Icahn comments on Mentor Graphics

NEW YORK, USA: Carl C. Icahn announced that the following letter has been delivered to the board of directors of Mentor Graphics Corp.

CARL C. ICAHN
767 Fifth Avenue, 47th Floor
New York, New York 10153
March 31, 2011

Via Federal Express and Email

Board of Directors
Mentor Graphics Corp.
8005 S.W. Boeckman Road
Wilsonville, OR 97070-7777

Gentlemen and Ladies:

Your basis for rejecting our offer to acquire Mentor Graphics was that it "undervalues the company and its future prospects." Yet, one day later, you announced the issuance of convertible notes, but maintained sub rosa the fact that it may be massively dilutive to shareholders if the company is sold. We are confident that when you disclose all of the terms of the notes the shareholders will see and understand the cynical nature of your acts.

In your press release, you claim "the high level of institutional investor interest in our new convertible debt offering resulted in attractive terms for the company and demonstrated strong investor support for Mentor's business strategy and long-term prospects" but you failed to mention the poisonous "make-whole" provision of this offer.

The effect of this make-whole provision is that, in the event of a sale of the company during the no-call period, the conversion price of this debt may decrease dramatically from $20.54. Depending on time and price, it could fall close to where the company's stock was trading when you announced this absurd offering.

In our opinion, this is a blatant attempt to derail an acquisition proposal. Perhaps, this "high level of institutional investor interest" is motivated by the fact that they could be effectively purchasing stock for almost as low as the current market price (to the extent the company is sold) with the downside protection of a debt instrument.

We ask that the company immediately make public all of the terms of the deal so that shareholders can evaluate what you have done. We would be especially interested to know what will happen if the company is sold over the next few years. Since we strongly believe the company should be sold, it appears to us that you may have in effect just sold a significant number of shares at a price well below our $17 per share offer, which you told shareholders "undervalues the company and its future prospects."

Your shareholders are not irrelevant and will not be fooled. There was no need to issue convertible securities and there were clear alternatives. Even though you gave your shareholders just one day to react before you priced the deal, we offered the company a loan with no conversion features and no change of control penalties and even offered to serve as a stalking horse (with no fees) to allow you to seek superior offers.

Based upon your earnings guidance, you should have been able to repay our proposed loan during its term, effectively leaving the company debt free. Instead, you ignored our offer and issued a dilutive security which may serve to further entrench and perpetuate your existence on this Board.

It seems that we have been justified in our concern that this Board is willing to engage in inappropriate defensive transactions in an attempt to thwart a sale of the company. Perhaps we should have sought to replace all of you.

Very truly yours,

Carl C. Icahn