<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / 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 Section 240.14a-11(c) or Section
240.14a-12
- --------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
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<PAGE>
[logo]
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
of Mentor Graphics Corporation to be held in Wilsonville, Oregon, on Thursday,
May 2, 1996. 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.
Thank you for your continued interest in Mentor Graphics Corporation.
Sincerely,
Walden C. Rhines
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
MENTOR GRAPHICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 2, 1996
To the Shareholders of Mentor Graphics Corporation:
The Annual Meeting of Shareholders of Mentor Graphics Corporation, an Oregon
corporation, will be held on Thursday, May 2, 1996 at 5:00 p.m., Pacific Time,
at the Company's offices at 8005 S.W. 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 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, 1996 are
entitled to notice of and to vote at the Annual Meeting.
Sincerely,
Dean Freed
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Wilsonville, Oregon
March 27, 1996
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>
MAILED TO SHAREHOLDERS ON
OR ABOUT MARCH 27, 1996
MENTOR GRAPHICS CORPORATION
8005 S.W. 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
Thursday, May 2, 1996 at 5:00 p.m., Pacific Time, or at any adjournment of that
meeting. The Company will hold the Annual Meeting at 8005 S.W. 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
S.W. 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, 1996 are
entitled to notice of and to vote at the meeting. At the record date, 60,867,400
shares of Mentor Graphics Common Stock were issued and outstanding. Each share
of Common Stock outstanding on the record date is entitled to one vote per share
at the Annual Meeting. 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 eligible votes cast will 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 proxy holders will
vote the proxies for any nominee designated by the present Board of Directors to
fill the vacancy.
<PAGE>
The nominees for director are listed below together with certain information
about each of them. During the December 14, 1995 meeting of the nominating
committee of the Board of Directors, Dr. David A. Hodges was nominated to serve
on the Board of Directors until the next election and the number of directors of
the Company was adjusted from five to six.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED AS OF
MARCH 1, 1996
----------------------
DIRECTOR NUMBER PERCENT
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE OF SHARES OF TOTAL
- ------------------------------------------------------------------------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
JON A. SHIRLEY................................................................. 57 1989 120,942(1) *
Chairman of the Board of Directors of the Company since 1994; private
investor; President and Chief Operating Officer of Microsoft Corporation (a
developer of computer software) from 1983 to 1990; director of Microsoft
Corporation.
MARSHA B. CONGDON.............................................................. 48 1991 48,519(2) *
Vice President, Policy and Strategy, of US West, Inc. (a provider of
communications services) since 1995; Vice President, Policy and Strategy, of
US West Communications (a provider of telecommunications services) during
1994; Regional Vice President and Chief Executive Officer-Oregon from
1992-1994; Vice President and Chief Executive Officer-Oregon from 1987 to
1992.
JAMES R. FIEBIGER.............................................................. 54 1994 6,000(3) *
Chairman of the Board and Managing Director of Thunderbird Technologies, Inc.
(a technology licensing company) since 1993; President and Chief Operating
Officer of VLSI Technology, Inc. (a manufacturer of semiconductors) from 1988
to 1993; director of Zycad Corporation (producer of FPGA technology and
computer aided design systems) and Cooper & Chyan Technology, Inc. (a
manufacturer of electronic design automation tools).
DAVID A. HODGES................................................................ 58 1995 400 *
Dean of College of Engineering at the University of California at Berkeley
(UC Berkeley) since July 1990 and Professor of Electrical Engineering and
Computer Sciences at UC Berkeley where he has been a member of the faculty
since 1970.
WALDEN C. RHINES............................................................... 49 1993 278,375(4) *
President and Chief Executive Officer of the Company since 1993; Executive
Vice President, Semiconductor Group, and Vice President of Texas Instruments
Incorporated (a manufacturer of electronics products) from 1987 to 1993;
director of Triquint Semiconductor, Inc. and Cirrus Logic, Inc. (both are
manufacturers of semiconductors).
FONTAINE K. RICHARDSON......................................................... 54 1983 116,400(5) *
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).
</TABLE>
- ------------------------
* Less than 1%
(1) Includes 115,942 shares subject to options exercisable within 60 days of
March 1, 1996.
(2) Includes 47,266 shares subject to options exercisable within 60 days of
March 1, 1996.
(3) Includes 6,000 shares subject to options exercisable within 60 days of March
1, 1996.
(4) Includes 225,000 shares subject to options exercisable within 60 days of
March 1, 1996.
(5) Includes 106,400 shares subject to options exercisable within 60 days of
March 1, 1996.
2
<PAGE>
INFORMATION REGARDING THE BOARD OF DIRECTORS
BOARD MEETINGS AND COMMITTEES
The Board of Directors of Mentor Graphics met nine times during 1995. The
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 Fiebiger, met six times during 1995. 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 Congdon, Richardson and Shirley, met six
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 consists of Directors
Fiebiger, Congdon, Richardson and Shirley. The Nominating Committee met once on
December 14, 1995 and submitted Dr. David Hodges as nominee to serve as
director. 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.
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
1995.
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. Any Non-Employee Director who also serves as Chairman of the
Board is paid an additional annual fee of $10,000.
1987 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The 1987 Non-Employee Directors' Stock Option Plan (1987 Plan) was adopted
in 1987 and amended in 1994 by the Board of Directors and the shareholders. An
aggregate of 1,100,000 shares of Common Stock have been reserved for issuance
under the 1987 Plan. On the date of each Annual Meeting of shareholders, each
Non-Employee Director elected is automatically granted an option to purchase
10,000 shares of Common Stock and any Non-Employee Director elected Chairman of
the Board is automatically granted an additional option to purchase 2,500
shares. Options under the 1987 Plan are granted at exercise prices equal to the
fair market value of the Common Stock on the grant date. On the date of the 1995
Annual Meeting Directors Congdon, Richardson and Fiebiger were automatically
granted an option for 10,000 shares each at an exercise price of $17.125.
Director Shirley, who served as Chairman since the 1994 Annual Meeting, was
automatically granted an option exercisable for 12,500 shares at an exercise
price of $17.125. If re-elected, directors Congdon, Fiebiger and Richardson will
each be automatically granted an option for 10,000 shares; Mr. Shirley, who
served as Chairman since the 1995 Annual Meeting, will automatically be granted
an option for 12,500 shares on the date of the Annual Meeting; and Dr. Hodges
will receive an option grant of 3,836 shares reflecting the fact that he has
been a director for only part of the year preceding the Annual Meeting. The 1987
Plan also provides that each new Non-Employee Director is automatically granted
an option to purchase 30,000 shares of Common Stock at the time of the person's
initial election to the Board. Upon his initial election to the Board in
December 1995, Dr. Hodges was granted an option to purchase 30,000 shares at an
exercise price of $17.375 per share. 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. The
1987 Plan is administered by the Compensation Committee. Director Shirley
exercised an option to acquire 5,000 shares in February 1995. No other director
exercised options in 1995.
3
<PAGE>
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, 1996 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, 1996 as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) PERCENT
- ---------------------------------------------------------- ------------------------- ---------
<S> <C> <C>
Merrill Lynch & Co., Inc.................................. 4,657,000(2) 8.4%
and various subsidiaries
World Financial Center, North Tower
New York, NY 10281-1323
Capital Research and Management Company,.................. 3,685,000(3) 6.7%
a registered investment adviser and
an operating subsidiary of
The Capital Group, Inc.
333 South Hope Street
Los Angeles, CA 90071
State of Wisconsin Investment Board....................... 3,625,500(4) 6.53%
P.O. Box 7842
Madison, WI 53707
FMR Corp.................................................. 3,208,100(5) 5.79%
82 Devonshire Street
Boston, MA 02109
J.&W. Seligman & Co., Incorporated........................ 2,956,158(6) 5.33%
100 Park Avenue
New York, NY 10017
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF EXECUTIVE OFFICER OF BENEFICIAL OWNERSHIP PERCENT
- ---------------------------------------------------------- ------------------------- ----------
<S> <C> <C>
Walden C. Rhines.......................................... 278,375(7) *
R. Douglas Norby.......................................... 45,750(8) *
James J. Luttenbacher..................................... 16,710(9) *
Frank S. Delia............................................ 35,971(10) *
Bob van Leyen............................................. 29,745(11) *
All directors and executive officers as a group (12
persons)................................................. 682,621(12) 1.1%
</TABLE>
- ------------------------
* Less than 1%
(1) Except as otherwise noted, the persons listed in the table have sole voting
and dispositive power with respect to the common stock owned by them.
(2) Information provided as of February 13, 1996 in a Schedule 13G filed by the
shareholder; reported as shared voting and dispositive power.
(3) Information provided as of February 9, 1996 in a Schedule 13G filed by the
shareholder; reported as sole dispositive power.
(4) Information provided as of February 6, 1996 in a Schedule 13G filed by the
shareholder.
(5) Information provided as of February 14, 1996 in a Schedule 13G filed by the
shareholder; reported as sole dispositive power.
(6) Information provided as of February 2, 1996 in a Schedule 13G filed by the
shareholder.
(7) Includes 225,000 shares subject to options exercisable within 60 days of
March 1, 1996.
(8) Includes 25,750 shares subject to options exercisable within 60 days of
March 1, 1996.
(9) Includes 11,625 shares subject to options exercisable within 60 days of
March 1, 1996.
(10) Includes 34,450 shares subject to options exercisable within 60 days of
March 1, 1996.
(11) Includes 22,300 shares subject to options exercisable within 60 days of
March 1, 1996.
(12) Includes 573,511 shares subject to options exercisable within 60 days of
March 1, 1996.
4
<PAGE>
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 Officer and the four other most highly
compensated executive officers (Named Executive Officers).
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(4) OPTIONS/SARS (#) COMPENSATION ($)(5)
- ------------------------------------- --------- ----------- ------------ -------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Walden C. Rhines .................... 1995 400,000 583,050 100,000 4,500
President and Chief 1994 400,000 276,000 0 0
Executive Officer (1) 1993 84,872 413,333 600,000 0
R. Douglas Norby .................... 1995 235,000 288,015 23,000 4,500
Senior Vice President and 1994 235,000 160,000 0 4,620
Chief Financial Officer (2) 1993 86,166 66,667 250,000 0
James J. Luttenbacher ............... 1995 155,473 104,182 6,000 4,500
Chief Accounting Officer 1994 148,927 51,000 4,500 4,620
and Corporate Controller 1993 142,648 14,000 0 4,497
Frank S. Delia ...................... 1995 155,617 125,179 13,000 4,500
Vice President, Human 1994 148,142 58,816 8,000 4,620
Resources and the Workplace 1993 145,000 20,000 0 4,350
Bob van Leyen ....................... 1995 132,600 71,825 1,000 0
Treasurer (3) 1994 138,750 23,000 15,000 0
1993 -- -- -- --
</TABLE>
- ------------------------
(1) Dr. Rhines began employment with the Company in October 1993.
(2) Mr. Norby began employment with the Company in July 1993.
(3) Mr. van Leyen became an executive officer of the Company in April 1994.
(4) The 1995 bonus includes $52,650, $28,080, $17,550, and $22,005 paid to Dr.
Rhines, Mr. Norby, Mr. Luttenbacher and Mr. Delia, respectively, under the
Special Incentive Bonus Plan for the Company's 1995 performance. The total
bonuses, both vested and unvested, under the Special Incentive Bonus Plan
for 1995 for each of these individuals was $210,600 $112,320, $70,200, and
$88,020, respectively. Of this total, 25% vested and has been paid. The
balance is payable without interest during the first quarter of 1998, but
only if the recipient is employed by the Company on December 31, 1997.
(5) Amounts shown are Company contributions to the Individual Deferred Tax and
Savings Plan pursuant to which the Company's U.S. employees may defer
compensation under Section 401(k) of the Internal Revenue Code. The Company
contributes an amount equal to 50% of the first 6% of salary contributed
under the plan by an eligible employee.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants for the last
fiscal year to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
# OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED (1) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- -------------------------------------- ----------- --------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Walden C. Rhines...................... 100,000 6.87 14.25 2/28/05 877,813 2,245,116
R. Douglas Norby...................... 23,000 1.58 14.25 2/28/05 204,197 516,377
James J. Luttenbacher................. 6,000 .41 14.25 2/28/05 53,269 134,707
Frank S. Delia........................ 13,000 .89 14.25 2/28/05 115,416 291,865
Bob van Leyen......................... 1,000 .07 14.25 2/28/05 8,878 22,451
</TABLE>
- ------------------------
(1) Each option is fully exercisable four years after March 27, 1995, with 25%
becoming exercisable on each of the first four anniversaries after that
date. 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 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.
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, 1995.
<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>
Walden C. Rhines 0 0 200,000 400,000 525,000 787,500
R. Douglas Norby 20,000 107,500 20,000 233,000 107,500 1,128,750
James J. Luttenbacher 0 0 10,125 15,375 71,578 59,859
Frank S. Delia 0 0 31,200 26,000 235,900 85,500
Bob van Leyen 0 0 19,050 15,750 130,513 22,688
</TABLE>
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 bonuses 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.
6
<PAGE>
Compensation of executive officers consists of the following components:
BASE SALARY: Salaries for executive officers are reviewed on an annual
basis. In reviewing executive salaries, data from a third party survey is
considered. In using the third party survey, the Company compares itself to
other high-technology companies with annual revenues of $200 million to $500
million, and generally establishes 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 a Variable Pay Plan
to provide for the payment of cash bonuses to executive officers and other
employees based on corporate performance. In addition, in 1995 the Compensation
Committee established a Special Incentive Bonus Plan to provide additional
incentive compensation to a group of approximately 20 top executives. Under the
Variable Pay Plan, each year the Compensation Committee approves a target bonus
amount for each executive officer to be paid based on achievement of the target
operating income from the annual business plan approved by the Board of
Directors (Annual Plan). For this purpose, the Company's reported operating
income may be adjusted by the Compensation Committee in its discretion to
exclude unusual items such as acquisition-related expenses, one-time charges and
reversals. The potential bonus increases or decreases based on the achievement
of higher or lower operating income. 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 individual
performance. For 1995, target bonuses for executive officers ranged from 20
percent to 60 percent of base salary, with 100 percent of the target payable
upon attainment of the target operating income from the Annual Plan and no
target bonus payable unless 78% of the target operating income from the Annual
Plan was achieved. Based on 1995 operating income, which substantially exceeded
the Annual Plan, the Compensation Committee approved a payout of 221 percent of
target bonuses under the Variable Pay Plan.
Under the Special Incentive Bonus Plan, bonuses become payable to the extent
the Company's revenues and net income for the year exceed the revenue and net
income levels in the Annual Plan, provided that no bonuses based on revenues are
payable unless the Annual Plan's target net income level is achieved. The
bonuses equal a percentage of Base Pay (defined as the midpoint of each
individual's salary range) equal to the sum of (a) one-half percent of Base Pay
for every 1% by which actual revenue exceeds the target revenue from the Annual
Plan plus (b) 1% of Base Pay for every 1% by which actual net income exceeds the
target net income from the Annual Plan. The Special Incentive Bonus Plan
provides that 25% of the 1995 bonuses are payable currently and that the balance
is deferred and paid without interest during the first quarter of 1998 if the
officer is employed by the Company on December 31, 1997. The total bonuses, both
vested and unvested, under the Special Incentive Bonus Plan for 1995 were 54% of
Base Pay as both revenues and net income significantly exceeded the Annual Plan.
Twenty-five percent of the total bonuses vested in 1995 and have been paid as
reflected in the Summary Compensation Table.
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 four-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. All executive officers received stock
option grants as part of the 1995 annual option grant program for key employees.
Annual option programs typically involve a total pool of between 600,000 and
800,000 shares. Individual award levels are determined primarily by a matrix
7
<PAGE>
which allocates the available shares based on position within the Company, with
some discretionary adjustments based on subjective performance factors. Third
party survey data is considered in establishing the upper levels of the matrix
with the Company seeking to grant options in the middle range of comparable
companies.
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.
The levels of salary and bonus generally paid by the Company do not exceed this
limit. However, because compensation under the Special Incentive Bonus Plan
could cause an officer's compensation to exceed $1,000,000, the Plan provides
for the deferred payment of bonuses if current payment would cause any
compensation to be nondeductible under Section 162(m). 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 IRS 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.
COMPENSATION OF CHIEF EXECUTIVE OFFICER: Dr. Rhines became Chief Executive
Officer in October 1993 following an extensive recruiting effort for a new CEO.
His initial annual salary was set at $400,000, the same as the then current
salary of the Company's prior CEO. This salary level was in the third quartile
of CEO salaries among comparable companies from the third party survey used by
the Company. Dr. Rhines' bonus target under the 1995 Variable Pay Plan was
$240,000, or 60 percent of his salary, and he received a pay out of $530,400, or
221 percent of the target. Under the Special Incentive Bonus Plan, Dr. Rhines
received a pay out of $52,650 or 25% of the total bonus amount, which in turn,
was 54% of his Base Pay. Dr. Rhines was granted an option to purchase 100,000
shares of Company stock in 1995, which was in the middle range of CEO option
grants for comparable companies.
COMPENSATION COMMITTEE
Jon A. Shirley
Fontaine K. Richardson
Marsha Congdon
8
<PAGE>
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)
[Paste-up Chart]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P 500 MG GROUP
(FISCAL YEAR COVERED) MENTOR GRAPHICS INDEX INDEX
- --------------------------------------------------------------- ---------------- --------- -----------
<S> <C> <C> <C>
Measurement Point:
12/31/90 $ 100.00 $ 100.00 $ 100.00
Fiscal Year Ending:
12/31/91 $ 118.67 $ 130.48 $ 175.61
12/31/92 $ 66.90 $ 140.46 $ 191.87
12/31/93 $ 115.48 $ 154.62 $ 204.87
12/31/94 $ 128.08 $ 156.66 $ 250.68
12/31/95 $ 153.27 $ 215.54 $ 372.93
ASSUMES $100 INVESTED ON DECEMBER 31, 1990
ASSUMES DIVIDENDS REINVESTED
FISCAL YEARS ENDING DECEMBER 31
</TABLE>
- ------------------------
(1) This is an industry group index published by Media General Financial
Services.
9
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick as the Company's
independent auditors for 1996. KPMG Peat Marwick has examined the financial
statements of the Company and its subsidiaries each year since the inception of
the Company in 1981. 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.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of the
Common Stock to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Executive officers, directors and
beneficial owners of more than ten percent of the Common Stock are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms received by the
Company and on written representations from certain reporting persons that they
have complied with the relevant filing requirements, the Company believes that
all Section 16(a) filing requirements applicable to its executive officers and
directors were complied with in 1995, except that Bob van Leyen filed a late
report with respect to one transaction in 1995.
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 Annual Meeting to be held in 1997 must be received at the
principal executive offices of the Company not later than November 27, 1996.
By Order of the Board of Directors
Dean Freed
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
March 27, 1996
10
<PAGE>
MENTOR GRAPHICS CORPORATION
ANNUAL MEETING, MAY 2, 1996
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned appoints Walden C. Rhines, James W. Martin 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 May 2, 1996
and any adjournments of that meeting, with all powers that the undersigned would
possess if personally present, with respect to the following:
<TABLE>
<S> <C> <C> <C>
1. Election of / / FOR all nominees (except as / / WITHHOLD AUTHORITY
directors: marked 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, JAMES R. FIEBIGER, DAVID A. HODGES, WALDEN C. RHINES,
FONTAINE K. RICHARDSON AND JON A. SHIRLEY
</TABLE>
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 RECOMMEND A VOTE IN FAVOR OF
THE ABOVE MEASURE.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
(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. 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 MAY 2, 1996.
Date:
- ---------------, 1996 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.
