-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MX2p6RIT83I4EoolL8+IziQfeqQ8/3I80FUQHAFzQScpHYVzPzRjN/TTBv8RFJfj Bbvp2BscC2v9rlGyu7VsSA== 0000912057-97-010956.txt : 19970401 0000912057-97-010956.hdr.sgml : 19970401 ACCESSION NUMBER: 0000912057-97-010956 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970501 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR GRAPHICS CORP CENTRAL INDEX KEY: 0000701811 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930786033 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13442 FILM NUMBER: 97568537 BUSINESS ADDRESS: STREET 1: 8005 SW BOECKMAN RD CITY: WILSONVILLE STATE: OR ZIP: 97070 BUSINESS PHONE: 5036857000 DEF 14A 1 DEF 14A 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 Section240.14a-11(c) or Section240.14a-12 MENTOR GRAPHICS - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ No fee required. / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: ----------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ----------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ----------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ----------------------------------------------------------------------- (5) Total fee paid: ----------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ----------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ----------------------------------------------------------------------- (3) Filing Party: ----------------------------------------------------------------------- (4) Date Filed: ----------------------------------------------------------------------- [logo] Dear Shareholder: You are cordially invited to attend the 1997 Annual Meeting of Shareholders of Mentor Graphics Corporation to be held in Wilsonville, Oregon, on Thursday, May 1, 1997. 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 MENTOR GRAPHICS CORPORATION NOTICE OF ANNUAL MEETING OF SHAREHOLDERS MAY 1, 1997 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 1, 1997 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 February 28, 1997 are entitled to notice of and to vote at the Annual Meeting. Sincerely, Dean Freed VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY Wilsonville, Oregon March 28, 1997 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. MAILED TO SHAREHOLDERS ON OR ABOUT MARCH 28, 1997 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 1, 1997 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 February 28, 1997 are entitled to notice of and to vote at the meeting. At the record date, 64,695,122 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. The nominees for director are listed below together with certain information about each of them.
SHARES OF COMMON STOCK BENEFICIALLY OWNED AS OF FEBRUARY 28, 1997 ---------------------- DIRECTOR NUMBER PERCENT NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE OF SHARES OF TOTAL - ------------------------------------------------------------------------------- ----------- ----------- ----------- --------- JON A. SHIRLEY................................................................. 58 1989 128,642(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.............................................................. 50 1991 61,719(2) * Private investor; 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 from 1992-1995; Vice President and Chief Executive Officer-Oregon from 1987 to 1992. JAMES R. FIEBIGER.............................................................. 55 1994 13,183(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................................................................ 59 1995 6,400(4) * Professor of Electrical Engineering and Computer Sciences at the University of California at Berkeley (UC Berkeley) where he has been a faculty member since 1970; Dean of College of Engineering at UC Berkeley from 1990-1996. WALDEN C. RHINES............................................................... 50 1993 424,913(5) * 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......................................................... 55 1983 113,600(6) * General Partner of Eastech Management Company (a private venture capital firm) since 1983; director of Banyan Systems Incorporated (a manufacturer of computer network software products).
- ------------------------ * Less than 1% (1) Includes 123,642 shares subject to options exercisable within 60 days of February 28, 1997. (2) Includes 60,466 shares subject to options exercisable within 60 days of February 28, 1997. (3) Includes 13,183 shares subject to options exercisable within 60 days of February 28, 1997. (4) Includes 6,000 shares subject to options exercisable within 60 days of February 28, 1997. (5) Includes 370,000 shares subject to options exercisable within 60 days of February 28, 1997. (6) Includes 113,600 shares subject to options exercisable within 60 days of February 28, 1997. 2 INFORMATION REGARDING THE BOARD OF DIRECTORS BOARD MEETINGS AND COMMITTEES The Board of Directors of Mentor Graphics met eight times during 1996. 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 1996. 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 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, Richardson and Shirley, did not meet in 1996. 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 1996. 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 1996 Annual Meeting Directors Congdon, Fiebiger and Richardson were automatically granted an option for 10,000 shares each at an exercise price of $15.875. Director Hodges was granted an option for 3,836 shares at an exercise price of $15.875 reflecting the fact that he had served as a director for only part of the year. 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 $15.875. If re-elected, Directors Congdon, Fiebiger, Richardson and Hodges 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. 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 directors exercised options in 1996. 3 INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT The following table shows beneficial ownership of the Company's Common Stock as of February 28, 1997 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 February 28, 1997 as a group:
AMOUNT AND NATURE OF BENEFICIAL NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) PERCENT - ---------------------------------------------------------- ------------------------- --------- J.&W. Seligman & Co. Incorporated......................... 6,439,483(2) 9.98% 100 Park Avenue New York, NY 10017 State of Wisconsin Investment Board....................... 6,360,200(3) 9.86% P.O. Box 7842 Madison, WI 53707 Travelers Group Inc....................................... 3,756,695(4) 5.8% and certain subsidiaries 388 Greenwich Street New York, NY 10013
AMOUNT AND NATURE NAME OF EXECUTIVE OFFICER OF BENEFICIAL OWNERSHIP PERCENT - ---------------------------------------------------------- ------------------------- ---------- Walden C. Rhines.......................................... 424,913(5) * James W. Martin........................................... 36,044(6) * Glenn D. House Sr......................................... 14,822(7) * G.M."Ken" Bado............................................ 26,874(8) * Dean Freed................................................ 20,359(9) * R. Douglas Norby.......................................... 20,000 * All directors and executive officers as a group (13 persons)............................................. 548,234(10) *
- ------------------------ * 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, 1997 in a Schedule 13G filed by the shareholder. (3) Information provided as of February 13, 1997 in a Schedule 13G filed by the shareholder. (4) Information provided as of February 11, 1997 in a Schedule 13G filed by the shareholder; reported as shared voting and dispositive power. (5) Includes 370,000 shares subject to options exercisable within 60 days of February 28, 1997. (6) Includes 20,832 shares subject to options exercisable within 60 days of February 28, 1997. (7) Includes 11,908 shares subject to options exercisable within 60 days of February 28, 1997. (8) Includes 21,766 shares subject to options exercisable within 60 days of February 28, 1997. (9) Includes 12,603 shares subject to options exercisable within 60 days of February 28, 1997 and 550 shares held by spouse. (10) Includes 441,215 shares subject to options exercisable within 60 days of February 28, 1997. 4 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, the four other most highly compensated executive officers who were serving as executive officers at December 31, 1996, and one other highly compensated executive officer who ceased employment prior to December 31, 1996 (Named Executive Officers).
LONG TERM COMPENSATION AWARDS -------------------- ANNUAL COMPENSATION SECURITIES ------------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (1) OPTIONS/SARS(#) COMPENSATION ($) (2) - ------------------------------------ --------- ----------- ------------ -------------------- --------------------- Walden C. Rhines ................... 1996 417,708 0 700,000(3) 4,500 President and Chief 1995 400,000 583,050 100,000 4,500 Executive Officer 1994 400,000 276,000 0 0 James W. Martin .................... 1996 320,720 0 150,000(3) 4,500 Executive Vice President (4) 1995 -- -- -- -- 1994 -- -- -- -- G.M. "Ken" Bado .................... 1996 157,708 95,376 215,000(3) 4,500 Senior Vice President, 1995 -- -- -- -- World Trade (5) 1994 -- -- -- -- Glenn D. House Sr. ................. 1996 157,608 31,054 197,000(3) 4,500 Senior Vice President, 1995 -- -- -- -- Strategy and Product 1994 -- -- -- -- Operations (6) Dean Freed ......................... 1996 117,083 0 61,600(3) 4,500 Vice President, General 1995 105,586 54,826 6,600 3,505 Counsel and Secretary (7) 1994 -- -- -- -- R. Douglas Norby ................... 1996 229,186 0 40,000 4,500 Former Senior Vice 1995 235,000 288,015 23,000 4,500 President and Chief 1994 235,000 160,000 0 4,620 Financial Officer
- ------------------------ (1) The 1995 bonus includes $52,650 and $17,550, paid to Dr. Rhines and Mr. Freed, respectively, under the Special Incentive Bonus Plan for the Company's 1995 performance. The total bonus, both vested and unvested, under the Special Incentive Bonus Plan for 1995 for each of these individuals was $210,600 and $70,200, respectively. Of this total, 25% vested and has been paid. The balance is payable without interest during the first quarter of 1998, but only if the recipient is employed by the Company on December 31, 1997. (2) Amounts shown are Company contributions to the Individual Deferred Tax and Savings Plan pursuant to which the Company's U.S. employees may defer compensation under Section 401(k) of the Internal Revenue Code. The Company contributes an amount equal to 50% of the first 6% of salary contributed under the plan by an eligible employee. (3) On November 7, 1996, the Compensation Committee approved a repricing of outstanding options under the Company's employee stock option plans. See "Report of the Compensation Committee." For purposes of the table above, repriced options are considered to be option grants and, therefore, are included in the number of options granted in 1996. If repriced options are not counted, option grants in 1996 were made to Dr. Rhines and Messrs. Martin, Bado, House, and Freed for 300,000, 25,000, 165,000, 160,000 and 20,000 shares, respectively. (4) Mr. Martin became an executive officer of the Company in January 1996. (5) Mr. Bado became an executive officer of the Company in December 1996. (6) Mr. House became an executive officer of the Company in December 1996. (7) Mr. Freed became an executive officer of the Company in July 1995. 5 OPTION GRANTS IN LAST FISCAL YEAR The following table provides information on option grants for the last fiscal year to the Named Executive Officers.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ---------------------------------------------------------------------- VALUE AT ASSUMED # OF ANNUAL RATES OF STOCK SECURITIES % OF TOTAL PRICE APPRECIATION FOR UNDERLYING VESTING OPTIONS GRANTED EXERCISE OR OPTION TERM (1) OPTIONS REFERENCE TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------- NAME GRANTED (2) DATE FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($) - ----------------------------- ------------ ------------- --------------- ----------- ----------- ---------- ---------- Walden C. Rhines............. 100,000(3) 03/27/96(5) 1.96 7.75 10/31/06 486,213 1,231,479 200,000(3) 04/11/96(6) 3.95 7.75 10/31/06 972,425 2,462,959 100,000(3) 04/11/96(6) 1.96 7.75 10/31/06 486,213 1,231,479 300,000(4) -- 5.92 13.88 03/31/06 2,607,812 6,602,986 James W. Martin.............. 100,000(3) 12/14/95(6) 1.96 7.75 10/31/06 486,213 1,231,479 25,000(3) 04/11/96(6) .49 7.75 10/31/06 121,553 307,870 25,000(4) -- .49 13.88 03/31/06 217,318 550,249 G.M. "Ken" Bado.............. 140,000 11/07/96(7) 2.74 7.75 10/31/06 680,698 1,724,071 15,000(3) 04/26/96(5) .30 7.75 10/31/06 72,932 184,722 10,000(3) 03/27/96(5) .20 7.75 10/31/06 48,621 123,148 25,000(3) 04/11/96(6) .49 7.75 10/31/06 121,553 307,870 25,000(4) -- .49 13.88 03/31/06 217,317 550,249 Glenn D. House Sr............ 140,000 11/07/96(7) 2.74 7.75 10/31/06 680,698 1,724,071 7,000(3) 03/27/96(5) .14 7.75 10/31/06 34,035 86,204 10,000(3) 08/03/96(5) .20 7.75 10/31/06 48,621 123,148 20,000(3) 04/11/96(6) .40 7.75 10/31/06 97,243 246,296 20,000(4) -- .40 13.88 03/31/06 173,854 440,199 Dean Freed................... 15,000 11/07/96(7) .30 7.75 10/31/06 72,932 184,722 1,600(3) 03/27/95(5) .03 7.75 10/31/06 7,779 19,704 5,000(3) 08/03/95(5) .10 7.75 10/31/06 24,311 61,574 20,000(3) 04/11/96(6) .40 7.75 10/31/06 97,243 246,296 20,000(4) -- .40 13.88 03/31/06 173,854 440,199 R. Douglas Norby............. 40,000 04/11/96 .79 13.88 03/31/06 347,708 880,398
- ------------------------ (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) 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) These options were previously issued and regranted in 1996 under the Company's repricing program which allowed employees to trade underwater options for options with an exercise price at the current market price as of November 7, 1996. These new options will become fully exerciseable 2 years following the date the original options would have otherwise been fully vested. (4) These options were cancelled as a result of the option repricing approved on November 7, 1996. 6 (5) Options are fully exerciseable five years after the Vesting Reference Date with 20% becoming exerciseable on each of the first five anniversaries of the Vesting Reference. (6) Options are fully exerciseable six years after the Vesting Reference Date with 16.67% becoming exerciseable on each of the first six anniversaries of the Vesting Reference. (7) Options are fully exerciseable four years after November 7, 1996, with 25% becoming exerciseable on each of the first four anniversaries of that date. 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, 1996.
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 - ------------------------------- ----------- ----------- ----------- ------------- ----------- ------------- Walden C. Rhines............... 0 0 300,000 600,000 0 725,000 James W. Martin................ 0 0 16,666 108,334 30,207 196,355 G.M. "Ken" Bado................ 0 0 12,600 192,000 44,888 351,500 Glenn D. House Sr.............. 0 0 7,175 180,600 15,811 325,638 Dean Freed..................... 0 0 8,950 43,150 27,431 76,469 R. Douglas Norby............... 40,000 65,000 0 0 0 0
TEN-YEAR OPTION/SAR REPRICINGS The following tables provide information on repricings of options held by any executive officer during the last ten years. Over the last ten years, the Compensation Committee of the Board of Directors has approved two repricing programs, one in 1992 and another in 1996. 1992 REPRICING
SECURITIES MARKET UNDERLYING PRICE OF EXERCISE LENGTH OF ORIGINAL NUMBER OF STOCK AT PRICE AT NEW OPTION TERM OPTIONS/SARS TIME OF TIME OF EXERCISE REMAINING AT DATE OF NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING - ------------------------------ --------- ------------ --------- ----------- --------- -------------------- G.M. "Ken" Bado............... 10/07/92 2,600 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days G.M. "Ken" Bado............... 10/07/92 2,000 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days G.M. "Ken" Bado............... 10/07/92 10,000 $ 6.0000 $ 13.0000 $ 6.0000 8 Years 358 Days David L. Brinker.............. 10/07/92 24,000 $ 6.0000 $ 10.3600 $ 6.0000 4 Years 116 Days David L. Brinker.............. 10/07/92 20,000 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 24 Days David L. Brinker.............. 10/07/92 200 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 41 Days David L. Brinker.............. 10/07/92 10,000 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days David L. Brinker.............. 10/07/92 12,000 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days David L. Brinker.............. 10/07/92 20,000 $ 6.0000 $ 14.5000 $ 6.0000 9 Years 85 Days Thomas H. Bruggere............ 10/07/92 60,000 $ 6.0000 $ 10.3600 $ 6.0000 4 Years 116 Days Thomas H. Bruggere............ 10/07/92 60,000 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 24 Days Thomas H. Bruggere............ 10/07/92 200 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 41 Days Thomas H. Bruggere............ 10/07/92 30,000 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days Thomas H. Bruggere............ 10/07/92 50,000 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Thomas H. Bruggere............ 10/07/92 50,000 $ 6.0000 $ 14.5000 $ 6.0000 9 Years 85 Days Frank S. Delia................ 10/07/92 10,000 $ 6.0000 $ 10.3600 $ 6.0000 4 Years 116 Days Frank S. Delia................ 10/07/92 12,000 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 24 Days
7
SECURITIES MARKET UNDERLYING PRICE OF EXERCISE LENGTH OF ORIGINAL NUMBER OF STOCK AT PRICE AT NEW OPTION TERM OPTIONS/SARS TIME OF TIME OF EXERCISE REMAINING AT DATE OF NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING - ------------------------------ --------- ------------ --------- ----------- --------- -------------------- Frank S. Delia................ 10/07/92 200 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 41 Days Frank S. Delia................ 10/07/92 10,000 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days Frank S. Delia................ 10/07/92 12,000 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Frank S. Delia................ 10/07/92 10,000 $ 6.0000 $ 14.5000 $ 6.0000 9 Years 85 Days Dean Freed.................... 10/07/92 2,000 $ 6.0000 $ 15.1250 $ 6.0000 6 Years 85 Days Dean Freed.................... 10/07/92 2,000 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days Dean Freed.................... 10/07/92 2,500 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Dean Freed.................... 10/07/92 1,500 $ 6.0000 $ 13.0000 $ 6.0000 8 Years 358 Days Brian C. Henry................ 10/07/92 20,000 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 24 Days Brian C. Henry................ 10/07/92 200 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 41 Days Brian C. Henry................ 10/07/92 15,000 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days Brian C. Henry................ 10/07/92 24,000 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Brian C. Henry................ 10/07/92 10,000 $ 6.0000 $ 14.5000 $ 6.0000 9 Years 85 Days Glenn D. House Sr............. 10/07/92 500 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Glenn D. House Sr............. 10/07/92 3,000 $ 6.0000 $ 13.0000 $ 6.0000 8 Years 358 Days Jackie H. Kraybill............ 10/07/92 800 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 24 Days Jackie H. Kraybill............ 10/07/92 200 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 41 Days Jackie H. Kraybill............ 10/07/92 1,500 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days Jackie H. Kraybill............ 10/07/92 1,500 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Jackie H. Kraybill............ 10/07/92 10,000 $ 6.0000 $ 14.5000 $ 6.0000 9 Years 85 Days David C. Moffenbeier.......... 10/07/92 60,000 $ 6.0000 $ 10.3600 $ 6.0000 4 Years 116 Days David C. Moffenbeier.......... 10/07/92 60,000 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 24 Days David C. Moffenbeier.......... 10/07/92 200 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 41 Days David C. Moffenbeier.......... 10/07/92 30,000 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days David C. Moffenbeier.......... 10/07/92 24,000 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days David C. Moffenbeier.......... 10/07/92 20,000 $ 6.0000 $ 14.5000 $ 6.0000 9 Years 85 Days Patricia O'Connor............. 10/07/92 5,000 $ 6.0000 $ 15.5000 $ 6.0000 6 Years 328 Days Patricia O'Connor............. 10/07/92 12,000 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Patricia O'Connor............. 10/07/92 10,000 $ 6.0000 $ 14.5000 $ 6.0000 9 Years 85 Days John G. Rebello............... 10/07/92 5,000 $ 6.0000 $ 15.1250 $ 6.0000 6 Years 54 Days John G. Rebello............... 10/07/92 2,750 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days John G. Rebello............... 10/07/92 800 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Philip J. Robinson............ 10/07/92 100,000 $ 6.0000 $ 13.3750 $ 6.0000 8 Years 24 Days Philip J. Robinson............ 10/07/92 20,000 $ 6.0000 $ 14.5000 $ 6.0000 9 Years 85 Days Richard P. Trebing............ 10/07/92 300 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Richard P. Trebing............ 10/07/92 300 $ 6.0000 $ 13.0000 $ 6.0000 8 Years 358 Days Dennis M. Weldon.............. 10/07/92 200 $ 6.0000 $ 11.6875 $ 6.0000 6 Years 41 Days Dennis M. Weldon.............. 10/07/92 4,000 $ 6.0000 $ 13.8750 $ 6.0000 5 Years 266 Days Dennis M. Weldon.............. 10/07/92 2,500 $ 6.0000 $ 14.1250 $ 6.0000 7 Years 54 Days Dennis M. Weldon.............. 10/07/92 2,000 $ 6.0000 $ 12.5000 $ 6.0000 8 Years 85 Days Dennis M. Weldon.............. 10/07/92 2,000 $ 6.0000 $ 13.0000 $ 6.0000 8 Years 358 Days
8 1996 REPRICING
SECURITIES MARKET UNDERLYING PRICE OF EXERCISE LENGTH OF ORIGINAL NUMBER OF STOCK AT PRICE AT NEW OPTION TERM OPTIONS/SARS TIME OF TIME OF EXERCISE REMAINING AT DATE OF NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING - ------------------------------ --------- ------------ --------- ----------- --------- -------------------- G.M. "Ken" Bado............... 11/07/96 15,000 $ 7.7500 $ 14.3125 $ 7.7500 7 Years 145 Days G.M. "Ken" Bado............... 11/07/96 10,000 $ 7.7500 $ 14.2500 $ 7.7500 8 Years 113 Days G.M. "Ken" Bado............... 11/07/96 25,000 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 144 Days Dean Freed.................... 11/07/96 1,600 $ 7.7500 $ 14.2500 $ 7.7500 8 Years 113 Days Dean Freed.................... 11/07/96 5,000 $ 7.7500 $ 17.8750 $ 7.7500 8 Years 266 Days Dean Freed.................... 11/07/96 20,000 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 114 Days Glenn D. House Sr............. 11/07/96 7,000 $ 7.7500 $ 14.2500 $ 7.7500 8 Years 113 Days Glenn D. House Sr............. 11/07/96 10,000 $ 7.7500 $ 17.8750 $ 7.7500 8 Years 266 Days Glenn D. House Sr............. 11/07/96 20,000 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 144 Days James W. Martin............... 11/07/96 100,000 $ 7.7500 $ 17.3750 $ 7.7500 9 Years 23 Days James W. Martin............... 11/07/96 25,000 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 144 Days John G. Rebello............... 11/07/96 1,600 $ 7.7500 $ 14.2500 $ 7.7500 8 Years 113 Days John G. Rebello............... 11/07/96 1,600 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 144 Days John G. Rebello............... 11/07/96 150 $ 7.7500 $ 15.8750 $ 7.7500 9 Years 176 Days John G. Rebello............... 11/07/96 15,000 $ 7.7500 $ 12.3750 $ 7.7500 9 Years 266 Days Walden C. Rhines.............. 11/07/96 100,000 $ 7.7500 $ 14.2500 $ 7.7500 8 Years 113 Days Walden C. Rhines.............. 11/07/96 200,000 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 144 Days Walden C. Rhines.............. 11/07/96 100,000 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 144 Days Philip J. Robinson............ 11/07/96 12,000 $ 7.7500 $ 14.2500 $ 7.7500 8 Years 113 Days Philip J. Robinson............ 11/07/96 20,000 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 144 Days Dennis M. Weldon.............. 11/07/96 4,000 $ 7.7500 $ 14.2500 $ 7.7500 8 Years 113 Days Dennis M. Weldon.............. 11/07/96 4,200 $ 7.7500 $ 13.8750 $ 7.7500 9 Years 144 Days
9 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. 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 1996, target bonuses 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 target bonus payable unless 76% of the target operating income from the Annual Plan was achieved. In 1996 the Company achieved less than 76% of the target operating income and no bonuses were paid out under the Variable Incentive Bonus 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 10 that 50% of the 1996 bonuses would have been payable currently and that the balance would have been deferred and paid without interest during the first quarter of 1998 if the officer is employed by the Company on December 31, 1997. No bonuses were paid out or deferred under this plan for 1996 as the Company did not achieve the target net income level under the Annual Plan. In addition, certain executives with sales responsibility receive variable pay based on the sales 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, 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 1996 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 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. OPTION REPRICING: On November 7, 1996, the Compensation Committee approved a plan to allow employees holding outstanding stock options to elect to replace them with options having an exercise price of $7.75 per share, which represented the current fair market value of the Common Stock on November 7, 1996. The plan provided that the new options would have vesting terms which would effectively extend the unvested portion of the existing term by an additional two years. The plan was implemented to realign the value of the previously granted options, upon exercisability, with the market value at the time of repricing. The expectation is that the opportunity to earn compensation based on appreciation of the Company's stock from the repriced level will motivate employees to achieve superior results over the long term, encourage key employees to remain with the Company and compensate employees for work and economic sacrifices made. 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' base salary, which had remained unchanged since his joining the Company in October 1993, was increased from $400,000 to $425,000 in April 1996. 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 did not receive a payout for 1996 under either the Variable Pay Plan or the Special Incentive Plan. He was granted an option to purchase 300,000 shares of Company stock in April 1996, which was in the middle range of CEO option grants for comparable companies. In addition, under the Company's option repricing plan, explained above, in December 1996 Dr. Rhines received 11 option grants for 300,000 shares replacing the grant for 300,000 shares received earlier in the year and for 100,000 shares replacing the option granted in 1995 for 100,000 shares. COMPENSATION COMMITTEE Jon A. Shirley Fontaine K. Richardson Marsha B. Congdon 12 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) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MENTOR GRAPHICS CORP MEDIA GENERAL INDEX S&P 500 INDEX 12/31/1991 $100.00 $100.00 $100.00 12/31/1992 $56.37 $109.26 $107.64 12/31/1993 $97.31 $116.66 $118.50 12/31/1994 $107.92 $142.75 $120.06 12/31/1995 $129.15 $212.37 $165.18 12/31/1996 $69.00 $263.96 $203.11
ASSUMES $100 INVESTED ON DEC. 31, 1991 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING DEC. 31, 1996
MEASUREMENT PERIOD S&P 500 MEDIA GENERAL (FISCAL YEAR COVERED) MENTOR GRAPHICS INDEX INDEX - ----------------------------------------------------------- ---------------- --------- -------------- Measurement Point: 12/31/91................................................... $ 100.00 $ 100.00 $ 100.00 Fiscal Year Ending: 12/31/92................................................... $ 56.37 $ 107.64 $ 109.26 12/31/93................................................... $ 97.31 $ 118.50 $ 116.66 12/31/94................................................... $ 107.92 $ 120.06 $ 142.75 12/31/95................................................... $ 129.15 $ 165.18 $ 212.37 12/31/96................................................... $ 69.00 $ 203.11 $ 263.96 ASSUMES $100 INVESTED ON DECEMBER 31, 1991 ASSUMES DIVIDENDS REINVESTED FISCAL YEARS ENDING DECEMBER 31
- ------------------------ (1) This is an industry group index published by Media General Financial Services. 13 INDEPENDENT AUDITORS The Board of Directors has selected KPMG Peat Marwick as the Company's independent auditors for 1997. 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. 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 1996, except that Initial Statements of Beneficial Ownership on Form 3 were filed late for officers Bado and House due to a delay in announcing a reorganization of the Company's senior management. 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 1998 must be received at the principal executive offices of the Company not later than November 28, 1997. By Order of the Board of Directors Dean Freed VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY March 28, 1997 14 (THIS PAGE INTENTIONALLY LEFT BLANK) MENTOR GRAPHICS CORPORATION ANNUAL MEETING, MAY 1, 1997 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 annual meeting of shareholders of Mentor Graphics Corporation on May 1, 1997 and any adjournments of that meeting, with all powers that the undersigned would possess if personally present, with respect to the following: 1. Election of directors: ___ FOR all nominees ___ WITHHOLD AUTHORITY (except as marked to vote for all nominees to the contrary below) 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 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 PROPOSAL 1. 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 1, 1997. Date: _____________, 1997 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. -----END PRIVACY-ENHANCED MESSAGE-----