Mentor Graphics issues open letter to shareholders

WILSONVILLE, USA: Mentor Graphics Corp. issued the following open letter to the shareholders of Mentor Graphics regarding the company’s Annual Meeting of Shareholders scheduled for May 12, 2011.

The Mentor Graphics Board strongly recommends that Mentor Graphics shareholders vote FOR the company’s director nominees on the WHITE proxy card by telephone or internet and discard any proxy materials received from Carl Icahn.

BECAUSE TIME IS SHORT, THE COMPANY ENCOURAGES ALL SHAREHOLDERS TO VOTE THE WHITE PROXY CARD BY TELEPHONE OR INTERNET

May 5, 2011

Dear Fellow Mentor Graphics Shareholders:

At next week’s Annual Meeting of Shareholders, you will have the opportunity to vote on your Board of Directors’ record of value creation. We urge you to support the Board and management team that has delivered excellent results and created value for Mentor Graphics’ shareholders.

The current Board and management team have combined strategic vision with disciplined financial execution, which has made your company the fastest growing of the ‘Big 3’ EDA companies.

MENTOR GRAPHICS CONTINUES TO DELIVER EXCELLENT RESULTS AND CREATE SHAREHOLDER VALUE

In fiscal year 2011, the company:
* Delivered record revenues of $915 million, a 14 percent increase from the preceding fiscal year;
* Achieved non-GAAP earnings per share of $0.70, a 49 percent increase from the preceding fiscal year; and
* Reported GAAP earnings per share of $0.26, up from a loss of $0.23 per share the prior fiscal year.

THE FIRST QUARTER OF FISCAL 2012 WAS EVEN STRONGER
Mentor Graphics’ momentum from the last fiscal year accelerated in the first quarter with strong financial results. In the first quarter of fiscal year 2012, the company:
* Expects results to exceed prior guidance with revenues of about $230 million, up over 25 percent from the prior fiscal first quarter;
* Exceeded guidance in eight of the last nine quarters, and met guidance in the remaining quarter;
* Expects non-GAAP earnings in the range of $0.18 to $0.20 per share and a GAAP loss in the range of $0.02 to $0.06 per share;
* Expects to achieve a non-GAAP operating margin of approximately 14 percent, and a GAAP operating margin of approximately 8 percent; and
* Expects to report an approximate 7 percent year-over-year increase in bookings.

OUR OUTLOOK FOR THE BALANCE OF 2012 REMAINS STRONG
Our outlook for the remainder of fiscal year 2012 is strong, with forecasted revenues of approximately $1 billion, an increase of 9% compared to fiscal year 2011. We are estimating non-GAAP operating margin to be approximately 15% and GAAP operating margin 11%, up from 12% and 6% respectively in fiscal year 2011.

MENTOR GRAPHICS IS COMMITTED TO RETURNING $150 MILLION OF CAPITAL TO SHAREHOLDERS OVER THE NEXT THREE YEARS
We expect to generate significant cash flow through Mentor Graphics’ growth and increasing margins, and intend to use this cash flow to return approximately $150 million of capital to shareholders through stock repurchases or dividends over the next three years.

MENTOR GRAPHICS’ BOARD AND MANAGEMENT HAVE DELIVERED SHARE PRICE OUTPERFORMANCE
The successful execution of Mentor Graphics’ strategy is reflected in Mentor Graphics’ stock price, which has outperformed its two closest competitors and general market indices, over one, three and five year periods ending April 21, 2011.

Mentor Synopsys Cadence NASDAQ Composite Mentor Rank
1 Year 51% 15% 35% 12% #1
3 Years 58% 21% (9)% 19% #1
5 Years 27% 22% (46)% 21% #1

TWO LEADING PROXY ADVISORY FIRMS SUPPORT THE ELECTION OF ALL MENTOR GRAPHICS’ NOMINEES
Glass Lewis & Co. and Egan-Jones Proxy Services, two leading proxy advisory firms, recently issued reports supporting your Board and its nominees. Both firms recommend that shareholders vote for ALL of Mentor Graphics’ nominees and reject all of Icahn’s nominees. Another proxy advisory firm, Institutional Shareholder Services (ISS), provided a split recommendation for two of the three Icahn nominees, which we believe reflects ISS’s general tendency of supporting minority representation for shareholder activists, as well as a failure to analyze Icahn’s stated plan to pursue a public sale of the company.

DO NOT BE PERSUADED BY ICAHN’S PLATFORM OF A PUBLIC SALE PROCESS WITH ITS SIGNIFICANT REGULATORY AND COMMERCIAL RISK — IT COULD SERIOUSLY DAMAGE THE VALUE OF YOUR COMPANY

The lynchpin of Icahn’s platform for his nominees — his “Plan A”— continues to be a risky public sale process for your company. This public sale process might provide Icahn with liquidity, but has the potential for significant value destruction and could derail the business and financial momentum that Mentor Graphics currently enjoys.

It is clear that Icahn is simply continuing to ignore the regulatory obstacles and commercial risks to any transaction with Synopsys or Cadence, despite knowing that the analysis we recently performed shows that there are serious regulatory risks to any transaction with these two companies. He also continues to ignore the destruction of value through loss of customers and employees from any failed process to sell the company.

Icahn is now attempting to piggyback on the Board’s focus and progress on further expense reduction and share repurchase through his so-called “Plan B,” which calls for further expense reduction and share repurchase. The truth is that there is simply nothing new in Icahn’s “Plan B” that Mentor Graphics is not already doing and therefore no need to elect Icahn’s nominees.

Your Vote is Important and We Urge You to Vote FOR Your Board’s Nominees TODAY by Telephone, Internet or by Signing, Dating and Returning the WHITE Proxy Card.

On behalf of your Board of Directors, we appreciate your support and continued interest in Mentor Graphics. If you have any questions please contact MacKenzie Partners, Inc., which is assisting us in connection with this year’s Annual Meeting, at (212) 929−5500 or TOLL−FREE at (800) 322−2885.

Sincerely,

/s/

Walden C. Rhines

Chairman of the Board and Chief Executive Officer