<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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 Section240.14a-11(c) or
Section240.14a-12
MENTOR GRAPHICS CORPORATION
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
of Mentor Graphics Corporation to be held in San Jose, California, on Thursday,
May 11, 2000. 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 Corporation
shares you own, your presence by proxy is important to establish a quorum and
your vote is important.
The rest of the Board and I look forward to seeing you at the meeting.
Whether or not you can attend, we greatly appreciate your continued interest in
Mentor Graphics Corporation.
Sincerely,
[/S/ WALDEN C. RHINES]
Walden C. Rhines
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
MENTOR GRAPHICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 2000
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 11, 2000 at 5:00 p.m., Pacific Time,
at the Company's offices at 880 Ridder Park Drive, San Jose, California,
95131-2460, 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 6, 2000 are
entitled to notice of and to vote at the Annual Meeting.
Sincerely,
[/S/ DEAN FREED]
Dean Freed
Vice President, General Counsel
and Secretary
Wilsonville, Oregon
April 3, 2000
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 APRIL 3, 2000
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 11, 2000 at 5:00 p.m., Pacific Time, or at any adjournment of that
meeting. The Company will hold the Annual Meeting at 880 Ridder Park Drive, San
Jose, California 95131-2460.
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 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/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 6, 2000 are
entitled to notice of and to vote at the meeting. At the record date, 65,384,532
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. Chairman of the Board Jon A. Shirley has chosen not to stand
for re-election as a director of the Company and will be retiring as Chairman of
the Board and director as of the Annual Meeting.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED AS OF
MARCH 6, 2000
-----------------------------
PERCENT OF
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE DIRECTOR SINCE NUMBER OF SHARES TOTAL
- ------------------------------------------------------ -------- -------------- ---------------- ----------
<S> <C> <C> <C> <C>
MARSHA B. CONGDON..................................... 53 1991 97,336 (1) *
Private investor since 1997; Vice President,
Policy and Strategy, of US West Inc. (a provider
of communications services) from 1995-1997;
Regional Vice President and Chief Executive
Officer-Oregon of US West Inc. from 1992-1995;
Vice President and Chief Executive Officer-Oregon
of US West Inc. from 1987 to 1992.
JAMES R. FIEBIGER..................................... 58 1994 71,918 (2) *
Vice Chairman and Managing Director of Technology
Licensing of Gatefield Corp. (a semiconductor
company) since 1999; President and CEO of
Gatefield Corp. from 1997 to 1999; Chairman of the
Board of Thunderbird Technologies, Inc. (a
technology licensing company) from 1992 to 1997;
President and Chief Operating Officer of VLSI
Technology, Inc. (a manufacturer of
semiconductors) from 1988 to 1993; Chairman of the
Board of Directors of Thunderbird
Technologies, Inc.; director of QLogic Corporation
(a developer of semiconductor and board-level
products).
DAVID A. HODGES....................................... 62 1995 35,468 (3) *
Professor in the Graduate School at the University
of California at Berkeley (UC Berkeley) since
1998; Professor of Electrical Engineering and
Computer Sciences at UC Berkeley from 1974 to
1998; Dean of College of Engineering at UC
Berkeley from 1990-1996; director of Silicon
Image, Inc. (a semiconductor company).
KEVIN C. MCDONOUGH.................................... 50 1999 0
President and Chief Executive Officer of
ChipData, Inc. (an internet service company)
since 1999; Vice President and General Manager of
National Semiconductor Corporation (a manufacturer
of electronic components) from 1997 to 1999;
Senior Vice President of Engineering of Cyrix
Corporation (a manufacturer of microprocessors)
from 1989 to 1997; member of development board of
the University of Texas at Dallas.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED AS OF
MARCH 6, 2000
-----------------------------
PERCENT OF
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE DIRECTOR SINCE NUMBER OF SHARES TOTAL
- ------------------------------------------------------ -------- -------------- ---------------- ----------
<S> <C> <C> <C> <C>
WALDEN C. RHINES...................................... 53 1993 1,186,611 (4) 1.82%
President and Chief Executive Officer of the
Company since 1993; Executive Vice President,
Semiconductor Group, and Vice President of Texas
Instruments Inc. (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................................ 58 1983 110,000 (5) *
General Partner of Eastech III and Vice President
of Eastech Management Company (affiliated private
venture capital firms) since 1983; director of
Banyan Systems Incorporated (a manufacturer of
computer network software products).
</TABLE>
- ------------------------
*Less than 1%
(1) Includes 94,083 shares subject to options exercisable within 60 days of
March 6, 2000.
(2) Includes 51,918 shares subject to options exercisable within 60 days of
March 6, 2000.
(3) Includes 31,068 shares subject to options exercisable within 60 days of
March 6, 2000.
(4) Includes 1,097,498 shares subject to options exercisable within 60 days of
March 6, 2000.
(5) Includes 100,000 shares subject to options exercisable within 60 days of
March 6, 2000.
3
<PAGE>
INFORMATION REGARDING THE BOARD OF DIRECTORS
BOARD MEETINGS AND COMMITTEES
The Board of Directors of Mentor Graphics met four times during 1999. 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, Fiebiger and Hodges, met four times during 1999. 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 and Richardson, met five
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
Congdon, Fiebiger, Hodges and Richardson, met two times during 1999 and
submitted Kevin McDonough 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.
(During 1999 and through the date of the 2000 Annual Meeting, Mr. Shirley, a
retiring director, was also a member of the Compensation and Nominating
Committees.)
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
1999.
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 has 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 1999
Annual Meeting Directors Congdon, Fiebiger, Hodges and Richardson were
automatically granted an option for 10,000 shares each at an exercise price of
$12.875. If re-elected, Directors Congdon, Fiebiger, Richardson and Hodges will
each be automatically granted an option for 10,000 shares. If re-elected,
Director McDonough will receive an option grant of 5,041 shares reflecting the
fact that he has been a director for only part of the year preceding the Annual
Meeting. Upon his initial election to the Board in November 1999, Mr. McDonough
was granted an option to purchase 30,000 shares at an exercise price of $8.625
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. No director exercised options in
1999, however, director Hodges exercised an option to purchase 2,000 shares of
Common Stock at $7.0625 per share in February 2000.
4
<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 6, 2000 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 6, 2000 as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT
------------------------------------ ----------------------- --------
<S> <C> <C>
State of Wisconsin Investment Board......................... 8,975,000(2) 13.98%
P.O. Box 7842
Madison, WI 53707
Private Capital Management, Inc............................. 6,896,282(3) 10.7%
3003 Tamiami Trail North
Naples, FL 34103
Merrill Lynch and Co., Inc.................................. 3,289,350(4) 5.12%
250 Vesey Street
World Financial Center, North Tower
New York, NY 10381
<CAPTION>
AMOUNT AND NATURE OF
NAME OF EXECUTIVE OFFICER BENEFICIAL OWNERSHIP PERCENT
------------------------- ----------------------- --------
Walden C. Rhines. (5) 1,186,611 % 1.82
<S> <C> <C>
Gregory K. Hinckley......................................... 339,500(6) *
Anne M. Wagner.............................................. 29,546(7) *
Walter H. Potts............................................. 0 *
Donald B. Guiou............................................. 49,214(8) *
G.M. "Ken" Bado............................................. 40,624(9) *
All directors and executive officers as a group (15 2,313,036(10) 3.54%
persons)....................................................
</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 December 31, 1999 in a Schedule 13G filed by the
shareholder.
(3) Information provided as of December 31, 1999 in a Schedule 13G filed by the
shareholder. Includes shares beneficially owned by Bruce S. Sherman,
President of the Shareholder. Shareholder and Mr. Sherman reported shared
dispositive power by Mr. Sherman and Shareholder over 6,896,282 shares.
(4) Information provided as of December 31, 1999 in a Schedule 13G filed by the
shareholder. The shareholder reported shared voting and dispositive power
over 3,289,350 shares.
(5) Includes 1,097,498 shares subject to options exercisable within 60 days of
March 6, 2000.
(6) Includes 297,500 shares subject to options exercisable within 60 days of
March 6, 2000.
(7) Includes 23,750 shares subject to options exercisable within 60 days of
March 6, 2000.
(8) Includes 43,402 shares subject to options exercisable within 60 days of
March 6, 2000.
(9) Includes 32,516 shares subject to options exercisable within 60 days of
March 6, 2000. (Mr. Bado's employment with the Company ended on November 8,
1999.)
(10) Includes 2,035,211 shares subject to options exercisable within 60 days of
March 6, 2000.
5
<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 who were serving as executive officers at
December 31, 1999 and one other highly compensated executive officer who ceased
employment prior to December 31, 1999 (Named Executive Officers).
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION AWARDS
-------------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)(1)
- --------------------------- -------- --------- -------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Walden C. Rhines................ 1999 480,000 661,323 240,000 4,800
President and Chief 1998 443,750 394,494 180,000 4,800
Executive Officer 1997 424,999 157,950(2) 250,000 4,750
Gregory K. Hinckley............. 1999 362,750 428,382 132,500 4,800
Executive Vice President, 1998 333,250 253,937 180,000 4,800
Chief Operating Officer and 1997 296,090 0 250,000 3,717
Chief Financial Officer
Anne M. Wagner.................. 1999 237,215 128,197 35,000 4,800
Vice President and 1998 132,417 84,085 75,000 175,902(4)
General Manager, 1997 -- -- -- --
HDL Design Division(3)
Walter H. Potts................. 1999 203,686 125,000 90,000 107,597(6)
Vice President and 1998 -- -- -- --
General Manager, 1997 -- -- -- --
Board Systems Division(5)
Donald B. Guiou................. 1999 167,200 153,625 25,000 4,800
Vice President and General 1998 157,500 85,688 20,000 4,800
Manager, S/MI Division 1997 146,250 25,357 30,000 4,613
G.M. "Ken" Bado................. 1999 230,076 343,425 35,000 4,800
Former Senior Vice 1998 243,441 217,970 45,000 4,800
President, World Trade(7) 1997 229,999 0 0 4,750
</TABLE>
- ------------------------
(1) Except as further noted, 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.
(2) The 1997 bonus paid to Dr. Rhines represents an amount earned under the
Special Incentive Bonus Plan for the Company's 1995 performance that did not
vest until December 31, 1997 and was paid in 1998.
(3) Ms. Wagner became an executive officer of the Company in June 1998.
(4) Amount shown is a one-time hiring and relocation bonus of $175,902.
(5) Mr. Potts became an executive officer of the Company in November 1999.
(6) Amount shown represents the Company's contribution to Mr. Potts' Individual
Deferred Tax and Savings Plan of $3,264 and a one-time hiring bonus of
$104,333.
(7) Mr. Bado ceased employment with the Company on November 8, 1999.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants for the last
fiscal year to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------------ VALUE AT ASSUMED
# OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS VESTING EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(2) REFERENCE DATE FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- -------------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Walden C. Rhines....... 160,000(3) 03/17/99 3.28 12.5625 02/28/09 1,256,647 3,180,331
49,612 11/01/99 1.02 8.0625 11/01/09 251,556 637,492
30,388(3) 11/01/99 .62 8.0625 11/01/09 154,081 390,472
Gregory K. Hinckley.... 80,000(3) 03/17/99 1.64 12.5625 02/28/09 628,323 1,590,165
49,612 11/01/99 1.02 8.0625 11/01/09 251,556 637,492
2,888(3) 11/01/99 .06 8.0625 11/01/09 14,644 37,110
Anne M. Wagner......... 20,000 03/17/99 .41 12.5625 02/28/09 157,081 397,541
15,000 11/01/99 .31 8.0625 11/01/09 76,057 192,743
Walter H. Potts........ 75,000 05/11/99 1.54 12.8750 04/30/09 604,965 1,531,774
15,000 11/01/99 .31 8.0625 11/01/09 76,057 192,743
Donald B. Guiou........ 10,000 03/17/99 .21 12.5625 02/28/09 78,540 198,771
15,000 11/01/99 .31 8.0625 11/01/09 76,057 192,743
G.M. "Ken" Bado........ 35,000 03/17/99 .72 12.5625 02/28/09 274,891 695,697
</TABLE>
- ------------------------
(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 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.
(3) All nonqualified options granted to Mr. Rhines and Mr. Hinckley are
transferable by gift to certain of their family members or related entities.
7
<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, 1999.
<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 0 879,998 690,002 2,422,177 2,359,073
Gregory K. Hinckley....... 0 0 170,000 392,500 522,813 1,081,406
Anne M. Wagner............ 0 0 18,750 91,250 103,125 392,188
Walter H. Potts........... 0 0 0 90,000 0 83,438
Donald B. Guiou........... 0 0 27,589 59,411 115,843 205,658
G.M. "Ken" Bado........... 0 0 158,349 24,167 839,617 70,314
</TABLE>
EXECUTIVE SEVERANCE AGREEMENTS
The Board of Directors has approved the Company's entry into severance
agreements with certain employees of the Company, including certain current
executive officers. These agreements generally provide for the payment, upon the
termination of the employee's employment by the Company without cause or by the
employee for "good reason" (as defined in the severance agreement) within in
some cases one year, and in other cases two years, following a change of control
of the Company, of an amount equal to either 1.5 or two times the sum of the
employee's annual salary and target bonus, and also provide for accelerated
vesting of all options and either eighteen-month or two-year continuation of
various employee benefits including life, disability and health insurance
benefits and relocation and outplacement benefits. Payments to the employee are
capped as necessary to prevent any portion of the payments from being subject to
the excise tax on "parachute payments" but only if the effect would be to
increase the employee's after-tax net benefit.
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 executive officers on a total
compensation approach that includes base salary, "at risk" compensation that is
dependent on corporate performance, and stock options. The Compensation
Committee of the Board of Directors, which is entirely comprised of non-
employee directors, reviews and approves the compensation to be paid to
executive officers.
8
<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 are
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 computer software and services
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. The Company
believes that the salary survey group is an appropriate peer group for
compensation purposes.
VARIABLE COMPENSATION: The Compensation Committee annually establishes a
Variable Incentive Plan to provide for the payment of a portion of compensation
to executive officers and other employees based on corporate performance. Under
the Variable Incentive Plan, each year the Compensation Committee approves a
target variable compensation 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 to exclude unusual items such as acquisition-related expenses,
one-time charges and reversals. The potential variable compensation increases or
decreases based on the achievement of higher or lower operating income. For
1999, target variable compensation for executive officers ranged from 30 percent
to 70 percent of base salary, with 100 percent of the target payable upon
attainment of the target operating income from the Annual Plan and no variable
compensation payable unless 85% of the target operating income from the Annual
Plan was achieved. In 1999 the Company's operating income, after adjustments
approved by the Compensation Committee, substantially exceeded the target
operating income and variable compensation was paid out to executive officers
under the Variable Incentive Plan.
In addition, certain executives with business unit profit and loss
responsibility receive variable pay based on revenue performance of their
divisions.
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 and annually to a
broad group of existing key employees including executive officers. Most
executive officers received stock option grants as part of the 1999 annual
option grant program for key employees. The 1999 annual option program for all
employees involved a total pool of approximately 3,800,000 shares. During 1999,
individual award levels were determined primarily by a matrix that allocated the
available shares based on position within the Company, with some discretionary
adjustments based on subjective performance factors. Third party survey data was
considered in establishing the upper levels of the matrix with the Company
seeking to grant options in the middle range of comparable companies. The
schedule for awarding annual grants was changed in 1999 from March to November.
As a result of this transition, option grants were awarded under the program in
both March and November of 1999.
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. In
the past, the levels of salary and bonus paid by the Company have not exceeded
this limit. In 1999, due to a high level of achievement of objectives under the
Variable Incentive Plan, Dr. Rhines' salary and bonus exceeded $1,000,000. The
Company intends to consider policies and
9
<PAGE>
strategies regarding full deductibility of compensation. 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. Certain options granted by
the Company to officers in 1999 were Incentive Stock Options. The Company
receives no tax deduction for the option spread compensation on exercise of
Incentive Stock Options unless the optionee disposes of the acquired shares
before satisfying certain holding periods. 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' base salary was
increased from $450,000 to $480,000 in April 1999. This salary level is in the
third quartile of CEO salaries among comparable companies from the third party
survey used by the Company. Dr. Rhines received a Variable Incentive Plan bonus
of $661,323 for 1999. Dr. Rhines was granted options to purchase 160,000 shares
of Company stock in March 1999 and 80,000 shares of Company stock in
November 1999, which was in the middle range of CEO option grants for comparable
companies.
COMPENSATION COMMITTEE
Fontaine K. Richardson
Jon A. Shirley
Marsha B. Congdon
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<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 COMPUTER SOFTWARE AND SERVICES GROUP INDEX(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FISCAL YEAR ENDING MENTOR GRAPHICS CORPORATION S&P 500 INDEX MG GROUP INDEX
<S> <C> <C> <C>
12/31/94 $100.00 $100.00 $100.00
12/31/95 $119.67 $137.58 143.62
12/31/96 $63.93 $169.17 180.23
12/31/97 $63.52 $225.61 217.45
12/31/98 $55.74 $290.09 324.53
12/31/99 $86.48 $351.13 556.94
</TABLE>
ASSUMES $100 INVESTED ON DEC. 31, 1994
ASSUMES DIVIDEND REINVESTED
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S & P 500
(FISCAL YEAR COVERED) MENTOR GRAPHICS INDEX MEDIA GENERAL INDEX
- --------------------- --------------- ---------- -------------------
<S> <C> <C> <C>
Measurement Point:
12/31/94 $100.00 $100.00 $100.00
Fiscal Year Ending:
12/31/95 $119.67 $137.58 $143.62
12/31/96 $ 63.93 $169.17 $180.23
12/31/97 $ 63.52 $225.61 $217.45
12/31/98 $ 55.74 $290.09 $324.53
12/31/99 $ 86.48 $351.13 $556.94
</TABLE>
- ------------------------
(1) This is an industry group index published by Media General Financial
Services.
11
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP as the Company's independent
auditors for 2000. KPMG LLP has examined the financial statements of the Company
and its subsidiaries each year since the inception of the Company in 1981.
Representatives of KPMG LLP 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1999.
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
The Company's bylaws require shareholders to give the Company advance notice
of any proposal or director nomination to be submitted at any meeting of
shareholders. The bylaws prescribe the information to be contained in any such
notice. For any shareholder proposal or nomination to be considered at the 2001
Annual Meeting of Shareholders, the shareholder's notice must be received at the
Company's principal executive office no later than February 10, 2001. In
addition, SEC rules require that any shareholder proposal to be considered for
inclusion in the Company's proxy statement for the 2001 Annual Meeting of
Shareholders must be received at the Company's principal executive office no
later than December 4, 2000.
By Order of the Board of Directors
[/S/ DEAN FREED]
Dean Freed
Vice President, General Counsel
April 3, 2000 and Secretary
12
