<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
MENTOR GRAPHICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
FRANK S. DELIA
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
[MENTOR GRAPHICS LOGO]
Dear Shareholder:
You are cordially invited to attend the 1994 Annual Meeting of Shareholders
of Mentor Graphics Corporation to be held in Wilsonville, Oregon, on Tuesday,
April 26, 1994. The attached Notice of Annual Meeting and Proxy Statement
describe the matters to be acted upon. I urge you to review them carefully.
YOUR VOTE IS IMPORTANT. Whether or not you personally plan to attend,
please take a few minutes now to sign, date and return your proxy in the
enclosed postage-paid envelope. Regardless of the number of Mentor Graphics
shares you own, your presence by proxy is important to establish a quorum and
your vote is important for proper corporate governance.
Thank you for your continued interest in Mentor Graphics Corporation.
Sincerely,
[FACSIMILE SIGNATURE]
Walden C. Rhines
President and Chief Executive Officer
<PAGE> 3
MENTOR GRAPHICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 1994
To the Shareholders of Mentor Graphics Corporation:
The Annual Meeting of Shareholders of Mentor Graphics Corporation, an
Oregon corporation, will be held on Tuesday, April 26, 1994 at 5:00 p.m.,
Pacific Time, at the Company's world headquarters at 8005 SW Boeckman Road,
Wilsonville, Oregon 97070-7777 for the following purposes, as more fully
described in the accompanying Proxy Statement:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To act upon a proposal to amend the Company's 1982 Stock Option
Plan to increase the number of shares of Common Stock reserved for issuance
under the plan and to establish a per-employee limit on grants of options
and stock appreciation rights.
3. To act upon a proposal to amend the Company's 1987 Non-Employee
Directors' Stock Option Plan to increase the number of shares of Common
Stock reserved for issuance under the plan and make certain other changes.
4. To ratify the appointment of the independent auditors of the
Company for 1994.
5. To transact any other business that may properly come before the
meeting or any adjournment of the meeting.
The above items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on March 1, 1994 are
entitled to notice of and to vote at the Annual Meeting.
Sincerely,
[FACSIMILE SIGNATURE]
Frank S. Delia,
Vice President and
Chief Administrative Officer
Wilsonville, Oregon
March 25, 1994
THE COMPANY CORDIALLY INVITES ALL SHAREHOLDERS TO ATTEND THE MEETING IN
PERSON. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, WE URGE YOU TO
VOTE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 4
MAILED TO SHAREHOLDERS ON
OR ABOUT MARCH 25, 1994
MENTOR GRAPHICS CORPORATION
8005 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070-7777
------------------------
PROXY STATEMENT
Mentor Graphics Corporation (Mentor Graphics or Company) is soliciting the
enclosed proxy for use at its Annual Meeting of Shareholders to be held Tuesday,
April 26, 1994 at 5:00 p.m., Pacific Time, or at any adjournment of that
meeting. The Company will hold the Annual Meeting at its headquarters at 8005 SW
Boeckman Road, Wilsonville, Oregon 97070-7777.
Mentor Graphics will bear the cost of this solicitation. The Company has
retained Georgeson & Company to assist in soliciting proxies from brokers and
nominees for the Annual Meeting at an estimated cost of $6,500 plus
out-of-pocket expenses. In addition, Mentor Graphics may reimburse brokerage
houses and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material. The Company will furnish copies of
solicitation material to such brokerage houses and other representatives. The
Company will solicit proxies by use of the mails, and officers and employees of
the Company may, without additional compensation, also solicit proxies by
telephone or personal contact.
The mailing address of the Company's principal executive offices is 8005 SW
Boeckman Road, Wilsonville, Oregon 97070-7777 and its telephone number is (503)
685-7000.
UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY, THE COMPANY WILL PROVIDE
WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K TO ANY PERSON
WHOSE PROXY IS SOLICITED BY THIS PROXY STATEMENT.
PROCEDURAL MATTERS
Shareholders of record at the close of business on March 1, 1994 are
entitled to notice of and to vote at the meeting. At the record date, 48,017,410
shares of Mentor Graphics Common Stock were issued and outstanding and entitled
to one vote per share. Each share of Common Stock outstanding on the record date
is entitled to one vote per share at the 1994 annual meeting of shareholders.
For information regarding holders of 5% or more of the outstanding Common Stock,
see "Information Regarding Beneficial Ownership of Principal Shareholders and
Management."
Shareholders may revoke any proxy given pursuant to this solicitation by
delivering to the Corporate Secretary a written notice of revocation or a duly
executed proxy bearing a later date or by attending the meeting and voting in
person. The designated proxy holders will vote all valid, unrevoked proxies at
the Annual Meeting in accordance with the instructions given.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The directors of the Company are elected at the Annual Meeting to serve
until the next Annual Meeting of Shareholders and until their respective
successors are elected and qualified. Under Oregon law, if a quorum is present
at the meeting, the six nominees for election as directors who receive the
greatest number of votes cast for the election of directors at the meeting by
the shares present in person or represented by proxy at the meeting and entitled
to vote shall be elected directors. Abstention from voting or nonvoting by
brokers will have no effect on the results of the vote. Unless otherwise
instructed, proxy holders will vote the proxies they receive for the six
nominees named below, who are all currently directors of the Company. If any
nominee of Mentor Graphics is unable or declines to serve as a director at the
time of the Annual Meeting, the designated
<PAGE> 5
proxy holders will vote the proxies for any nominee designated by the present
Board of Directors to fill the vacancy.
The nominees for director are listed below together with certain
information about each of them.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED AS OF
MARCH 1, 1994
-----------------------
DIRECTOR NUMBER PERCENT
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE OF SHARES OF TOTAL
- --------------------------------------------------------- --- -------- --------- ---------
<S> <C> <C> <C> <C>
MARSHA B. CONGDON........................................ 47 1991 21,032(1) *
Vice President, Policy and Strategy, of US West
Communications (a provider of telecommunications
services) since 1994; Regional Vice President and Chief
Executive Officer-Oregon from 1992-1994; Vice President
and Chief Executive Officer-Oregon from 1987 to 1992.
DAVID R. HATHAWAY........................................ 49 1981 85,600(2) *
General Partner of Venrock Associates (a private
venture capital limited partnership) since 1980;
director of Sequent Computer Systems, Inc. (a
manufacturer of computer systems); director of Mitek
Surgical Products, Inc. (a surgical implant supplier).
WALDEN C. RHINES......................................... 47 1993 100,000 *
President and Chief Executive Officer of Mentor
Graphics since 1993; Executive Vice President,
Semiconductor Group, and Vice President of Texas
Instruments Inc. (a manufacturer of electronics
products) from 1987 to 1993.
FONTAINE K. RICHARDSON................................... 52 1983 73,600(3) *
General Partner of Eastech Management Company (a
private venture capital firm) since 1983; director of
Banyan Systems Inc. (a manufacturer of computer network
software products).
JON A. SHIRLEY........................................... 55 1989 90,832(4) *
Private Investor; President and Chief Operating Officer
of Microsoft Corporation (a developer of computer
software) from 1983 to 1990; director of Microsoft
Corporation.
DAVID N. STROHM.......................................... 45 1983 72,200(5) *
Affiliated with Greylock entities since 1980; General
Partner of Greylock Ventures Limited Partnership,
Greylock Investments Limited Partnership, Greylock
Capital Limited Partnership and Greylock Limited
Partnership (each entity is a private venture capital
limited partnership); director of Banyan Systems Inc.
(a manufacturer of computer network software products);
director of MDL Information Systems Inc. (a supplier of
chemical information management software products).
</TABLE>
- ------------
* Less than 1%
(1) Includes 20,032 shares subject to options exercisable within 60 days of
March 1, 1994.
(2) Includes 73,600 shares subject to options exercisable within 60 days of
March 1, 1994.
(3) Includes 73,600 shares subject to options exercisable within 60 days of
March 1, 1994.
(4) Includes 90,832 shares subject to options exercisable within 60 days of
March 1, 1994.
(5) Includes 70,400 shares subject to options exercisable within 60 days of
March 1, 1994.
2
<PAGE> 6
INFORMATION REGARDING THE BOARD OF DIRECTORS
BOARD MEETINGS AND COMMITTEES
The Board of Directors of Mentor Graphics met eight times during 1993. The
only standing committees of the Board of Directors are the Audit Committee, the
Compensation Committee and the Nominating Committee.
The Audit Committee of the Board of Directors, which consists of directors
Congdon and Strohm, met four times during 1993. This committee meets from time
to time with management and the Company's independent auditors to consider
financial and accounting matters. The Compensation Committee of the Board of
Directors, which consists of directors Hathaway, Richardson and Shirley, met
three times during the year. This committee recommends compensation and fringe
benefits for existing and future employees and administers the Company's stock
option and purchase plans. The Nominating Committee, which consists of directors
Hathaway, Richardson, Shirley and Strohm, met once during 1993. This committee
meets from time to time to administer policies and procedures for board
membership and to identify and recommend board candidates. The Nominating
Committee also considers shareholder nominations made in writing to the
Corporate Secretary and is presently conducting a search for a candidate for
nomination to the Board as an additional non-employee director.
No director attended fewer than 75% of the aggregate of all meetings of the
Board of Directors and the committees of which the director was a member during
1993.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid an annual fee of
$20,000 and are reimbursed for expenses incurred in attending Board and Board
committee meetings.
1987 Non-Employee Directors' Stock Option Plan
The Company's 1987 Non-Employee Directors' Stock Option Plan (1987 Plan) is
described below under "APPROVAL OF AMENDMENTS TO 1987 PLAN."
3
<PAGE> 7
INFORMATION REGARDING BENEFICIAL OWNERSHIP
OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table shows beneficial ownership of the Company's Common
Stock as of March 1, 1994 by the only shareholders known by the Company to
beneficially own 5% or more of the Common Stock, by the executive officers named
in the Summary Compensation Table and by all directors and executive officers as
of March 1, 1994 as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT
----------------------------------------------- ------------------------ --------
<S> <C> <C>
State of Wisconsin Investment Board............ 4,543,400(1) 9.7%
P.O. Box 7842
Madison, WI 53707
Merrill Lynch & Co., Inc....................... 4,403,213(2) 9.5%
and various subsidiaries
World Financial Center, North Tower
New York, NY 10281-1323
Capital Research and Management Company,....... 3,065,000(3) 6.5%
a registered investment adviser and
an operating subsidiary of
The Capital Group, Inc.
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF EXECUTIVE OFFICER OF BENEFICIAL OWNERSHIP PERCENT
----------------------------------------------- ------------------------ --------
<S> <C> <C>
Thomas H. Bruggere............................. 475,766(4) *
Walden C. Rhines............................... 100,000 *
Waldo J Richards............................... 21,200(5) *
Philip J. Robinson............................. 2,000 *
David L. Brinker............................... 0 *
Frank S. Delia................................. 31,594(6) *
All directors and executive officers as a group
(14 persons)................................. 989,894(7) 2.0%
</TABLE>
- ------------
* Less than 1%
(1) Based solely on information provided as of February 8, 1994 in a Schedule
13G filed by the shareholder.
(2) Based solely on information provided as of February 14, 1994 in a Schedule
13G filed by the shareholder.
(3) Based solely on information provided as of February 11, 1994 in a Schedule
13G filed by the shareholder.
(4) Includes 152,600 shares subject to options exercisable within 60 days of
March 1, 1994.
(5) Includes 20,000 shares subject to options exercisable within 60 days of
March 1, 1994.
(6) Includes 31,433 shares subject to options exercisable within 60 days of
March 1, 1994.
(7) Includes 543,938 shares subject to options exercisable within 60 days of
March 1, 1994.
4
<PAGE> 8
INFORMATION REGARDING EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows compensation paid by the Company for the last
three fiscal years to the Chief Executive Officers and the four other most
highly compensated executive officers (Named Executive Officers).
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
----------------
ANNUAL COMPENSATION SECURITIES
NAME AND --------------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(5) OPTIONS/SARS(#) COMPENSATION($)(7)
- ---------------------------- ---- ---------- ------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Thomas H. Bruggere 1993 400,000 80,000 0 4,497
Chairman of the Board, 1992 400,000 0 300,200(6) 4,364
President and Chief 1991 390,000 0 50,000 4,238
Executive Officer(1)
Walden C. Rhines 1993 84,872 413,333 600,000 0
President and Chief 1992 -- -- -- --
Executive Officer(2) 1991 -- -- -- --
Waldo J Richards 1993 199,449 37,000 100,000 734
Senior Vice President, 1992 -- -- -- --
Product Operations(3) 1991 -- -- -- --
Philip J. Robinson 1993 190,000 24,000 0 4,497
Vice President and 1992 188,750 0 140,000(6) 4,364
General Manager, 1991 180,000 0 0 4,013
Value-Added Services
David L. Brinker 1993 183,333 38,000 20,000 4,497
Vice President, 1992 176,250 0 106,200(6) 4,364
World Trade(4) 1991 147,500 51,375 12,000 4,238
Frank S. Delia 1993 145,000 20,000 0 4,350
Vice President, Chief 1992 145,000 0 64,200(6) 4,364
Administrative Officer, 1991 140,000 12,500 12,000 4,238
General Counsel and
Secretary
</TABLE>
- ---------------
(1) Mr. Bruggere served as President and Chief Executive Officer until October
1993 and will continue to serve as Chairman of the Board until April 1994.
He resigned as an employee of the Company in February 1994.
(2) Dr. Rhines began employment with the Company in October 1993.
(3) Mr. Richards began employment with the Company in February 1993.
(4) Mr. Brinker resigned from his position with the Company in January 1994.
(5) See "REPORT OF THE BOARD OF DIRECTORS' COMPENSATION COMMITTEE."
(6) On October 7, 1992, the Compensation Committee and the Board of Directors
approved a repricing of outstanding options under the Company's employee
stock option plans. For purposes of the table above, repriced options are
considered to be option grants and, therefore, are included in the number of
options granted in 1992. If repriced options are not counted, option grants
in 1992 were made to Messrs. Bruggere, Robinson, Brinker and Delia for
50,000, 20,000, 20,000 and 10,000 shares, respectively.
(7) Amounts shown are Company contributions to the Individual Deferred Tax and
Savings Plan pursuant to which the Company's U.S. employees may defer
compensation under Section 401(k) of the Internal Revenue Code. The Company
contributes an amount equal to 50% of the first 6% of salary contributed
under the plan by an eligible employee.
5
<PAGE> 9
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants for the last
fiscal year to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
# OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS MARKET STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR PRICE ON OPTION TERM(6)
OPTIONS EMPLOYEES IN BASE PRICE DATE OF EXPIRATION ---------------------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) GRANT($) DATE 0%($) 5%($) 10%($)
- ---------------------- ---------- ------------ ----------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas H. Bruggere.... -- -- -- -- -- -- -- --
Walden C. Rhines...... 100,000(2) 7.8 1.00 11.625 9/30/2003 1,062,500 1,793,590 2,915,226
500,000(3) 39.2 11.625 11.625 10/31/2003 0 3,655,450 9,263,628
Waldo J Richards...... 100,000(4) 7.8 10.125 10.125 1/31/2003 0 636,756 1,613,664
Philip J. Robinson.... -- -- -- -- -- -- -- --
David L. Brinker...... 20,000(5) 1.6 12.625 12.625 9/30/2003 0 158,796 402,420
Frank S. Delia........ -- -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) All options become fully exercisable upon a "change in control" of the
Company as defined in the 1982 Stock Option Plan. Unless otherwise
determined by the Compensation Committee before the occurrence of the event,
a "change in control" generally includes the following events: the
acquisition by any person of 20% or more of the Company's Common Stock, the
nomination (and subsequent election) of a majority of the Company's
directors by persons other than the incumbent directors and the approval by
the Company's shareholders of a merger, share exchange, sale of
substantially all of the Company's assets or plan of liquidation.
(2) The option was fully exercisable at the time of grant. The Company has
granted Dr. Rhines a put right to sell the shares underlying this option to
the Company for $11.00 per share. The put right is exercisable at any time
in 1995 or 1996, unless (a) Dr. Rhines realizes a pre-tax gain of $1,000,000
from sales of such shares in the market, (b) the Company's Common Stock
trades at a price in excess of $15 for a period of 100 days in which Dr.
Rhines has an opportunity to sell shares, or (c) Dr. Rhines voluntarily
ceases to be an employee. See "REPORT OF THE BOARD OF DIRECTORS'
COMPENSATION COMMITTEE -- Compensation of Chief Executive Officers."
(3) The option is fully exercisable five years after October 15, 1993, with 20%
becoming exercisable on each of the first five anniversaries after that
date.
(4) The option is fully exercisable five years after February 8, 1993, with 20%
becoming exercisable on each of the first five anniversaries after that
date.
(5) The option would have been fully exercisable five years after October 19,
1993, with 20% becoming exercisable on each of the first five anniversaries
after that date. The option terminated and is no longer exercisable due to
Mr. Brinker's resignation in January 1994.
(6) The 0%, 5% and 10% assumed rates of appreciation are required by the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
6
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises for the last
fiscal year by the Named Executive Officers and the value of such officers'
unexercised options as of December 31, 1993.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Bruggere.......... 0 0 152,600 157,600 1,130,475 1,241,100
Walden C. Rhines............ 100,000 1,150,000 0 500,000 0 1,125,000
Waldo J Richards............ 0 0 0 100,000 0 375,000
Philip J. Robinson.......... 29,000 217,500 0 91,000 0 716,625
David L. Brinker............ 35,633 224,144 0 73,767 0 448,415
Frank S. Delia.............. 0 0 31,433 34,767 233,285 273,790
</TABLE>
CERTAIN TRANSACTIONS
During 1993, the Company had an outstanding loan in the amount of $75,000
to Frank S. Delia at 10% interest for the purchase of real estate. The Company
holds a security interest in certain assets securing this loan. The Company
executed a non-compete agreement with David C. Moffenbeier, a former director
and officer, on June 1, 1993. Under the agreement's terms, until May 31, 1994,
the Company will pay Mr. Moffenbeier $255,000 per annum, payable in equal
monthly installments and has extended certain health insurance benefits and
allowed 80,100 unexercised stock options previously granted to Mr. Moffenbeier
to vest and be exercisable through May 31, 1994. In connection with the
resignation of Thomas H. Bruggere as an officer and employee of the Company on
February 11, 1994, the Company entered into a consulting and non-compete
agreement with Mr. Bruggere pursuant to which Mr. Bruggere will receive a
continuation of his $400,000 annual salary through January 31, 1995, a one-year
extension of health insurance, and with respect to outstanding options for
277,700 shares of Common Stock an extension of vesting through October 7, 1995
and an extension of exercisability through October 7, 1996. In connection with
the hiring of Walden C. Rhines in October 1993, the Company agreed that if it
terminates the employment of Dr. Rhines without cause at any time prior to
October 15, 1995, the Company will pay Dr. Rhines $600,000 in settlement of any
and all claims he may have against the Company.
REPORT OF THE BOARD OF DIRECTORS' COMPENSATION COMMITTEE
The philosophy of the Company's executive compensation plan is to:
(a) attract highly talented executives;
(b) motivate executives to high levels of performance;
(c) retain needed executive resources; and
(d) recognize the differing impact that various executives have on the
achievement of corporate goals.
To achieve these objectives, the Company pays executives on a total
compensation approach that includes base salary, annual bonus dependent on
corporate performance and stock options. The Compensation Committee of the Board
of Directors, which is comprised of non-employee directors, reviews and approves
the compensation to be paid to executive officers.
Compensation of executive officers consists of the following components:
Base Salary: Salaries for executive officers are reviewed on an annual
basis and salary changes become effective each June. Due to a Company-wide
salary freeze implemented in October 1992, salaries of executive officers were
not increased in 1993. The Company hired several new executive officers in 1993.
In establishing
7
<PAGE> 11
their salaries, data from a third party survey was considered, but the more
significant factors were the individuals' compensation levels in their previous
positions and the amounts necessary to cause them to leave those positions. In
using the third party survey, the Company compares itself to other high-tech
companies with annual revenues of $200 million to $500 million, and generally
established salaries in the third quartile (50th to 75th percentile) for the
group. This group of comparable companies differs from the companies in the
Media General index used for the performance graph that follows this report,
which consists of companies in the software and data processing businesses
without regard to annual revenue. The salary survey group may include those
companies in the Media General index with annual revenues of $200 million to
$500 million, while it does not include companies in the Media General index
with revenues outside of the $200 million to $500 million range. Nonetheless,
the Company believes that the salary survey group is an appropriate peer group
for compensation purposes.
Bonus: The Compensation Committee annually establishes an Incentive Bonus
Plan to provide for the payment of cash bonuses to executive officers and other
management employees based on corporate performance. Early each year the
Compensation Committee approves a target bonus amount for each executive officer
to be paid based on achievement of a certain operating income percentage for the
year. The potential bonus increases to up to 200 percent of the target or
decreases to zero based on the achievement of higher or lower operating income
percentages. The potential bonus for officers other than the Chief Executive
Officer is then subject to further adjustment based on satisfaction of
divisional goals established by the Chief Executive Officer, and each officer's
bonus is subject to adjustment up or down based on a subjective judgment as to
individual performance. For 1993, target bonuses for executive officers were set
at 20 percent to 50 percent of base salary, with 100 percent of the target
payable upon attainment of a three percent operating income for the year, 50
percent of the target payable upon a one percent operating income level and no
target bonus payable unless an operating income percentage of at least one
percent was achieved. Based on 1993 performance, the Compensation Committee
approved a payout of 40 percent of target bonuses despite an operating loss of
$29.4 million. The decision to pay bonuses under the Incentive Bonus Plan at
this reduced level was based primarily on the following factors: (a) most of the
operating loss resulted from restructuring charges of $24.8 million as well as
unusual costs of hiring several top executives; (b) only a limited number of
bonuses, based on individual performance and achievement of key results, were
paid under the plan for 1991 or 1992; and (c) a mostly subjective determination
that meaningful and rewardable progress had been made during the year in a
number of areas which had not yet translated into financial performance.
Stock Options: The Company believes that stock options granted to key
employees, including executive officers, provide such persons with significant
compensation based on overall Company performance as reflected in the stock
price, create a valuable retention device through standard five-year vesting
schedules and help align employees' and shareholders' interests. Stock options
are typically granted at the time of hire to key new employees, at the time of
promotion to certain employees and annually to a broad group of existing key
employees including executive officers. No options were granted to executive
officers in 1993 other than in connection with new hires or promotions. The
decision to make no grants in 1993 to existing employees except for certain
promotions was based primarily on the significant benefit provided to employees
in 1992 through the option repricing and extended vesting program described in
this report last year. In establishing the number of shares and other terms of
options granted to newly hired executive officers, the principal determining
factors were the levels of potential incentive compensation forfeited by the
executives upon leaving their prior positions and the amounts required to cause
them to join the Company.
Deductibility of Compensation: Section 162(m) of the Internal Revenue Code
limits to $1,000,000 per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers in any year
after 1993. The levels of salary and bonus generally paid by the Company do not
exceed this limit. However, upon the exercise of nonqualified stock options the
excess of the current market price over the option price (option spread) is
treated as compensation and, therefore, it may be possible for option exercises
by an officer in any year to cause the officer's total compensation to exceed
$1,000,000. Under proposed regulations, option spread compensation from options
that meet certain requirements will not be subject to the $1,000,000 cap on
deductibility, and it is the Company's current policy generally to grant options
that meet those requirements. The Company's 1982 Stock Option Plan is proposed
8
<PAGE> 12
to be amended to meet one of the requirements of the proposed regulations. See
"Approval of Amendments to 1982 Plan."
Compensation of Chief Executive Officers: Thomas H. Bruggere served as
Chief Executive Officer of the Company until October 1993, when Walden C. Rhines
joined the Company as Chief Executive Officer while Mr. Bruggere continued to
serve as Chairman of the Board. Mr. Bruggere's salary of $400,000 for 1993
represented no increase over his 1992 salary consistent with the Company-wide
salary freeze discussed above. This salary level was in the third quartile of
CEO salaries among comparable companies from the third party survey used by the
Company. Mr. Bruggere's bonus target under the 1993 Incentive Bonus Plan was
$200,000, or 50 percent of his salary, and he received a payout of $80,000, or
40 percent of the target, consistent with the Compensation Committee's decision
to fund the plan at that level as discussed above.
Dr. Rhines became Chief Executive Officer in October 1993 following an
extensive recruiting effort for a new CEO. In general, his compensation package
is a function of the salary, bonus and long-term incentives required to attract
and retain an executive of his experience and caliber. In determining this
package, the total amount of Dr. Rhines' potential compensation from his former
employer, including salary, stock options and bonus, was taken into
consideration. His initial annual salary was set at $400,000, the same as Mr.
Bruggere's then current salary. As hiring bonuses, and in recognition of amounts
he was forfeiting under incentive arrangements of his former employer, Dr.
Rhines received a cash bonus of $400,000 and a fully vested stock option for
100,000 shares of Company stock at an exercise price of $1 per share. Together
with the put rights described above under "Option Grants in Last Fiscal Year,"
this option was designed to provide Dr. Rhines with a minimum of $1,000,000 in
additional compensation. As a long-term incentive and to provide Dr. Rhines with
a significant stake in the success of the Company, he was granted a stock option
for 500,000 shares of Company stock subject to standard five-year vesting. Dr.
Rhines' bonus target under the 1993 Incentive Bonus Plan was $200,000, or 50
percent of his salary, and he received a payout of $13,333, or 40 percent of the
target, pro-rated for a two month period of employment.
COMPENSATION COMMITTEE
David R. Hathaway
Fontaine K. Richardson
Jon A. Shirley
9
<PAGE> 13
PERFORMANCE GRAPH
Note: The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MENTOR GRAPHICS CORPORATION, S&P 500 INDEX
AND MEDIA GENERAL SOFTWARE, DATA PROCESSING GROUP INDEX(1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P 500 MEDIA GENERAL
(FISCAL YEAR COVERED) MENTOR GRAPHICS INDEX INDEX
----------------------------- --------------- ------- -------------
<S> <C> <C> <C>
Measurement Point:
12/31/88 $100.00 $100.00 $100.00
Fiscal Year Ending:
12/31/89 $118.08 $131.68 $118.21
12/31/90 $ 90.33 $127.58 $127.78
12/31/91 $107.20 $166.47 $224.39
12/31/92 $ 60.43 $179.20 $245.17
12/31/93 $104.31 $197.26 $261.78
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 31, 1988
ASSUMES DIVIDENDS REINVESTED
FISCAL YEARS ENDING DECEMBER 31
- ---------------
(1) This is an industry group index published by Media General Financial
Services.
10
<PAGE> 14
APPROVAL OF AMENDMENTS TO 1982 PLAN
(PROPOSAL NO. 2)
Mentor Graphics' 1982 Stock Option Plan (1982 Plan) was adopted by the
Board of Directors and the shareholders in 1982. An aggregate of 16,670,000
shares are currently reserved for issuance under the plan.
AMENDMENTS
At March 1, 1994, only 772,577 shares of Common Stock were available for
future grants under the 1982 Plan. The Board of Directors believes that
additional shares must be reserved for use under the 1982 Plan to enable the
Company to attract and retain key employees through the granting of options
under the plan. Accordingly, in March 1994, the Board of Directors approved an
amendment to the 1982 Plan, subject to shareholder approval, to reserve an
additional 2,000,000 shares for issuance under the plan. In addition, to comply
with proposed regulations under new Section 162(m) of the Internal Revenue Code,
the Board of Directors has amended the 1982 Plan, subject to shareholder
approval, to establish a per-employee limit on grants of options and stock
appreciation rights under the plan of 500,000 shares annually. See "Tax
Consequences."
DESCRIPTION OF THE 1982 PLAN
A copy of the 1982 Plan, as proposed to be amended, is attached to this
Proxy Statement as Exhibit A. The essential features of the 1982 Plan, as
currently in effect, are outlined below.
General
The 1982 Plan provides for the grant of incentive stock options (ISOs)
within the meaning of Section 422 of the Internal Revenue Code, and nonqualified
stock options (NQSOs). See "Tax Consequences" below for information concerning
the tax treatment of ISOs and NQSOs. The plan permits SARs to be granted in
tandem with or independent of ISOs and NQSOs. Cash bonus rights may also be
granted under the 1982 Plan.
Administration
The 1982 Plan is administered by the Compensation Committee. The
Compensation Committee determines the officers and key employees to whom options
and SARs will be granted, the exercise prices, the number of shares covered by
each grant and all other terms and conditions of the grants.
Grant of Options
The option price of ISOs cannot be less than the fair market value of the
Common Stock on the date the option is granted. The plan provides that the
option price of NQSOs cannot be less than 50% of the fair market value. On March
1, 1994, the closing price of Common Stock on the NASDAQ National Market System
was $13.375 per share. As proposed to be amended, the 1982 Plan will provide
that no employee may be granted options or stock appreciation rights under the
plan for more than an aggregate of 500,000 shares in any calendar year. In
addition, no employee may be granted ISOs under the 1982 Plan such that the fair
market value of stock (determined on the grant date) subject to ISOs that first
become exercisable in any year exceeds $100,000. Options may be granted under
the 1982 Plan in exchange for outstanding options.
Exercise of Options
At the date of exercise, the optionee may pay the full option price in cash
or in shares of Company stock previously acquired by the optionee valued at fair
market value. The use of previously acquired shares to pay the option price
enables the optionee to avoid the need to fund the entire purchase with cash.
Upon exercise of an option, the number of shares subject to the option and the
number of shares available under the plan for future grants are reduced by the
number of shares with respect to which the option is exercised.
11
<PAGE> 15
Options may be exercised only while the holder is in the employ of the
Company or a subsidiary, within 30 days after either the date of termination of
employment or another date set by the Company, or within one year after the
death or disability of the holder. During the optionee's lifetime, an option is
exercisable only by the optionee. Options are not transferable except upon the
death of the optionee or pursuant to a qualified domestic relations order as
defined under the Internal Revenue Code or Title I of the Employee Retirement
Income Security Act. An ISO granted before 1987 may not be exercised while there
is outstanding any other ISO previously granted to the employee before 1987.
Terminated or expired options become available for future grants.
Options are generally not exercisable until one year from the date of grant
or from the commencement of employment. Options typically become exercisable
over a period of time, generally set at five years, in accordance with the terms
of option agreements entered into at the time of grant.
Stock Appreciation Rights
The Committee determines the terms and conditions of SARs granted under the
1982 Plan, including the schedule under which SARs vest and become exercisable.
SARs granted with an option may be exercised only to the extent the related
option could be exercised. SARs entitle the holder, upon exercise, to receive
without payment to the Company (except for applicable withholding taxes) an
amount equal to the excess of the fair market value of the Company's Common
Stock on the exercise date over the SAR exercise price. Payment may be made in
cash, shares or any combination thereof. No SARs have been granted under the
1982 Plan.
Change in Control Provision
The 1982 Plan authorizes the Compensation Committee to accelerate the
vesting of all outstanding options and SARs upon a change in control of the
Company. The plan allows the Compensation Committee to authorize the issuance
and exercise of "limited" SARs in connection with options granted or previously
granted under the plan. Limited rights are payable in connection with, and
exercisable only during the 60 days immediately following, a change in control
of the Company. A "change in control" is defined to include the following
events, unless otherwise determined by the Compensation Committee prior to the
occurrence of the event: the acquisition by any person of 20% or more of the
Company's Common Stock, the nomination (and subsequent election) of a majority
of the Company's directors by persons other than the incumbent directors, or the
approval by the Company's shareholders of a merger, consolidation, share
exchange, sale of substantially all of the Company's assets or plan of
liquidation. Limited SARs are payable only in cash and are exercisable only if
the immediate resale of an optionee's shares would subject the optionee to
liability under Section 16(b) of the Securities Exchange Act of 1934.
Cash Bonus Rights
Under the 1982 Plan, cash bonus rights may be granted in connection with
NQSOs. Bonus rights entitle the optionee to a cash bonus if and when the related
NQSO is exercised and may be used for the payment of income taxes resulting from
the exercise. The amount of the bonus will generally be equal to the difference
between the aggregate exercise price of the NQSO and the fair market value of
the shares subject to the NQSO on the exercise date, multiplied by a bonus
percentage determined by the Compensation Committee not to exceed 100 percent.
The Compensation Committee may set a maximum dollar limit on the amount of cash
to be paid under any bonus right. No bonus rights have been granted under the
1982 Plan.
Duration
Options and SARs may be granted for varying periods not to exceed
approximately 10 years from the date of grant. The 1982 Plan will be in effect
until options and SARs have been granted with respect to all shares available
for the plan. The Board of Directors may terminate the plan at any time, but
termination will not affect options or SARs already outstanding.
12
<PAGE> 16
Tax Consequences
ISOs granted under the 1982 Plan are intended to qualify as "incentive
stock options" for federal income tax purposes. Under federal income tax law
currently in effect, the optionee will recognize no income upon grant or
exercise of the ISO. Federal income tax upon any gain resulting from exercise of
an ISO is deferred until the optioned shares are sold by the optionee. The gain
resulting from the exercise of an ISO is included in the alternative minimum
taxable income of the optionee and may, under certain conditions, be taxed under
the alternative minimum tax.
If an employee exercises an ISO and does not dispose of any of the optioned
shares within two years following the date of grant and within one year
following the date of exercise, then any gain upon subsequent disposition will
be treated as long-term capital gain for federal income tax purposes. If an
employee disposes of shares acquired upon exercise of an ISO before the
expiration of either the one-year or the two-year holding period, any amount
realized will be taxable for federal income tax purposes as ordinary income in
the year of such disqualifying disposition to the extent that the lesser of the
fair market value of the shares on the exercise date or the fair market value of
the shares on the date of disposition exceeds the exercise price.
The Company will not be allowed any deduction for federal income tax
purposes either at the time of the grant or exercise of an ISO. Upon any
disqualifying disposition by an employee, the Company will generally be entitled
to a deduction to the extent the employee realizes ordinary income.
NQSOs granted under the 1982 Plan are intended to be "nonqualified stock
options" for federal income tax purposes. Under federal income tax law presently
in effect, no income is realized by the grantee of an NQSO until the option is
exercised. At the time of exercise of an NQSO, the optionee will realize
ordinary income, and the Company will generally be entitled to a deduction, in
the amount by which the market value of the shares subject to the option at the
time of exercise exceeds the exercise price (Option Spread Amount). The
Company's deduction is conditioned upon withholding on the Option Spread Amount.
Upon sale of shares acquired upon exercise of an NQSO, the excess of the amount
realized from the sale over the market value of the shares on the date of
exercise will constitute long-term capital gain if the shares have been held for
the required holding period. An optionee who receives a cash bonus right under
the 1982 Plan will generally recognize ordinary income equal to the amount of
the cash bonus at the time of receipt and the Company will be entitled to a
deduction in the same amount.
On exercise of a SAR, the amount realized by the holder will, for federal
tax purposes, be taxed as ordinary income, and the Company will be allowed to
take a deduction for such amount. The SAR holder is subject to withholding on
such income. Under current accounting principles, the Company will be required
to account for the increase in value of an outstanding SAR as compensation
expense (and may take a credit to compensation expense for a decrease in such
value to the extent a prior expense has been recorded) over the period the SAR
holder provides services to the Company. Current financial accounting principles
do not require similar ongoing charges to earnings in connection with options.
Section 162(m) of the Internal Revenue Code, as adopted in 1993, limits to
$1,000,000 per person the amount that the Company may deduct for compensation
paid to any of its most highly compensated officers in any year after 1993.
Under proposed regulations, compensation received through the exercise of an
option will not be subject to the $1,000,000 limit if the option and the plan
meet certain requirements. One such requirement is that shareholders approve a
per-employee limit on the number of shares as to which options may be granted,
as proposed in this Proposal No. 2. Other requirements are that the option be
granted by a committee of at least two outside directors and that the exercise
price of the option be not less than fair market value of the Common Stock on
the date of grant. Accordingly, the Company believes that if this proposal is
approved by shareholders, compensation received on exercise of options granted
under the 1982 Plan in compliance with all of the above requirements will not be
subject to the $1,000,000 deduction limit.
Vote Required for Approval
The affirmative vote of the holders of at least a majority of the Common
Stock represented at the Annual Meeting in person or by proxy is required for
the adoption of Proposal No. 2. Abstentions and broker non-
13
<PAGE> 17
votes will therefore have the same effect as "no" votes in determining whether
the proposal is approved. All valid proxies will be voted FOR Proposal No. 2
unless a contrary choice is indicated.
THE BOARD HAS UNANIMOUSLY APPROVED PROPOSAL NO. 2. MANAGEMENT AND THE BOARD
RECOMMEND ITS APPROVAL BY THE SHAREHOLDERS.
APPROVAL OF AMENDMENTS TO 1987 PLAN
(PROPOSAL NO. 3)
Mentor Graphics' 1987 Non-Employee Directors' Stock Option Plan (1987 Plan)
was adopted by the Board of Directors and the shareholders in 1987.
AMENDMENTS
In March 1994, the Board of Directors approved certain amendments to the
1987 Plan, some of which were within the Board's authority to adopt without
shareholder approval. The amendments are to:
(a) Reserve an additional 500,000 shares of Common Stock to be
available for issuance, subject to shareholder approval;
(b) Extend the term of the plan for as long as shares remain
available, subject to shareholder approval;
(c) Set the exercise price of options at fair market value on the date
granted;
(d) Provide that automatic grant amounts are not adjusted upon changes
in capital structure such as stock splits;
(e) Automatically grant new non-employee directors a one-time option
to purchase 30,000 shares, subject to shareholder approval;
(f) Reduce the annual option grant amount to each non-employee
director to 10,000 shares; and
(g) Provide for an additional annual option grant amount of 10,000
shares for a non-employee director who serves as Chairman of the Board,
subject to shareholder approval.
DESCRIPTION OF THE 1987 PLAN
A copy of the 1987 Plan, marked to indicate all of the amendments, is
attached to this Proxy Statement as Exhibit B. An aggregate of 600,000 shares of
Common Stock are currently reserved for issuance under the plan. At March 1,
1994, only 63,375 shares of Common Stock were available for issuance under the
1987 Plan. As proposed to be amended, an additional 500,000 shares will be
reserved for issuance under the plan. The essential features of the 1987 Plan,
as currently in effect, are outlined below.
Eligibility
Any director who is not an employee of the Company and has not, within two
years, been an employee of the Company (Non-Employee Director) is eligible to
receive options under the 1987 Plan.
Annual Option Grants
As proposed to be amended, on the date of each Annual Meeting of
Shareholders, each Non-Employee Director elected will be automatically granted
an option to purchase 10,000 shares of Common Stock and any Non-Employee
Director elected Chairman of the Board will be automatically granted an
additional option to purchase 10,000 shares. The 1987 Plan previously provided
for an automatic grant of 16,000 shares to each Non-Employee Director elected to
the Board. Any Non-Employee Director elected at the meeting who has not served
as a director continuously since the prior Annual Meeting, or any Non-Employee
Director elected Chairman who has not served as Chairman continuously since the
prior Annual Meeting, receives a proportionately reduced grant. On the date of
the 1993 Annual Meeting directors Congdon, Hathaway,
14
<PAGE> 18
Richardson, Shirley and Strohm were automatically granted options for 16,000
shares each at an exercise price of $7.23. If all current directors are
re-elected, directors Congdon, Hathaway, Richardson, Shirley and Strohm will
each be automatically granted an option for 10,000 shares on the date of the
Annual Meeting.
New Director Options
The 1987 Plan currently permits the Company to grant options for up to
100,000 shares of Common Stock to new Non-Employee Directors at the time of
their initial election to the Board. As proposed to be amended, new Non-Employee
Directors will automatically be granted options for 30,000 share. None of the
current directors are eligible to receive these options.
Option Terms
Options under the 1987 Plan were previously granted at an exercise price
equal to 85% of the fair market value of the Common Stock on the grant date. As
amended, future grants will be made at the fair market value of the Common Stock
on the grant date. On March 1, 1994, the closing price of Common Stock on the
NASDAQ National Market System was $13.375 per share. No monetary consideration
is paid to the Company upon the granting of options. All options have a ten year
term from the date of grant and are exercisable for 20 percent of the number of
shares covered by the option at the end of each of the first five years
following grant.
Options may be exercised only while the optionee is a director of the
Company, within 30 days after the date the optionee terminates as a director, or
within one year after the death or disability of the optionee. During the
optionee's lifetime, an option is exercisable only by the optionee. Options are
not transferable except upon the death of the optionee.
At the date of exercise, the optionee may pay the full option price in cash
or in shares of Common Stock previously acquired by the optionee valued at fair
market value. The use of previously acquired shares to pay the option price
enables the optionee to avoid the need to fund the entire purchase with cash.
Upon exercise of an option, the number of shares subject to the option and the
number of shares available under the 1987 Plan for future option grants are
reduced by the number of shares with respect to which the option is exercised.
Duration
The 1987 Plan currently provides that it will be in effect until the
earlier of May 20, 1997 or such time as options have been granted and exercised
with respect to all shares reserved under the 1987 Plan. As proposed to be
amended, the 1987 Plan will remain in effect indefinitely until options have
been granted and exercised with respect to all reserved shares.
Administration
The 1987 Plan is administered by the Compensation Committee. The
Compensation Committee is responsible for the general administration and
interpretation of the 1987 Plan. No member of the committee may participate in
any decision relating exclusively to an option granted to that member.
Tax Consequences
Options under the 1987 Plan will be treated as NQSOs for federal income tax
purposes. See "APPROVAL OF AMENDMENTS TO 1982 PLAN -- Tax Consequences" above
for a description of the tax consequences of NQSOs.
Vote Required
The affirmative vote of the holders of at least a majority of the Common
Stock represented at the Annual Meeting in person or by proxy is required for
adoption of Proposal No. 3. Abstentions and broker non-votes will therefore have
the same effect as "no" votes in determining whether the proposal is approved.
All valid proxies will be voted FOR Proposal No. 3 unless a contrary choice is
indicated.
THE BOARD HAS UNANIMOUSLY APPROVED PROPOSAL NO. 3. MANAGEMENT AND THE BOARD
RECOMMEND ITS APPROVAL BY THE SHAREHOLDERS.
15
<PAGE> 19
RATIFICATION OF SELECTION OF AUDITORS
(PROPOSAL NO. 4)
The Board of Directors has selected KPMG Peat Marwick as the Company's
independent auditors for 1994 and is submitting the selection to shareholders
for ratification. KPMG Peat Marwick has examined the financial statements of the
Company and its subsidiaries each year since the inception of the Company in
1981. Proxies will be voted in accordance with the instructions specified in the
proxy form. Representatives of KPMG Peat Marwick will be present at the Annual
Meeting, will have the opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
THE BOARD HAS UNANIMOUSLY APPROVED PROPOSAL NO. 4. MANAGEMENT AND THE BOARD
RECOMMEND ITS APPROVAL BY THE SHAREHOLDERS.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Shareholders provides for transaction
of such other business as may properly come before the meeting, the Board of
Directors has no knowledge of any matters to be presented at the meeting other
than those referred to in this Proxy Statement. However, the enclosed proxy
gives discretionary authority in the event any other matters should be
presented.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be considered for inclusion in proxy material
for the Company's 1994 Annual Meeting must be received at the principal
executive offices of the Company not later than November 25, 1994.
By Order of the Board of Directors
[FACSIMILE SIGNATURE]
Frank S. Delia,
Vice President and
Chief Administrative Officer
March 25, 1994
16
<PAGE> 20
EXHIBIT A
MENTOR GRAPHICS CORPORATION
1982 STOCK OPTION PLAN
Mentor Graphics recognizes that its continuing success depends upon the
initiative, ability and significant contributions of officers and key employees.
Mentor Graphics believes that by affording such employees the opportunity to
purchase shares in Mentor Graphics it will enhance its ability to attract and
retain such employees and will provide an incentive for them to exert their best
efforts on its behalf.
The Plan is as follows:
1. Shares Subject to Option.
1.1 Options granted under this Plan shall be for authorized but unissued
or reacquired common stock of Mentor Graphics.
1.2 Options may be granted under paragraph 4 of the Plan and stock
appreciation rights may be granted under paragraph 8.2 of the Plan for a total
of not more than 18,670,000 [16,670,000]* shares of common stock, subject to
adjustment under paragraph 9. Shares subject to options and to stock
appreciation rights granted under paragraph 8.2 that are terminated or expire
without being exercised, other than options that are surrendered on exercise of
a stock appreciation right granted under paragraph 8.1, shall be added to the
shares remaining for future options and stock appreciation rights.
1.3 NO EMPLOYEE MAY BE GRANTED OPTIONS OR STOCK APPRECIATION RIGHTS UNDER
THE PLAN FOR MORE THAN AN AGGREGATE OF 500,000 SHARES OF COMMON STOCK IN ANY
CALENDAR YEAR.
2. Effective Date; Duration.
This Plan shall be effective January 1, 1982 and shall continue until all
shares available for issuance under the Plan have been issued, unless sooner
terminated by the Board of Directors of Mentor Graphics (Board of Directors).
Expiration or termination of the Plan shall not affect outstanding options,
bonus rights or stock appreciation rights.
3. Administration.
3.1 The Plan shall be administered by a compensation committee appointed
by the Board of Directors (Committee). The Committee may delegate any of its
administrative duties to one or more agents and may retain advisors to assist
it.
3.2 The Committee shall have general responsibility to interpret and
administer the Plan. Any decision by the Committee shall be final and bind all
parties. Notwithstanding the foregoing, the Committee's exclusive power to make
final and binding interpretations of the Plan shall immediately terminate upon
the occurrence of a Change in Control (as defined in paragraph 7.2). The
Committee shall keep adequate records of options, bonus rights and stock
appreciation rights granted under the Plan and shall be responsible for
communication with optionees.
3.3 No Committee member shall participate in the decision of any question
relating exclusively to an option, bonus right or stock appreciation right
granted to the member.
4. Grant of Options.
4.1 Options granted under the Plan may be either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the Code), or options other than incentive
- ---------------
* Matter in BOLDFACE is new; matter [bracketed and in italics] has been deleted.
A-1
<PAGE> 21
stock options (nonqualified stock options). No incentive stock options may be
granted under the Plan on or after the tenth anniversary of the last action by
the Board of Directors approving an increase in the number of shares available
for issuance under the Plan, which action was subsequently approved within 12
months by the shareholders.
4.2 Options may be granted to any officer or key employee of Mentor
Graphics and any subsidiary of Mentor Graphics and may be granted in
substitution for outstanding options of another corporation by reason of merger,
consolidation, acquisition of property or stock, or other reorganization between
such other corporation and Mentor Graphics or any subsidiary of Mentor Graphics.
Additional options may be granted to existing optionees and may be granted in
exchange for outstanding options.
4.3 The Committee shall designate persons to receive grants, and as to
each option shall specify the number of shares, the option price and term, the
time or times at which the option may be exercised, whether the option is an
incentive stock option or a nonqualified stock option and all other terms and
conditions of the option.
4.4 No employee may be granted incentive stock options under the Plan such
that the aggregate fair market value, on the date of grant, of the shares with
regard to which incentive stock options are exercisable for the first time by
that employee during any calendar year under the Plan and under any other stock
option plan of Mentor Graphics or any parent or subsidiary of Mentor Graphics
exceeds $100,000. Fair market value shall be determined under subparagraph
5.1(c) as of the date of each grant.
5. Option Terms.
5.1 The option price shall be fixed by the Committee as follows:
(a) Subject to (b) the option price for an incentive stock option
shall be not less than the fair market value of the shares on the date of
grant. The option price for a nonqualified stock option shall be not less
than 50% of the fair market value of the shares on the date of grant.
(b) If the optionee at the time of grant owns stock possessing more
than 10 percent of the combined voting power of all classes of stock of
Mentor Graphics, the option price for an incentive stock option shall be
not less than 110 percent of the fair market value of the shares on the
date of grant. Stock owned by the optionee shall include for this purpose,
and for purposes of paragraph 5.2, stock attributed to the optionee
pursuant to applicable provisions of the Code.
(c) "Fair market value" means an amount determined by, or in a manner
approved by, the Committee. The Committee may appoint and rely on one or
more qualified independent appraisers to value the stock or use such other
evaluation as it considers appropriate.
5.2 The Committee shall fix a time limit of not over 10 years after the
date of grant for exercise of an incentive stock option. The Committee shall fix
a time limit of not over 10 years plus seven days after the date of grant for
exercise of a nonqualified stock option. For a more than 10 percent shareholder
the maximum limit for exercise of an incentive stock option shall be 5 years.
The Committee may make the option exercisable in full immediately or in
graduated amounts over the option term.
5.3 The option shall be evidenced by a stock option agreement executed by
Mentor Graphics and the optionee in a form prescribed by the Committee.
5.4 The option may not be assigned or transferred except on death, by will
or operation of law, or pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security
Act. The option may be exercised only by the optionee or by a successor or
representative after death.
5.5 Unless otherwise determined by the Committee, if an officer of Mentor
Graphics subject to Section 16 of the Securities Exchange Act of 1934 (1934 Act)
exercises an option within six months of the grant of the option, the shares
acquired upon exercise of the option may not be sold until six months after the
date of grant of the option.
A-2
<PAGE> 22
6. Bonus Rights.
6.1 The Committee may grant bonus rights in connection with nonqualified
stock options granted under the Plan. Bonus rights may be granted with the
related option or at a later time. A bonus right may not be assigned or
transferred except on death, by will or operation of law, or pursuant to a
qualified domestic relations order as defined under the Code or Title I of the
Employee Retirement Income Security Act. Bonus rights will be subject to such
rules, terms, and conditions as the Committee may prescribe.
6.2 A bonus right will entitle an optionee to a cash bonus in connection
with the exercise in whole or in part of the related option. Subject to
paragraph 6.3, the amount of the bonus shall be determined by multiplying the
applicable bonus percentage by the amount by which the fair market value, on the
exercise date, of the shares received on exercise of the related option exceeds
the option price. The cash bonus will be payable within 30 days following the
date as of which its amount is determined. For the purpose of this paragraph,
fair market value shall be determined according to subparagraph 5.1(c). The
bonus percentage applicable to a bonus right shall be determined by the
Committee, but shall in no event exceed 100 percent.
6.3 The Committee may set a maximum dollar limit on the amount of cash to
be paid under any bonus right.
7. Acceleration Upon Change in Control.
7.1 The Committee may grant acceleration rights to holders of options or
stock appreciation rights which will provide that the options or stock
appreciation rights will become exercisable in full for the remainder of their
terms upon the occurrence of a Change in Control. Acceleration rights may be
granted with an option or stock appreciation right or at a later time by
amendment of outstanding options or stock appreciation rights.
7.2 "Change in Control" means the occurrence of any of the following
events, unless prior to the occurrence of the event, the Committee determines
that the specific event shall not be considered a Change in Control:
(a) the shareholders of Mentor Graphics shall approve:
(i) any consolidation, merger or plan of share exchange involving
Mentor Graphics (Merger) in which Mentor Graphics is not the continuing
or surviving corporation or pursuant to which shares of common stock
would be converted into cash, securities or other property, other than a
Merger involving Mentor Graphics in which the holders of Mentor
Graphics' common stock immediately prior to the Merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the Merger;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, the assets of Mentor Graphics; or
(iii) the adoption of any plan or proposal for the liquidation or
dissolution of Mentor Graphics;
(b) at any time during a period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
(Incumbent Directors) shall cease for any reason to constitute at least a
majority thereof, unless each new director elected during such two-year
period was nominated or elected by two-thirds of the Incumbent Directors
then in office and voting (new directors nominated or elected by two-thirds
of the Incumbent Directors shall also be deemed to be Incumbent Directors);
or
(c) any person (as such term is used in Section 13(d) of the 1934 Act)
shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the beneficial
owner (within the meaning of Rule 13d-3 under the 1934 Act), directly or
indirectly, of securities of Mentor Graphics ordinarily having the right to
vote in the election of directors (Voting Securities) representing twenty
percent (20%) or more of the combined voting power of the then outstanding
Voting Securities.
A-3
<PAGE> 23
8. Stock Appreciation Rights.
8.1 (a) The Committee, in its sole discretion, may grant both "general"
and "limited" stock appreciation rights with all or any part of an incentive
stock option or a nonqualified stock option granted under the Plan. Stock
appreciation rights may be granted with the related option or at any later time
during the term of the option.
(b) A general stock appreciation right granted with all or any part of an
option shall be exercisable only at the time or times established by the
Committee and only to the extent that the related option could be exercised. A
limited stock appreciation right shall be exercisable only during the 60
calendar days immediately following a Change in Control and only if the
immediate resale of shares acquired upon exercise of the related option would
subject the optionee to liability under Section 16(b) of the 1934 Act; provided,
however, that a limited stock appreciation right may not be exercised within six
months of its date of grant. Upon exercise of a stock appreciation right, the
option or portion thereof to which the stock appreciation right relates must be
surrendered. The shares subject to an option or portion thereof that is
surrendered upon exercise of a stock appreciation right shall not be available
for future option or stock appreciation right grants under the Plan.
(c) Each stock appreciation right granted with all or any part of an option
shall entitle the holder to receive from Mentor Graphics an amount equal to the
excess of the fair market value at the time of exercise of one share of Mentor
Graphics common stock over the option price per share under the related option,
multiplied by the number of shares covered by the related option or portion of
the related option.
(d) The terms of a limited stock appreciation right granted with a
nonqualified stock option may provide, if so determined by the Committee, that
the fair market value of the common stock for purposes of subparagraph 8.1(c)
shall be equal to the higher of:
(i) the highest reported sales price of the common stock during the
60-day period ending on the date the limited stock appreciation right is
exercised;
(ii) the highest per share price paid for shares of common stock
purchased in any tender or exchange offer during the 60 calendar days
preceding the exercise of the limited stock appreciation right;
(iii) the fixed or formula price to be received by holders of shares
of common stock in or as a result of any transaction described in
subparagraph 7.2(a) if such price is determinable on the date of exercise,
provided that any securities or other property that are part of the fixed
or formula price shall be valued at the highest valuation placed on the
securities or property in any communication to the shareholders of Mentor
Graphics by any party to the transaction; and
(iv) the highest price per share shown on a Schedule 13D, or any
amendment thereto, filed by the holder or holders of the specified
percentage of common stock whose acquisition gives rise to the
exercisability of the limited stock appreciation right.
8.2 (a) The Committee may grant general stock appreciation rights without
related options under the Plan to any officer or key employee of Mentor Graphics
and any subsidiary of Mentor Graphics. Such stock appreciation rights may be
granted in substitution for outstanding stock appreciation rights of another
corporation by reason of merger, consolidation, acquisition of property or
stock, or other reorganization between such other corporation and Mentor
Graphics or any subsidiary of Mentor Graphics. Additional stock appreciation
rights may be granted to existing holders of stock appreciation rights and may
be granted in exchange for outstanding stock appreciation rights.
(b) The Committee shall designate persons to receive grants of stock
appreciation rights, and as to each stock appreciation right shall specify the
number of shares, the stock appreciation right price, the term, the time or
times at which the stock appreciation right may be exercised and all other terms
and conditions of the stock appreciation right. The stock appreciation right
price shall not be less than 50% of the fair market value of the shares on the
date of grant.
(c) Each stock appreciation right granted without a related option shall
entitle the holder to receive from Mentor Graphics an amount equal to the excess
of the fair market value at the time of exercise of one share of
A-4
<PAGE> 24
Mentor Graphics common stock over the stock appreciation right price, multiplied
by the number of shares covered by the stock appreciation right or portion
thereof that is exercised. The shares subject to a stock appreciation right or
portion thereof that is exercised shall not be available for future option or
stock appreciation right grants under the Plan.
8.3 (a) Payment upon exercise of a general stock appreciation right by
Mentor Graphics may be made in shares of Mentor Graphics common stock valued at
fair market value, or in cash, or partly in shares and partly in cash. The
Committee shall either specify the form of payment or retain the power to
disapprove any election by a holder to receive cash on exercise of a stock
appreciation right. For the purpose of this paragraph, fair market value shall
be determined according to subparagraph 5.1(c).
(b) Payment upon exercise of a limited stock appreciation right by Mentor
Graphics may be made only in cash.
8.4 No fractional shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal to the
value of the fraction or, in the discretion of the Committee, the number of
shares may be rounded to the next whole share.
8.5 Stock appreciation rights will be subject to such rules, terms, and
conditions, and shall be evidenced by an agreement in such form, as the
Committee may prescribe prior to the occurrence of a Change in Control.
8.6 Stock appreciation rights may not be assigned or transferred except on
death, by will or operation of law, or pursuant to a qualified domestic
relations order as defined under the Code or Title I of the Employee Retirement
Income Security Act. Stock appreciation rights may be exercised only by the
holder or by a successor or representative after death.
8.7 Unless otherwise determined by the Committee, no stock appreciation
right may be exercised by an officer of Mentor Graphics subject to Section 16 of
the 1934 Act during the first six months following the date of grant.
9. Changes in Capital Structure.
If any change is made in the outstanding common stock without Mentor
Graphics' receiving any consideration, such as a stock split, reverse stock
split, stock dividend, or combination or reclassification of the common stock, a
corresponding change shall be made in the number of shares remaining available
for grants of options or stock appreciation rights under paragraph 1,
disregarding fractional shares, without any further approval of the
shareholders. The adjustment shall be made by the Committee whose determination
shall be conclusive.
10. Amendment or Termination of the Plan.
10.1 The Board of Directors may amend or terminate this Plan at any time
subject to paragraph 10.2.
10.2 Unless the amendment is approved by the shareholders, no amendment
shall be made in the Plan that would:
(a) Increase the total number of shares available for options or stock
appreciation rights;
(b) Increase the maximum option term; or
(c) Modify the requirements for eligibility under the Plan.
A-5
<PAGE> 25
EXHIBIT B
MENTOR GRAPHICS CORPORATION
1987 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Mentor Graphics recognizes that its continuing success depends upon the
initiative, ability and significant contributions of non-employee directors.
Mentor Graphics believes that by affording its non-employee directors the
opportunity to purchase shares of Mentor Graphics it will enhance its ability to
attract and retain non-employee directors and will provide an incentive for them
to exert their best efforts on its behalf.
The Plan is as follows:
1. Shares Subject to Option.
1.1 Options granted under this Plan shall be for authorized but unissued
or reacquired Common Stock of Mentor Graphics.
1.2 Options may be granted under sections 5 and 6 of the Plan for a total
of not more than 1,100,000 [600,000]* shares of Common Stock, subject to
adjustment under section 11. Shares subject to options that are terminated or
expire without being exercised, other than options that are surrendered upon
exercise of a related stock appreciation right, shall be added to the shares
remaining for future options.
2. Effective Date; Duration.
This Plan shall be effective May 21, 1987 and continue [until May 20, 1997
or] until options covering all of the available shares have been granted and
exercised[, whichever is earlier,] unless sooner terminated by the Board of
Directors of Mentor Graphics (Board). Expiration or termination of the Plan
shall not affect outstanding options or stock appreciation rights.
3. Eligibility; Non-Employee Directors.
Options may be granted under this Plan only to persons who are or have been
elected as Non-Employee Directors of Mentor Graphics. A "Non-Employee Director"
is a director who is not otherwise an employee of Mentor Graphics or any of its
subsidiaries and has not been an employee of Mentor Graphics or any of its
subsidiaries within 2 years of any date as of which a determination of
eligibility is made.
4. Administration.
4.1 The Plan shall be administered in accordance with the express
provisions of the Plan by a compensation committee appointed by the Board
(Committee). The Committee may delegate any of its administrative duties to one
or more agents and may retain advisors to assist it.
4.2 The Committee shall have general responsibility to interpret and
administer the Plan and shall have authority to adopt rules and to make other
determinations not inconsistent with the Plan deemed necessary for the
administration of the Plan. Any decision of the Committee shall be final and
bind all parties. Notwithstanding the foregoing, the Committee's exclusive power
to make final and binding interpretations of the Plan shall immediately
terminate upon the occurrence of a Change in Control (as defined in section
8.2).
4.3 No Committee member shall participate in the decision of any question
relating exclusively to an option granted to that member.
- ---------------
* Matter in BOLDFACE is new; matter [bracketed and in italics] has been deleted.
B-1
<PAGE> 26
5. Non-Discretionary ANNUAL Option Grants.
On the date of each annual meeting of shareholders of Mentor Graphics
beginning with the annual meeting held in 1987 (Grant Dates), each Non-Employee
Director elected at the annual meeting who served as a director continuously
since the prior annual meeting shall be automatically granted an option to
purchase 10,000 [16,000] shares of Common Stock of Mentor Graphics. Any
incumbent Non-Employee Director elected at an annual meeting who did not serve
as a director for the full period since the prior annual meeting shall instead
be automatically granted an option for a pro rata portion of 10,000 [16,000]
shares based on the number of full or partial months during the period that the
director did serve. A NON-EMPLOYEE DIRECTOR ELECTED AT THE ANNUAL MEETING WHO
SERVED AS CHAIRMAN OF THE BOARD CONTINUOUSLY SINCE THE PRIOR ANNUAL MEETING
SHALL BE AUTOMATICALLY GRANTED AN ADDITIONAL OPTION TO PURCHASE 10,000 SHARES.
ANY INCUMBENT NON-EMPLOYEE DIRECTOR ELECTED CHAIRMAN AT AN ANNUAL MEETING WHO
DID NOT SERVE AS CHAIRMAN FOR THE FULL PERIOD SHALL INSTEAD BE GRANTED AN OPTION
FOR A PRO RATA PORTION OF AN ADDITIONAL 10,000 SHARES BASED ON THE NUMBER OF
FULL OR PARTIAL MONTHS DURING THE PERIOD THAT THE DIRECTOR DID SERVE AS
CHAIRMAN. If the number of shares available for grant is insufficient to make
all automatic grants required on any Grant Date, the number of shares for which
options are granted to each Non-Employee Director shall be proportionately
reduced.
6. NON-Discretionary Option Grants for New Directors.
An option TO PURCHASE 30,000 SHARES OF COMMON STOCK SHALL BE AUTOMATICALLY
GRANTED [may be granted by the Committee in its discretion] to any person who
(i) is elected a director of Mentor Graphics, (ii) has not previously served as
a director of Mentor Graphics, and (iii) at the time of the initial election,
qualifies as a Non-Employee Director under section 3. [No option under this
section 6 may be granted for more than 100,000 shares of Common Stock.] THE
AUTOMATIC GRANT OF an option under this section 6 SHALL OCCUR [must be granted
either] on the date the new Non-Employee Director is first elected as a director
[or on a prior date] (Grant Date). [, but any option granted on a prior date
shall be conditioned on the election of the optionee as a director. No
Non-Employee Director shall be eligible for an option grant under this section 6
after the date the director is first elected as a director.]
7. Terms of Options.
Each option granted under this Plan shall have the following provisions:
7.1 Price. The exercise price of the option shall be equal to [85 percent
of] the last price for the Common Stock reported on the Grant Date in the NASDAQ
National Market System. If the Common Stock is no longer quoted in the NASDAQ
National Market System, the exercise price shall be equal to [85 percent of] the
fair market value of the Common Stock determined in a reasonable manner
specified by the Committee.
7.2 Term. The term of the option shall be 10 years from the Grant Date.
7.3 Time of Exercise; Option Year.
7.3.1 Until it expires or is terminated and except as provided in
section 7.3.2, the option may be exercised from time to time to purchase shares
up to the following limits:
<TABLE>
<CAPTION>
YEARS AFTER PERCENT
GRANT DATE EXERCISABLE
---------------------------------- -----------
<S> <C>
Less than 1....................... 0
1 to 2............................ 20%
2 to 3............................ 40%
3 to 4............................ 60%
4 to 5............................ 80%
over 5............................ 100%
</TABLE>
7.3.2 On death the exercise limit will be at least 50 percent.
B-2
<PAGE> 27
7.3.3 The table in section 7.3.1 is based on an Option Year. An
Option Year is a 12-month period starting on the Grant Date or an anniversary of
that date.
7.4 Continuation as Director.
7.4.1 If an optionee ceases to be a director for any reason, an
Option Reference Date will be established. Any portion of the option that is not
exercisable on the Option Reference Date will lapse. The Option Reference Date
will be fixed as follows:
(a) If the termination is by death or disability, the first day of the
next Option Year will be the Option Reference Date.
(b) In all other cases, the optionee's last day as a director will be
the Option Reference Date.
7.4.2 Any portion of the option that is exercisable on the Option
Reference Date may be exercised up to the earlier of the last day of the term of
the option or a date fixed as follows:
(a) If the termination is by death or disability, one year after the
last day as a director.
(b) In all other cases, one month after the Option Reference Date.
7.5 Payment of Exercise Price. At the time of exercise of an option, the
full exercise price must be paid in cash or by delivery of Common Stock of
Mentor Graphics valued at fair market value, which shall be the last sale price
for the Common Stock reported on the NASDAQ National Market System on the
trading day immediately preceding the date of exercise or such other price as
would be determined by the method used under section 7.1.
7.6 Nonassignability. The option may not be assigned or transferred
except on death, by will or operation of law. The option may be exercised only
by the optionee or by a successor or representative after death.
8. Acceleration Upon Change in Control.
8.1 Notwithstanding any limitation on exercisability contained in any
option agreement or in the Plan, each outstanding option shall automatically
become exercisable in full for the remainder of its term upon the occurrence of
a Change in Control.
8.2 "Change in Control" means the occurrence of any of the following
events:
8.2.1 the approval by the shareholders of Mentor Graphics of:
(a) any consolidation, merger or plan of share exchange involving
Mentor Graphics (Merger) in which Mentor Graphics is not the continuing or
surviving corporation or pursuant to which shares of Common Stock would be
converted into cash, securities or other property, other than a Merger
involving Mentor Graphics in which the holders of Mentor Graphics' Common
Stock immediately prior to the Merger have the same proportionate ownership
of Common Stock of the surviving corporation immediately after the Merger;
(b) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all, or substantially all, the assets
of Mentor Graphics; or
(c) the adoption of any plan or proposal for the liquidation or
dissolution of Mentor Graphics;
8.2.2 at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (Incumbent Directors) shall cease for any reason to constitute at
least a majority thereof, unless each new director elected during such two-year
period was nominated or appointed by two-thirds of the Incumbent Directors then
in office and voting (new directors nominated or appointed by two-thirds of the
Incumbent Directors shall also be deemed to be Incumbent Directors); or
8.2.3 any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934 (1934 Act) shall, as a result of a tender or
exchange offer, open market purchases, privately negotiated purchases or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act), directly or indirectly, of securities of Mentor Graphics
ordinarily having the right to vote in the election
B-3
<PAGE> 28
of directors (Voting Securities) representing twenty percent (20%) or more of
the combined voting power of the then outstanding Voting Securities.
9. Limited Stock Appreciation Rights.
9.1 Each option granted under the Plan shall include a related limited
stock appreciation right. Effective as of December 14, 1988 and subject to
shareholder approval of the amendment to the Plan adding this section 9, a
limited stock appreciation right is automatically granted in tandem with each
option outstanding under the Plan on December 14, 1988.
9.2 Limited stock appreciation rights shall be exercisable only during the
60 calendar days immediately following a Change in Control and only if the
immediate resale of shares acquired upon exercise of the related option would
subject the optionee to liability under Section 16(b) of the 1934 Act, provided,
however, that a limited stock appreciation right may not be exercised within six
months of its date of grant. Upon exercise of a limited stock appreciation
right, the option or portion thereof to which the right relates must be
surrendered. The shares subject to an option or portion thereof that is
surrendered upon exercise of a limited stock appreciation right shall not be
available for future option grants under the Plan.
9.3 Each limited stock appreciation right shall entitle the holder to
receive from Mentor Graphics an amount equal to the excess of the fair market
value at the time of exercise of one share of Mentor Graphics Common Stock over
the option price per share under the related option, multiplied by the number of
shares covered by the related option or portion of the related option.
9.4 Payment upon exercise of a limited stock appreciation right by Mentor
Graphics may be made only in cash.
9.5 Limited stock appreciation rights may not be assigned or transferred
except on death, by will or operation of law and may be exercised only by the
holder or by a successor or representative after death.
10. Option Agreement.
Each option shall be evidenced by a stock option agreement which shall set
forth the number of shares for which the option was granted, the provisions
called for in section 7, 8 and 9 relating to the option, and such other terms
and conditions consistent with the Plan as the Committee shall determine from
time to time.
11. Changes in Capital Structure.
If any change is made in the outstanding Common Stock without Mentor
Graphics receiving any consideration, such as a stock split, reverse stock
split, stock dividend, or combination or reclassification of the Common Stock,
corresponding changes shall be made in the number of shares remaining available
for option under section 1, [the number of shares for which automatic grants are
made under section 5, and the maximum number of shares for which discretionary
grants may be made under section 6,] without any further approval of the
shareholders. Fractional shares shall be disregarded. The adjustment shall be
made by the Committee whose determination shall be conclusive. NO CORRESPONDING
CHANGES SHALL BE MADE TO THE NUMBER OF SHARES FOR WHICH AUTOMATIC GRANTS ARE
MADE UNDER SECTIONS 5 AND 6; PROVIDED, HOWEVER, THAT STOCK OPTION AGREEMENTS
EVIDENCING OPTIONS MAY PROVIDE THAT THE NUMBER OF SHARES ISSUABLE UNDER
OUTSTANDING OPTIONS AND THE EXERCISE PRICE OF SUCH OPTIONS SHALL BE
APPROPRIATELY ADJUSTED IN THE EVENT OF CHANGES IN CAPITAL STRUCTURE COVERED BY
THIS SECTION 11.
12. Amendment or Termination of the Plan.
12.1 The Board may amend or terminate this Plan at any time subject to
section 12.2.
12.2 Unless the amendment is approved by the shareholders, no amendment
shall be made in the Plan that would (a) increase the total number of shares
available for option grants under section 1 or [,] the number of shares for
which automatic grants are made under section 5 OR [, or the maximum number of
shares for which discretionary grants may be made under] section 6, (b) increase
the term for which options are granted, (c) change the formula for determining
the exercise price of options to provide a lower exercise price, (d) modify the
requirements for eligibility under the Plan, or (e) materially increase the
benefits accruing under the Plan.
B-4
<PAGE> 29
MENTOR GRAPHICS CORPORATION
ANNUAL MEETING, APRIL 26, 1994
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned appoints Walden C. Rhines, Frank S. Delia and Dean M. Freed
and each of them, proxies with power of substitution to vote on the
undersigned's behalf all shares which the undersigned may be entitled to vote at
the annual meeting of shareholders of Mentor Graphics Corporation on April 26,
1994 and any adjournments of that meeting, with all powers that the undersigned
would possess if personally present, with respect to the following:
1. Election of directors:
/ / FOR all nominees (except as marked / / WITHHOLD AUTHORITY
to the contrary below) to vote for all nominees
listed below
(Note: To withhold authority to vote for any individual, strike a line
through the nominee's name below.)
MARSHA B. CONGDON, DAVID R. HATHAWAY, WALDEN C. RHINES,
FONTAINE K. RICHARDSON, JON A. SHIRLEY AND DAVID N. STROHM
2. Proposal to amend the Company's 1982 Stock Option Plan
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to amend the Company's 1987 Non-Employee Directors' Stock Option
Plan
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to ratify the appointment of independent auditors of the Company
/ / FOR / / AGAINST / / ABSTAIN
A majority of the proxies or substitutes present at the meeting may exercise
all the powers granted by the proxy.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH OF THE
ABOVE MEASURES.
(continued and to be signed on the other side)
(continued from other side)
THE PROXIES WILL VOTE THE SHARES REPRESENTED BY THIS PROXY AS SPECIFIED, BUT
IF NO SPECIFICATION IS MADE, THE PROXIES WILL VOTE THE SHARES FOR THE ELECTION
OF DIRECTORS AND FOR APPROVAL OF ALL PROPOSALS. THE PROXIES MAY VOTE IN THEIR
DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING.
YOU WILL SAVE THE COMPANY EXPENSE AND TIME IF YOU WILL DATE, SIGN AND RETURN
THIS PROXY AS SOON AS POSSIBLE BEFORE APRIL 26, 1994.
Date: , 1994 Shares:
--------------------------
--------------------------
--------------------------
Signature or signatures
Please date and sign as
name is imprinted on this
proxy, including
designation as executor,
trustee, etc., if
applicable. The president
or other authorized
officer must sign for a
corporation. All co-owners
must sign.
