SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
MENTOR GRAPHICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: Set forth the amount on which
the filing fee is calculated and state how it was determined.
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5) Total fee paid:
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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 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:
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<PAGE>
MENTOR GRAPHICS
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of Mentor
Graphics Corporation to be held in Wilsonville, Oregon, on Wednesday, March 10,
1999. The attached Notice of Special 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 SPECIAL MEETING OF SHAREHOLDERS
March 10, 1999
To the Shareholders of Mentor Graphics Corporation:
A Special Meeting of Shareholders of Mentor Graphics Corporation, an Oregon
corporation, will be held on Wednesday, March 10, 1999 at 5:00 p.m., Pacific
Time, at the Company's offices at 8005 S.W. Boeckman Road, Wilsonville, Oregon
97070-7777 ("Special Meeting") for the following purposes, as more fully
described in the accompanying Proxy Statement:
1. To amend the Company's Articles of Incorporation to increase the authorized
common stock and eliminate Incentive Stock from the Company's authorized
stock.
2. To amend the Company's 1989 Employee Stock Purchase Plan to increase the
number of shares reserved for issuance under the plan and to increase the
limit on the number of shares that employees may purchase in each offering
under the plan.
3. 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 January 25, 1999 are
entitled to notice of and to vote at the Special Meeting.
Sincerely,
Dean Freed
Vice President, General Counsel
and Secretary
Wilsonville, Oregon
February 5, 1999
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.
2
<PAGE>
Mailed to Shareholders on
or about February 5, 1999
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 a Special Meeting of Shareholders to be held
Wednesday, March 10, 1999 at 5:00 p.m., Pacific Time, or at any adjournment of
that meeting ("Special Meeting"). The Company will hold the Special Meeting at
8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777.
Mentor Graphics will bear the cost of this solicitation. The Company has
retained MacKenzie Partners, Inc. to assist in soliciting proxies from brokers
and nominees for the Special 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.
Procedural Matters
Shareholders of record at the close of business on January 25, 1999 are entitled
to notice of and to vote at the meeting. At the record date, 66,323,333 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 Special Meeting. For information regarding holders of 5% or more of the
outstanding Common Stock, see "Information Regarding Beneficial Ownership of
Principal Shareholders, Directors 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 Special Meeting in accordance with the instructions given.
INCREASE IN AUTHORIZED COMMON STOCK AND
ELIMINATION OF INCENTIVE STOCK
(Proposal No. 1)
The Company currently has 100,000,000 shares of Common Stock authorized and
66,323,333 shares of Common Stock issued and outstanding, and 1,200,000 shares
of Incentive Stock authorized and no shares of Incentive Stock issued and
outstanding. The Board of Directors has approved an amendment to the 1987
Restated Articles of Incorporation of the Company to increase the number of
authorized shares of Common Stock from 100,000,000 to 200,000,000 and to
eliminate the authorization of Incentive Stock. Under this proposal, Article III
of the 1987 Restated Articles of Incorporation of the Company will be amended to
read in its entirety as follows:
3
<PAGE>
"The Corporation shall have authority to issue 200,000,000 shares
of Common Stock, without par value."
Increase in Common Stock
If approved, the increased number of authorized shares of Common Stock will be
available for issue from time to time for such purposes and considerations as
the Board may approve and no further vote of the shareholders of the Company
will be required. The availability of additional shares for issue, without the
delay and expense of obtaining the approval of shareholders at a special
meeting, can be an advantage to the Company in pursuing acquisition
opportunities, in financings, in the Company's stock compensation plans, and for
stock dividends or stock splits. The Company has no specific plans at this time
to make use of any of the additional shares.
The authorization of additional shares of Common Stock could have an
anti-takeover effect, either by permitting the Board to issue shares that would
dilute the interest of a bidder or by facilitating the adoption of a shareholder
rights plan. The Board has no knowledge of any present efforts to accumulate
shares of the Company's Common Stock in the market or to gain control of the
Company. Although the Board has held discussions of available mechanisms to
defend against hostile takeovers, it has not adopted any such mechanisms. It is
possible that future developments or changes in circumstances, including changes
in law, could lead to the adoption of such measures by the Board, in some cases
without an opportunity for shareholders to vote on the matter.
The additional shares of Common Stock for which authorization is sought would be
identical to the shares of Common Stock of the Company now authorized. Holders
of Common Stock do not have preemptive rights to subscribe to additional
securities which may be issued by the Company.
Elimination of Incentive Stock
The Company's Articles of Incorporation have authorized the issuance of
Incentive Stock since before the Company's initial public offering in 1984.
Although the Incentive Stock was originally intended to be used for certain
incentive purposes, no shares of Incentive Stock have ever been issued. The
Incentive Stock has no voting rights except as required by law, and therefore is
not likely to be useful for financing, acquisitions or other purposes.
Accordingly, the Board believes that no purpose is served by continuing to
include Incentive Stock in the Company's authorized stock.
Adoption of Proposal No. 1 will require that the votes cast in favor of Proposal
No. 1 at the Special Meeting exceed the votes cast against Proposal No. 1.
Accordingly, abstentions and broker non-votes will have no effect on the results
of the vote. All valid proxies will be voted FOR Proposal No. 1 unless a
contrary choice is indicated.
THE BOARD HAS UNANIMOUSLY APPROVED PROPOSAL NO. 1. MANAGEMENT AND THE BOARD
RECOMMEND ITS APPROVAL BY THE SHAREHOLDERS.
APPROVAL OF AMENDMENT TO 1989 PLAN
(Proposal No. 2)
Mentor Graphics' 1989 Employee Stock Purchase Plan (1989 Plan) was adopted by
the Board of Directors and shareholders in 1989. The 1989 Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code. The 1989 Plan permits all regular employees of the Company to
acquire Common Stock through regular payroll deductions of up to 10% of an
employee's salary. An aggregate of 5,400,000 shares of Common Stock has been
reserved for issuance under the 1989 Plan.
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<PAGE>
Amendments
The Board of Directors believes that the 1989 Plan has promoted the interests of
the Company and its shareholders by encouraging employees to become shareholders
and therefore promote the Company's growth and success. The Board also believes
that the 1989 Plan is an important factor in the Company's continuing ability to
offer a competitive benefit package to existing and prospective employees of the
Company.
After the January 4, 1999 purchase under the 1989 Plan, only 150,998 shares of
Common Stock are available for purchase under the 1989 Plan. Normal employee
participation in the 1989 Plan during the first quarter of 1999 would have
required more shares than are currently available. Anticipating this problem, in
December 1998 the Compensation Committee of the Board reduced the quarterly
limit on shares purchased under the 1989 Plan from 600 shares to 75 shares per
employee for the first quarter of 1999. At the same time, the Board of Directors
adopted a temporary amendment to the 1989 Plan to permit employees to carryover
the excess cash remaining in their accounts after purchasing only 75 shares in
the first quarter for use to purchase shares under the 1989 Plan in the second
quarter, provided that the shareholders approve an increase in the shares
available for issuance under the 1989 Plan before the start of the second
quarter. To ensure that all employees are treated equally as required by tax
regulations, the temporary amendment also permits each participant during the
second quarter of 1989 to make a cash contribution to increase the carryover
balance in his or her account to the largest amount carried over by an employee.
At the same meeting in December 1998, the Board of Directors adopted two
amendments to the 1989 Plan for submission to the shareholders for their
approval. First, they adopted an amendment to reserve an additional 3,000,000
shares of Common Stock for issuance under the 1989 Plan. Second, they adopted an
amendment to increase the 600 share limit on the number of shares that an
employee can purchase in any offer under the 1989 Plan to 800 shares. This
second proposed amendment is necessary to permit all employees to purchase
additional shares in the second quarter of 1999 with funds carried over from the
first quarter, but will also increase the limit for future offers under the
plan. A copy of the 1989 Plan, as proposed to be amended, is attached to this
Proxy Statement as Exhibit A.
Description of the 1989 Plan
The essential features of the 1989 Plan are outlined below.
Eligibility
Except as described below, all regular employees of the Company and designated
subsidiaries, including employees who are officers or directors, are eligible to
participate in the 1989 Plan. Any employee who owns or would be deemed to own 5
percent or more of the voting power or value of all classes of stock of the
Company is ineligible to participate in the 1989 Plan. Approximately 2,352
employees are eligible to participate in the 1989 Plan.
Option Grant and Purchase of Shares
Options under the 1989 Plan may be granted at any time by the Compensation
Committee to all eligible employees to purchase shares of the Company's Common
Stock. The options will be effectively granted on a day specified by the
Committee (Grant Date) and will be exercisable on another day specified by the
Committee (Exercise Date), provided that the Exercise Date cannot be more than
27 months after the Grant Date. The Company's practice under the 1989 Plan has
been to grant options on a quarterly basis with the Grant Date as the first day
of the quarter and the Exercise Date as the last day of the quarter or the first
day of the following quarter. Options may not be granted for more than 600
shares per employee per grant (increased to 800 shares per employee under the
proposed amendment) and no employee may purchase shares with a fair market value
(determined at the Grant Date) exceeding $25,000 in any one calendar year. Each
eligible employee may elect to participate in the 1989 Plan by filing a
subscription and payroll deduction authorization. Shares may be purchased under
the 1989 Plan only through payroll deductions of not more than 10% of an
employee's compensation. On the Exercise Date the amounts withheld will be
applied to purchase shares for the employee from the Company. The purchase price
is
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<PAGE>
determined on the Exercise Date and may not be less than the lesser of 85
percent of the fair market value of the Common Stock on the Grant Date or on the
Exercise Date.
An employee may terminate participation in the 1989 Plan by written notice to
the Company at least 10 days before the Exercise Date. The employee will then
receive all funds withheld from his or her pay and not yet used to purchase
shares. An employee may reinstate participation in the 1989 Plan, but only after
the first Exercise Date following termination. The rights of employees under the
1989 Plan are not transferable.
Administration
The 1989 Plan is administered by the Compensation Committee. The Compensation
Committee may promulgate rules and regulations for the operation of the 1989
Plan, adopt forms for use in connection with the plan, decide any question of
interpretation of the plan or rights arising thereunder and generally supervise
the administration of the plan. The Company will pay all expenses of the 1989
Plan.
Custodian
An independent custodian maintains the records and employees' cash accounts
under the 1989 Plan. Shares purchased by employees under the 1989 Plan are
delivered to and held by the custodian on behalf of the employees. By
appropriate instructions from an employee, all or part of the shares may be
transferred into the employee's own name and delivered to the employee.
Amendments
The Board of Directors may amend the 1989 Plan, except that without the approval
of the shareholders of the Company, the plan may not be amended to increase the
number of shares reserved for the plan, extend the term of the plan, decrease
the purchase price, materially increase benefits or materially modify
eligibility requirements. The Board of Directors may terminate the 1989 Plan at
any time, except that termination will not affect outstanding options.
Tax Consequences
The 1989 Plan is intended to be treated as a stock option arrangement for tax
purposes and is intended to qualify as an "Employee Stock Purchase Plan" within
the meaning of Section 423 of the Internal Revenue Code. Under the Internal
Revenue Code, employees are not taxed on income or gain with respect to the 1989
Plan either at the Grant Date or at the Exercise Date. If an employee disposes
of the shares purchased under the 1989 Plan more than two years after the Grant
Date and more than one year after the Exercise Date, the employee will be
required to report as ordinary compensation income for the taxable year of
disposition an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of disposition over the purchase price or (2)
the excess of the fair market value of the shares on the Grant Date over the
option price (determined as if the option had been exercised on the Grant Date).
Any gain on the disposition in excess of the amount treated as ordinary
compensation income will be capital gain. In the case of such a disposition, the
Company will not be entitled to any deduction from income.
If an employee disposes of shares purchased under the 1989 Plan within two years
after the Grant Date or within one year after the Exercise Date, the employee
will be required to report the excess of the fair market value of the shares on
the Exercise Date over the purchase price as ordinary compensation income for
the year of disposition. Any difference between the fair market value of the
shares on the Exercise Date and the disposition price will be capital gain or
loss, either short-term or long-term depending upon the employee's holding
period for the shares. In the event of a disposition within either of such
periods, the Company will be entitled to a deduction from income in the year of
such disposition equal to the amount that the employee is required to report as
ordinary compensation income.
6
<PAGE>
Purchases Under the 1989 Plan
The following table indicates shares purchased under the 1989 Plan during the
last fiscal year by the Named Executive Officers, by all executive officers as a
group and by all employees (excluding executive officers) as a group:
<TABLE>
<CAPTION>
Shares Purchased in 1998
----------------------------------------
Name Dollar Value(1) Number of Shares
---- --------------- ----------------
<S> <C> <C>
Walden C. Rhines 4,467.90 2,400
Gregory K. Hinckley -0- -0-
G.M. "Ken" Bado 2,280.60 1,200
Dean Freed 2,916.49 1,737
Bernd Braune -0- -0-
All Executive Officers (8 persons) 10,775.65 5,947
All Employees, excluding Executive Officers
1,420,955.53 767,046
- ---------------------
(1) "Dollar Value" equals the difference between the price paid for shares
purchased under the 1989 Plan and the fair market value of the shares on
the Exercise Date.
</TABLE>
Vote Required
Adoption of Proposal No. 2 will require that the votes cast in favor of Proposal
No. 2 at the Special Meeting exceed the votes cast against Proposal No. 2.
Accordingly, abstentions and broker non-votes will have no effect on the results
of the vote. 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.
7
<PAGE>
INFORMATION REGARDING BENEFICIAL OWNERSHIP
OF PRINCIPAL SHAREHOLDERS, DIRECTORS AND MANAGEMENT
The following table shows beneficial ownership of the Company's Common Stock as
of January 8, 1999 by the only shareholders known by the Company to beneficially
own 5% or more of the Common Stock, by each director of the Company, by each
executive officer named in the Summary Compensation Table and by all directors
and executive officers as a group:
<TABLE>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership(1) Percent
------------------------------------ ------------------------------- -----------------
<S> <C> <C>
State of Wisconsin Investment Board 7,025,000(2) 9.82%
121 East Wilson Street
Madison, WI 53707
Crabbe Huson Group, Inc. 4,639,000(3) 6.99%
121 SW Morrison
Portland, OR 97204
Merrill Lynch Asset Management 4,921,034(4) 7.49%
800 Scudders Mill Road
Plainsboro, NJ 08536
Private Capital Management, Inc. 3,843,377(5) 5.85%
3003 Tamiami Trail North
Naples, FL 34103
Amount and Nature of
Name of Director or Executive Officer Beneficial Ownership Percent
------------------------------------- ------------------------------ -----------------
Walden C. Rhines 771,611(6) *
Jon A. Shirley 144,542(7) *
Marsha B. Congdon 79,336(8) *
James R. Fiebiger 41,825(9) *
David A. Hodges 21,934(10) *
Fontaine K. Richardson 100,000(11) *
Gregory K. Hinckley 155,000(12) *
G.M. "Ken" Bado 111,040(13) *
Dean Freed 46,185(14) *
Bernd Braune 65,000(15) *
All directors and executive officers as a group 1,589,614(16) 2.35%
(13 persons)
- --------------------
*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 December 31, 1998 in a Schedule 13G filed by the
shareholder.
3 Information provided as of October 21, 1998 in a Schedule 13G filed by the
shareholder. The shareholder reported shared voting power over 4,302,500
shares and shared dispositive power over 4,639,000 shares.
4 Information provided as of September 30, 1998 in a Schedule 13F filed by the
shareholder.
5 Information provided as of September 30, 1998 in a Schedule 13F filed by the
shareholder.
6 Includes 702,498 shares subject to options exercisable within 60 days of
January 8, 1999.
7 Includes 89,542 shares subject to options exercisable within 60 days of
January 8, 1999 and 5,000 shares held in trust.
8 Includes 78,083 shares subject to options exercisable within 60 days of
January 8, 1999.
9 Includes 33,550 shares subject to options exercisable within 60 days of
January 8, 1999.
10 Includes 19,534 shares subject to options exercisable within 60 days of
January 8, 1999.
11 Includes 100,000 shares subject to options exercisable within 60 days of
January 8, 1999.
12 Includes 125,000 shares subject to options exercisable within 60 days of
January 8, 1999 and 4,000 shares held by children.
13 Includes 102,932 shares subject to options exercisable within 60 days of
January 8, 1999.
14 Includes 33,869 shares subject to options exercisable within 60 days of
January 8, 1999 and 550 shares held by spouse.
15 Includes 35,000 shares subject to options exercisable within 60 days of
January 8, 1999.
16 Includes 1,342,189 shares subject to options exercisable within 60 days of
January 8, 1999.
</TABLE>
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<PAGE>
INFORMATION REGARDING EXECUTIVE OFFICER AND DIRECTOR 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 who were serving as executive officers at
December 31, 1998 (Named Executive Officers).
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Securities
Underlying
Name and Principal Options/ All Other
Position Year Salary ($) Bonus ($)(1) SARs(#) Compensation($)(2)
- ------------------ ---- ---------- ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C>
Walden C. Rhines 1998 443,750 180,000 4,800
President and Chief 1997 424,999 157,950 250,000 4,750
Executive Officer 1996 417,708 0 700,000(3) 4,500
Gregory K. Hinckley, 1998 333,250 180,000 4,800
Executive Vice 1997 296,090 0 250,000 3,717
President, Chief 1996 ------- ------- ------- -----
Operating Officer and
Chief Financial
Officer(4)
G.M. "Ken" Bado 1998 243,441 45,000 4,800
Senior Vice President, 1997 229,999 0 0 4,750
World Trade 1996 157,708 95,376 215,000(3) 4,500
Dean Freed 1998 162,663 15,000 4,800
Vice President, 1997 145,500 52,650 26,250 4,365
General Counsel and 1996 117,083 0 61,600 4,500
Secretary
Bernd Braune 1998 295,000 0 0
Senior Vice 1997 ------- ------- ------ -----
President(5) 1996 ------- ------- ------ -----
- --------------------
1 As of the time of printing of this proxy statement, bonuses for 1998 have
not yet been determined.
2 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.
3 On November 7, 1996, the Compensation Committee 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
1996. If repriced options are not counted, option grants in 1996 were made
to Dr. Rhines and Messrs. Bado and Freed for 300,000, 165,000 and 20,000
shares, respectively.
4 Mr. Hinckley became an executive officer of the Company in January 1997.
5 Mr. Braune became an executive officer of the Company in February 1998.
</TABLE>
9
<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
# of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Vesting Granted to Exercise or Price Appreciation
Options Reference Employees in Base Price Expiration for Option Term(1)
Name Granted(2) Date Fiscal Year ($/Share) Date 5%($) 10%($)
---- ---------- --------- ------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Walden C. Rhines 180,000 03/26/98 6.08 10.0625 02/28/08 1,128,849 2,854,879
Gregory K. Hinckley 180,000 03/26/98 6.08 10.0625 02/28/08 1,128,849 2,854,879
G.M. "Ken" Bado 25,000 03/26/98 0.84 10.0625 02/28/08 156,785 396,511
20,000 11/05/98 0.68 8.3125 10/31/08 104,409 264,510
Dean Freed 15,000 03/26/98 0.51 10.0625 02/28/08 94,071 237,907
Bernd Braune ------- -------- ---- ------- -------- --------- ---------
- --------------------
1 The 5% and 10% assumed rates of appreciation are required by the Securities
and Exchange Commission and do not represent the Company's estimate or
projection of the future Common Stock price.
2 Each option is fully exercisable four years after the Vesting Reference Date
with 25% becoming exercisable on each of the first four anniversaries of
that date. All options become fully exercisable upon a "change in control"
of the Company as defined in the 1982 Stock Option Plan. Unless otherwise
determined by the Compensation Committee before the occurrence of the event,
a "change in control" generally includes the following events: the
acquisition by any person of 20% or mo Common Stock, the nomination (and
subsequent election) of a majority of the Company's directors by persons
other than the incumbent directors and the approval by the Company's
shareholders of a merger, share exchange, sale of substantially all of the
Company's assets or plan of liquidation.
</TABLE>
10
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information on option exercises for the last fiscal
year by the Named Executive Officers and the value of such officers' unexercised
options as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at FY-End(#) at FY-End($)
Acquired on Value -------------------------- --------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walden C. Rhines 0 0 702,498 627,502 43,749 81,251
Gregory K. Hinckley 0 0 62,500 367,500 0 0
G.M. "Ken" Bado 0 0 102,932 146,668 57,716 31,771
Dean Freed 0 0 33,869 59,481 21,752 7,748
Bernd Braune 0 0 35,000 105,000 0 0
</TABLE>
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 1998
Annual Meeting Directors Congdon, Fiebiger, Hodges and Richardson were
automatically granted an option for 10,000 shares each at an exercise price of
$10.875. Director Shirley, who served as Chairman since the 1997 Annual Meeting,
was automatically granted an option exercisable for 12,500 shares at an exercise
price of $10.875. 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 Hodges exercised an option
to acquire 2,000 shares in July 1998. No other directors exercised options in
1998.
DISCRETIONARY AUTHORITY
While the Notice of Special 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.
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SHAREHOLDER PROPOSALS
Any shareholder proposals to be considered for inclusion in proxy material for
the Company's Annual Meeting to be held on May 11, 1999 should have been
received at the principal executive offices of the Company by December 11, 1998.
By Order of the Board of Directors
Dean Freed
Vice President, General Counsel
February 5, 1999 and Secretary
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EXHIBIT A
MENTOR GRAPHICS CORPORATION
1989 EMPLOYEE STOCK PURCHASE PLAN*
1. Purpose of the Plan. Mentor Graphics Corporation (Company) believes that
ownership of shares of its common stock by its employees, and by the employees
of any participating subsidiary (hereinafter defined), is desirable as an
incentive to better performance and improvement of profits, and as a means by
which employees may share in the Company's growth and success. The purpose of
the Company's 1989 Employee Stock Purchase Plan (Plan) is to provide a
convenient means by which employees of the Company and subsidiaries may purchase
the Company's shares and a method by which the Company may assist and encourage
employees to become shareholders.
2. Shares Reserved for the Plan. There are 8,400,000 [5,400,000] shares of
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the Company's authorized but unissued or reacquired Common Stock, no par value
(Common Stock), reserved for the Plan. The number of shares reserved is subject
to adjustment in the event of stock dividends, stock splits, combinations of
shares, recapitalizations or other changes in the outstanding Common Stock. The
determination of whether an adjustment shall be made and the manner of any
adjustment shall be made by a compensation committee (Committee) appointed by
the Board of Directors of the Company without any further approval from the
shareholders, which determination shall be conclusive.
3. Administration of the Plan. The Plan shall be administered by the
Committee. The Committee may promulgate rules and regulations for the operation
of the Plan, adopt forms for use in connection with the Plan, and decide any
question of interpretation of the Plan or rights arising thereunder. All
determinations and decisions of the Committee shall be conclusive.
4. Eligible Employees. Except as provided below, all regular employees of
the Company and all regular employees of each of the Company's subsidiary
corporations that is designated by the Committee as a participant in the Plan
(Participating Subsidiary) are eligible to participate in the Plan. Any employee
who would after an offering pursuant to the Plan own or be deemed (under section
424(d) of the Internal Revenue Code of 1986, as amended (IRC)) to own stock
(including stock that may be purchased under any outstanding options) possessing
5 percent or more of the total combined voting power or value of all classes of
stock of the Company or, if applicable, its parent or subsidiaries, shall be
ineligible to participate in the Plan. A regular employee is one who has been
employed by the Company or any of its subsidiaries for at least three months and
who is in the active service of the Company or any subsidiary corporation of the
Company on the date an offering is made under the Plan, excluding, however, any
employee whose customary employment is 20 or fewer hours per week or whose
customary employment is for not more than five months per calendar year.
5. Participation in the Plan. From time to time, until the supply of shares
reserved under Section 2 of the Plan is exhausted, the Committee may grant
options under the Plan to all, but not less than all, eligible employees
(Optionees). Each option shall give the Optionee the right to purchase up to 800
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[600] shares of Common Stock and shall be effectively granted on the day
specified by the Committee (date of grant) and shall be exercisable on the day
specified by the Committee (exercise date); provided, however, that no option
shall be exercisable after the expiration of 27 months from the date of grant.
No option may be granted pursuant to the Plan that would allow an Optionee's
right
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* Underlined matter is new; matter [bracketed and in italics] has been deleted.
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to purchase shares under all stock purchase plans of the Company and its parent
and subsidiaries to which IRC Section 423 applies to accrue at a rate that
exceeds $25,000 of fair market value of shares (determined at the date of grant)
for each calendar year in which such option is outstanding. For this purpose,
the right to purchase shares pursuant to a subscription accrues on the exercise
date. Optionees may participate in the Plan with respect to all or a portion of
the shares covered by the option by filing with the Company, on forms supplied
by the Company, a subscription and a payroll deduction authorization. The
payroll deduction authorization will authorize the employing corporation to
deduct a specific amount from each of the Optionee's regular paychecks beginning
with the first paycheck following the filing of the payroll deduction
authorization and continuing for so long as the Committee continues to grant new
options effective prior to or within seven days after each exercise date and
until the Optionee amends or terminates the payroll deduction authorization. The
Optionee may not specify a payroll deduction amount that is less than $10 or
greater than 10 percent of the gross amount of the Optionee's base salary,
hourly compensation, including overtime pay, and commission earnings, for each
payroll period. If payroll deductions are made by a Participating Subsidiary,
that corporation will promptly remit the amount of the deduction to the Company.
After an Optionee has begun participating in the Plan by initiating payroll
deductions, the Optionee may not amend the payroll deduction authorization
except for an amendment effective for the first paycheck following an exercise
date, but may terminate participation in the Plan any time prior to the tenth
day before an exercise date by written notice to the Company. However, an
Optionee may not reinstate participation in the Plan with respect to a
particular grant after once terminating participation in the Plan with respect
to that grant. Upon receipt of a notice of termination, the Company will pay to
the Optionee all amounts deducted from the Optionee's pay and not yet delivered
to the Custodian (hereinafter defined).
6. Purchase of Shares. All amounts withheld from the pay of an Optionee
shall be credited to the Optionee's account under the Plan by the Custodian
appointed under paragraph 8. The amounts withheld may be accumulated by the
Company and paid to the Custodian at any time prior to the exercise date. No
interest will be paid on the amounts accumulated by the Company or the amounts
held in any account maintained by the Custodian. On the exercise date, the
amount of the account of each Optionee will be applied to purchase of shares by
that Optionee from the Company. Although an Optionee's account may reflect a
fraction of a share, no fractional shares will be sold by the Company or
delivered pursuant to paragraph 8. Any cash balance remaining in an Optionee's
account after the exercise date because it was less than the amount required to
purchase a full share shall be retained in the Optionee's account for purchase
of shares pursuant to subsequently granted options, if any; any excess amount
shall be refunded to the Optionee. Any cash balance remaining in an Optionee's
account upon termination of participation shall be refunded to the Optionee.
7. Option Price. The price at which Common Stock may be purchased upon
exercise of options granted pursuant to the Plan shall be determined by the
Committee at the time of grant; provided, however, that (a) the option price for
a particular grant shall be the same for all Optionees, and (b) the option price
per share shall in no event be less than the lesser of (i) 85 percent of the
fair market value of a share of Common Stock on the date of grant, or (ii) an
amount that pursuant to the terms of the option may not be less than 85 percent
of the fair market value of a share of Common Stock on the exercise date.
8. Delivery and Custody of Shares. Shares purchased by Optionees pursuant
to the Plan shall be delivered to and held in the custody of such investment or
financial firm (Custodian) as shall be appointed by the Committee. By
appropriate instructions to the Custodian on forms to be provided for that
purpose, an Optionee may obtain transfer into the Optionee's own name of all or
part of the shares held by the Custodian for the Optionee's account and delivery
of such shares to the Optionee.
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9. Records and Statements. The Custodian will maintain the records of the
Plan. As soon as practicable after the exercise date each Optionee shall receive
a statement showing the activity of the Optionee's account since the date of
grant and the balance on the exercise date as to both cash and shares.
Participants will be furnished such other reports and statements, and at such
intervals, as the Committee shall determine from time to time.
10. 1984 Plan Participants. All valid subscription and payroll deduction
authorizations executed by optionees participating in the Company's 1984
Employee Stock Purchase Plan (1984 Plan) at the termination of the 1984 Plan
shall be valid for all purposes under the Plan without further action by such
optionees. The Custodian is authorized to continue without interruption under
the Plan all accounts maintained under the 1984 Plan and in existence at its
termination, together with all account balances contained therein, without
further action by optionees under the 1984 Plan.
11. Expenses of the Plan. The Company will pay all expenses incident to
operation of the Plan, including costs of recordkeeping, accounting fees, legal
fees, commissions and issue or transfer taxes on purchases pursuant to the Plan.
12. Rights Not Transferable. The right to purchase shares under this Plan
is not transferable by an Optionee and is exercisable during the Optionee's
lifetime only by the Optionee.
13. Dividends and Other Distributions. Cash dividends and other cash
distributions, if any, on shares held by the Custodian will be paid currently to
the Optionees entitled thereto unless the Company subsequently adopts a dividend
reinvestment plan and the Optionee directs that cash dividends be invested in
accordance with such plan. Stock dividends and other distributions in shares of
the Company on shares held by the Custodian shall be issued to the Custodian and
held by it for the account of the respective Optionees entitled thereto.
14. Voting and Shareholder Communications. In connection with voting on any
matter submitted to the shareholders of the Company, the Custodian will cause
the shares held by the Custodian for each Optionee's account to be voted in
accordance with instructions from the Optionee or, if requested by an Optionee,
will furnish to the Optionee a proxy authorizing the Optionee to vote the shares
held by the Custodian for the Optionee's account. Copies of all general
communications to shareholders of the Company will be sent to Optionees
participating in the Plan.
15. Responsibility. Neither the Company, its Board of Directors, the
Committee, any Participating Subsidiary, nor any officer or employee of any of
them shall be liable to any Optionee under the Plan for any mistake of judgment
or for any omission or wrongful act unless resulting from willful misconduct or
intentional misfeasance.
16. Conditions and Approvals. The obligations of the Company under the Plan
shall be subject to compliance with all applicable state and federal laws and
regulations, the rules of any stock exchange on which the Company's securities
may be listed, and the approval of federal and state authorities or agencies
with jurisdiction in the matter. The Company will use its best efforts to comply
with such laws, regulations and rules to obtain required approvals.
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17. Amendment of the Plan. The Board of Directors may from time to time
amend the Plan in any and all respects, except that without approval of the
shareholders of the Company, the Board of Directors may not (a) increase the
number of shares reserved for the Plan, (b) extend the term of the Plan, (c)
decrease the purchase price of shares offered pursuant to the Plan, (d)
materially increase benefits accruing to the Optionees under the Plan, or (e)
materially modify eligibility requirements under the Plan.
18. Termination of the Plan. The Plan shall terminate when all of the
shares reserved for purposes of the Plan have been purchased, provided that the
Board of Directors in its sole discretion may at any time terminate the Plan
without any obligation on account of such termination, except that such
termination shall not affect previously granted options still outstanding.
19. Effective Date of the Plan. The Plan shall not become effective until
it has been approved by the affirmative vote of the holders of a majority of the
outstanding shares of the Company represented at a meeting of shareholders in
person or by proxy. Following such approval, the Plan shall become effective
immediately upon termination of the 1984 Plan.
20. Special 1999 Rules. This paragraph 20 is effective as of January 1,
1999 and shall expire on July 1, 1999 after which time it shall cease to be a
part of the Plan; provided, however, that unless further amended by the Board of
Directors, this paragraph 20 shall be void and of no effect if an amendment to
the Plan increasing the number of shares available for purchase under the Plan
is not approved by the shareholders of the Company by March 31, 1999. As a
result of an expected shortfall in shares available for purchase under the Plan,
the options granted under the Plan on January 4, 1999 and exercisable on April
1, 1999 (Q1 Options) were for the purchase of a maximum of 75 shares rather than
the usual 600 shares. Notwithstanding paragraph 6, after the exercise of the Q1
Options, all cash balances remaining in Optionees' accounts shall be retained in
the Optionees' accounts for purchase of shares pursuant to the options to be
granted under the Plan on April 1, 1999 and exercisable on July 1, 1999 (Q2
Options); provided, however, that the carryover cash balance of any Optionee
shall be refunded to the Optionee upon request to the Custodian made no later
than June 20, 1999. After the exercise of the Q1 Options, the Company shall
determine the maximum cash balance carried over to the Q2 Options by any
Optionee (Maximum Cash Balance). To the extent that any Optionee participating
in the Plan with respect to the Q2 Options has a carryover cash balance less
than the Maximum Cash Balance, such Optionee may, notwithstanding the payroll
deduction requirement and limits of paragraph 5, make a cash contribution to his
or her account up to the amount of the difference by check delivered to the
Company no later than May 15, 1999. The statement provided to Optionees
following the exercise of the Q1 Options shall be accompanied by a notice to
Optionees of the amount of the Maximum Cash Balance and an explanation of their
right to make a one-time cash contribution as provided in this paragraph 20.
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MENTOR GRAPHICS CORPORATION
Special Meeting, March 10, 1999
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned appoints Dr. Walden C. Rhines, Gregory K. Hinckley 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 special meeting of shareholders of Mentor Graphics Corporation on March 10,
1999 and any adjournments of that meeting, with all powers that the undersigned
would possess if personally present, with respect to the following:
1. Proposal to amend the Company's Articles of Incorporation
___ FOR ___ AGAINST ___ ABSTAIN
2. Proposal to amend the Company's 1989 Employee Stock Purchase Plan
___ 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 RECOMMEND A VOTE IN FAVOR OF THE
PROPOSALS.
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 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 MARCH 10, 1999.
Date: _____________, 1999 Shares:
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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.
