fair value of the stock options and performance-based RSUs (PRSUs) granted to our NEOs in fiscal 2013, as well as the number of PRSU shares that were earned and became eligible to vest based on our achievement of our PRSU performance goal. We reported $381.4 million in non-GAAP net income in fiscal 2013, 108.9% of our fiscal 2013 PRSU performance goal of $350.3 million. As a result, the maximum amount of PRSU shares were earned and became eligible to vest, and 25% of those eligible shares vested in December 2013.

In terms of grant date fair value, equity compensation increased for most of our NEOs over fiscal 2012, with the exception of Dr. de Geus. Dr. de Geus received approximately 13% less in equity grants by value. Just as Dr. de Geus had requested a lower target cash incentive payment for fiscal 2013 in order to be compensated equally with Dr. Chan, he also requested a lower and equal level of equity grants. The Compensation Committee approved his request.

Dr. Chan received the same equity grants as Dr. de Geus, an increase in grant date fair value of approximately 24% over fiscal 2012, in order to reflect his promotion to Co-CEO. Our Co-CEOs’ equity grants were each below the 50th to 60th percentile range of our peer group that our philosophy seeks to target, as our Compensation Committee believed the awards still provided an effective long-term

 

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incentive while helping to meet equity budget goals. Mr. Beattie and Mr. Logan’s equity grants increased by approximately 9% and 19%, respectively, by grant date fair value, over fiscal 2012. The Compensation Committee increased the value of their equity grants in order to remain competitive with peers, raising their grants to the higher end of the 50th to 60th percentile range of our peer group that our compensation philosophy seeks to target.

Finally, Mr. Cabrera received a grant of stock options to purchase 25,000 shares in July 2013 in recognition of a promotion he received during fiscal 2013. This special promotional grant accounted for almost all of the approximate 34% increase in the grant date fair value of Mr. Cabrera’s equity grants over fiscal 2012.

 

NEO

  Stock Options(1)     Maximum PRSU
Shares
    Actual PRSU  Shares
Earned and Eligible
for Vesting(2)
    Grant Date Fair Value of
Equity Awards
 

Aart J. de Geus

    160,000        53,300        53,300      $ 2,915,358   

Chi-Foon Chan

    160,000        53,300        53,300      $ 2,915,358   

Brian M. Beattie

    55,000        18,300        18,300      $ 1,001,446   

Joseph W. Logan

    60,000        20,000        20,000      $ 1,093,664   

Brian E. Cabrera

    57,500        10,800        10,800      $ 788,865   

 

 

(1)

Stock options vest in 1/16th increments every three months over a period of four years, as long as the NEO provides continuous service to us.

 

(2) The PRSU performance goal was achieved at 108.9%, and accordingly 25% of the maximum PRSU shares vested on December 12, 2013. The remaining 75% of the maximum PRSU shares is scheduled to vest in three equal annual installments beginning on December 8, 2014, as long as the NEO provides continuous service to us.

Other Benefits

General Health and Welfare Benefits. Our NEOs are eligible to participate in a variety of employee benefit plans on the same terms as our other employees, including medical, dental and vision care plans, life and disability insurance, our tax-qualified 401(k) plan, and our Employee Stock Purchase Plan. We believe these benefits are consistent with benefits provided by our peer group and help us to attract and retain high quality executives.

Perquisites & Other Benefits. No perquisites or other special executive benefits were given to our NEOs in fiscal 2013. In general, Synopsys and our Compensation Committee do not provide perquisites to our NEOs.

Deferred Compensation Plans. In 1996, the Compensation Committee established a deferred compensation program that allows our NEOs and other highly compensated individuals to save a portion of their compensation on a tax-deferred basis. We offer this program in order to remain competitive with a number of our peer companies and because the tax benefit it offers comes at a relatively low cost to us. The program is currently administered through two deferred compensation plans (one of which is “grandfathered” and closed to new participants). Under these plans, our NEOs and other highly compensated employees may elect to defer up to 50% of their base salary and up to 100% of their cash incentive compensation. Distributions from the deferred compensation plans are generally payable upon termination of employment and are made over five to 15 years or as a lump sum, at the option of the participant. We do not make any matching or discretionary contributions to the plans, there are no guarantees or minimum returns on investments, and undistributed amounts under the plans are subject to the claims of our creditors.

 

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Severance and Change of Control Benefits

Executive Change of Control Severance Benefit Plan. For the benefit of certain key executives, we maintain an Executive Change of Control Severance Benefit Plan (Severance Plan), which was approved by our Board of Directors in March 2006 and amended in December 2008. Each of our NEOs is covered under the Severance Plan, except Drs. de Geus and Chan, whose benefits are described below. The Severance Plan provides for limited cash and equity benefits in the event an executive’s employment is terminated in connection with a change of control of Synopsys. The Compensation Committee believes these incentives would help us retain our executives, and therefore maintain the stability of our business, during the potentially volatile period accompanying a change of control. The Compensation Committee believes the benefits are also comparable to benefits offered by our peer group, which helps us attract talented executives and maintain a consistent management team.

The Severance Plan only provides benefits if there is a “double trigger”: in addition to requiring a change of control of Synopsys, benefits are only provided if either (i) the eligible executive is involuntarily terminated without cause during the 30 days before or 12 months after the change of control; or (ii) there is a constructive termination of the executive within 12 months after the change of control. “Change of control,” “involuntary termination without cause,” and “constructive termination” are defined in the Severance Plan. We are not required to pay any tax gross-up amounts under the Severance Plan. To receive benefits, the executive must sign a release and severance agreement and, upon written request, enter into an 18-month non-competition agreement. Furthermore, benefits are subject to immediate termination, or recovery, under certain circumstances, such as an executive’s breach of our proprietary information or confidentiality agreements, breach of our non-solicitation and non-compete agreements, or interference with our existing business relationships.

Our potential payment obligations under the Severance Plan are described in the section titled “Potential Payments Upon Termination or Change of Control” below on page 76 of this Proxy Statement.

Severance and Change of Control Arrangements for Dr. Aart de Geus and Dr. Chi-Foon Chan. Drs. de Geus and Chan are not covered by the Severance Plan described above but are eligible for severance and change of control benefits through their respective employment agreements, which were entered into in October 1997 and amended in March 2006 and June 2008. As with our other NEOs, we believe that the change of control benefits we offer are reasonable, consistent with benefits offered by our peer group, and would help retain the focused services of Drs. de Geus and Chan in the event of a change of control transaction. We further offer severance benefits to Drs. de Geus and Chan, which are only provided for an involuntary termination, because the benefits help us remain competitive for their services, are comparable to the benefits provided by our peer group to similarly situated executives, and are reasonable in amount.

The severance and change of control provisions are the same in each agreement. Change of control benefits require a “double trigger”: they are only provided for (i) an involuntary termination of employment without cause within 24 months following a change of control or (ii) a voluntary resignation of employment for good reason within 24 months following a change of control. Severance benefits are only payable for (a) an involuntary termination without cause or (b) a voluntary resignation for good reason. The terms “change of control,” “involuntary termination,” “cause,” and “good reason” are defined in the agreements. To receive benefits, Drs. de Geus and Chan must sign a waiver and release of claims. We are not required to pay any tax gross-up amounts under these agreements. These agreements also provide that a portion of the cash benefits payable in connection with an involuntary termination (apart from a change of control) will not be paid if Dr. de Geus or Dr. Chan, as applicable, engage in misconduct, including unauthorized disclosure of our trade secrets or confidential information or willful violations of our written policies, within six months of termination.

Our potential payment obligations under the employment agreements of Drs. de Geus and Chan are described in the section titled “Potential Payments Upon Termination or Change of Control” below on page 76 of this Proxy Statement.

 

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Equity Plans. If we are acquired or involved in a similar corporate transaction, and the surviving company does not assume, replace or otherwise continue all of our outstanding equity awards, our equity incentive plans generally provide that such awards will fully vest. Corporate transactions under the plans generally include a sale or other disposition of more than 50% of our outstanding securities, a sale or other disposition of substantially all of our assets, a merger or consolidation in which we are not the surviving company, or a merger or consolidation in which we are the surviving company but our outstanding shares are converted into other property. We provide this benefit to all employees who hold equity awards under our plans to promote the stability and focused service of our workforce during a potentially uncertain time. Our Compensation Committee believes this benefit encourages our employees to work diligently towards the completion of a transaction that would potentially maximize stockholder value, even when our employees’ own equity awards would not survive the transaction.

Other Policy Considerations

Stock Ownership Guidelines. Our Compensation Committee has maintained stock ownership guidelines since fiscal 2003 to further align the interests of our senior management with those of our stockholders. Under our current guidelines, individuals employed in certain specified positions are encouraged to achieve the recommended stock ownership level within four years. The stock ownership recommendations for our NEOs are: Dr. de Geus—50,000 shares; Dr. Chan—50,000 shares; Mr. Beattie—10,000 shares; Mr. Logan—10,000 shares; and Mr. Cabrera—10,000 shares, which was increased from 7,500 shares in connection with his promotion during fiscal 2013. As of January 13, 2014, each of our NEOs held the recommended number of shares.

Equity Grant Timing Policy. We generally grant equity awards to executives at the beginning of each fiscal year at a Compensation Committee meeting that is typically scheduled more than a year in advance. For stock option grants, the Compensation Committee sets the exercise price at the closing price of our common stock on the NASDAQ Global Select Market on the date of the meeting. We generally plan to hold the meeting within two weeks after the release of our financial results so that the option exercise price reflects a fully-informed market price. In the event the meeting falls before the release of our financial results, the Compensation Committee will approve the stock option grants prior to the release of our results but set the exercise price to be the market closing price on the second trading day following the release. In the case of new-hire, promotional, or special recognition equity grants for executives, the Compensation Committee typically grants such awards shortly after the hiring, promotion or special achievement occurs, unless it is during a closed company trading window, which includes periods immediately preceding the release of our financial results.

Burn Rate. Each fiscal year, the Compensation Committee approves an annual gross equity budget to closely manage our equity compensation share reserve and stockholder dilution. The Compensation Committee endeavors to achieve a gross burn rate that approximates the average rate for our peer group companies as well as for the software and services industry more generally, and that our burn rates are within the limits published by independent shareholder advisory groups, such as Institutional Shareholder Services (referred to in this Proxy Statement as ISS). Our gross burn rate for each of the last several years was well within the guidelines recommended by ISS.

Tax Deductibility of NEO Compensation. Section 162(m) of the Internal Revenue Code generally limits the amount of NEO compensation we may deduct for annual federal income tax purposes to $1 million per NEO. However, compensation that qualifies as “performance-based” under Section 162(m) is excluded from the $1 million limit. Our EIP is designed to permit us to pay “performance-based” cash compensation, and our Compensation Committee may grant PRSUs intended to qualify as “performance-based” compensation. Although our Compensation Committee considers the deductibility of the compensation it awards, it retains the flexibility to award compensation that is consistent with our objectives and philosophy even if it does not qualify for a tax deduction.

Clawback Policy. In December 2008, our Board of Directors adopted a Compensation Recovery Policy, which allows us to recover or “clawback” compensation paid to covered employees under

 

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certain circumstances. Pursuant to the policy, we may require a covered employee to return all or a portion of any compensation paid or received after January 1, 2009, if: (1) the compensation was based on the achievement of financial results, and the results were the subject of a substantial restatement of our financial statements as filed with the Securities and Exchange Commission; and (2) less compensation would have been earned by the employee based on the restated financial results. Our Board of Directors has the sole authority to enforce this policy, and it is limited by applicable law. Each of our NEOs is subject to our Compensation Recovery Policy.

No Hedging Transactions. Our insider trading policy prohibits our employees, including our NEOs, and directors from engaging in hedging transactions in our common stock.

No Pledging. Our insider trading policy prohibits our employees, including our NEOs, and directors from holding our common stock in a margin account or pledging it as collateral for a loan.

Fiscal 2014 Target NEO Compensation Decisions

Our overall compensation philosophy for fiscal 2014 remains similar to our philosophy for fiscal 2013, which is described above in “Our Compensation Philosophy.” The Compensation Committee continued to use the 50th to 60th percentiles of our peer group as a general guideline for fiscal 2014 NEO total direct compensation, total cash compensation, and equity compensation. In all, performance-based compensation is targeted at approximately 88% percent of total direct compensation for our Co-CEOs and at approximately 79% for our other NEOs in fiscal 2014.

Subsequent to the end of fiscal 2013 and the fiscal 2014 compensation decisions described below, Mr. Cabrera resigned from Synopsys effective January 31, 2014.

Base Salaries. As a result of the promotions received by Mr. Logan just after fiscal 2013 and Mr. Cabrera during fiscal 2013, the Compensation Committee approved increases of approximately 5% for Mr. Logan and Mr. Cabrera’s base salaries. All other NEO base salaries remain the same in fiscal 2014.

 

LOGO

Cash Incentive Payments. The Compensation Committee maintained the same target cash incentive payment levels for our NEOs in fiscal 2014, as the Compensation Committee believed they provided an appropriate incentive and remained consistent with our compensation philosophy.

 

LOGO

 

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The Compensation Committee also continued to use the financial performance metrics in the EIP in setting performance goals for fiscal 2014. Our Compensation Committee believes the fiscal 2014 EIP performance goals are realistic but not easily achievable.

Equity Awards. The Compensation Committee approved equity grants to our NEOs for fiscal 2014. The grants were split equally between stock options and PRSUs based on grant date fair value. Compared to fiscal 2013, the Compensation Committee granted approximately 9% less in equity awards, by grant date fair value, to each of our Co-CEOs to help meet equity budget constraints.

All awards are subject to time-based vesting. The PRSU awards are further subject to a performance condition that, as in past practice, is based on a non-GAAP net income goal. Our Compensation Committee believes that the PRSU performance goal is realistically possible to achieve but still challenging.

In addition to the stock options and PRSUs granted to our NEOs as part of their compensation for fiscal 2014, the Compensation Committee also made a promotional stock option grant of 25,000 shares to Mr. Logan for fiscal 2014 in recognition of a promotion he received in December 2013. The Compensation Committee also made a special recognition stock option grant to Mr. Beattie for fiscal 2014 to recognize his leadership in managing our finance organization in an increasingly complex global environment. These promotional and special recognition stock option grants have the same vesting schedule as the other stock options granted to our NEOs for fiscal 2014.

The table below summarizes the equity awards granted to our NEOs for fiscal 2014.

 

NEO

   Stock Options    Promotional or
Special  Recognition
Stock Option
Grants
   Maximum PRSU
Shares(1)

Aart J. de Geus

   156,100       34,900

Chi-Foon Chan

   156,100       34,900

Brian M. Beattie

   61,900    10,000    13,800

Joseph W. Logan

   64,800    25,000    14,500

Brian E. Cabrera

   35,400       7,900

 

 

(1) This column represents the maximum number of PRSU shares eligible to vest. The actual number that becomes eligible to vest is based upon the achievement level of our fiscal 2014 non-GAAP net income goal.

Conclusion

We remain strongly committed to our pay-for-performance philosophy. As a result of the compensation program described above, the majority of each NEO’s compensation depends upon the achievement of our business goals. Our Compensation Committee gives careful consideration to each core element of direct compensation for each NEO. The Compensation Committee believes our NEO compensation program is effective in advancing our goals, reasonable in light of the programs of our peers, and responsible in encouraging our NEOs to work for real innovation, business growth and outstanding stockholder returns, without promoting unnecessary or excessive risks.

 

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Compensation Risk Assessment

Our Compensation Committee aims to establish company-wide compensation policies and practices that reward contributions to long-term stockholder value and do not promote unnecessary or excessive risk-taking. In furtherance of this objective, in late 2013, our Compensation Committee conducted an assessment of our compensation arrangements, including those for our NEOs. The assessment process included, among other things, a review of our (1) compensation philosophy, (2) compensation at peer group companies, (3) our compensation mix and (4) the terms and payments under our cash and equity incentive plans. Our Compensation Committee also asked Radford, its independent compensation consultant, to perform a detailed review of our cash and equity compensation plans in comparison to market practices.

In its review, among other factors, our Compensation Committee considered the following:

 

   

Our revenue model and our cash incentive plan encourage our employees to focus on creating a stable, predictable stream of revenue over multiple years, rather than focusing on current year revenue at the expense of succeeding years.

 

   

The Compensation Committee believes that the allocation of compensation among our core compensation elements effectively balances short-term performance and long-term performance.

 

   

Our cash and equity incentive awards focus on both near-term and long-term goals and, in the case of equity incentive awards, provide for compensation over a four-year period, to encourage our NEOs to remain focused on our performance beyond the immediate fiscal year.

 

   

The performance goals for our cash and equity incentive awards use a variety of performance metrics, which diversifies the risk associated with any one metric or aspect of performance.

 

   

Our cash and equity incentive awards contain a range of performance levels and payouts to discourage executives from taking risky actions to meet a single target with an all-or-nothing result of compensation or no compensation.

 

   

Our EIP caps cash incentive payments at a maximum award size. In addition, the Compensation Committee retains negative discretion to reduce our NEOs’ incentive payments under the plan.

 

   

Our cash incentive payments and equity awards are subject to a clawback policy to recover compensation in the event of a substantial financial restatement.

 

   

Our executives are encouraged to hold a meaningful number of shares of our common stock under our stock ownership policy.

Based upon this assessment, our Compensation Committee believes that our company wide compensation policies and practices are reasonable and encourage appropriate behaviors without creating risks that are reasonably likely to have a material adverse effect on us.

 

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Summary Compensation Table

The following table shows compensation awarded to, paid to, or earned by each of our executive officers, which consist of our Co-Chief Executive Officers, Chief Financial Officer and our two other executive officers (collectively, NEOs), for services performed during fiscal 2013, fiscal 2012 and fiscal 2011.

 

Name and Principal Position

  Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)(1)
    Option
Awards
($)(1)
    Non-Equity
Incentive Plan
Compensation
($)
    All Other
Compensation
($)
    Total
($)(2)
 

Aart J. de Geus

    2013      $  500,000      $      —      $  1,725,854      $  1,189,504      $ 1,500,000 (3)    $     2,500 (4)    $   4,917,858   

Co-Chief Executive Officer
and Chairman of the
Board of Directors

    2012      $ 500,000      $  —      $ 1,844,255      $ 1,515,100      $ 1,500,000 (5)    $ 2,646 (6)    $ 5,362,001   
    2011      $ 500,000      $      $ 1,771,552      $ 1,436,660      $ 1,500,000 (7)    $ 1,500 (8)    $ 5,209,712   

Chi-Foon Chan

    2013      $ 500,000      $      $ 1,725,854      $ 1,189,504      $ 1,500,000 (3)    $ 1,500 (8)    $ 4,916,858   

Co-Chief Executive Officer
and President

    2012      $ 450,000      $      $ 1,291,255      $ 1,060,570      $ 1,500,000 (5)    $ 1,680 (9)    $ 4,303,505   
    2011      $ 450,000      $      $ 1,017,248      $ 826,080      $ 1,450,000 (7)    $ 1,500 (8)    $ 3,744,828   

Brian M. Beattie

    2013      $ 400,000      $      $ 592,554      $ 408,892      $ 900,000 (3)    $ 2,800 (10)    $ 2,304,246   

Chief Financial Officer

    2012      $ 400,000      $      $ 505,995      $ 416,653      $ 935,000 (5)    $ 2,742 (11)    $ 2,260,390   
    2011      $ 400,000      $      $ 486,048      $ 395,082      $ 860,000 (7)    $ 2,050 (12)    $ 2,143,180   

Joseph W. Logan

    2013      $ 380,000      $ 100,000 (13)    $ 647,600      $ 446,064      $ 1,033,000 (3)    $ 1,500 (8)    $ 2,608,164   

Executive Vice President,
Worldwide Sales and
Corporate Marketing

    2012      $ 357,200      $      $ 505,995      $ 416,653      $ 1,035,880 (5)    $ 1,500 (8)    $ 2,317,228   
    2011      $ 357,200      $      $ 486,048      $ 395,082      $ 942,800 (7)    $ 1,500 (8)    $ 2,182,630   

Brian E. Cabrera(14)

    2013      $ 353,000      $      $ 349,704      $ 439,161      $ 447,000 (3)    $ 1,500 (8)    $ 1,590,365   

General Counsel

    2012      $ 353,000      $      $ 323,505      $ 265,143      $ 462,077 (5)    $ 1,500 (8)    $ 1,405,225   
    2011      $ 325,000      $      $ 286,848      $ 233,457      $ 400,000 (7)    $ 1,500 (8)    $ 1,246,805   

 

 

(1) The amounts shown for stock awards and option awards represent the aggregate grant date fair value of such awards granted to the NEOs in fiscal 2013, fiscal 2012 and fiscal 2011 as computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Compensation—Stock Compensation, excluding the effect of forfeitures. For each award, the grant date fair value is calculated using the closing price of our common stock on the grant date and, in the case of performance-based restricted stock unit awards, assuming 100% probability of achievement of performance conditions as of the grant date. These amounts do not represent the actual value that may be realized by the NEO upon vesting or exercise of such awards. For information on the assumptions used to calculate the value of the awards, refer to Note 10 to the consolidated financial statements contained in our 2013 Annual Report on Form 10-K.
(2) Amounts exclude non-qualified deferred compensation earnings because we do not regard the returns from the investment alternatives selected by the executive for such earnings to be above-market or preferential as they are consistent with the types of investment opportunities generally provided to our employees under our tax-qualified 401(k) plan and Synopsys does not supplement or guarantee the returns on amounts deferred.
(3) Amount consists of cash-based incentive compensation earned for the achievement of performance objectives approved by our Compensation Committee for fiscal 2013 pursuant to our Executive Incentive Plan-162(m).
(4) Amount consists of $1,500 in matching contributions made by Synopsys under our tax-qualified 401(k) plan, which provides for broad-based U.S. employee participation, and $1,000 in matching contributions made by Synopsys to Dr. de Geus’ health savings account at the same rate as for our other employees who enroll in this health plan.
(5) Amount consists of cash-based incentive compensation earned for the achievement of performance objectives approved by our Compensation Committee for fiscal 2012 pursuant to our Executive Incentive Plan-162(m).

 

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(6) Amount consists of $1,500 in matching contributions made by Synopsys under our tax-qualified 401(k) plan, which provides for broad-based U.S. employee participation, $846 in matching contributions made by Synopsys to Dr. de Geus’ health savings account at the same rate as for our other employees who enroll in this health plan, and $300 relating to matching charitable contributions made by The Synopsys Foundation on behalf of Dr. de Geus as part of a broad-based charitable matching program available to all U.S. Synopsys employees.
(7) Amount consists of cash-based incentive compensation earned for the achievement of performance objectives approved by our Compensation Committee for fiscal 2011 pursuant to our Executive Incentive Plan-162(m).
(8) Amount consists of matching contributions made by Synopsys under our tax-qualified 401(k) plan, which provides for broad-based U.S. employee participation.
(9) Amount consists of $1,500 in matching contributions made by Synopsys under our tax-qualified 401(k) plan, which provides for broad-based U.S. employee participation, as well as $180 relating to matching charitable contributions made by The Synopsys Foundation on behalf of Dr. Chan as part of a broad-based charitable matching program available to all U.S. Synopsys employees.
(10) Amount consists of $1,500 in matching contributions made by Synopsys under our tax-qualified 401(k) plan, which provides for broad-based U.S. employee participation, $1,000 in matching contributions made by Synopsys to Mr. Beattie’s health savings account at the same rate as for our other employees who enroll in this health plan, and $300 relating to matching charitable contributions made by The Synopsys Foundation on behalf of Mr. Beattie as part of a broad-based charitable matching program available to all U.S. Synopsys employees.
(11) Amount consists of $1,500 in matching contributions made by Synopsys under our tax-qualified 401(k) plan, which provides for broad-based U.S. employee participation, $692 in matching contributions made by Synopsys to Mr. Beattie’s health savings account at the same rate as for our other employees who enroll in this health plan, and $550 relating to matching charitable contributions made by The Synopsys Foundation on behalf of Mr. Beattie as part of a broad-based charitable matching program available to all U.S. Synopsys employees.
(12) Amount consists of $1,500 in matching contributions made by Synopsys in fiscal 2011 under our tax-qualified 401(k) plan, which provides for broad-based U.S. employee participation, as well as $550 in fiscal 2011 relating to matching charitable contributions made by The Synopsys Foundation on behalf of Mr. Beattie as part of a broad-based charitable matching program available to all U.S. Synopsys employees.
(13) Amount consists of a promotional cash bonus awarded to Mr. Logan in December 2013 in recognition of his promotion from Senior Vice President to Executive Vice President, based upon his achievements during fiscal 2013.
(14) After the end of fiscal 2013, Mr. Cabrera resigned from Synopsys effective January 31, 2014.

 

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Grants of Plan-Based Awards

The following table sets forth certain information with respect to grants of plan-based awards in fiscal 2013 to our NEOs, including cash awards and equity awards. The equity awards to our NEOs in fiscal 2013 were granted under our 2006 Employee Equity Incentive Plan.

 

          Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)
    Estimated Future Payouts
Under Equity
Incentive Plan Awards(2)
    All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(3)
    Exercise
or
Base
Price
of
Option
Awards
($/
Sh)
    Grant
Date
Fair
Value
of Stock
and
Option
Awards(4)
 
             
             
             
             

Name

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

Aart J. de Geus

    12/12/2012      $ 742,500      $ 1,100,000      $ 2,000,000        —         —         —         —         —       $ —       $ —    
    12/12/2012      $ —       $ —       $ —         26,650        53,300        53,300        —         —       $ —       $ 1,725,854   
    12/12/2012      $ —       $ —       $ —         —         —         —         —         160,000      $ 32.38 (5)    $ 1,189,504   

Chi-Foon Chan

    12/12/2012      $ 742,500      $ 1,100,000      $ 2,000,000        —         —         —         —         —       $ —       $ —    
    12/12/2012      $ —       $ —       $ —         26,650        53,300        53,300        —         —       $ —       $ 1,725,854   
    12/12/2012      $ —       $ —       $ —         —         —         —         —         160,000      $ 32.38 (5)    $ 1,189,504   

Brian M. Beattie

    12/12/2012      $ 337,500      $ 500,000      $ 1,000,000        —         —         —         —         —       $ —       $ —    
    12/12/2012      $ —       $ —       $ —         9,150        18,300        18,300        —         —       $ —       $ 592,554   
    12/12/2012      $ —       $ —       $ —         —         —         —         —         55,000      $ 32.38 (5)    $ 408,892   

Joseph W. Logan

    12/12/2012      $ 371,925      $ 551,000      $ 1,102,000        —         —         —         —         —       $ —       $ —    
    12/12/2012      $ —       $ —       $ —         10,000        20,000        20,000        —         —       $ —       $ 647,600   
    12/12/2012      $ —       $ —       $ —         —         —         —         —         60,000      $ 32.38 (5)    $ 446,064   

Brian E. Cabrera

    12/12/2012      $ 166,793      $ 247,100      $ 494,200        —         —         —         —         —       $ —       $ —    
    12/12/2012      $ —       $ —       $ —         5,400        10,800        10,800        —         —       $ —       $ 349,704   
    12/12/2012      $ —       $ —       $ —         —         —         —         —         32,500      $ 32.38 (5)    $ 241,618   
    7/9/2013      $ —       $ —       $ —         —         —         —         —         25,000      $ 36.24 (6)    $ 197,543   

 

(1) Represents possible cash awards for fiscal 2013 under the EIP. Cash awards paid to NEOs under the EIP are dependent on the achievement of certain performance targets, as well as the level of achievement. The amounts listed under the “Threshold” column represent the cash awards payable to NEOs under the EIP at a 90% weighted-average achievement of the Corporate Financial Goals described in “Compensation Discussion and Analysis” beginning on page 47 under the section titled “Cash Incentive Payment.” Pursuant to the EIP, if the weighted-average achievement of the Corporate Financial Goals is below 90%, no cash awards are paid. The amounts listed under the “Target” column represent the cash awards payable in fiscal 2013 at a 100% weighted-average achievement of the Corporate Financial Goals. The amounts listed under the “Maximum” column represent the maximum cash awards payable, which for each NEO equal the lesser of $2 million or 200% of the NEO’s target variable cash incentive compensation. Actual cash awards paid to the NEOs for fiscal 2013 are reported in the Summary Compensation Table on page 67 under the “Non-Equity Incentive Plan Compensation” column.
(2) Represents stock awards that are eligible to vest only upon achievement of pre-established performance goals. Such awards are granted as restricted stock units and are converted into an equivalent number of shares of our common stock following vesting. The vesting criterion for the target award was the achievement of $350.3 million of non-GAAP net income for fiscal 2013, as further described in “Compensation Discussion and Analysis” beginning on page 47 under the section titled “Equity Awards.” The amounts listed under the “Target” and “Maximum” columns represent the stock awards eligible to vest if 100%, or more than 100%, respectively, of such non-GAAP net income target is achieved. The amounts listed under the “Threshold” column represent the stock awards eligible to vest if 95% of the non-GAAP net income target is achieved. If less than 95% of the non-GAAP net income target is achieved, no stock awards are eligible to vest. As the target vesting criterion was achieved at more than 100%, 25% of each respective maximum award vested on December 12, 2013, and the remaining 75% of each respective award is scheduled to vest in three equal annual installments beginning on December 8, 2014, so long as the NEO provides continuous services to us.

 

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(3)

  1/16th of such non-statutory stock options vested on the three month anniversary of the grant date and will continue vesting as to   1/16th quarterly thereafter, so long as the NEO provides continuous services to us.

(4) Represents the fair value of the stock and option awards on the grant date. These amounts do not represent the actual value that may be realized by the NEO upon vesting or exercise of such awards. For information on the assumptions used to calculate the fair value of the option awards, refer to Note 10 to the consolidated financial statements contained in our 2013 Annual Report on Form 10-K.
(5) Represents the closing price of our common stock as reported on the NASDAQ Global Select Market on December 12, 2012, the effective date of grant of these awards.
(6) Represents the closing price of our common stock as reported on the NASDAQ Global Select Market on July 9, 2013, the effective date of grant of this award.

 

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Outstanding Equity Awards at Fiscal 2013 Year-End

The following table summarizes the number of securities underlying outstanding equity awards for our NEOs as of November 2, 2013, the end of fiscal 2013:

 

          Option Awards     Stock Awards  

Name

  Grant
Date
    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
    Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)(1)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
(#)
    Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
($)(1)
 

Aart J. de Geus

    12/4/2009        171,093        11,407 (2)      —        $ 21.02        12/4/2016        —        $ —          —        $ —     
    12/4/2009        —          —          —        $ —          —          15,208 (3)    $ 549,769        —        $ —     
    12/9/2010        137,500        62,500 (4)      —        $ 26.56        12/9/2017        —        $ —          —        $ —     
    12/9/2010        —          —          —        $ —          —          33,350 (5)    $ 1,205,603        —        $ —     
    12/8/2011        87,500        112,500 (6)      —        $ 27.65        12/8/2018        —        $ —          —        $ —     
    12/8/2011        —          —          —        $ —          —          50,025 (7)    $ 1,808,404        —        $ —     
    12/12/2012        30,000        130,000 (8)      —        $ 32.38        12/12/2019        —        $ —          —        $ —     
    12/12/2012        —          —          —        $ —          —          —        $ —          53,300 (9)    $ 1,926,795   

Chi-Foon Chan

    12/10/2008        18,959        —          —        $ 17.64        12/10/2015        —        $ —          —        $ —     
    12/4/2009        45,000        7,500 (2)      —        $ 21.02        12/4/2016        —        $ —          —        $ —     
    12/4/2009        —          —          —        $ —          —          10,000 (3)    $ 361,500        —        $ —     
    12/9/2010        64,687        35,938 (4)      —        $ 26.56        12/9/2017        —        $ —          —        $ —     
    12/9/2010        —          —          —        $ —          —          19,150 (5)    $ 692,273        —        $ —     
    12/8/2011        61,250        78,750 (6)      —        $ 27.65        12/8/2018        —        $ —          —        $ —     
    12/8/2011        —          —          —        $ —          —          35,025 (7)    $ 1,266,154        —        $ —     
    12/12/2012        30,000        130,000 (8)      —        $ 32.38        12/12/2019        —        $ —          —        $ —     
    12/12/2012        —          —          —        $ —          —          —        $ —          53,300 (9)    $ 1,926,795   

Brian M. Beattie

    12/10/2008        5,000        —          —        $ 17.64        12/10/2015        —        $ —          —        $ —     
    12/4/2009        56,250        3,750 (2)      —        $ 21.02        12/4/2016        —        $ —          —        $ —     
    12/4/2009        —          —          —        $ —          —          5,000 (3)    $ 180,750        —        $ —     
    12/9/2010        37,812        17,188 (4)      —        $ 26.56        12/9/2017        —        $ —          —        $ —     
    12/9/2010        —          —          —        $ —          —          9,150 (5)    $ 330,773        —        $ —     
    12/8/2011        24,062        30,938 (6)      —        $ 27.65        12/8/2018        —        $ —          —        $ —     
    12/8/2011        —          —          —        $ —          —          13,725 (7)    $ 496,159        —        $ —     
    12/12/2012        10,312        44,688 (8)      —        $ 32.38        12/12/2019        —        $ —          —        $ —     
    12/12/2012        —          —          —        $ —          —          —        $ —          18,300 (9)    $ 661,545   

Joseph W. Logan

    12/4/2009        7,500        3,750 (2)      —        $ 21.02        12/4/2016        —        $ —          —        $ —     
    12/4/2009        —          —          —        $ —          —          5,000 (3)    $ 180,750        —        $ —     
    12/9/2010        37,812        17,188 (4)      —        $ 26.56        12/9/2017        —        $ —          —        $ —     
    12/9/2010        —          —          —        $ —          —          9,150 (5)    $ 330,773        —        $ —     
    12/8/2011        24,062        30,938 (6)      —        $ 27.65        12/8/2018        —        $ —          —        $ —     
    12/8/2011        —          —          —        $ —          —          13,725 (7)    $ 496,159        —        $ —     
    12/12/2012        11,250        48,750 (8)      —        $ 32.38        12/12/2019        —        $ —          —        $ —     
    12/12/2012        —          —          —        $ —          —          —        $ —          20,000 (9)    $ 723,000   

Brian E. Cabrera

    12/4/2009        2,187        2,188 (2)      —        $ 21.02        12/4/2016        —        $ —          —        $ —     
    12/4/2009        —          —          —        $ —          —          2,925 (3)    $ 105,739        —        $ —     
    12/9/2010        2,032        10,156 (4)      —        $ 26.56        12/9/2017        —        $ —          —        $ —     
    12/9/2010        —          —          —        $ —          —          5,400 (5)    $ 195,210        —        $ —     
    12/8/2011        2,187        19,688 (6)      —        $ 27.65        12/8/2018        —        $ —          —        $ —     
    12/8/2011        —          —          —        $ —          —          8,775 (7)    $ 317,216        —        $ —     
    12/12/2012        2,031        26,406 (8)      —        $ 32.38        12/12/2019        —        $ —          —        $ —     
    12/12/2012        —          —          —        $ —          —          —        $ —          10,800 (9)    $ 390,420   
    7/9/2013        1,563        23,437 (10)      —        $ 36.24        7/9/2020        —        $ —          —        $ —     

 

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(1) The market value of stock awards was determined by multiplying the number of unvested or unearned shares by the closing price of our common stock of $36.15 on November 1, 2013, the last trading day of fiscal 2013, as reported on the NASDAQ Global Select Market.
(2)

Option vests at a rate of  1/16th  on the third monthly anniversary of the grant date and  1/16th  per quarter thereafter, so long as the NEO provides continuous services to us. Accordingly, 6.25% of the underlying shares for these stock options became exercisable on March 4, 2010, and approximately 6.25% became exercisable quarterly thereafter until fully vested subsequent to fiscal year end on December 4, 2013.

(3) These stock awards are granted as restricted stock units and are converted into an equivalent number of shares of our common stock following vesting. Such stock awards were eligible to vest only upon achievement of pre-established performance goals, namely the achievement of $228.0 million of non-GAAP net income for fiscal 2010. This goal was achieved and, accordingly, 25% of the target awards vested on December 3, 2010, December 23, 2011, and December 8, 2012, respectively, and the remaining 25% vested subsequent to fiscal year end on December 8, 2013.
(4)

Option vests at a rate of  1/16th  on the third monthly anniversary of the grant date and  1/16th  per quarter thereafter, so long as the NEO provides continuous services to us. Accordingly, 6.25% of the underlying shares for these stock options became exercisable on March 9, 2011 and approximately 6.25% became and, so long as the NEO provides continuous services to us, will become, exercisable quarterly thereafter until fully vested on December 9, 2014.

(5) These stock awards are granted as restricted stock units and are converted into an equivalent number of shares of our common stock following vesting. Such stock awards were eligible to vest only upon achievement of pre-established performance goals, namely the achievement of $248.8 million of non-GAAP net income for fiscal 2011. This goal was achieved and, accordingly, 25% of the target awards vested on December 23, 2011, December 8, 2012, and subsequent to fiscal year end on December 8, 2013, respectively, and the remaining 25% are scheduled to vest on December 8, 2014, so long as the NEO provides continuous services to us.
(6)

Option vests at a rate of  1/16th  on the third monthly anniversary of the grant date and  1/16th  per quarter thereafter, so long as the NEO provides continuous services to us. Accordingly, 6.25% of the underlying shares for these stock options became exercisable on March 8, 2012 and approximately 6.25% became and, so long as the NEO provides continuous services to us, will become, exercisable quarterly thereafter until fully vested on December 8, 2015.

(7) These stock awards are granted as restricted stock units and are converted into an equivalent number of shares of our common stock following vesting. Such stock awards were eligible to vest only upon achievement of pre-established performance goals, namely the achievement of $279.9 million of non-GAAP net income for fiscal 2012. This goal was achieved and, accordingly, 25% of the target awards vested on December 8, 2012 and subsequent to fiscal year end on December 8, 2013, respectively, and the remaining 50% are scheduled to vest in two equal annual installments beginning on December 8, 2014, so long as the NEO provides continuous services to us.
(8)

Option vests at a rate of  1/16th  on the third monthly anniversary of the grant date and  1/16th  per quarter thereafter, so long as the NEO provides continuous services to us. Accordingly, 6.25% of the underlying shares for these stock options became exercisable on March 12, 2013 and approximately 6.25% became and, so long as the NEO provides continuous services to us, will become, exercisable quarterly thereafter until fully vested on December 12, 2016.

(9) These stock awards are granted as restricted stock units and are converted into an equivalent number of shares of our common stock following vesting. Such stock awards were eligible to vest only upon achievement of pre-established performance goals, namely the achievement of $350.3 million of non-GAAP net income for fiscal 2013 as further described in the “Equity Awards” discussion in the Compensation Discussion and Analysis section beginning on page 47. This goal was achieved and, accordingly, 25% of the target awards vested subsequent to the fiscal year end, on December 12, 2013, and the remaining 75% are scheduled to vest in three equal annual installments beginning on December 8, 2014, so long as the NEO provides continuous services to us.
(10)

Option vests at a rate of  1/16th  on the third monthly anniversary of the grant date and  1/16th  per quarter thereafter, so long as the NEO provides continuous services to us. Accordingly, 6.25% of the underlying shares for these stock options became exercisable on October 9, 2013 and approximately 6.25% became and, so long as the NEO provides continuous services to us, will become, exercisable quarterly thereafter until fully vested on July 9, 2017.

 

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Option Exercises and Stock Vested in Fiscal 2013

The following table provides information with respect to all stock options exercised and the value realized upon exercise, and all stock awards vested and the value realized upon vesting, by our NEOs during fiscal 2013.

 

     Option Awards      Stock Awards  

Name

   Number
of Shares
Acquired on
Exercise (#)
     Value
Realized on
Exercise ($)(1)
     Number of Shares
Acquired on
    Vesting (#)(2)     
     Value
Realized on
  Vesting ($)(3)  
 

Aart J. de Geus

     670,400       $ 8,519,744         68,508       $ 2,246,279   

Chi-Foon Chan

     147,487       $ 1,626,364         42,075       $ 1,378,805   

Brian M. Beattie

     60,000       $ 502,832         20,800       $ 682,266   

Joseph W. Logan

     198,750       $ 2,682,475         20,400       $ 669,098   

Brian E. Cabrera

     115,917       $ 871,821         11,450       $ 375,355   

 

(1) The value realized on exercise equals the difference between (a) either (i) the actual sales price of our common stock underlying the options exercised if the shares were immediately sold or (ii) the closing price per share of our common stock as reported on the NASDAQ Global Select Market on the date of exercise if the shares were held and (b) the applicable exercise price of such stock options.
(2) Such number of shares represents the gross number of shares acquired by the NEO on the vesting date. Synopsys withholds shares for tax purposes and the NEO actually receives a smaller number of shares.
(3) The value realized on vesting equals the closing price per share of our common stock as reported on the NASDAQ Global Select Market on the vesting date multiplied by the gross number of shares acquired on vesting as described above in note (2).

 

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Non-Qualified Deferred Compensation

We maintain a non-qualified deferred compensation program for a select group of management and highly compensated employees so that an eligible employee may elect, on a prospective basis, to defer the receipt of a portion of the compensation they receive from us. The program is administered under two plans: the Synopsys Deferred Compensation Plan (Deferred Compensation Plan I) and the Synopsys Amended and Restated Deferred Compensation Plan II (Deferred Compensation Plan II). The amount of earnings (or losses) that accrue to a participant’s account under either the Deferred Compensation Plan I or the Deferred Compensation Plan II depends on the performance of investment alternatives selected by the participant. The investment alternatives under both plans consist of various investment funds that are generally consistent with the investment opportunities provided to our employees under our 401(k) plan, which are selected and monitored by our Deferred Compensation Plans Committee. Therefore, we do not regard the returns from these investment alternatives as above-market or preferential. We do not supplement or guarantee the returns on amounts deferred under either plan. We have entered into a trust agreement, with a third party provider acting as trustee, to hold certain funds in connection with the program. All funds held in the trust are subject to the claims of our creditors.

The Deferred Compensation Plan I administers the elective deferrals made by eligible employees, including Dr. Chan, prior to January 1, 2005. No further contributions may be made to the Deferred Compensation Plan I; however, gains and losses and distributions and withdrawals continue to be processed on existing account balances in accordance with the terms of the Deferred Compensation Plan I as of December 31, 2004. All accrued balances maintained under the Deferred Compensation Plan I are fully vested. Amounts may be withdrawn from the plan pursuant to elections made by the participants in accordance with the terms of the Deferred Compensation Plan I, including elective withdrawals subject to a 10% forfeiture.

The Deferred Compensation Plan II was originally adopted in 2005 in order to comply with Section 409A of the Internal Revenue Code, and currently allows the deferral by eligible employees of up to 50% of salary and 100% of cash incentive compensation. All account balances maintained under the Deferred Compensation Plan II are currently fully vested. However, we may, at our discretion, make contributions in the future toward participant balances, and those contributions may be made subject to vesting. To date, no such contributions have been made. Amounts may be withdrawn or distributed from the Deferred Compensation Plan II through pre-scheduled payments or upon death, retirement, disability, separation from service or a change in control of Synopsys, as elected in advance by the plan participant in accordance with the terms of the plan. Payments may be made in the form of a lump sum payment or installments.

The following table provides certain information regarding our NEOs’ participation under the Deferred Compensation Plans I and II:

 

Name

     Executive
Contributions in
Fiscal 2013
($)(1)
    Synopsys, Inc.
Contributions in
Fiscal 2013 ($)
     Aggregate
Earnings in
Fiscal 2013
($)(2)
    Aggregate
Withdrawals/
Distributions in
Fiscal 2013
($)
     Aggregate
Balance at
End of
Fiscal 2013
($)
 

Aart J. de Geus

     $ —       $       —       $ —       $     —       $ —    

Chi-Foon Chan

     $ —       $       —       $ 723,160 (3)    $     —       $ 5,121,022 (4) 

Brian M. Beattie

     $ 467,500 (5)    $       —       $ 543,067 (6)    $     —       $ 2,622,681 (7) 

Joseph W. Logan

     $ —       $       —       $ —       $     —       $ —    

Brian E. Cabrera

     $ —       $       —       $ 13,980 (6)    $     —       $ 80,564 (8) 

 

 

(1) All contributions in fiscal 2013 were made under the Deferred Compensation Plan II.
(2) Earnings from these investments are not reported as compensation in the Summary Compensation Table on page 67.

 

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(3) All of these aggregate earnings were accrued under the Deferred Compensation Plan I.
(4) At end of fiscal 2013, the entire aggregate balance was subject to the Deferred Compensation Plan I and did not include any compensation reported in the Summary Compensation Table.
(5) Consists of cash incentive compensation reported in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column for services performed in fiscal 2012 though paid in fiscal 2013.
(6) All aggregate earnings were accrued under the Deferred Compensation Plan II as of the end of fiscal 2013.
(7) Includes (a) $467,500 of cash incentive compensation reported in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column for services performed in fiscal 2012 though paid in fiscal 2013 and (b) $430,000 of cash incentive compensation reported in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column for services performed in fiscal 2011 though paid in fiscal 2012. The entire aggregate balance at the end of fiscal 2013 was subject to the Deferred Compensation Plan II.
(8) Includes $2,500 of salary reported in the Summary Compensation Table under the “Salary” column for services performed in fiscal 2011. The entire aggregate balance at the end of fiscal 2013 was subject to the Deferred Compensation Plan II.

 

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Potential Payments upon Termination of Employment or Change of Control

Set forth below is a description of potential payments to our NEOs upon a termination of employment or a change of control. For additional information regarding the arrangements for such payments, please also refer to the “Severance and Change of Control Benefits” discussion in the Compensation Discussion and Analysis section beginning on page 47.

Potential Payments upon Involuntary Termination of Employment in Connection with a Change of Control

The table below outlines the potential payments and benefits payable to each NEO in the event of the NEO’s involuntary termination in connection with a change in control of Synopsys, as if the involuntary termination in connection with a change of control had occurred as of November 2, 2013, the last day of fiscal 2013. The payments set forth below are payable to Dr. de Geus and Dr. Chan pursuant to their employment agreements and to Mr. Beattie, Mr. Cabrera and Mr. Logan pursuant to the Executive Change of Control Severance Benefit Plan.

In the event of an involuntary termination of their respective employment other than for cause within 24 months following a change of control of Synopsys, Dr. de Geus and Dr. Chan are each entitled to receive: (1) a lump-sum cash payment equal to two times his base compensation for the current fiscal year or the immediately preceding fiscal year, whichever is greater; (2) a lump-sum cash payment equal to two times his target cash incentive payment for the current fiscal year or, if there is no target cash incentive payment in effect for the current fiscal year, the highest target cash incentive payment in the preceding three fiscal years; (3) the estimated cash value of his health care premiums for 18 months, payable in a lump sum; and (4) full acceleration of all unvested stock options and other equity awards. Dr. de Geus and Dr. Chan must sign a release in order to receive benefits should a qualifying termination occur. Pursuant to their respective employment agreements, no benefits are paid if the employment termination is voluntary or for cause.

Mr. Beattie, Mr. Cabrera and Mr. Logan participate in the Executive Change of Control Severance Benefit Plan, which provides for benefits if the executive’s employment with us is terminated without cause within 30 days before or 12 months after a change of control or there is a constructive termination of the executive’s employment within 12 months after a change of control. The benefits consist of: (1) a cash severance payment equal to one year of base salary, payable in four equal quarterly payments; (2) one to two times the executive’s target cash incentive payment, depending upon the timing of the termination within our fiscal year, payable in four equal quarterly payments; (3) a lump-sum cash payment equal to the estimated cost of health care premiums for 12 months; and (4) full acceleration of all unvested stock options and other equity awards held by the executive at the time of termination. An executive must sign a severance agreement and a release and, upon the written request of Synopsys or the surviving corporation in the change of control, enter into an 18-month non-competition agreement in order to receive benefits should a qualifying termination occur. The plan does not provide any benefits if the executive’s employment termination is voluntary or for cause.

 

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Name

   Salary
 Continuation 
     Cash-Based
Incentive
    Award    
     Continuation
of Health &
Welfare
    Benefits    
     Intrinsic Value
of Unvested
Stock
Awards(1)
     Intrinsic
Value of
Unvested
Option
Awards(1)
 

Aart J. de Geus

   $  1,000,000       $ 2,200,000       $ 13,089       $  5,490,570       $ 2,218,313   

Chi-Foon Chan

   $ 1,000,000       $ 2,200,000       $ 16,154       $ 4,246,721       $ 1,617,595   

Brian M. Beattie

   $ 400,000       $ 1,000,000 (2)     $ 10,770       $ 1,669,226       $ 653,017   

Joseph W. Logan

   $ 380,000       $ 1,102,000 (2)     $ 20,211       $ 1,730,681       $ 668,331   

Brian E. Cabrera

   $ 353,000       $ 494,200 (2)     $ 20,211       $ 1,008,585       $ 397,399   

 

 

(1) Amounts represent the intrinsic value of accelerated restricted stock units and stock options based upon the closing price per share of our common stock on November 1, 2013, the last trading day of fiscal 2013, of $36.15 as reported on the NASDAQ Global Select Market.
(2) Our last day of fiscal 2013 was Saturday, November 2, 2013. The Executive Change of Control Severance Benefit Plan provides for participants to receive their target cash incentive payment plus a prorated portion of such payment based on how much of our fiscal year has elapsed when the termination occurs. Accordingly, for purposes of determining the amount of cash-based incentive award payable to each respective NEO in the event of his termination in connection with a change of control as November 2, 2013, the NEO would be entitled to two times his target cash incentive payment, given that he would have worked the entirety of fiscal 2013 as of such date.

Potential Payments upon a Change of Control

Pursuant to our equity plans, all of our employees receive full acceleration of the vesting of any unvested stock options or stock awards in the event that such equity awards are not assumed, continued or substituted by the surviving or acquiring company following a change of control of Synopsys. The table below outlines the potential payments and benefits payable to each NEO in the event of a change in control of Synopsys in which equity awards are not assumed, continued or substituted, as if the change of control had occurred as of November 2, 2013, the last day of fiscal 2013. Vesting acceleration of equity awards in the event that such equity awards are not assumed, continued or substituted is the only benefit provided to our NEOs in the event of a change of control in which the executive is not involuntarily terminated.

 

Name

   Salary
Continuation
     Cash-Based
Incentive
Award
     Continuation
of Health &
Welfare
Benefits
     Intrinsic
Value of
Unvested
Stock
Awards(1)
     Intrinsic
Value of
Unvested
Option
Awards(1)
 

Aart J. de Geus

   $     —       $     —       $     —       $ 5,490,570       $ 2,218,313   

Chi-Foon Chan

   $     —       $     —       $     —       $ 4,246,721       $ 1,617,595   

Brian M. Beattie

   $     —       $     —       $     —       $ 1,669,226       $ 653,017   

Joseph W. Logan

   $     —       $     —       $     —       $ 1,730,681       $ 668,331   

Brian E. Cabrera

   $     —       $     —       $     —       $ 1,008,585       $ 397,399   

 

(1) Amounts represent the intrinsic value of accelerated restricted stock units and stock options based upon the closing price per share of our common stock on November 1, 2013, the last trading day of fiscal 2013, of $36.15 as reported on the NASDAQ Global Select Market.

 

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Potential Payments upon Involuntary Termination of Employment

Dr. de Geus and Dr. Chan are the only NEOs who are entitled to severance benefits in the event their employment is involuntarily terminated not in connection with a change of control. No benefits are paid if their termination is for cause or is a voluntary termination without good reason. “Cause” and “good reason” are defined in Dr. de Geus and Dr. Chan’s respective employment agreements. The table below outlines the potential amounts payable to each NEO in the event of such an involuntary termination, as if such event had occurred as of November 2, 2013, the last day of fiscal 2013. Pursuant to their respective employment agreements, Dr. de Geus and Dr. Chan would each receive: (1) a lump-sum cash payment equal to his base compensation during the fiscal year or immediately preceding fiscal year, whichever is greater; (2) a lump-sum cash payment equal to the target cash incentive payment then in effect or, if there is no target cash incentive payment in effect for such year, the highest target cash incentive payment in the three preceding years provided he does not engage in certain conduct for six months following the termination date; and (3) the estimated cash value of his health care premiums for 12 months, payable in a lump sum. Dr. de Geus and Dr. Chan must sign a release in order to receive benefits should a qualifying termination occur.

 

Name

   Salary
Continuation
     Cash-
Based
Incentive
Award
     Continuation
of Health &
Welfare
Benefits
     Intrinsic
Value of
Unvested
Stock
Awards
       Intrinsic
Value of
Unvested
Option
Awards
 

Aart J. de Geus

   $ 500,000       $ 1,100,000       $ 8,726       $     —         $     —   

Chi-Foon Chan

   $ 500,000       $ 1,100,000       $ 14,238       $     —         $     —   

Brian M. Beattie

   $ —        $ —        $ —        $     —         $     —   

Joseph W. Logan

   $ —        $ —        $ —        $     —         $     —   

Brian E. Cabrera

   $ —        $ —        $ —        $     —         $     —   

 

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Director Compensation

Our non-employee directors are compensated for serving on our Board. We do not pay our employees who serve on our Board of Directors any additional compensation for Board membership. Our Compensation Committee, with the assistance of a compensation consultant it has determined to be objective and free of conflicts of interest, reviews from time to time the compensation we pay to our non-employee directors and recommends, as appropriate, adjustments to such compensation. The compensation we pay to our non-employee directors consists of cash compensation and equity awards. We also reimburse directors for out-of-pocket expenses for travel to Board meetings pursuant to our Corporate Travel Policy.

Cash. We pay non-employee directors an annual retainer of $125,000 for serving on our Board. We also pay a per meeting fee to members of the Audit Committee of our Board of Directors equal to $2,000 per committee meeting ($4,000 for the Audit Committee chair), up to an annual maximum of $8,000 ($16,000 for the Audit Committee chair). The retainers and meeting fees are paid in advance in four equal payments at our regularly scheduled quarterly Board meetings.

Equity. Non-employee directors are eligible to receive equity awards under the 2005 Non-Employee Directors Equity Incentive Plan. The plan provides for automatic grants of equity awards to non-employee members of our Board upon their initial appointment or election, and upon their re-election each year.

Initial Awards—New non-employee directors receive (1) an initial stock option for 30,000 shares, vesting in equal installments on the date preceding each of the first four annual stockholders’ meetings following the grant date, subject to continued Board service through each vesting date and (2) if appointed to our Board less than eleven months since the most recent annual meeting of stockholders, an “interim award,” in the form of stock options, representing an annual award prorated for the period of time remaining until the next annual meeting of stockholders.

Annual Awards—Each re-elected non-employee director receives an annual award comprised of either a stock option grant, a restricted stock grant or a combination of both, as determined by our Board each year. The annual award has an aggregate total fair value on the date of grant equal to the annual cash retainer of $125,000 described above. To the extent the annual award is in the form of a stock option, the award vests in 36 equal monthly installments after the grant date, subject to continued Board service. To the extent the annual award is in the form of restricted stock, the award vests in three equal annual installments on the day before each of the three annual meetings of stockholders immediately following the grant date, subject to continued Board service. In the event of a change of control or similar transaction, the vesting of unvested grants will generally accelerate unless assumed by the successor company. Our Board of Directors elected to receive restricted stock for the annual award for fiscal 2013 and, as a result, we issued 3,531 shares of restricted stock to each non-employee director.

 

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The following table sets forth a summary of the compensation paid to our non-employee directors for services in fiscal 2013.

 

Name

  Fees  Earned
or
Paid in  Cash
($)
     Stock
Awards
($)(1)
     Option
Awards
      ($)(2)      
      

Total

        ($)         

 

Alfred Castino

  $ 133,000 (3)     $ 124,997       $ —          $ 257,997   

Bruce R. Chizen

  $ 125,000       $ 124,997       $ —          $ 249,997   

Deborah A. Coleman

  $ 141,000 (4)     $ 124,997       $ —          $ 265,997   

Chrysostomos L. “Max” Nikias

  $ 125,000       $ 124,997       $ —          $ 249,997   

John G. Schwarz

  $ 125,000       $ 124,997       $ —          $ 249,997   

Roy Vallee

  $ 133,000 (5)     $ 124,997       $ —          $ 257,997   

Steven C. Walske

  $ 125,000       $ 124,997       $ —          $ 249,997   

 

 

(1) These amounts represent the aggregate grant date fair values, computed in accordance with ASC Topic 718, Compensation—Stock Compensation, of restricted stock awards issued pursuant to the 2005 Non-Employee Directors Equity Incentive Plan. The grant date fair value of these awards is calculated using the closing price of our common stock of $35.40 on the grant date multiplied by the 3,531 shares granted to each non-employee director. These amounts do not represent the actual value that may be realized by the director upon vesting of such awards. For information on the assumptions used to calculate the value of the awards, refer to Note 10 to the consolidated financial statements contained in our 2013 Annual Report on Form 10-K. Such stock awards vest in three equal annual installments on the day before each of the three annual meetings of stockholders immediately following the grant date. At the end of fiscal 2013, our non-employee directors held the following aggregate numbers of unvested restricted stock awards: Mr. Castino – 7,730 shares; Mr. Chizen – 7,730 shares; Ms. Coleman – 7,730 shares; Dr. Nikias – 6,215 shares; Mr. Schwarz – 7,730 shares; Mr. Vallee – 7,730 shares; and Mr. Walske – 7,730 shares.
(2) At the end of fiscal 2013, our non-employee directors held the following aggregate numbers of outstanding option awards: Mr. Castino – 0 shares; Mr. Chizen – 0 shares; Ms. Coleman – 0 shares; Dr. Nikias – 42,147 shares; Mr. Schwarz – 40,751 shares; Mr. Vallee – 0 shares; and Mr. Walske – 0 shares.
(3) Includes $8,000 paid to Mr. Castino, an Audit Committee member, for attendance at Audit Committee meetings in fiscal 2013.
(4) Includes $16,000 paid to Ms. Coleman, the Audit Committee chair, for attendance at Audit Committee meetings in fiscal 2013.
(5) Includes $8,000 paid to Mr. Vallee, an Audit Committee member, for attendance at Audit Committee meetings in fiscal 2013.

 

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Compensation Committee Interlocks and Insider Participation

During fiscal 2013, the Compensation Committee consisted of Bruce R. Chizen (Chair), Chrysostomos L. “Max” Nikias and Steven C. Walske. None of the members of the Compensation Committee is an officer or employee of Synopsys, and none of our executive officers serves as a member of a board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board or Compensation Committee.

 

Compensation Committee Report*

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on the Compensation Committee’s review of, and the discussions with management with respect to, the Compensation Discussion and Analysis, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the Securities and Exchange Commission.

The foregoing report is provided by the following directors, who constitute the Compensation Committee:

COMPENSATION COMMITTEE

Bruce R. Chizen, Chair

Chrysostomos L. “Max” Nikias

Steven C. Walske

 

 

* This report shall not constitute “soliciting material,” shall not be deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any of our other filings under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this report by reference therein.

 

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Equity Compensation Plan Information

The following table provides information regarding our equity compensation plans as of November 2, 2013.

 

Plan Category

   Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
    Weighted-Average
Exercise Price of
Outstanding Options,
Warrants  and
                Rights(1)                
     Number of Securities
Remaining Available for
Future Issuance  Under
Equity Compensation
Plans(2)
 
     (in thousands, except price per share amounts)  

Equity Compensation Plans Approved by Stockholders

     10,965 (3)    $ 27.45         12,550 (4) 

Equity Compensation Plans Not Approved by Stockholders

     182 (5)    $ 22.08         —      
  

 

 

      

 

 

 

Total

     11,147      $ 27.32         12,550   
  

 

 

      

 

 

 

 

 

(1) The weighted-average exercise price does not include outstanding restricted stock units, which have no exercise price.
(2) These numbers exclude the shares listed under the column heading “Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights.”
(3) Includes 3.9 million shares of common stock issuable upon vesting of restricted stock units under the 2006 Employee Plan and 7.1 million shares of common stock issuable upon exercise of outstanding stock options granted under the 2006 Employee Plan, the 2005 Non-Employee Directors Equity Incentive Plan, and the 1992 Stock Option Plan.
(4) Comprised of (a) 8.5 million shares remaining available for issuance under the 2006 Employee Plan, (b) 0.3 million shares remaining available for issuance under the 2005 Non-Employee Directors Equity Incentive Plan, and (c) 3.7 million shares remaining available for issuance under the Employee Stock Purchase Plan as of November 2, 2013 (of which up to 2.0 million shares were subject to purchase during the purchase period that was on-going as of November 2, 2013).
(5) Comprised of shares issuable upon the exercise of outstanding stock options under our 1998 Non-Statutory Stock Option Plan, which was not required to be approved by stockholders pursuant to the rules of the NASDAQ Global Select Market in effect at the time. This plan was terminated as to future grants in April 2006. Does not include the following shares from various plans assumed in connection with acquisitions of other companies: (i) 0.5 million shares of common stock issuable upon exercise of outstanding stock options and stock appreciation rights, with a weighted-average exercise price of $19.75 per share, and (ii) 0.1 million shares of common stock issuable upon vesting of restricted stock units. No shares remain available for future issuance under these acquired plans.

A description of the 1998 Non-Statutory Stock Option Plan follows:

1998 Non-Statutory Stock Option Plan. Under our 1998 Non-Statutory Stock Option Plan (referred to in this Proxy Statement as the 1998 Plan), 50,295,546 shares of common stock were originally authorized for issuance. Pursuant to the 1998 Plan, our Board of Directors could grant nonqualified stock options to employees or consultants, excluding executive officers. Exercisability, option price and other terms were determined by our Board but the option price could not be less than 100% of the fair market value of those shares on the grant date. Stock options granted under the 1998 Plan generally vested over a period of four years and expire seven to ten years from the date of grant. As of November 2, 2013, there were 181,804 shares subject to stock options outstanding under the 1998 Plan. The 1998 Plan was terminated as to future grants in connection with the approval of the 2006 Employee Plan.

 

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Proposal 6: Ratification of Selection of Independent Registered Public Accounting Firm

The Audit Committee of our Board of Directors has selected KPMG LLP, our independent registered public accounting firm, to audit our consolidated financial statements for fiscal 2014. KPMG LLP has audited our consolidated financial statements since fiscal 1992. As a matter of good corporate governance, we are asking our stockholders to ratify the Audit Committee’s selection of KPMG LLP as our independent registered public accounting firm for fiscal 2014.

We expect that a KPMG LLP representative will be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so, and will be available to respond to appropriate questions.

Ratification of the selection of KPMG LLP requires that the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting, and voting on this Proposal 6, vote “For” this Proposal 6. Abstentions will not be counted as either votes cast “For” or “Against” this Proposal 6. Discretionary votes by brokers, banks and related agents on this routine proposal will be counted towards the quorum requirement and will affect the outcome of the vote.

Stockholder ratification of the appointment of KPMG LLP as our independent registered public accounting firm is not required by our Bylaws or otherwise. Nevertheless, our Board of Directors is submitting the selection of KPMG LLP to our stockholders for ratification. If our stockholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain KPMG LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the selection of a different independent registered public accounting firm at any time if they determine that such a change would be in the best interests of Synopsys and our stockholders.

 

 

Our Board of Directors Recommends that You Vote

“FOR” the Ratification of the Selection of KPMG LLP to Serve as

Our Independent Registered Public Accounting Firm for Fiscal 2014

 

Fees and Services of Independent Registered Public Accounting Firm

The following table presents fees for professional audit services rendered by KPMG LLP for the audit of our annual financial statements and fees billed for all other services rendered by KPMG LLP during the following fiscal years.

 

       Fiscal Year Ended  
       Nov. 2, 2013         Nov. 3, 2012  
       (in thousands)  

Audit fees

     $ 2,854        $ 3,667   

Audit-related fees(1)

     $        $ 570   

Tax fees(2)

     $ 241        $ 188   
    

 

 

     

 

 

 

Total fees

     $ 3,095        $ 4,425   
    

 

 

     

 

 

 

 

 

(1) Consists of fees for due diligence services.
(2) Consists of fees for assistance with international tax compliance services relating to certain foreign subsidiaries.

Audit Committee Pre-Approval Policies and Procedures

As required by Section 10A(i)(1) of the Exchange Act, all audit and non-audit services to be performed by our independent registered public accounting firm must be approved in advance by the Audit Committee, subject to certain exceptions relating to non-audit services accounting for less than

 

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five percent of the total fees paid to our independent registered public accounting firm which are subsequently ratified by the Audit Committee (referred to in this Proposal 6 as the De Minimis Exception). In addition, pursuant to Section 10A(i)(3) of the Exchange Act, as amended, the Audit Committee has established procedures by which the Chairperson of the Audit Committee may pre-approve such services, provided the Chairperson subsequently reports the details of the services to the full Audit Committee. None of the non-audit services performed by KPMG LLP during fiscal 2013 or fiscal 2012 were performed pursuant to the De Minimis Exception.

 

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Audit Committee Report*

Communications with Management and Independent Registered Public Accounting Firm

The Audit Committee has reviewed and discussed our audited financial statements with management. In addition, the Audit Committee has discussed with KPMG LLP, Synopsys’ independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61, “Communications with Audit Committees,” as amended, which includes, among other items, matters related to the conduct of the audit of our financial statements. The Audit Committee has also received the written disclosures and letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG LLP’s communications with the Audit Committee concerning independence. The Audit Committee has discussed with KPMG LLP and reviewed KPMG LLP’s independence from Synopsys, including whether KPMG LLP’s provision of non-audit services was compatible with that independence.

Recommendation Regarding Financial Statements

Based on the review and discussions referred to above, the Audit Committee unanimously recommended to our Board that Synopsys’ audited fiscal 2013 financial statements be included in our 2013 Annual Report on Form 10-K.

AUDIT COMMITTEE

Deborah A. Coleman, Chair

Alfred Castino

Roy Vallee

 

 

* This report shall not constitute “soliciting material,” shall not be deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any of our other filings under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this report by reference therein.

 

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of January 13, 2014 by (1) each person known by us to beneficially own more than five percent of our common stock outstanding on that date, (2) each of our directors, (3) each of our NEOs, and (4) all of our directors and executive officers as a group. Unless otherwise indicated, each entity or person listed below maintains a mailing address of c/o Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043.

 

      Shares of Common Stock
Beneficially Owned
 

Name of Beneficial Owner(1)

   Number     Percentage
Ownership(2)
 

Entities associated with Dodge & Cox

     20,657,413 (3)      13.42

555 California Street, 40th Floor

San Francisco, CA 94104

    

Entities associated with Blackrock, Inc.

     12,147,695 (4)      7.89

40 E. 52nd Street

New York, NY 10022

    

Entities associated with Ameriprise Financial, Inc.

     11,093,240 (5)      7.21

145 Ameriprise Financial Center

Minneapolis, MN 55474

    

Entities associated with The Vanguard Group, Inc.

     8,321,006 (6)      5.40

100 Vanguard Blvd.

Malvern, PA 19355

    

Brian M. Beattie, Chief Financial Officer

     121,926 (7)      *   

Brian E. Cabrera, General Counsel

     21,587 (8)      *   

Alfred Castino, Director

     34,719 (9)      *   

Chi-Foon Chan, Co-Chief Executive Officer and President

     299,220 (10)      *   

Bruce R. Chizen, Director

     47,311 (11)      *   

Deborah A. Coleman, Director

     50,211 (12)      *   

Aart J. de Geus, Co-Chief Executive Officer and Chairman of the Board of Directors

     1,235,610 (13)      *   

Joseph W. Logan, Executive Vice President, Worldwide Sales and Corporate Marketing

     168,657 (14)      *   

Chrysostomos L. “Max” Nikias, Director

     35,155 (15)   

John Schwarz, Director

     70,610 (16)      *   

Roy Vallee, Director

     49,311 (17)      *   

Steven C. Walske, Director

     34,549 (18)      *   

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

     2,168,866 (19)      1.40

 

* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws where applicable, we believe, based on information furnished by such persons and from Forms 13F and Schedules 13D and 13G filed with the Securities and Exchange Commission, that the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them as of January 13, 2014.

 

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(2) Percentage of beneficial ownership is based on 153,957,511 shares of common stock outstanding as of January 13, 2014, adjusted as required by Securities and Exchange Commission rules. Shares of common stock that are subject to stock options or other convertible securities currently issuable or issuable into shares of common stock within 60 days of January 13, 2014, are deemed outstanding for the purposes of computing the percentage ownership of the person holding these stock options or convertible securities, but are not deemed outstanding for computing the percentage ownership of any other person.
(3) Based solely on the Schedule 13G/A filed with the Securities and Exchange Commission on February 13, 2014, reporting beneficial ownership as of December 31, 2013. Dodge & Cox has sole dispositive power with respect to all such shares and sole voting power with respect to 19,537,171 shares.
(4) Based solely on the Schedule 13G/A filed with the Securities and Exchange Commission on January 30, 2014, reporting beneficial ownership as of December 31, 2013. Blackrock, Inc. has sole dispositive power with respect to all such shares and sole voting power with respect to 11,010,701 shares.
(5) Based solely on the Schedule 13G/A filed with the Securities and Exchange Commission on February 13, 2014, reporting beneficial ownership as of December 31, 2014. Ameriprise Financial, Inc. and Columbia Management Investment Advisers, LLC have shared dispositive power with respect to all such shares and shared voting power with respect to 483,462 shares. Columbia Seligman Communications & Information Fund has shared dispositive power and sole voting power with respect to 8,087,203 shares.
(6) Based solely on the Schedule 13G filed with the Securities and Exchange Commission on February 12, 2014, reporting beneficial ownership as of December 31, 2013. The Vanguard Group has sole dispositive power with respect to 8,199,634 shares and sole voting power with respect to 149,049 shares.
(7) Includes stock options to purchase 101,305 shares exercisable by Mr. Beattie within 60 days following January 13, 2014.
(8) Includes stock options to purchase 11,587 shares exercisable by Mr. Cabrera within 60 days following January 13, 2014.
(9) Includes 7,730 shares of restricted stock that are not vested as of January 13, 2014 and are subject to forfeiture.
(10) Includes stock options to purchase 102,569 shares exercisable by Dr. Chan within 60 days following January 13, 2014.
(11) Includes 7,730 shares of restricted stock that are not vested as of January 13, 2014 and are subject to forfeiture.
(12) Includes 7,730 shares of restricted stock that are not vested as of January 13, 2014 and are subject to forfeiture.
(13) Includes stock options to purchase 517,257 shares exercisable by Dr. de Geus within 60 days following January 13, 2014. Includes 16,000 shares held by Dr. de Geus’ wife and 55,000 shares beneficially owned by Mora Investment Partners L.P., but Dr. de Geus disclaims beneficial ownership of the shares held by his wife.
(14) Includes stock options to purchase 111,237 shares exercisable by Mr. Logan within 60 days following January 13, 2014.
(15) Includes stock options to purchase 25,797 shares exercisable by Dr. Nikias within 60 days following January 13, 2014. Also includes 6,215 shares of restricted stock that are not vested as of January 13, 2014 and are subject to forfeiture.
(16) Includes stock options to purchase 40,751 shares exercisable by Mr. Schwarz within 60 days following January 13, 2014. Also includes 7,730 shares of restricted stock that are not vested as of January 13, 2014 and are subject to forfeiture.
(17) Includes 7,730 shares of restricted stock that are not vested as of January 13, 2014 and are subject to forfeiture.
(18) Includes 7,730 shares of restricted stock that are not vested as of January 13, 2014 and are subject to forfeiture.

 

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(19) Includes stock options to purchase 910,503 shares exercisable by all directors and executive officers within 60 days following January 13, 2014. Also includes 52,595 shares of restricted stock that are not vested as of January 13, 2014 and are subject to forfeiture.

 

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and greater than ten percent beneficial owners of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, executive officers and greater than ten percent stockholders are required by the rules and regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports they file.

Based solely on our review of the copies of the Forms 3, 4 and 5 filed by or received from our reporting persons (or written representations received from such persons), we believe that all of the Section 16 filing requirements were satisfied during fiscal 2013.

 

Review, Approval or Ratification of Transactions with Related Persons

Our Code of Ethics and Business Conduct requires that every employee avoid situations where loyalties may be divided between our interests and the employee’s own interests. Employees and directors must avoid conflicts of interest that interfere with the performance of their duties or are not in our best interests.

Pursuant to its written charter, the Audit Committee reviews and approves all related party transactions as such term is used in ASC Topic 850 Related Party Disclosures, or as otherwise required to be disclosed in our financial statements or periodic filings with the Securities and Exchange Commission, other than (a) grants of stock options made by our Board of Directors or any committee thereof or pursuant to an automatic grant plan, or (b) payment of compensation authorized by our Board or any committee thereof. Related party transactions include transactions between us, our executive officers and directors, beneficial owners of five percent or greater of our securities, and all other related persons specified under Item 404 of Regulation S-K promulgated by the Securities and Exchange Commission. We have adopted written policies and procedures regarding the identification of related parties and transactions, and the approval process. The Audit Committee will consider each proposed transaction in light of the specific facts and circumstances presented, including but not limited to the risks, costs and benefits to us and the availability from other sources of comparable services or products.

 

Certain Relationships and Related Transactions

From the beginning of fiscal 2013 until the present, there have been no (and there are no currently proposed) transactions involving an amount in excess of $120,000 in which Synopsys was (or is to be) a participant and any executive officer, director, five percent beneficial owner of our common stock or member of the immediate family of any of the foregoing persons had (or will have) a direct or indirect material interest, except the compensation arrangements described in this Proxy Statement for our named executive officers and directors and compensation arrangements with our other executive officers not required to be disclosed in this section by the rules and regulations of the Securities and Exchange Commission.

 

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Other Matters

We know of no other business that will be presented at the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in accordance with the judgment of the persons voting the proxies.

Whether you intend to be present at the Annual Meeting or not, we urge you to return your signed proxy promptly.

 

  By order of the Board of Directors,

Dated: February 14, 2014

  LOGO
 

Erika Varga McEnroe

Interim General Counsel and

Corporate Secretary

A copy of our 2013 Annual Report on Form 10-K is available without charge upon written request to Corporate Secretary, Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043.

 

 

Important Notice Regarding the Internet Availability of Proxy Materials

for the Annual Meeting to Be Held on April 2, 2014

 

The Proxy Statement and our 2013 Annual Report on Form 10-K will be available at

http://materials.proxyvote.com/871607 on or about February 18, 2014.

 

 

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Appendix A

SYNOPSYS, INC.

2006 EMPLOYEE EQUITY INCENTIVE PLAN

ADOPTED BY THE BOARD OF DIRECTORS: MARCH 3, 2006

APPROVED BY THE STOCKHOLDERS: APRIL 25, 2006

AS AMENDED BY THE BOARD OF DIRECTORS: DECEMBER 13, 2013

AMENDMENT SUBJECT TO APPROVAL BY THE STOCKHOLDERS: APRIL 2, 2014

TERMINATION DATE: APRIL 1, 2026

 

1. GENERAL.

(a) Successor and Continuation of Prior Plans. The Plan is intended as the successor and continuation of the (i) Synopsys, Inc. 1992 Stock Option Plan, (ii) Synopsys, Inc. 1998 Nonstatutory Stock Option Plan, and (iii) Synopsys, Inc. 2005 Assumed Stock Option Plan (collectively, the “Prior Plans”). Following the Effective Date, no additional stock awards shall be granted under the Prior Plans. Any shares remaining available for issuance pursuant to the exercise of options under the Prior Plans shall become available for issuance pursuant to Stock Awards granted hereunder. Any shares subject to outstanding stock awards granted under the Prior Plans that expire or terminate for any reason prior to exercise or settlement shall become available for issuance pursuant to Stock Awards granted hereunder. On the Effective Date, all outstanding stock options granted under the Prior Plans shall be deemed to be stock options granted pursuant to the Plan, but shall remain subject to the terms of the Prior Plans with respect to which they were originally granted.

(b) Eligible Award Recipients. The persons eligible to receive Awards are Employees and Consultants. Non-employee Directors are not eligible to receive Awards under this Plan.

(c) Available Awards. The Plan provides for the grant of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Restricted Stock Awards, (iv) Restricted Stock Unit Awards, (v) Stock Appreciation Rights, (vi) Performance Stock Awards, and (vii) Other Stock Awards. The Plan also provides for the grant of Performance Cash Awards.

(d) Purpose. The Company, by means of the Plan, seeks to secure and retain the services of the group of persons eligible to receive Stock Awards as set forth in Section 1(b), to provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and to provide a means by which such eligible recipients may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Stock Awards.

 

2. DEFINITIONS.

As used in the Plan, the following definitions shall apply to the capitalized terms indicated below:

(a) “Affiliate” means (i) any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, and (ii) any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. The Board shall have the authority to determine (i) the time or times at which the ownership tests are applied, and (ii) whether “Affiliate” includes entities other than corporations within the foregoing definition.

(b) “Award” means a Stock Award or a Performance Cash Award.

(c) “Board” means the Board of Directors of the Company.

 

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(d) “Capitalization Adjustment” has the meaning ascribed to that term in Section 9(a).

(e) “Cause” means, with respect to a Participant, the occurrence of any of the following: (i) the Participant commits an act of dishonesty in connection with the Participant’s responsibilities as an Employee or Consultant; (ii) the Participant commits a felony or any act of moral turpitude; (iii) the Participant commits any willful or grossly negligent act that constitutes gross misconduct and/or injures, or is reasonably likely to injure, the Company or any Affiliate; or (iv) the Participant willfully and materially violates (A) any written policies or procedures of the Company or any Affiliate, or (B) the Participant’s obligations to the Company or any Affiliate. The determination that a termination is for Cause shall be made by the Company in its sole discretion. Any determination by the Company that the Continuous Service of a Participant was terminated with or without Cause for the purposes of outstanding Awards held by such Participant shall have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose.

(f) “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;

(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;

(iii) the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur;

(iv) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

 

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(v) individuals who, on the date this Plan is adopted by the Board, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board.

For avoidance of doubt, the term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

Notwithstanding the foregoing, to the extent that the Company determines that any of the payments or benefits under this Plan that are payable in connection with a Change in Control constitute deferred compensation under Section 409A that may only be paid on a transaction that meets the standard of Treasury Regulation Section 1.409A-3(a)(5), the foregoing definition of Change in Control shall apply only to the extent the transaction also meets the definition used for purposes of Treasury Regulation Section 1.409A-3(a)(5), that is, as defined under Treasury Regulation Section 1.409A-3(i)(5).

Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply.

(g) “Code” means the Internal Revenue Code of 1986, as amended.

(h) “Committee” means a committee of one (1) or more members of the Board to whom authority has been delegated by the Board in accordance with Section 3(c).

(i) “Common Stock” means the common stock of the Company.

(j) “Company” means Synopsys, Inc., a Delaware corporation.

(k) “Consultant” means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the Board of Directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, shall not cause a Director to be considered a “Consultant” for purposes of the Plan.

(l) “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate from a Consultant to Employee shall not terminate a Participant’s Continuous Service. Furthermore, a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, shall not terminate a Participant’s Continuous Service. However, if the corporation for which a Participant is rendering service ceases to qualify as an Affiliate, as determined by the Board in its sole discretion, such Participant’s Continuous Service shall be considered to have terminated on the date such corporation ceases to qualify as an Affiliate. A leave of absence shall be treated as Continuous Service for purposes of vesting in an Award to such extent as may be provided in the Company’s leave of absence policy or in the written terms of the Participant’s leave of absence.

(m) “Corporate Transaction” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) a sale or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;

(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;

 

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(iii) the consummation of a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or

(iv) the consummation of a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.

(n) “Covered Employee” has the meaning provided in Section 162(m)(3) of the Code and the regulations promulgated thereunder.

(o) “Director” means a member of the Board.

(p) “Disability” means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and shall be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.

(q) “Effective Date” means the effective date of the Plan as specified in Section 12.

(r) “Employee” means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, shall not cause a Director to be considered an “Employee” for purposes of the Plan.

(s) “Entity” means a corporation, partnership or other entity.

(t) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(u) “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the effective date of the Plan as set forth in Section 12, is the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities.

(v) “Fair Market Value” means for purposes of Sections 5(b), 5(c), 6(b), 6(c), 6(d)(iv), 7(c)(ii), 7(c)(iii) and 8(d), as of any date, the value of the Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or traded on any market system, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the date in question, as reported in The Wall Street Journal or such other source as the Board deems reliable. Unless otherwise provided by the Board, if there is no closing sales price (or closing bid if no sales were reported) for the Common Stock on the date in question, then the Fair Market Value shall be the closing sales price (or closing bid if no sales were reported) on the last preceding date for which such quotation exists.

(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined by the Board in a manner that complies with Sections 409A and 422 of the Code.

 

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(w) “Incentive Stock Option” means an Option which qualifies as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(x) “Non-Employee Director” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(y) “Nonstatutory Stock Option