1166016_1 

AMENDED CONSOLIDATED CLASS ACTION ALLEGATION 

COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS

Gary M. Berne, OSB No. 774077 

gberne@stollberne.com 

Jennifer S. Wagner, OSB No. 024470 

jwagner@stollberne.com 

STOLL STOLL BERNE LOKTING 

 & SHLACHTER P.C. 

209 S.W. Oak Street, 5th Floor 

Portland, OR 97204 

Telephone: (503) 227-1600 

Facsimile: (503) 227-6840 

Local Counsel

Shawn A. Williams, pro hac vice 

shawnw@rgrdlaw.com 

Willow E. Radcliffe, pro hac vice 

willowr@rgrdlaw.com 

Amanda M. Frame, pro hac vice 

aframe@rgrdlaw.com 

Kenneth J. Black, pro hac vice 

kennyb@rgrdlaw.com 

ROBBINS GELLER RUDMAN & DOWD LLP 

Post Montgomery Center 

One Montgomery Street, Suite 1800 

San Francisco, CA 94104 

Telephone: (415) 288-4545 

Facsimile: (415) 288-4534 

Lead Counsel for Plaintiff 

UNITED STATES DISTRICT COURT 

DISTRICT OF OREGON 

PORTLAND DIVISION 

GEORGE HAROUTUNIAN, Individually and 

on Behalf of All Others Similarly Situated, 

Plaintiff, 

vs. 

MENTOR GRAPHICS CORPORATION, et 

al., 

Defendants. 

No. 3:16-cv-00470-PK

AMENDED CONSOLIDATED CLASS 

ACTION ALLEGATION COMPLAINT FOR

VIOLATIONS OF THE FEDERAL 

SECURITIES LAWS

DEMAND FOR JURY TRIAL

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TABLE OF CONTENTS 

Page 

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SUMMARY OF THE ACTION ......................................................................................................1

BACKGROUND AND OVERVIEW .............................................................................................2

JURISDICTION AND VENUE ......................................................................................................9

PARTIES .......................................................................................................................................10

CONTROL PERSONS ..................................................................................................................11

DEFENDANTS’ MATERIALLY FALSE AND MISLEADING 

STATEMENTS DURING THE CLASS PERIOD .......................................................................12

Mentor Representatives’ Admissions and Executives’ Trial Testimony Confirm 

Defendants’ Knowledge or Reckless Disregard of Defendants’ False Statements ...........19

Mentor Falsely Claims that Its Emulation Business Had Strengthened ............................22

Mentor Issues FY16 Financial Guidance that Lacks Any Reasonable Basis ....................27

Mentor Falsely Affirms FY16 Revenue and EPS Guidance Touting Emulation 

Growth ...............................................................................................................................33

Mentor Falsely Raises FY16 Financial Guidance Emphasizing Demand in Growth 

and Denies Negative Impact of Semiconductor Consolidations ........................................40

THE RELEVANT TRUTH BEGINS TO BE DISCLOSED ........................................................47

POST-CLASS PERIOD EVENTS ................................................................................................50

ADDITIONAL ALLEGATIONS OF SCIENTER ........................................................................56

ADDITIONAL ALLEGATIONS OF LOSS CAUSATION/ECONOMIC LOSS ........................59

CLASS ACTION ALLEGATIONS ..............................................................................................61

THE STATUTORY SAFE HARBOR DOES NOT APPLY ........................................................63

PRESUMPTION OF RELIANCE .................................................................................................67

COUNT I .......................................................................................................................................68

COUNT II ......................................................................................................................................68

PRAYER FOR RELIEF ................................................................................................................69

JURY DEMAND ...........................................................................................................................69

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SUMMARY OF THE ACTION 

1. Lead Plaintiff Western Pennsylvania Electrical Employees Pension Fund (“Western 

Pennsylvania” or “Lead Plaintiff”), individually and on behalf of all other persons similarly situated, 

by Lead Plaintiff’s undersigned attorneys, alleges the following based upon personal knowledge as 

to Lead Plaintiff and Lead Plaintiff’s own acts, and as to all other matters based on the investigation 

conducted by and through Lead Plaintiff’s attorneys, which included, among other things, a review 

of U.S. Securities and Exchange Commission (“SEC”) filings by Mentor Graphics Corporation 

(“Mentor” or the “Company”), as well as earnings call transcripts and media and analyst reports 

about the Company. The investigation of facts pertaining to this case is ongoing. Lead Plaintiff 

believes that substantial evidentiary support will exist for the allegations set forth herein after a 

reasonable opportunity for discovery. 

2. This is a securities class action on behalf of all persons who purchased or otherwise 

acquired the common stock of Mentor between August 21, 2014 and November 19, 2015, inclusive 

(the “Class Period”), for violations of the Securities Exchange Act of 1934 (“1934 Act”) and Rule 

10b-5 promulgated thereunder, against Mentor, its Chief Executive Officer (“CEO”) and Chairman 

Walden C. Rhines (“Rhines”), its President and Chief Financial Officer (“CFO”) Gregory K. 

Hinckley (“Hinckley”), and its Vice President (“VP”), Corporate Development and Investor 

Relations Joseph Reinhart (“Reinhart”). Lead Plaintiff alleges that Defendants violated the securities 

laws by disseminating materially false and misleading statements and concealing material adverse 

facts regarding Mentor’s current financial condition and growth prospects. 

3. Lead Plaintiff alleges that Defendants violated the securities laws by disseminating 

materially false and misleading statements concerning its current financial condition and future 

prospects, and concealing material adverse facts, including that: (i) Mentor had lost its largest 

emulation customer’s business (Intel) to its competitor Synopsys, Inc. (“Synopsys”); (ii) the loss to 

Mentor was significant given that Intel accounted for 60-70% of Mentor’s emulator sales; (iii) 

because Intel was the dominant customer in the industry its loss had a negative spillover effect on 

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sales to other customers; (iv) Synopsys with its well-established sales organization, was challenging 

Mentor for virtually all of its emulation business and, as a result, the evaluations were taking longer 

and Mentor was losing business and/or having to lower prices; (v) Mentor’s competitor Cadence 

Design Systems, Inc.’s (“Cadence”) new emulation product was imminent and was also causing 

customers to delay orders; and (vi) weakness in the semiconductor industry as well as the related 

extraordinary increase in the magnitude of semiconductor company consolidations and resulting 

reductions in expenditures were negatively impacting Mentor’s sales. By concealing these material 

adverse facts, Defendants created an impression that Mentor was growing its emulation business and 

would achieve FY161 financial guidance as a result, when, in fact, Mentor’s emulation business was 

suffering and the guidance lacked any reasonable basis. 

BACKGROUND AND OVERVIEW 

4. Mentor develops, manufactures and distributes electronic design automation (“EDA”) 

products – computer software and emulation hardware systems. The Company’s EDA products 

allow customers to test both hardware and software components of technologically complex 

products before they are mass produced. 

5. The EDA market is, and was during the Class Period, dominated by three firms: 

Mentor, Synopsys and Cadence, often referred to as the “Big 3.” The EDA industry, including 

Mentor, historically sold products to semiconductor companies: “[t]he [EDA] industry is about a $5 

billion industry . . . [and] [t]he vast majority of the spend of that $5 billion in simple terms is in 

semiconductor.”2

 

1

 Mentor reports on a fiscal year that runs from February 1 to January 31. As used herein “FY” 

means Mentor’s fiscal year. Thus, FY15 means Mentor’s fiscal year 2015, which ran from February 

1, 2014 to January 31, 2015. The Company’s 2Q FY15 ran from May 1, 2015 to July 31, 2015, its 

3Q FY15 ran from August 1, 2015 to October 31, 2014, and its 4Q FY15 from November 1, 2015 to 

January 31, 2015. Likewise, FY16 ran from February 1, 2015 to January 31, 2016. 

2

 All emphasis added and citations omitted throughout, unless stated otherwise. 

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6. Mentor differentiated itself from its competitors by seeking to diversify its customer 

base to include sales to systems companies as well as to semiconductor companies. Accordingly, a 

component of Defendants’ stated business strategy was to diversify away from semiconductor 

companies and sell to systems companies, thereby distinguishing itself from competitors like 

Synopsys which primarily sold (95%) to semiconductor companies. Mentor considered itself unique 

because according to Defendant Reinhart on December 16, 2014, “we get about 50% of our revenues 

from semiconductor companies and about 50% of our revenues coming from what we define as 

system companies . . . .” 

7. Mentor’s product offerings to its customers were as follows: 

 Mentor’s Product Segments (key product) % of Revenue for FY15

1. Integrated Circuit (“IC”) Design to Silicon (Calibre) 40% 

2. Scalable Verification (Veloce2) 25% 

3. Integrated Systems Design 20% 

4. New and Emerging Products 5% 

5. Services and Other 10% 

8. More than half of Mentor’s revenues were derived from Mentor’s IC Design to 

Silicon (sold to semiconductor companies) and Scalable Verification (including emulation sold to 

semiconductor and systems companies) segments, with 65% of FY14 and FY15 revenues being 

derived from these two segments.

9. While Defendants claimed that by focusing on systems companies, Mentor would be 

insulated from negative effects from consolidations and downturns in the semiconductor industry, 

the semiconductor business, in particular the top customers, were nonetheless critical to Mentor’s 

financial success as reflected by Defendants’ own admissions:

 “[T]he top 50 IC companies represent approximately 80% of total R&D

spending.” 

 “Last year, 8 of our top 10 customers were semiconductor companies . . . .” 

 “[T]he major customers that generate our revenue tend to be the Who’s 

Who of the semiconductor industry.” 

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10. Similarly, because software sales were generally made pursuant to long-term, noncancelable contracts, and emulation hardware sales were characterized by a backlog of booked 

orders with long lead times for evaluation, manufacture and delivery before revenue was recognized, 

Mentor, according to Defendants, enjoyed clear visibility into future financial results, and current 

knowledge of what orders already existed to support revenues for the next quarter and beyond. In 

fact, Defendants publicly boasted at a January 16, 2013 Needham Growth Conference that the 

Company had anywhere from 50% to 80% of its revenue in the bag at the beginning of any given 

quarter, including on term licenses for IC Design to Silicon and Scalable Verification products: 

[ANALYST:] [W]hen you start a quarter, how much of your revenues are already 

identified when the quarter starts? 

[REINHART:] Anywhere from 50% to 80%. And when I say identified, I would 

include in the identified bucket contracts who are scheduled to expire during the 

quarter. 

11. With this background, the Class Period begins on August 21, 2014, when Defendants 

made, inter alia, the following materially false and misleading statements, signaling to investors that 

Mentor’s emulation business was rapidly growing and downplaying any concerns about competitive 

emulation products impacting that growth when, in fact, Defendants knew that this growth could not 

be achieved because Mentor faced increased competition in the emulation business: 

 “I think [emulation business growth] is somewhere in the range of 20% to 

25% this year[.]” 

 “We already know that we had more than 50% of the revenue in first quarter, 

so that almost guarantees that we are number one [in market share for 

emulation for FY15]. It does guarantee we are number one, I’m sorry.” 

 “[I]t will take a long time for people to develop the capability that we have 

honed over the last 12 years to bring us to where we are in the virtual 

emulation side.” 

12. Thereafter, on September 5, 2014 in Mentor’s 2Q FY15 Form 10-Q filed with the 

SEC and throughout the Class Period, Defendants falsely told investors that pre-announcing products 

“can result in customers canceling or deferring orders for currently offered products,” and that 

“[o]ur competitors may acquire technology or companies offering competing or complementary 

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product offerings which could adversely impact our ability to compete in the marketplace” when 

unbeknownst to investors Mentor’s customers were already delaying or cancelling orders as a result 

of increased competition in the emulation market.3

13. On September 5, 2014, Defendants further told investors that “[o]ver time, no 

material portion of our business is dependent on a single or a few customers. We do not believe 

that the competitive loss of one or more individual products at one or more of our customers 

would have a material adverse effect on our revenues.” Defendants would repeat this false 

statement throughout the Class Period despite knowing that Mentor’s revenues and emulation 

growth had already been materially and adversely impacted by the Company’s loss of business from 

its largest emulation customer and, later, the announcement of the consolidation of its semiconductor 

customers’ business reducing expenditures and prices. 

14. By November 20, 2014, Defendants continued to mislead investors by telling them 

that the outlook for Mentor’s emulation business and revenue growth in the 20%-25% range for 

FY15 had “improved.” In truth, Defendants knew that the outlook had deteriorated. 

15. Two weeks later, in Mentor’s 3Q FY15 Form 10-Q filed with SEC on December 4, 

2014, and repeated in the Company’s quarterly and annual SEC filings throughout the Class Period, 

Defendants would falsely tell investors that with respect to consolidations in the semiconductor 

industry that they could happen and “could result in fewer customers in the industries or the loss of 

some customers to competitors, or reduced customer spending on software and services due to 

redundancies or stronger customer negotiating power, which could have an adverse effect on our 

business and future revenues.” Defendants knew, however, that semiconductor consolidations for 

2014 had nearly doubled from the prior year, $23 billion vs. $12 billion. Mentor was heavily 

 

3

 Defendants repeated this false statement in Forms 10-Q filed with the SEC on December 4, 2014 

(3Q FY15), June 3, 2015 (1Q FY16) and August 31, 2015 (2Q FY16), and in a Form 10-K for FY15 

filed with the SEC on March 16, 2015. 

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dependent on the semiconductor industry and knew that consolidations negatively impacted 

expenditures in that industry, particularly with its consolidating customer base. 

16. Thereafter, on February 26, 2015, Defendants issued a press release falsely giving 

revenue guidance of ~ $1.282 billion and earnings per share (“EPS”) guidance of ~ $1.45 for FY16. 

Guidance that was reiterated in Mentor’s Form 10-K filed with the SEC on March 16, 2015. This 

guidance was bolstered by Defendants’ false and misleading statements on an earnings call also held 

on February 26, 2015 and in Mentor’s FY15 Form 10-K, including: 

 “[W]e do expect that we can probably grow emulation revenue in the year 

ahead . . . .” 

 Stating that any decline in the level of activity in Mentor’s emulation 

business was “quite isolated [to the loss of single-largest customer]” and had 

“nothing to do with what is going on in the overall emulation market.” 

17. Defendants knew, but did not disclose throughout the Class Period to investors that, 

inter alia: (i) Cadence’s anticipated new emulation product (Palladium Z1) and Synopsys’s newly 

acquired emulation production (ZeBu 3) were causing customers to delay and cancel orders for 

Mentor’s product (Veloce2); (ii) the magnitude and impact of the loss of Intel emulation business to 

Synopsys had not been disclosed to investors with the requisite intensity and credibility to offset 

Defendants’ misleading statements; and (iii) that the unprecedented announcements of 

semiconductor consolidations was causing reduced expenditures and price erosion. Defendants also 

knew that early contract renewals did not translate to increased demand, they simply pushed revenue 

into earlier quarters. 

18. In a May 22, 2015 press release and earnings call, Defendants continued to give false 

revenue guidance for FY16 of ~ $1.282 billion, reinforcing this guidance with additional materially 

false and misleading statements during the May 22, 2015 earnings call and in the Company’s 1Q 

FY16 Form 10-Q filed with the SEC on June 3, 2015, including: 

 “We are expecting that, during the year, our revenue will grow for 

emulation.” 

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 “[A]t this point, that the activity for evaluations is so strong, that we are 

booked to capacity in the number of customers we can evaluate.” 

 “[W]e have to actually build emulators, so we ship to a build forecast. 

Bookings for the quarter were, in fact, up 65%. So, the business is robust.” 

19. On August 20, 2015, Defendants doubled down and raised FY16 revenue guidance to 

~ $1.285 billion, and forecasted 4Q FY16 revenues of $440 million, despite not having any 

reasonable basis to do so in light of the true facts known to Defendants. When raising guidance, 

Defendants rejected any potential financial impact from semiconductor consolidations. Indeed, 

Defendants continued to assert that such consolidations would actually make the Company stronger 

during the August 20, 2015 earnings call:

 “We were impressed by the breadth of demand growth in our two largest 

and fastest-growing product categories, Design to Silicon and Scalable 

Verification, which grew 105% and 20% respectively.” 

 “While the actual number of mergers and acquisitions is up only modesty 

[sic] in 2015 compared to prior history, the magnitude of announced deals is 

up dramatically. Historically, these changes simply add to the strength of 

the de facto standard leader in EDA in each tool category . . . .” 

20. As detailed herein, each of Defendants’ materially false statements and omissions, 

including the Company’s raised FY16 revenue guidance on August 20, 2015, affirmed on August 31, 

2015, caused the Company’s stock price to trade at artificially inflated levels above $25.00 per share. 

21. Notwithstanding CEO Rhines’ and President/CFO Hinckley’s knowledge of facts that 

rendered Defendants’ statements materially misleading, they seized the opportunity presented by 

Mentor’s inflated stock prices to sell Mentor stock. Rhines and Hinckley sold Mentor stock during 

the Class Period for proceeds of more than $6.8 million and $3.8 million, respectively. For example, 

following Mentor’s raised FY16 revenue guidance in August 2015, Rhines unloaded 170,000 shares 

at prices above $25 per share for proceeds of more than $4.3 million between October 9 and 12, 

2015 – weeks before the close of the third quarter wherein Mentor saw bookings down 25% in 

Scalable Verification as a result of delays in emulation decisions and just over a month before 

Mentor reported that the Company would miss its FY16 revenue guidance by $104 million. 

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22. On November 19, 2015, Mentor issued a press release informing the market that 

instead of $440 million in revenue for 4Q FY16, that its fourth quarter revenue forecast would be 

reduced by a whopping $104 million to $336 million, and that total bookings for the three months 

ended October 31, 2015 had decreased by ~ 20% compared to the three months ended October 31, 

2014. The Company also took down its guidance for FY16 by nearly $117 million from $1.285 

billion to $1.118 billion and halved its FY16 EPS guidance from $1.25 to $0.63.

23. More specifically, Defendants admitted in the November 19, 2015 press release and 

earnings call, and Mentor’s 3Q FY16 Form 10-Q filed on December 3, 2015, that the Company’s 

emulation business was not growing and that its financial prospects were not what Defendants had 

previously conveyed to investors. Rather, Defendants instead blamed the disappointing bookings 

and massive 4Q FY16 reduction on, inter alia, the following:

 “[A] decrease in term license contract renewals. . . .” 

 “Total bookings were down 20% year-over-year and were flat to down 

across all product categories. . . . Design to Silicon, which includes our 

Calibre product family, was down 35% . . . .”

 “Scalable Verification was down 25%. It’s probable that a competitor’s 

recent announcement of the release of their next generation emulation 

product has temporarily frozen activity in that market.” 

 “I think there was a general fear in the market that there might be 

competition that could approach that kind of capability.” 

 “‘Semiconductor consolidation and delays in emulator decisions are now 

having an adverse impact on our ability to close business . . . .’”

 “[I]immediate demand for emulation has stalled as the result of the 

expected introduction of competitive products.”

24. As a result of Defendants’ fraud, on November 20, 2015, Mentor’s stock price 

plunged 36%, closing at $17.85 per share, down from the previous day’s close of $27.78 per share, 

on high trading volume as reflected in the following chart: 

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JURISDICTION AND VENUE 

25. Jurisdiction is conferred by 28 U.S.C. §1331 and §27 of the 1934 Act. The claims 

asserted herein arise under §§10(b) and 20(a) of the 1934 Act [15 U.S.C. §§78j(b) and 78t(a)] and 

Rule 10b-5 promulgated thereunder [17 C.F.R. §240.10b-5]. 

26. Venue is proper in this district pursuant to 28 U.S.C. §1391(b) because Mentor is 

headquartered in this District and many of the acts and practices complained of herein occurred in 

substantial part in this District. 

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PARTIES 

27. Court-appointed Lead Plaintiff Western Pennsylvania purchased or otherwise 

acquired Mentor common stock during the Class Period as described in the attached certification, 

and was damaged by the conduct alleged herein. 

28. Defendant Mentor is incorporated in Oregon and trades on the NASDAQ Exchange 

(“NASDAQ”) under the ticker symbol “MENT.” The Company’s corporate headquarters are 

located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070. 

29. Defendant Rhines is, and was at all relevant times during the Class Period, the 

Chairman, CEO and a director of the Company. As CEO, Rhines spoke on Mentor’s behalf in press 

releases and earnings conference calls. Rhines signed and/or certified the SEC filings alleged herein 

to contain false and misleading statements, including the Company’s FY14 Form 10-K filed March 

17, 2014 and FY15 Form 10-K filed March 16, 2015. He also certified that the “the information 

contained in the Report fairly presents, in all material respects, the financial condition and results of 

operations of the Company” in these same Forms 10-K, as well as the Company’s 2Q FY15 Form 

10-Q filed September 5, 2014; 3Q FY15 Form 10-Q filed December 4, 2014; 1Q FY16 Form 10-Q 

filed June 3, 2015; and 2Q FY16 Form 10-Q filed August 31, 2015. Rhines also participated in the 

following earnings calls wherein Defendants, including Rhines, made false and misleading 

statements on August 21, 2014; November 20, 2014; February 26, 2015; May 22, 2015; and August 

20, 2015. 

30. Defendant Hinckley is, and was at all relevant times during the Class Period, 

President and CFO of the Company. He signed Mentor’s SEC filings and spoke on the Company’s 

behalf in press releases and earnings conference calls. Hinckley signed Mentor’s SEC filings alleged 

herein to contain false and misleading statements, including the Company’s FY14 Form 10-K filed 

March 17, 2014; FY15 Form 10-K filed March 16, 2015; 2Q FY15 Form 10-Q filed September 5, 

2014; 3Q FY15 Form 10-Q filed December 4, 2014; 1Q FY16 Form 10-Q filed June 3, 2015; and 

2Q FY16 Form 10-Q filed August 31, 2015. Hinckley also made certifications in the same 

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documents that “the information contained in the Report fairly presents, in all material respects, the 

financial condition and results of operations of the Company.” Hinckley also participated in the 

following earnings conference calls wherein Defendants, including Hinckley, made false and 

misleading statements on August 21, 2014; November 20, 2014; January 14, 2015; February 26, 

2015; May 22, 2015; and August 20, 2015. 

31. Defendant Reinhart is, and was at all relevant times during the Class Period, VP, 

Corporate Development and Investor Relations of the Company. As a VP, Reinhart spoke on 

Mentor’s behalf in earnings conference calls. Reinhart participated in the following conference calls 

wherein Defendants, including Defendant Reinhart, made false and misleading statements on August 

21, 2014; November 20, 2014; February 26, 2015; May 22, 2015; and August 20, 2015. 

32. The Defendants named in ¶¶29-31 are referred to herein as the “Individual 

Defendants.” 

CONTROL PERSONS 

33. As officers and controlling persons of a publicly held company whose common stock 

was and is traded on the NASDAQ and is governed by the provisions of the federal securities laws, 

the Individual Defendants each had a duty to promptly disseminate accurate and truthful information 

with respect to the Company’s financial condition, performance, growth, financial statements, 

business, markets, management, earnings and present and future business prospects, and to correct 

any previously issued statements that had become materially misleading or untrue, so that the market 

price of the Company’s common stock would be based upon truthful and accurate information. The 

Individual Defendants’ misrepresentations and omissions during the Class Period violated these 

specific requirements and obligations. 

34. The Individual Defendants participated in the drafting, preparation and/or approval of 

the various public statements, investor reports and other communications complained of herein and 

were aware of, or recklessly disregarded, the misstatements contained therein and omissions, and 

were aware of their materially false and misleading nature. Because of their board of director 

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membership and/or executive and managerial positions with Mentor, each of the Individual 

Defendants had access to the adverse undisclosed information about the Company’s financial 

condition and performance as particularized herein and knew (or recklessly disregarded) that these 

adverse facts rendered the positive representations made by or about Mentor and its business or 

adopted by the Company materially false and misleading. 

35. The Individual Defendants, because of their positions of control and authority as 

officers and/or directors of the Company, were able to and did control the content of the various SEC 

filings, press releases and other public statements pertaining to the Company during the Class 

Period. Each Individual Defendant was provided with copies of the documents alleged herein to be 

misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent 

their issuance or cause them to be corrected. Because of their positions and access to material nonpublic information available to them but not to the public, each of these Individual Defendants knew 

that the adverse facts specified herein had not been disclosed to, and were being concealed from, the 

public, and that the representations that were being made were then materially false and misleading. 

Accordingly, each of the Individual Defendants is responsible for the accuracy of the public reports 

and releases detailed herein and is therefore primarily liable for the representations contained 

therein. 

DEFENDANTS’ MATERIALLY FALSE AND MISLEADING 

STATEMENTS DURING THE CLASS PERIOD4

36. On August 21, 2014, Mentor issued a press release announcing its financial results for 

2Q FY15, the period ended July 31, 2014, and forecasting 3Q FY15 financial results: 

Mentor Graphics Reports Fiscal Second Quarter Results 

Mentor Graphics Corporation today announced financial results for the 

company’s fiscal second quarter ended July 31, 2014. The company reported 

revenues of $260.2 million, non-GAAP earnings per share of $0.23, and GAAP 

earnings per share of $0.13. 

 

4

 The false statements alleged herein appear primarily in bold and italics and are identified as false 

and misleading. 

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* * * 

“The second quarter was strong for Mentor and as a result we exceeded nonGAAP earnings guidance,” said Gregory K. Hinckley, president of Mentor Graphics. 

“A four percent revenue upside to guidance, along with continued attention to 

expense control, drove an over 50 percent beat in earnings per share. . . .” 

Outlook 

For the third quarter of fiscal 2015, the company expected 3Q15 revenues of 

about $275 million, . . . GAAP earnings per share of approximately $0.07 . . . [and] 

for the full year fiscal 2015, the company expects revenues of about $1.237 

billion, . . . and GAAP earnings per share of approximately $1.37. 

37. False and Misleading Statement: Following the issuance of the August 21, 2014 press 

release, Defendants held an earnings call with analysts and investors in which Defendants made false 

statements about the Company’s business and prospects. When analysts directly asked about 

Mentor’s emulation business, Defendants falsely assured investors that it would “grow substantially 

this year” to the tune of “the range of 20% to 25%”: 

[ANALYST:] [J]ust wanted to get a feel for emulation. So scalable was down pretty 

significantly year-over-year off of an admittedly tough comp, but just wanted to get a 

sense for how you're seeing the year in terms of the emulation business, either on a 

bookings or a revenue perspective. Do you see this as a meaningful growth year 

again for your emulation business? 

[RHINES:] Yes, absolutely we do. We expect we will grow substantially this year 

in the emulation business. 

[ANALYST:] And would you be willing to put a finer point on substantially or is 

that we are going to have to leave it at? 

[HINCKLEY:] I think it is somewhere in the range of 20% to 25% this year, Rich. 

38. False and Misleading Statement: Defendants also misled investors by representing 

that Mentor’s emulation business was guaranteed number one in market share: 

[ANALYST:] Then given the strong growth you talked about in the emulation for 

this year, do you think you could exit the year with higher share in this market this 

year? 

* * * 

[RHINES:] In emulation, absolutely. The numbers are out for first quarter. We 

already know that we had more than 50% of the revenue in first quarter, so that 

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almost guarantees that we are number one. It does guarantee we are number one, 

I'm sorry. 

39. False and Misleading Statement: When specifically asked about the impact of 

Cadence’s new product on Mentor’s growth, Defendants falsely assured investors that the release of 

a new emulation platform by competitor Cadence would not negatively affect Mentor’s financial 

results: 

[ANALYST:] It is expected sometime over the next six to nine months it is likely 

Cadence has a new platform and it could then negatively impact the growth of 

emulation on Mentor’s platform. Could you share your thoughts on that? 

[RHINES:] Well, so I think I indicated earlier that there are really two kinds of 

emulation. There is traditional in-circuit emulation and then there is the whole new 

generation of virtual emulation. We have been in the virtual emulation business for 

quite some time, over a decade . . . . 

Now, I expect our competitors will ultimately offer many of the kinds of features that 

Mentor has with virtual stimulus and accelerated test benches and the ability to do 

software development. At some time in the future when they do, I think we will see 

them more often with competitors. 

But today we are not number one in in-circuit emulation; we are clearly number 

one in virtual emulation. [] I think it will take a long time for people to develop the 

capability that we have honed over the last 12 years to bring us to where we are in 

the virtual emulation side. 

40. The market understood Defendants’ message that Mentor did not need to worry about 

competitors’ products as reflected in an August 25, 2014 Seeking Alpha report stating: “As the list of 

products requiring EDA has grown and diversified, each of the industry’s three largest players has 

been able to carve out its own empire, often with little worry of competitor intrusion.” 

41. Mentor’s stock price traded at artificially inflated prices above $21.00 per share as a 

result of Defendants’ materially false statements and omissions. 

42. False and Misleading Statement: On September 5, 2014, Mentor filed its 2Q FY15 

Form 10-Q for the period ending July 31, 2014 wherein Defendants continued to materially 

misrepresent the impact of Cadence’s impending new emulation product and Synopsys’ emulator: 

We or our competitors sometimes pre-announce or provide “road maps” of 

the expected availability of new hardware or software products or product features. 

Such pre-announcements, whether offered by the pre-announcing company or 

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vendors of competitive products, can result in customers canceling or deferring 

orders for currently offered products as customers anticipate that currently offered 

products may be uncompetitive or lacking in features or performance. 

* * * 

Our competitors may acquire technology or companies offering competing 

or complementary product offerings which could adversely impact our ability to 

compete in the marketplace. They may be able to deliver better or broader product 

offerings, offer better pricing, or otherwise make it more desirable for our 

customers to buy more of the tools in their design flow from the competitor after the 

acquisition. 

43. False and Misleading Statement: Also on September 5, 2014, Mentor filed a Form S8 Registration Statement with the SEC. The registration statement incorporated by reference a 

number of documents, including the Company’s FY14 Mentor’s Form 10-K filed on March 17, 

2014. The registration statement by incorporating by reference Form 10-K falsely stated: 

 “[N]o material portion of our business is dependent on a single or a few 

customers.” 

 “We do not believe that the competitive loss of one or more individual 

products at one or more of our customers would have a material adverse 

effect on our revenues.” 

44. Mentor stock remained artificially inflated as a result of Defendants’ materially false 

statements and omissions trading at $22.35 per share on September 19, 2014. 

45. Reasons Why Defendants’ Statements in ¶¶37-39, 42-43 Were Knowingly False and 

Misleading. Each of Defendants’ statements and omissions in ¶¶37-39, 42-43, including: (i) that “no 

material portion of our business is dependent on a single or a few customers”; (ii) Mentor’s 

emulation business would grow “in the range of 20% to 25% this year”; (iii) that “number one” in 

emulation market share for FY15 was “guaranteed”; (iv) that competitor acquisitions of competing 

product offerings “could adversely impact” Mentor’s ability to compete; (v) downplaying the 

negative impact of Cadence’s new emulation product by telling investors that “it will take a long 

time for people to develop the capability that we have honed over the last 12 years”; and (vi) that the 

pre-announcement of competitor products “can result” in customers deferring or cancelling orders 

were false and misleading when made as Defendants knew or recklessly disregarded the following: 

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(a) Defendants represented to investors that “no material portion of our business 

is dependent on a single or a few customers” and that they did not believe that “the competitive loss 

of one or more individual products at one or more of our customers would have a material adverse 

effect on our revenues.” In truth, Defendants knew as Mentor’s executives testified at the Synopsys 

Trial (described below at ¶¶46-55) that: (i) Mentor had already lost its largest emulation customer 

Intel’s emulation business for the foreseeable future which adversely impacted the Company’s 

emulation growth prospects; and (ii) that because Intel was the “dominant customer” in the industry, 

the loss had a spillover effect impacting sales from other customers. Defendants also knew, but 

failed to disclose the magnitude of the loss of Intel’s emulation business. The importance of Intel’s 

business to Mentor is illustrated by Intel’s $80 million in orders from the Company in 2013, nearly 

one-third of the total $250 million emulator market emulation for the year. For 2014, Intel had 

ordered a mere $500,000 of emulation products, and more importantly told Mentor it had no intent to 

order the Company’s emulators in the foreseeable future. Defendants did not disclose the material 

adverse impact of the loss of Intel’s business to Synopsys as of August 21, 2014, rather investors 

were deceived into believing that Intel’s emulation business was still in play. For example, analysts 

at Griffin Securities wrote on August 22, 2014 “incremental bookings possibility depends on 

whether Intel comes back again for additional emulation capacity. . . .”; 

(b) Defendants’ representation and purported warning that Mentor’s “competitors 

may acquire technology or companies offering competing or complementary product offerings 

which could adversely impact our ability to compete in the marketplace” was also materially 

misleading. Defendants knew, but did not disclose, that Synopsys’ acquisition and marketing of the 

ZeBu 3 emulator was already materially impacting the Company with the loss of Intel’s emulation 

business and other business. As Mentor executives testified at the Synopsys Trial (¶¶46-55), the 

Company knew that because Synopsys had a “much larger” sales and customer support organization 

that its acquisition of the ZeBu 3 rendered Synopsys a “competitive threat,” and Mentor had already 

been “adversely impact[ed]” in its “ability to compete” in the marketplace; 

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(c) Defendants’ claims of guaranteed emulation market share and 20%-25% 

growth in emulation for FY15 were materially misleading. Defendants had primed investors into 

believing that the emulation market only had two real competitors, Mentor and Cadence, including 

by stating: (i) on December 4, 2013 at the NASDAQ OMX Investor Program, when asked about “the 

competitive landscape [] in emulation,” Hinckley responded “there is two. It’s Cadence and 

ourselves”; (ii) on May 22, 2014 Rhines dismissed the suggestion that Synopsys was increasing its 

emulation business by stating, “I think things are not going to change appreciably in the foreseeable 

future”; and (iii) on August 12, 2014 when asked about Synopsys release of ZeBu 3 and its impact 

on market share, Reinhart stated “[w]e tend not to hear a lot about ZeBu . . . I don’t think [its 10% 

market share position will] really [have] a material change.” Defendants knew that the impression 

that they gave investors that Mentor was beating out the competition and experiencing rapid growth 

was false. In truth, not only did Defendants know, as Mentor’s representatives testified at the 

Synopsys Trial, of the negative impact of the loss of Intel’s emulation business to Synopsys and its 

spillover effect to other customers but that Synopsys following its acquisition of the ZeBu 3 was a 

“competitive threat . . . challenging [Mentor] very significantly at virtually every account” and 

“things [had] changed very dramatically.” See ¶¶47-52, infra; 

(d) Defendants also knew that the introduction of Cadence’s new emulation 

product (Palladium Z1) was imminent having been asked about its release beginning no later than 

August 2013, and repeatedly thereafter, including on August 21, 2014. Based on: (i) Defendants’ 

experience with Mentor’s own announcement of its Veloce platform and the release of Mentor’s new 

Veloce2 emulation product in 2012 and corresponding shifts in market share; and (ii) warnings by a 

leading industry analyst Gary Smith5

 in a September 20, 2012 online blog DeepChip.com (which 

 

5

 Defendants told investors that Gary Smith (who passed away in 2015) was “the leading industry 

analyst for EDA” and the person they relied on to measure market share in one EDA industry was 

Gary Smith. See, e.g., Feb. 28, 2013 Earnings Conference Call (Rhines: “So we’re anxiously 

awaiting the publication of results from Gary Smith EDA. That’s the only source in our industry 

that gives total market as well as competitive results.”); see also Aug. 12, 2013 Pacific Crest Global 

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Defendant Rhines followed) that “[s]omewhere in 2013, the tables will turn because then Wally 

[Rhines] will have the old processor in Veloce 2, while Palladium 5 [i.e. Cadence] will have the new 

processor,” Defendants knew that the anticipated release of its competitor’s product would 

negatively impact sales and market share. In fact, at the end of the Class Period, Defendants 

admitted that “there was a general fear in the market that there might be competition that could 

approach [Veloce2’s] capability,” causing the deferral of orders. And Defendants later explained on 

March 3, 2016 that evaluations were taking six months longer and, in turn, bookings were deferred 

by customers because unlike a year or two ago (i.e., March 2014), Mentor was not “the only game in 

town,” and “there [were] now competitors to evaluate.” ¶117. Accordingly, Defendants’ statements 

about market share, emulation growth as well as their purported warning that that pre-announcing 

products “can result in customers canceling or deferring orders” were all false; 

(e) In addition, Defendants knew that Mentor was not guaranteed to be the leader 

in market share for FY15 given the adverse facts discussed above that were known to Defendants. 

Defendants knew on August 21, 2014, but did not disclose, for example, that Synopsys’ acquisition 

of the ZeBu 3 emulator had resulted in the loss of Intel and other business, and that Cadence’s 

anticipated emulator product was already negatively impacting orders. Defendant Hinckley later 

admitted during a January 14, 2015 Needham Growth Conference call that Mentor was not number 

one in market share: “So we are the market-share leader in four of the top 10 categories. Synopsys is 

the leader in three and Cadence is in two, and one of those are in emulation . . . .” Defendants, 

however, continued to mislead investors regarding the demand for and growth of Mentor’s 

emulation business; 

(f) For the same reasons that Mentor was not guaranteed the number one market 

share position, Defendants had no reasonable basis to state that emulation revenue would grow 20%-

25% growth in FY15. Defendant Rhines hinted that FY15 emulation revenue growth of 20%-25% 

 Tech. Leadership Forum (Reinhart noting with respect to emulation market share, “the real data 

doesn’t come out from Gary Smith EDA for another week or two.”). 

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had in fact not been achieved by evasively responding to a direct analyst question on February 26, 

2015 to that effect. Rhines stated that Mentor was able only “to grow our emulation revenue this 

past year thereby conceding that the 20%-25% growth had not been achieved. However, coupled 

with Defendants’ other statements, Rhines continued to give investors the impression that the 

Company’s emulation business was robust with growing demand. Despite Defendants’ knowledge 

to the contrary, investors understood from Defendants’ statements that Mentor could benefit from 

Intel’s emulation business, as reflected in a March 2, 2015 report by analysts at Summit Research: 

“Emulation business at Intel has not been lost, and Intel is probably taking a pause . . . .”; and 

(g) Defendants also knew, but failed to disclose, that emulation growth and sales 

were all being impacted by the weaknesses in the semiconductor industry that were driving 

significant consolidations, reducing EDA expenditures and causing price erosion as well as 

impacting the Company’s contract renewals and ability to sell its products, as detailed in ¶¶9-10, 65, 

76, 99, 108, 115. 

Mentor Representatives’ Admissions and Executives’ Trial Testimony Confirm Defendants’ 

Knowledge or Reckless Disregard of Defendants’ False Statements 

46. In 2012, Synopsys acquired EVE-USA, Inc., and EVE’s “ZeBu” line of emulator 

products. Mentor was embroiled in litigation regarding the ZeBu 3 emulator against EVE and 

Synopsys in the United States District Court for the District of Oregon, Portland Division, Case Nos. 

3:10-cv-00954-MO, 3:12-cv-01500-MO and 3:13-cv-0059-MO, before the Honorable Michael W. 

Mosman, prior to the Class Period, with trial commencing on September 29, 2014 (referred to herein 

as the “Synopsys Trial”). 

47. Mentor’s opening statement by its trial counsel George Riley (“Riley”) described 

Intel as a dominant and important customer, who set the standard for the EDA Industry: 

[RILEY:] [T]here is one 800-pound gorilla here in the room. The largest and the 

most advanced chip maker in the world is Intel. 

Intel is the dominant customer. Not only do they buy more EDA tools because 

they're making more chips, but Intel is making the most advanced chips.... And 

because Intel makes the most powerful, the fastest and the most chips, they demand 

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the most from the tools. They’re the ones that set the standards for the EDA 

industry. They want more powerful tools, better tools, more rigorous tools. Intel 

sets the standard. Believe me, Intel is really important, because if you can sell to 

Intel, you can sell to these other folks. 

48. Mentor’s counsel, Riley, also explained in his opening statement the significance and 

importance of having Intel’s business, as Intel was Mentor’s largest customer and purchased up to 

70% of Mentor’s Veloce2 product: 

[RILEY:] Intel [] purchase[d] 60 to 70 percent of the ZeBu and Veloce emulators in 

the U.S. . . . So you’ve got one customer that makes up 60 to 70 percent of all the 

sales of ZeBu and Veloce. 

49. A number of Mentor’s executives also testified at the Synopsys Trial. The trial 

testimony of Mentor’s then VP of Enterprise Solutions Organization, Donald Cantow (“Cantow”)6

 is 

particularly relevant to facts alleged herein, as are statements provided by Mentor’s VP and General 

Counsel, Dean Freed (“Freed”).7 Through his testimony, Cantow revealed that while Intel purchased 

$80 million in emulation products in 2013, it had cut purchases to a mere $500,000 in 2014 and told 

Mentor that it was no longer going to be purchasing emulation products from the Company in the 

future: 

[CANTOW:] Sandra Connor of Intel, who is in charge of the procurement of 

emulation . . . shared with me that going forward for all next-generation 

purchases . . . their intent or plan is to purchase all of that from EVE/Synopsys [not 

Mentor]. 

* * * 

[CANTOW:] After May of 2013, we [Mentor] haven’t sold anything to Intel. I 

shouldn’t say anything. We sold [$]500K.” 

 

6

 Cantow has been an executive with Mentor since 1995 and is currently VP, Global Accounts, 

and a member of Mentor’s executive team according to the Company’s website. Cantow testified 

that one of his primary responsibilities was working with Intel as a customer and that there were ~ 

70 people in his organization with people onsite at various customers. 

7

 Defendant Hinckley has direct knowledge of the facts testified at trial as he was present at the 

trial, from the opening arguments (“And we have with us today the president of Mentor Graphics, 

Greg Hinckley. Mr. Hinckley, would you stand again.”) to the closing arguments (“Mr. Hinckley 

was sitting there throughout the entire day. There he is. He hasn’t gone away.”). 

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50. By the time of the Synopsys Trial in September 2014, Defendants therefore knew that 

Mentor had lost Intel’s emulation business to competitor Synopsys. 

51. Cantow also testified to the competitive threat that Synopsys posed to Mentor, noting 

that once Synopsys took Intel’s business, it “became a large supplier” of emulators and started 

challenging Mentor “very significantly at virtually every account [i.e., customer] and things 

changed very dramatically” for Mentor as a result.

52. Mentor General Counsel Dean Freed also testified that like Cadence, Synopsys had a 

“much larger” sales organization and customer support than Mentor, and as a result, “[Mentor was] 

concern[ed] [] if Mentor technology were to be run through those sales forces in those companies, 

that it could be a significant competitive threat to Mentor and its emulation business.” 

53. The increased competition from Synopsys following its acquisition of the ZeBu 3 was 

no surprise to Mentor, however, as Cantow testified Mentor employees from the support 

organization were onsite at customers like Intel on a daily basis and that because EDA is a “small 

world,” Mentor was always aware of its competition: 

[QUESTION:] Do you follow what your competitors are doing at the customers 

where you’re located? 

[CANTOW:] Yes. There’s basically two other large [EDA] companies, so it’s a 

very small world. Our competitors will be at the very same location. So there’s a 

very realtime feedback on what’s occurring in the competition.” 

54. Cantow also described what was meant when Mentor referred to its “backlog” and the 

visibility that backlog gave the company into revenue recognition: 

[CANTOW:] [B]asically a schedule of our shipments for the future . . . . [I]t’s 

basically a process where we will give visibility to our manufacturing organization of 

here’s how many components I need to make, here’s when I need to deliver them 

by . . . . [backlog at Mentor means] we have a contract that obligates the customer to 

take delivery and pay us for those units. 

55. Cantow further explained the lengthy negotiation process between Mentor and a 

potential customer: 

[QUESTION:] Could you briefly describe how that process works, from interest to 

negotiation to actually inking the deal, signing on it. 

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[CANTOW:] Yes. Typically it starts off with more of a technical focus, where the 

customers will go through a technical qualification review. And that can be 

anywhere from three months to sometimes it's a year. Sometimes you’ll go through 

and actually implement an entire design with a customer on the tools and go into 

them. 

And then you move into a financial portion of the negotiations, and those will last 

anywhere from three months to maybe as long as nine months, depending on the 

size of the purchase. Some of the smaller purchases kind of happen more quickly 

once a contract is developed. 

And it’s a very rigorous process. 

56. Accordingly, Defendants knew that the time to procure a deal, and particularly a large 

complicated emulation deal, could take more than 18 months – representing a year for technical 

review and nine months for financial negotiations. 

Mentor Falsely Claims that Its Emulation Business Had Strengthened 

57. On November 20, 2014, Mentor issued a press release announcing its financial results 

3Q FY15, the period ended October 31, 2014. The press release provided that: 

Mentor Graphics Reports Fiscal Third Quarter Results 

Mentor Graphics Corporation today announced financial results for the 

company’s fiscal third quarter ended October 31, 2014. The company reported 

revenues of $292.7 million, non-GAAP earnings per share of $0.34, and GAAP 

earnings per share of $0.18. 

* * * 

“Mentor had another successful quarter which again demonstrated strong 

leverage. A 6% revenue upside to guidance drove an over 60% increase in nonGAAP earnings per share,” said Gregory K. Hinckley, president of Mentor Graphics. 

“Renewals in our top ten bookings were up 55%, driven by strong transportation 

cabling demand and competitive replacement. . . .” 

58. False and Misleading Statement: Following the issuance of the November 20, 2014 

press release, Defendants held an earnings call with analysts and investors to discuss the Company’s 

reported earnings, business and operations on the same day. Defendants Rhines, Hinckley and 

Reinhart hosted the call. During the call, Defendants falsely stated that Mentor’s financial outlook 

for its FY15 growth in its emulation business had strengthened: 

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[ANALYST:] [J]ust wanted to get your sense of how you see the emulation business 

relative to a quarter ago. Something a little bit like bookings but very optimistic on 

the pipeline and the revenue potential fourth quarter. 

I think the last quarter you talked about that business, and I believe this is in terms of 

revenue being maybe a 20% to 25% grower [sic] this year. Anything changed in the 

last quarter? 

[RHINES:] Of course the year-to-date revenue is quite strong, and from a 

bookings point of view, I would say it’s strengthened. . . . 

So if anything, I think I’d say that our outlook has improved . . . . 

59. False and Misleading Statement: When specifically asked about the emulation 

business market share on the November 20, 2014 earnings call, Defendants misled investors 

regarding its market leadership:

[ANALYST:] Hi, thanks for taking my question. The first is on the emulation 

side. So, Wally, do think you will exit this year with a higher share in the 

emulation market? And you have seen a very -- Mentor has had a very strong 

growth in emulation two years back to back and given your strong [arpen] is it 

fair to think that you can grow the [debilit] even next year? 

[RHINES:] The answer to your first question, you have seen reports in the 

markets that indicate Mentor is number one over the last year, and we expect that 

that is a position in the market that we can sustain. And then you said with 

regard to FY16 we don't give any outlook for FY16, but we will give an outlook 

for the business at our next conference call. 

60. Analysts commenting on the earnings call found Defendants’ statements about the 

growing emulation business particularly significant, including: 

(a) Canaccord Genuity, on November 20, 2014, reported that “Management 

expects strength in transportation and IC Design to silicon to continue in Q4 of 2014 and highlighted 

the growing pipeline of emulation customers”; 

(b) Summit Research, on November 21, 2014, reported that “Emulation and 

Automotive continue to be the stars in Mentor’s portfolio. Mentor continues to maintain its lead in 

Emulation (mid 40% market share) and expects it to grow at 20%+ next year”; and 

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(c) J.P. Morgan, on November 24, 2014, reported that “Momentum in automotive 

strength, the rapidly growing pipeline for emulation products, and strong contract renewal outlook 

are expected to fuel the fourth quarter.” 

61. Following the Company’s 2Q FY15 results, Mentor’s stock price continued to trade 

at artificially inflated prices as a result of Defendants’ fraud, reaching a high of $23.49 on December 

2, 2014. 

62. False and Misleading Statement: On December 4, 2014, Mentor filed its 3Q FY15 

Form 10-Q for the period ending October 31, 2014 with the SEC wherein it repeated Defendants’ 

prior misrepresentations by failing to disclose: (i) the known adverse impact of Cadence’s impending 

emulation product; (ii) that Synopsys’ acquisition of EVE’s ZeBu 3 emulator had already in fact 

(without contingency) resulted in the loss of Mentor’s largest emulation customer, Intel, for the 

foreseeable future and others; and (iii) that announced industry consolidations had occurred and 

negatively affected Mentor’s financial performance: 

We or our competitors sometimes pre-announce or provide “road maps” of 

the expected availability of new hardware or software products or product features. 

Such pre-announcements, whether offered by the pre-announcing company or its 

competitors, can result in customers canceling or deferring orders for currently 

offered products anticipating that currently offered products may be uncompetitive 

or lacking in features or performance. In the case of hardware products, slowing 

sales may cause inventories to increase or become obsolete, resulting in the need to 

discount or reduce production of current products. 

* * * 

Our competitors may acquire technology or companies offering competing 

or complementary product offerings which could adversely impact our ability to 

compete in the marketplace. They may be able to deliver better or broader product 

offerings, offer better pricing, or otherwise make it more desirable for our 

customers to buy more of the tools in their design flow from the competitor after the 

acquisition. . . . 

* * * 

Customers may acquire or merge with other customers or their business. 

Like many industries, the semiconductor and electronics industries are subject 

to mergers, acquisitions, and divestitures and our customers or parts of their business 

may acquire or be acquired by other customers. Such synergies could result in 

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fewer customers in the industries or the loss of some customers to competitors, or 

reduced customer spending on software and services due to redundancies or 

stronger customer negotiating power, which could have an adverse effect on our 

business and future revenues. 

63. False and Misleading Statement: Defendants also continued to falsely claim that the 

only competition the Company faced in the emulation market was Cadence. At the January 14, 2015 

Needham Growth Conference, Hinckley stated that “[w]e [Mentor] have some advantages today. 

There are for all intents and purposes two competitors [in emulation], ourselves and Cadence.” 

64. As a result of Defendants’ material misrepresentations and omissions, Mentor’s stock 

continued to trade at artificially inflated prices, reaching a high of $23.20 on January 30, 2015. 

65. Reasons Why Statements in ¶¶58-59, 62-63 Were Knowingly False and Misleading: 

Each of the statements and omissions alleged in ¶¶58-59, 62-63 above were false and misleading 

when made, as Defendants knew or recklessly disregarded the following: 

(a) All the reasons set forth in ¶¶3, 45-55 above: 

(b) Defendants knew, but failed to disclose, that Mentor had lost its largest 

customer’s emulation business to Synopsys as well as other business as a result (¶¶47-52); 

(c) Cadence and Mentor were not the only two material competitors in the 

emulation market. Defendants knew, but failed to disclose, that Synopsys was a “competitive 

threat” and was already “challenging [Mentor] very significantly at virtually every account” with 

Mentor losing business as result (¶¶47-52); 

(d) Defendants knew, but failed to disclose, that evaluations by customers were 

taking longer, causing delays in orders, as a result of Synopsys newly acquired emulator (ZeBu 3) 

and the increasing threat of Cadence’s anticipated new emulation product (Palladium Z1); 

(e) Defendants knew Synopsys was taking emulation business from Mentor and 

that Cadence’s new emulation product would also take away from Mentor’s sales because it was a 

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major new platform. As a result, Defendants knew, but did not disclose, that Mentor could neither 

sustain nor grow its market position in emulation; 

(f) Semiconductor companies were experiencing a market downturn, resulting in 

increased consolidations and reduced expenditures. Consolidations announced in 2014 totaled $23 

billion, nearly double the $12 billion announced in 2013. Defendants knew, but did not disclose, 

that semiconductor consolidations typically always had a “negative effect.” Defendant Rhines 

conceded this knowledge on a May 19, 2016 1Q FY17 earnings call, admitting that “in almost all 

cases of consolidation, it’s a negative effect. That is it either slows the growth rate or even causes 

a negative growth rate”; 

(g) Defendants also knew, from their own experience, that semiconductor 

consolidations could negatively impact their contract renewals. In a February 27, 2014 earnings 

call, Defendants reported that there was “a substantial drag from Japan . . . due to the restructuring 

of the Japanese electronics industry . . . .” In addition, Defendant Rhines had acknowledged during 

a February 27, 2014 earnings call that the Company lost 20% on two of its largest contract renewals 

as “a direct result of the consolidations and reductions in people that had occurred in those 

companies”; 

(h) Defendants knew that Mentor’s customers IBM and GlobalFoundries had 

announced a $1.5 billion deal on October 20, 2014, which would result in decreased orders and 

price erosion. In fact, Defendants blamed this very deal (in part) for their more than $104 million 

reduction in FY16 revenue guidance on November 19, 2015. ¶101. Rhines was quoted in an article 

on December 2, 2015, admitting his knowledge that the effect of the announced consolidations 

would be one that lasted for years, not months and impacted renewals. ¶108. Analysts would note 

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after Defendants’ disclosure on December 4, 2015 that Mentor “does not get to count on both IBM 

and Global Foundries.” ¶114; and 

(i) The outlook for FY15 emulation revenue growth of 20%-25% had not 

improved as Defendants represented, and could and would not be met, for all the facts known to 

Defendants in (a)-(h) above. 

Mentor Issues FY16 Financial Guidance that Lacks Any Reasonable Basis 

66. On February 26, 2015, Mentor issued a press release announcing its financial results 

for 4Q FY15, ended January 31, 2015. The press release provided in pertinent part: 

Mentor Graphics Corporation today announced financial results for the 

company’s fiscal fourth quarter ended January 31, 2015. The company reported 

revenues of $439.1 million, non-GAAP earnings per share of $1.09, and GAAP 

earnings per share of $0.96. For the full fiscal year, revenues were $1.244 billion, 

non-GAAP earnings per share were $1.77, and GAAP earnings per share were $1.26. 

* * * 

“In the fourth quarter we posted numerous all-time records including 

bookings, revenue, and both GAAP and non-GAAP earnings per share,” said 

Gregory K. Hinckley, president of Mentor Graphics. “Similarly, we had record 

revenue and non-GAAP earnings per share for the full year. . . . 

67. False and Misleading Statement: Mentor’s February 26, 2015 press release also 

included guidance for FY16 that Defendants knew lacked any reasonable basis when issued: 

Outlook 

For the first quarter of fiscal 2016, the company expects revenues of about 

$260 million, non-GAAP earnings per share of about $0.18 and GAAP earnings per 

share of approximately $0.08. For the full year fiscal 2016, the company expects 

revenues of about $1.282 billion, non-GAAP earnings per share of about $1.85, and 

GAAP earnings per share of approximately $1.45. The fiscal 2016 non-GAAP 

guidance, first quarter and full year, anticipates a normalized non-GAAP tax rate of 

19% which is an increase from the fiscal 2015 rate of 17%. 

68. False and Misleading Statement: On the same day as the press release, Defendants 

held an earnings call with analysts and investors to discuss the Company’s 4Q FY15 and FY15 

reported earnings and results. Defendants Rhines, Hinckley and Reinhart hosted the call. During the 

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earnings call, Defendants repeated the earlier false Company revenue guidance of $1.282 billion 

and EPS guidance of $1.45. Defendants also made numerous false statements, including that 

Mentor’s emulation business would grow: 

[ANALYST:] And then, emulation, I think you talked about perhaps growing that 

business on the order of 25% in FY15. Wondering if you can kind of talk about 

where you ended up, maybe relative to that number? 

And then, what are your thoughts, and what's baked in to your FY16 forecast, with 

respect to emulation growth? It sounds like you expect no products from your – no 

sales from your largest customer. Just wondering how it affects the overall growth 

there? 

[RHINES:] Well, we were able . . . to grow our emulation revenue this past year. 

But as noted, we had a contribution from a large customer, which we don't expect to 

have in the coming year. But we do expect that we can probably grow emulation 

revenue in the year ahead – or the year we are currently engaged in, in FY16. 

* * * 

[ANALYST:] Okay. And could you comment on the renewals calendar for FY16? 

And to what extent is FY13, a predictor of this year's results? In FY13, bookings 

were down year over year in each quarter and for the year 

[HINCKLEY:] I haven’t looked back at FY13 in preparation for this call, so I can't 

address that, and we don't really comment on what the levels are of our renewal 

portfolio from year to year. What I do point out is that our expected revenue is less 

than it has historically traded. 

But, that has to do with the expected absence of business from our single-largest 

emulation account, and emulation is not a product that is characterized by renewals, 

at least for Mentor. Most of the business is perpetual license. 

69. False and Misleading Statement: Defendants also falsely assured analysts and 

investors on the February 26, 2015 earnings call that the “decline in the level of activity” from the 

Company’s largest emulation customer, Intel, was an “isolated” issue that would not affect future 

growth in emulation. Defendants also misled investors regarding the impact of the anticipated 

release of Cadence’s competing emulation product and Synopsys’ sales of its newly acquired ZeBu 3 

emulator on Mentor’s growth prospects by simultaneously issuing revenue guidance for FY16 of 

$1.282 billion and downplaying any impact of the Company’s competition: 

[ANALYST:] Okay. And then, I was just wondering, with one of your competitors 

in emulation with a new product, I’m wondering what your thoughts are on the 

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competitive dynamics there? And whether or not the long-term – or let’s say, the 

five-year growth rate for emulation should reaccelerate after this year for you? 

[RHINES:] . . . I believe you’re referring to Cadence. Is that what the question is? 

[ANALYST:] Yes. 

[RHINES:] Yes, we haven’t seen much direct competition from Cadence, but we’re 

always wary. Customers develop new capabilities, and so we work hard to be sure 

that we are ahead of the game. 

* * * 

[HINCKLEY:] [R]ight now, our emulation business is affected by a big decline in 

the level of activity with our single-largest customer. It’s quite isolated. This has 

nothing to do with what is going on in the overall emulation market. It is our 

business with what has been our historically largest emulation customer. 

70. As a result of Defendants’ misrepresentations, on February 27, 2015, the Company’s 

stock continued to trade at artificially inflated prices above $22.00 per share, closing at $24.18 on 

March 2, 2015. 

71. Analysts bought Defendants’ reassurances and promises regarding the strength of 

Mentor’s emulation business reporting that FY16 guidance was “conservative,” there was a “lower 

risk profile for FY16” and that “emulation business remains strong”: 

(a) Canaccord Genuity, on February 27, 2015, reported that “We are reiterating a 

BUY rating on MENT following upside results and what we view as conservative guidance for fiscal 

2016. While this year sees overall top line growth slowing on slowing demand from MENT’s largest 

emulation customer, we expect revenue and earnings growth to be above trend in fiscal 2017”; 

(b) J.P. Morgan, on February 27, 2015, reported that “Looking to FY16 

management is factoring in stable growth in core EDA, but taking out a large customer in the 

emulation business as timing/certainty of deal closure is up in the air. This lowers the risk profile of 

FY16 estimates, but likely causes shares to go into a holding pattern on whether that business 

materializes”; and 

(c) Summit Research, on March 2, 2015, reported that “Reiterating BUY and $30 

PT Due to the Following: 1) Emulation business at Intel has not been lost, and Intel is probably 

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taking a pause; 2) Non-Intel Emulation business remains strong (6 customer wins); 3) Automotive 

and PCB business are strong . . . .” 

72. False and Misleading Statement: As Defendants had done in prior quarters, 

Defendants repeated in Mentor’s FY15 Form 10-K their false statements omitting the true impact of 

Cadence’s new emulator, Synopsys competitive emulator and semiconductor consolidations: 

We or our competitors sometimes pre-announce or provide “road maps” of 

the expected availability of new hardware or software products or product features. 

Such pre-announcements, whether offered by the pre-announcing company or its 

competitors, can result in customers canceling or deferring orders for currently 

offered products anticipating that currently offered products may be uncompetitive 

or lacking in features or performance. In the case of hardware products, slowing 

sales may cause inventories to increase or become obsolete, resulting in the need to 

discount or reduce production of current products. 

* * * 

Our competitors may acquire technology or companies offering competing 

or complementary product offerings which could adversely impact our ability to 

compete in the marketplace. They may be able to deliver better or broader product 

offerings, offer better pricing, or otherwise make it more desirable for our 

customers to buy more of the tools in their design flow from the competitor after the 

acquisition. . . . 

Customers may acquire or merge with other customers or their business. 

Like many industries, the semiconductor and electronics industries are subject 

to mergers, acquisitions, and divestitures and our customers or parts of their business 

may acquire or be acquired by other customers. Such synergies could result in 

fewer customers in the industries or the loss of some customers to competitors, or 

reduced customer spending on software and services due to redundancies or 

stronger customer negotiating power, which could have an adverse effect on our 

business and future revenues. 

73. False and Misleading Statement: Defendants also falsely maintained in Mentor’s 

FY15 Form 10-K that the Company was not overly dependent on any customer or product, and had 

developed strong leadership positions with its products that it expected to be able to maintain: 

 “[N]o material portion of our business is dependent on a single or a few 

customers.” 

 “We do not believe that the competitive loss of one or more individual 

products at one or more of our customers would have a material adverse 

effect on our revenues.” 

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74. False and Misleading Statement: Mentor’s FY15 Form 10-K filed with the SEC on 

March 16, 2015 also reaffirmed the false FY16 revenue and EPS guidance issued by Defendants on 

February 26, 2015: 

OUTLOOK FOR FISCAL 2016 

We expect revenues for the first quarter of fiscal 2016 to be approximately 

$260 million, with earnings per share for the same period of approximately $0.08. 

For the full year fiscal 2016, we expect revenues to be approximately $1.282 billion,

with earnings per share of approximately $1.45. 

75. As a result of Defendants’ false statements on March 16, 2015, Mentor’s stock 

continued to trade at artificially inflated prices, closing at $24.09 on March 16, 2015. 

76. Reasons Why Statements in ¶¶67-69, 72-74 Were Knowingly False and Misleading: 

Each of the statements and omissions alleged in ¶¶67-69, 72-74, including that the Company 

expected to achieve FY16 revenue guidance of ~ $1.282 billion and EPS of $1.45 accompanied by 

statements that Mentor’s emulation business was: (i) expected to “grow”; (ii) there was no “direct 

competition” from Cadence; (iii) the decline in activity from its largest customer emulation customer 

(Intel) was “isolated”; (iv) pre-announcements of competitive products “can result in in customers 

canceling or deferring orders”; (v) acquired products from its competitors “could adversely impact 

our ability to compete”; (vi) that consolidations “could result” in reduced spending, “which could

have an adverse effect”; and (vii) “no material portion of our business is dependent on a single or 

few customers,” were false and misleading when made, because Defendants knew or recklessly 

disregarded the following: 

(a) All the reasons set forth in ¶¶3, 45-55, 65 above; 

(b) Defendants’ statement that there was “a big decline in the level of activity 

with our single-largest customer” was a material understatement. Defendants knew but failed to 

disclose, that Mentor had lost its largest customer’s emulation business to Synopsys. ¶¶47-52. Nor 

did Defendants disclose the impact of that loss including given that they knew that no orders would 

be placed for Mentor’s emulators in the foreseeable future and that other business had been lost to 

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Synopsys as a result of losing the “800-pound gorilla” that was “really important” for sales to “other 

folks” (¶47); 

(c) Nor was the purported decline in Intel’s business “isolated” as Defendants 

claimed. Rather, once Mentor lost Intel’s business to Synopsys, Defendants knew that Synopsys 

was a “competitive threat” for virtually all of Mentor’s emulation accounts representing a “dramatic 

change” in competition; 

(d) Defendants also knew, but did not disclose, that evaluations by emulation 

customers were taking longer, causing delays in orders, as a result of: (i) Synopsys’ acquisition of 

the ZeBu 3 emulator and its imminent release of a new version of that emulator in March 2015; and 

(ii) the increasing threat of Cadence’s anticipated new emulation product; 

(e) Defendants’ claim that they had not “seen much competition from Cadence” 

was materially misleading. Defendants knew that customers were deferring orders in anticipation of 

evaluating Cadence’s new emulator and thus Cadence’s “direct competition” to Mentor’s revenues 

and market share in emulation; 

(f) Defendants also had no reasonable basis for telling investors that emulation 

revenue would “grow” given the adverse facts known to Defendants, including its competitors’ new 

emulation products, the loss of its largest customer’s emulation business and the negative effect of 

the semiconductor consolidations; 

(g) In addition to the $1.5 billion deal between IBM and GlobalFoundries that 

Defendants would specifically blame for contributing to the reduction in FY16 guidance (¶101), by 

January 15, 2015 there had been another $3 billion deal announced between Mentor semiconductor 

customer Infineon Technologies AG and International Rectifier.8

 This deal along with the other 

deals was having an existing negative impact on Mentor’s future revenues. Defendants would postClass Period admit that the effects of the announced consolidations would be felt for “years” (¶108); 

 

8 See Exhibit A for a listing of semiconductor deals. 

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(h) Because of the lengthy evaluation cycle and the lead times for the 

manufacturing and delivery of Mentor’s emulators, Defendants had to have finished the direct 

evaluation cycle and negotiations that according to Mentor VP Cantow could take 18 months (¶55) 

when they issued FY16 guidance. Defendants also told investors in the Company’s FY15 Form 10-

K that its $142 million backlog of orders booked by January 31, 2015 were expected to be delivered 

by the end of FY16. Defendants had also previously presented on May 23, 2013 that for 

manufacturing “it takes us about six months to respond to a big jump in orders, which, what we’re 

booking in the first and second quarter, we will largely be shipping in the fourth.” It was not 

reasonable under the circumstances for Defendants to anticipate that tens of millions of dollars more 

in additional emulation bookings would close and that those bookings could be manufactured and 

delivered in FY16 in time to book revenues; 

(i) Defendants knew that early renewals simply pulled in revenues to earlier 

quarters and that additional bookings were necessary to meet guidance; 

(j) Defendants knew that the Company’s targeted renewals for contracts were 

70% semiconductor companies, when traditionally Mentor prided itself on the diversity of its 

customer base, split ~ 50/50 between semiconductor and systems companies. ¶116. Defendants 

concealed this fact from investors despite the increasing consolidations and weakness in the 

semiconductor industry; and 

(k) In light of the above and specifically (a)-(j), Defendants also knew that FY16 

fiscal guidance of ~ $1.282 billion in revenues and EPS of $1.45 lacked a reasonable basis. In fact, 

Defendants would dramatically lower FY16 revenue guidance to $1.18 billion and EPS guidance to 

$0.63 on November 19, 2015 blaming the delays in booking emulation orders and the negative 

impact of semiconductor consolidations. 

Mentor Falsely Affirms FY16 Revenue and EPS Guidance Touting Emulation Growth 

77. On May 22, 2015, Mentor issued a press release announcing its financial results for 

the 1Q FY16, the period ended April 30, 2015: 

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Mentor Graphics Reports Fiscal First Quarter Results and 

Announces Quarterly Dividend 

Mentor Graphics Corporation today announced financial results for the 

company’s fiscal first quarter ended April 30, 2015. The company reported revenues 

of $272.1 million, non-GAAP earnings per share of $0.28, and a GAAP loss per 

share of $0.08. 

“The first quarter was strong for Mentor Graphics, substantially exceeding 

financial guidance,” said Walden C. Rhines, chairman and CEO. “In addition to 

more than 50% bookings growth in three of our four product categories, our 

automotive business was very strong, driven by a major win with a leading 

automotive OEM.” 

* * * 

“First quarter revenue was 5% greater than guidance, while continued 

attention to expenses drove non-GAAP earnings per share to exceed guidance by 

55%,” said Gregory K. Hinckley, president of Mentor Graphics. 

78. False and Misleading Statement: In the May 22, 2015 press release Defendants falsely 

affirmed previous revenue guidance for FY16 of ~ $1.282 billion and issued GAAP EPS guidance 

to $1.18, attributing the decrease in EPS guidance to “primarily the result of workforce restructuring 

expenses”: 

Outlook 

For the second quarter of fiscal 2016, the company expects revenue of about 

$250 million, non-GAAP earnings per share of about $0.14 and GAAP earnings per 

share of approximately $0.03. For the full year fiscal 2016, the company affirms 

the previous revenue guidance of about $1.282 billion; increases non-GAAP 

earnings per share guidance from $1.85 to about $1.88; and currently expects GAAP 

earnings per share of approximately $1.18. The decrease in fiscal 2016 GAAP 

earnings per share from previous guidance is primarily the result of workforce 

restructuring expenses announced during the first quarter. 

79. False and Misleading Statement: On the same day, May 22, 2015, Defendants held an 

earnings call with analysts and investors to discuss the Company’s 1Q FY16 reported earnings and 

operations and FY16 guidance. Defendants Rhines, Hinckley and Reinhart hosted the earnings call. 

During the earnings call, Defendants reiterated the Company’s false FY16 guidance of ~ $1.282 

billion in revenue and EPS guidance of $1.18. Defendants also stated that the Company was 

booked to capacity in evaluations and had more demand than it could handle, such that even if 

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revenue was otherwise down, the Company had more than enough business in the pipeline to meet or 

exceed fiscal year guidance: 

[HINCKLEY:] [B]ookings were up 70%, through the second highest Q1 ever. That 

strength was dispersed, spread across all regions in most product categories. 

* * * 

[ANALYST:] Okay. And then, finally, maybe just a quick update on the emulation 

business, on both the competitive front, but also just the linearity you’re expecting 

through this year. It looks like revenue’s been higher than bookings for the last few 

quarters, and I wonder if that’s changing at all. 

[RHINES:] We are expecting that, during the year, our revenue will grow for 

emulation. And I have to say, at this point, that the activity for evaluations is so 

strong, that we are booked to capacity in the number of customers we can evaluate. 

80. False and Misleading Statement: Defendants, when specifically asked about Mentor’s 

FY16 guidance, falsely assured investors that business, especially in emulation, was robust: 

[ANALYST:] The first question is on the guidance. Why would revenue – I mean 

maybe if you could kind of touch base, why the revenue will be down Q over Q? Is 

it some pull-in, in the Q1 quarter? 

[HINCKLEY:] That’s what Wally explained, []. So we had some contracts that 

were expiring naturally outside of the first quarter that those customers asked us to 

renew in the first quarter. That happened. And so, it’s business that we expected to 

do later in the year, happened in the first quarter. 

[ANALYST:] Got it. Okay. And then, the scalable verification revenue is down 

year over year. So is it mainly kind of the one big emulation customer, which you 

talked about last quarter, may not be renewing this year or buying more tools? Is it 

because of that? 

[HINCKLEY:] I think what we described is – and we think the most compelling 

indicator of the strength of the business is actually what out bookings are. So, our 

revenue maybe down, and that has to do with, for example, in scalable verification is 

emulation, we have to actually build emulators, so we ship to a build forecast. 

Bookings for the quarter were, in fact, up 65%. So, the business is robust. 

81. Asked directly, again, during the earnings call about declining revenue in emulation 

and the loss of emulation business, Defendants reassured analysts that bookings were up and would 

materialize in revenue in the remainder of the fiscal year, with Hinckley stating that he thought 

negative leading indicators were “all noise.” Based on these reassurances, analysts continued to 

believe that Mentor was at least on track to deliver on its guidance. Canaccord Genuity, for 

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example, in a May 22, 2015 report declared that “[w]e reiterate our BUY rating and see potential for 

upside to consensus estimates based on increasing momentum for automotive (additional wins at 

other manufacturers) and emulation (management expectations conservative).” 

82. False and Misleading Statement: Defendants repeated in Mentor’s 1Q Form 10-Q for 

FY16 filed on June 2015 with the SEC verbatim the misrepresentations it had earlier made regarding 

the impact of Cadence’s new emulation product, the impact of Synopsys’ acquisition of a new 

emulator and giving investors an impression that materially differed from the truth about 

consolidations: 

We or our competitors sometimes pre-announce or provide “road maps” of 

the expected availability of new hardware or software products or product features. 

Such pre-announcements, whether offered by the pre-announcing company or its 

competitors, can result in customers canceling or deferring orders for currently 

offered products anticipating that currently offered products may be uncompetitive 

or lacking in features or performance. In the case of hardware products, slowing 

sales may cause inventories to increase or become obsolete, resulting in the need to 

discount or reduce production of current products. 

* * * 

Our competitors may acquire technology or companies offering competing 

or complementary product offerings which could adversely impact our ability to 

compete in the marketplace. They may be able to deliver better or broader product 

offerings, offer better pricing, or otherwise make it more desirable for our 

customers to buy more of the tools in their design flow from the competitor after the 

acquisition. . . . 

* * * 

Like many industries, the semiconductor and electronics industries are subject 

to mergers, acquisitions, and divestitures and our customers or parts of their business 

may acquire or be acquired by other customers. Such changes could result in fewer 

customers in the industries or the loss of some customers to competitors, or 

reduced customer spending on software and services due to redundancies or 

stronger customer negotiating power, which could have an adverse effect on our 

business and future revenues. 

83. False and Misleading Statement: Defendants also reiterated the false FY16 revenue 

and EPS guidance they had given on May 22, 2015 in Mentor’s 1Q Form 10-Q filed with SEC as 

follows: 

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Outlook 

For the second quarter of fiscal 2016, the company expects revenue of about 

$250 million, non-GAAP earnings per share of about $0.14 and GAAP earnings per 

share of approximately $0.03. For the full year fiscal 2016, the company affirms 

the previous revenue guidance of about $1.282 billion; increases non-GAAP 

earnings per share guidance from $1.85 to about $1.88; and currently expects GAAP 

earnings per share of approximately $1.18. The decrease in fiscal 2016 GAAP 

earnings per share from previous guidance is primarily the result of workforce 

restructuring expenses announced during the first quarter. 

84. Following its 1Q FY16 results and Defendants’ misrepresentations, the Company’s 

stock continued to trade at artificially inflated prices above $25.00 per share, reaching as high as 

$26.79 on June 2, 2015. 

85. Reasons Why Statements in ¶¶78-80, 82-83 Were Knowingly False and Misleading: 

Each of the statements and omissions alleged in ¶¶78-80, 82-83 above were false and misleading 

when made because Defendants knew of or recklessly disregarded the following: 

(a) All of the reasons set forth in ¶¶45-55, 65, 76 above; 

(b) Defendants knew, but did not disclose, that Mentor had lost its largest 

customer’s emulation business for the foreseeable future. ¶¶47-52. Defendants also failed to 

disclose the magnitude or impact of the business it had lost. No orders would be placed for Mentor’s 

emulators in 2015 or for its next-generation emulator by Intel (¶49); 

(c) Intel’s emulation business was not the only business Mentor lost to Synopsys. 

Synopsys had become a “competitive threat” for virtually all of Mentor’s emulation accounts and 

Mentor was losing business as result (¶¶51-52); 

(d) Defendants also knew, but did not disclose, that evaluations by emulation 

customers were taking longer, causing delays in orders, as a result of: (i) Synopsys’ acquisition of 

the ZeBu 3 emulator and its imminent release of a new version of that emulator in March 2015; and 

(ii) the increasing threat of Cadence’s anticipated new emulation product; 

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(e) The imminence of Cadence’s new product was clear. During the May 22, 

2015 earnings call one analyst noted, “we know that Cadence is coming to market soon with their 

new platform.” Defendants, however, did not disclose the delays in bookings as a result of the 

anticipation of Cadence’s new emulator that were impacting bookings; 

(f) Semiconductor companies were experiencing a market downturn, resulting in 

increased consolidations and reduced expenditures. Consolidations announced in the first half of 

2015 totaled $83 billion, significantly up from the $23 billion in announced deals for all of 2014. 

The number and magnitude of the semiconductor deals was staggering. In addition to the 

IBM/GlobalFoundries $1.5 billion deal that Defendants would belatedly blame as contributing to 

the $104 million reduction of 4Q FY16 guidance on November 19, 2015 (¶101), Defendants also 

knew of a $11.8 billion deal announced between Mentor customer NXP Semiconductors NV and 

Freescale Semiconductor Ltd., and a $37 billion deal between Avago Technologies Inc. and 

Broadcom Corp. See Exhibit A. Defendants deliberately disregarded the adverse impact that they 

knew these consolidations would have on Mentor’s financial performance; 

(g) Despite the unusual number of semiconductor consolidations that had already 

been announced in 2015, Defendants misled investors about the known impact that those 

announcements was already having. Not until December 3, 2015, after reducing guidance would 

Defendants materially change their purported risk disclosures noting: “Merger and acquisition

activity in the semiconductor industry has been unusually strong during 2015. This activity 

appears to be the result of semiconductor companies, experiencing slower sales in their existing 

market segments, desiring to broaden the scope of their businesses and to spread the rising costs of 

product development and use of advanced technologies across a larger organization.” Defendants 

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thus knew not only of the consolidations but the slower sales in the semiconductor industry and the 

reductions in expenditures; 

(h) Defendants had no reasonable basis for telling investors that “revenue will 

grow for emulation” given the adverse facts known to Defendants including its competitors’ new 

emulation products that were causing delays in bookings, lost sales and price erosion, as well as the 

consolidations in the semiconductor industry; 

(i) Defendants knew, but failed to disclose, that though emulation bookings were 

reportedly increased, demand was not strong or “robust.” In truth, there was no increased demand. 

Defendants’ representations regarding the number of evaluations was also misleading because 

Defendants knew that they “were not only game in town” and that competitive evaluations were 

causing delays in orders and lost sales (¶117); 

(j) Because of the lengthy evaluation cycle and the lead times for the 

manufacturing and delivery of Mentor’s emulators, Defendants had to have finished the lengthy 

evaluation cycle and negotiations that according to Mentor VP Cantow could take 18 months (¶55) 

when they issued FY16 guidance. Defendants also told investors in the Company’s FY15 Form 10-

K that its $142 million backlog of orders booked by January 31, 2015 were expected to be delivered 

by the end of FY16. It was not reasonable under the circumstances for Defendants to anticipate that 

tens of millions of dollars more in additional emulation bookings would close and that those 

bookings could be manufactured and delivered in FY16 in time to book revenues; 

(k) Defendants knew that early renewals simply pulled in revenues to earlier 

quarters and that additional bookings were necessary to meet guidance; 

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(l) Defendants also knew that the Company’s targeted renewals for contracts 

were 70% semiconductor companies, when traditionally Mentor prided itself on the diversity of its 

customer base, split ~ 50/50 between semiconductor and systems companies. ¶116. Defendants 

concealed this fact from investors despite the increasing consolidations and weakness in the 

semiconductor industry; and 

(m) In light of the above (a)-(l), Defendants also knew that the FY16 guidance of 

~ $1.282 billion in revenues and EPS of $1.45 they had affirmed lacked any reasonable basis. In 

fact, Defendants would dramatically lower FY16 revenue guidance to $1.18 billion and EPS 

guidance to $0.63 on November 19, 2015 blaming the delays in booking emulation orders and the 

negative impact of semiconductor consolidations. 

Mentor Falsely Raises FY16 Financial Guidance Emphasizing Demand in Growth and Denies 

Negative Impact of Semiconductor Consolidations 

86. On August 20, 2015, Mentor issued a press release announcing its financial results for 

the 2Q FY16, the period ended July 31, 2015 as follows: 

Mentor Graphics Reports Fiscal Second Quarter Results and 

Announces Quarterly Dividend 

Mentor Graphics Corporation today announced financial results for the 

company’s fiscal second quarter ended July 31, 2015. The company reported 

revenues of $281.1 million, non-GAAP earnings per share of $0.36, and GAAP 

earnings per share of $0.26. 

“Revenue was an all-time second quarter record and Mentor exceeded nonGAAP earnings per share guidance for the 26th consecutive quarter . . . . Customer 

need for increased amounts of software drove early renewal activity and the upside in 

the quarter.” 

“[W]e [also] added five new emulation customers, including both a Top Ten 

chip company and a start-up.” 

* * * 

“Second quarter revenue exceeded guidance by 12% while non-GAAP EPS was up 

over 150% versus guidance.” 

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87. False and Misleading Statement: In the August 20, 2015 press release Defendants also 

falsely raised revenue guidance for FY16 from $1.282 billion to $1.285 billion and issued FY16 EPS 

Guidance of $1.25: 

Outlook 

For the third quarter of fiscal 2016, the company expects revenue of about 

$290 million, non-GAAP earnings per share of about $0.27 and GAAP earnings per 

share of approximately $0.17. For the full year fiscal 2016, the company is raising 

revenue guidance to about $1.285 billion; is increasing non-GAAP earnings per 

share guidance from $1.88 to about $1.90; and currently expects GAAP earnings per 

share of approximately $1.25. 

88. False and Misleading Statement: Following the issuance of the August 20, 2015 press 

release, Defendants held an earnings call the same day with analysts and investors to discuss the 

Company’s reported earnings and financial guidance. Defendants Reinhart, Rhines and Hinckley 

hosted the earnings call, and repeated the Company’s false guidance of $1.285 billion in revenue 

and EPS of $1.25. Defendants also materially misled investors regarding purported growth in 

demand as follows: 

[RHINES:] Second quarter of FY16 was one of records for a Q2. We substantially 

exceeded our own expectations with revenue of $281.1 million and non-GAAP 

earnings per share of $0.36.

This was largely the result of booking FY16 expiring contracts earlier than planned. 

The majority of this upside was the result of users requiring more software than 

anticipated in their prior contracts. . . . 

We were impressed by the breadth of demand growth in our two largest and fastestgrowing product categories, Design to Silicon and Scalable Verification, which 

grew 105% and 20% respectively. With Calibre’s golden status in the semiconductor 

industry and over 1,000 customer companies, we’ve come to expect steady growth. 

89. False and Misleading Statement: When asked specifically about industry 

consolidation among Mentor’s customers, Defendants misled investors into believing there would be 

little to no impact: 

[ANALYST:] Hi, thanks for taking my question. If you look in the semi industry, a 

couple of companies have preannounced negatively, a lot of them have guided down 

next quarter. Given your business model, we don’t see immediate impact to the 

financials, but maybe could you provide commentary if you have seen any weakness 

either in bookings or the comments, what new customers are telling you. 

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[RHINES:] Yes, the semiconductor revenue tends to be very volatile compared to 

semiconductor R&D. Semiconductor companies can’t adjust their R&D spending 

very rapidly, and an ongoing business because it means hiring and firing designers 

which they rarely do fire them. So any of the – even a one-year change in outlook, 

unless it’s really severe, doesn't have that much ripple-through. If you want to look 

at how EDA traditionally modulates with the semiconductor industry, just look at 

semiconductor R&D and I think you will find that most of the forecasts in the 

industry are somewhere in the 4% to 6% range for next year for revenue and for 

R&D. 

* * * 

One other topic that comes up in many of my meetings is concern about the 

increased amount of M&A activity in the semiconductor industry. While the actual 

number of mergers and acquisitions is up only modesty in 2015 compared to prior 

history, the magnitude of announced deals is up dramatically. Historically, these 

changes simply add to the strength of the de facto standard leader in EDA in each 

tool category, so there are some wins and some losses for every supplier. 

But the other concern is that the total R&D spending of the semiconductor 

industry could be reduced. That is, of course, possible but for more than 30 years 

semiconductor R&D has averaged a constant 14% of revenue despite lots of 

structural changes. It’s likely that most of the R&D investment that's reduced in 

one company will show up later in other companies who want to capture the 

customer demand that's no longer being adequately served. 

90. False and Misleading Statement: During the August 20, 2015 earnings call, 

Defendants also falsely guided investors regarding Mentor’s 4Q FY15 revenue: 

[HINCKLEY:] Fourth-quarter revenue is expected to be slightly over $440 

million, similar to the $439 million achieved in the fourth quarter of FY15. 

91. False and Misleading Statement: Defendants assured investors during the earnings 

call that they were very comfortable with raising the Company’s FY16 guidance revenue to $1.285 

billion: 

[ANALYST:] And then Wally, you talked a bit about how some of the customers 

came in, they wanted to get more software so they renewed a little earlier in the 

cycle. I’m curious though why that didn’t impact the full-year view a little bit more. 

If they’re coming in and ordering more software than you thought or having to order 

sooner, shouldn’t that have impacted your full-year view a little more? 

[RHINES:] Well certainly it makes us feel better about the year, but as Greg 

reflected, the growth rate in contracts is not abnormally high. So we felt it was 

prudent to continue on the path we previously forecasted. 

* * * 

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[ANALYST:] I just wanted to understand more so what drove the higher EPS for the 

year, and with that, how you would view your visibility to achieving the full-year 

guidance now versus a quarter ago? 

* * * 

[HINCKLEY:] As we see our business right now, what we are prepared to – albeit 

it is modest, a $3 million increase in revenues for the year, but it’s something that 

we feel we’re quite comfortable with. And we are now at a point, much like last 

quarter and this quarter, where most of incremental revenue goes down to operating 

income. So in our business, if costs are relatively fixed, somewhere around $1.5 

million of revenue, pretax, creates $0.01 per share. So $3 million more revenue in 

our forecast, $0.02 per share. 

92. Analysts were impressed with specific areas of the business based on Defendants’ 

statements. Canaccord Genuity, for example, in an August 20, 2015 report titled “We see room for 

additional upside” cited “strong demand in Scalable Verification driven by strength in Emulation” as 

a basis for concluding that “we see potential for additional positive revisions to estimates given solid 

momentum for emulation and transportation as well as a healthy outlook for core EDA.” 

93. On August 21, 2015, the first day of trading following the after-market-hours press 

release and conference call of August 20, 2015, the Company’s stock price continued to trade at 

artificially inflated prices above $24.00 per share. 

94. False and Misleading Statement: Ten days later on August 31, 2015, Mentor filed its 

2Q FY16 Form 10-Q with the SEC for the period ending July 31, 2015 in which Defendants 

repeated verbatim its prior misleading representations concealing the impact of its competitors’ 

products, including Cadence’s new emulation product and Synopsys’ emulation product, and the 

negative effect of consolidations that the Company had already experienced: 

We or our competitors sometimes pre-announce or provide “road maps” of 

the expected availability of new hardware or software products or product features. 

Such pre-announcements, whether offered by the pre-announcing company or its 

competitors, can result in customers canceling or deferring orders for currently 

offered products anticipating that currently offered products may be uncompetitive or 

lacking in features or performance. In the case of hardware products, slowing sales 

may cause inventories to increase or become obsolete, resulting in the need to 

discount or reduce production of current products. 

* * * 

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Our competitors may acquire technology or companies offering competing 

or complementary product offerings which could adversely impact our ability to 

compete in the marketplace. They may be able to deliver better or broader product 

offerings, offer better pricing, or otherwise make it more desirable for our 

customers to buy more of the tools in their design flow from the competitor after the 

acquisition. . . . 

* * * 

Like many industries, the semiconductor and electronics industries are subject 

to mergers, acquisitions, and divestitures and our customers or parts of their business 

may acquire or be acquired by other customers. Such changes could result in fewer 

customers in the industries or the loss of some customers to competitors, or 

reduced customer spending on software and services due to redundancies or 

stronger customer negotiating power, which could have an adverse effect on our 

business and future revenues. 

95. False and Misleading Statement: Defendants also falsely reiterated the increase in 

guidance for the Company’s FY16 in Mentor’s 2Q FY16 Form 10-Q as follows: 

OUTLOOK FOR FISCAL 2016 

We expect revenues for the third quarter of fiscal 2016 to be approximately 

$290 with earnings for the same period of approximately $0.17 per diluted share. 

For the full fiscal year 2016, we expect revenues of approximately $1,285 with 

earnings of $1.25 per diluted share. 

96. As a result of Defendants’ misrepresentations and omissions, Mentor’s stock price 

traded at artificially inflated prices reaching a high of $26.03 on August 31, 2015. 

97. After raising Mentor’s revenue guidance, expressing that the Company had demand 

in growth in two of its largest products and denying any negative impact on Mentor’s financials for 

FY16 as a result of semiconductor consolations, between October 9, 2015 and October 12, 2015, just 

two weeks before the end of 3Q FY16, Defendant Rhines sold 170,000 shares of Mentor Graphics 

stock at prices above $25.00 per share for proceeds of more than $4.3 million with knowledge of 

non-public adverse material information. The timing of his trades was highly suspicious. 

Likewise, Defendant Hinckley’s trades in Mentor stock on September 2, 2015, two days after 

Defendants raised FY16 fiscal guidance for proceeds of nearly $1.2 million were also highly 

suspicious. 

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98. On October 26, 2015, Seeking Alpha published a report, entitled “Mentor Growing 

Through The Roof,” which explained that Mentor’s growth showed no signs of abating. In 

particular, the analyst was impressed with “[m]anagement[’s] claim[]” that the Company was able to 

increase bookings in the 2Q FY16 “due to customers renewing contracts to get more software ahead 

of schedule,” which suggested that demand for Mentor’s products continued to grow. 

99. Reasons Why Statements in ¶¶87-91, 94-95 Were Knowingly False and Misleading: 

Each of the statements and omissions alleged in ¶¶87-91, 94-95 above were false and misleading 

when made because Defendants knew of or recklessly disregarded the following: 

(a) All of the reasons set forth in ¶¶3, 45-55, 65, 76, 85 above; 

(b) Defendants knew, but did not disclose, that not only had Mentor had lost 

Intel’s business to Synopsys, the magnitude of the loss was material (¶¶47-52); 

(c) Synopsys was a “competitive threat” for virtually all of Mentor’s emulation 

accounts and Mentor was losing business as result (¶¶51-52); 

(d) Rather than breadth in “demand growth” for Scalable Verification (including 

emulation), Defendants knew they were not “the only game in town” and that evaluations were 

taking longer and not translating into bookings (¶117); 

(e) Nor were the bookings in 2Q FY16 indicative of demands or growth for 

Design to Silicon. Defendants knew that early renewals simply pulled in revenues to earlier quarters 

and that additional bookings were necessary to meet guidance; 

(f) Mentor had attended the June 2015 Design Automation Conference (“DAC”). 

Online industry blog DeepChip.com’s representative attended this conference and would later 

describe on November 5, 2015 Cadence and Mentor as being at “war” with respect to emulation 

platforms. Defendants, however, continued to omit the delays in bookings they were seeing as a 

result of this war; 

(g) Cadence’s anticipated new emulation product (Palladium Z1) began shipping 

in 3Q (July-September) according to Cadence’s comments at a January 14, 2016 Needham Growth 

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Conference. Defendants belatedly admitted that even prior to shipment, that with the anticipation of 

Cadence’s new product “there was a general fear in the market that there might be competition that 

could approach [Veloce2’s] capability” causing the deferral of orders (¶23); 

(h) The delays that Defendants would blame on November 19, 2015 for reduced 

FY16 guidance (“planned bookings for emulation were delayed”) had to have occurred by August 

20, 2015 because of the six-month plus lead times for emulation hardware to be manufactured and 

delivered so that revenue could be booked (¶76); 

(i) Semiconductor companies were experiencing a market downturn, resulting in 

increased consolidations and reduced expenditures. Consolidations announced in the first half of 

2015 totaled $83 billion. The consolidations were not, as Defendants claimed on August 20, 2015, 

“simply add[ing] to the strength of the de facto standard leader in EDA in each tool category.” 

Defendants knew that with respect to the impact of the $1.5 billion IBM/GlobalFoundries deal 

(announced on November 19, 2015 as a reason for reducing 4Q FY16 guidance by $104 million) that 

IBM had renewed its contract with Mentor “just before completion of the [July 1, 2015] merger 

[with GlobalFoundries], with a decrease in annual run rate.” ¶118. Thus, Defendants definitively 

knew of the adverse impact of this consolidation before July 1, 2015; 

(j) Defendants also knew that the $37 billion Avago/Broadcom deal announced 

in May 2015 included engineering expense cuts of $500 million. The Intel and Altera $16.7 billion 

deal announced on June 15, 2015, also included cost cutting. Defendant Hinckley admitted on 

January 13, 2016, that Defendants had known that the reduction in expenditures as a result of these 

consolidations would negatively impact Mentor: “So just . . . taking out $500 million worth of 

engineering expense [by Broadcom] has – will reduce the EDA spend for the entire industry.” He 

further admitted that “this is just one example, like somewhere between 1.5% and 2% of TAM [the 

total available market] and on an industry that is somewhere between about $5.5 billion and $6 

billion in revenue. So we are getting hit by that”; and 

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(k) Defendants knew, but failed to disclose, that FY16 fiscal guidance lacked a 

reasonable basis because the Company’s targeted renewals for contracts were 70% semiconductor 

companies, when traditionally Mentor’s revenues were split ~ 50/50 between semiconductor and 

systems companies (¶116). 

(l) In light of the above and specifically (a)-(k), Defendants had no reasonable 

basis to raise FY16 revenue guidance to $1.285 billion, issue FY16 EPS guidance of $1.25 or 4Q 

FY16 revenue guidance of $440 million. In fact, Defendants would dramatically lower FY16 

revenue guidance to $1.18 billion and EPS guidance to $0.63 and reduce 4Q FY16 guidance by a 

staggering $104 million on November 19, 2015 blaming the delays in booking emulation orders and 

the negative impact of semiconductor consolidations.

THE RELEVANT TRUTH BEGINS TO BE DISCLOSED 

100. On November 19, 2015, Mentor issued a press release for its 3Q FY16 reporting 

disappointing bookings and substantially reducing its 4Q FY16 financial outlook – instead of $440 

million in revenue for 4Q FY16, the Company announced that its 4Q FY16 revenue forecast would 

be reduced by a whopping $104 million to $336 million. The Company also reduced FY16 revenue 

guidance from $1.285 billion to $1.18 billion and FY16 EPS guidance from $1.25 to $0.63. The 

press release provided: 

Mentor Graphic Reports Fiscal Third Quarter Results 

Mentor Graphics Corporation today announced financial results for the 

company’s fiscal third quarter ended October 31, 2015. The company reported 

revenues of $291 million, non-GAAP earnings per share of $0.28, and GAAP 

earnings per share of $0.12. 

“Mentor achieved third-quarter guided results . . . . Active evaluations of 

Mentor’s Veloce emulator increased in the third quarter, but the time required for 

completion of evaluations also increased. This, along with semiconductor industry 

consolidations, is having a negative impact on our business. However, demand for 

EDA software for system design, particularly in the transportation industry, remains 

robust.” 

* * * 

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“Semiconductor consolidation and delays in emulator decisions are now 

having an adverse impact on our ability to close business,” said Gregory K. 

Hinckley, president of Mentor Graphics. “Because we recognize revenue upfront on 

product sales, changes in market outlook and demand are reflected in real time in 

Mentor’s results. Nevertheless, with appropriate scaling of the business and 

continued attention to expenses, we expect to deliver FY16 non-GAAP operating 

margins consistent with our strategic objective.” 

Outlook 

For the fourth quarter of fiscal 2016, the company expects revenues of about 

$336 million, non-GAAP earnings per share of about $0.47 and GAAP earnings per 

share of approximately $0.32. For the full year fiscal 2016, the company expects 

revenues of about $1.18 billion, non-GAAP earnings per share of about $1.40, and 

GAAP earnings per share of approximately $0.63. 

101. Following the issuance of the press release, Defendants held an earnings call with 

analysts and investors to discuss the Company’s reported financial performance and prospects and its 

sharply reduced financial guidance. During the earnings call, Defendants explained that: (i) 

bookings were flat to down for all of Mentor’s products; (ii) at least one semiconductor industry 

consolidation had already impacted the Company’s Design to Silicon business; (iii) Mentor 

experienced a delay in decisions on adoption and expansion of emulation; (iv) the anticipated release 

of competitive products had already frozen demand for the Company’s emulation products; and (iv) 

these poor business conditions were expected to continue and were also responsible for the 

Company’s dramatically reduced financial guidance: 

[RHINES:] There are two changes that will negatively impact our outlook for the 

fourth quarter of FY16 and cause us to reduce our guidance. First, we experienced a 

delay in decisions on adoption and expansion of emulation. And second, we were 

negatively affected by at least one of the semiconductor industry consolidations. 

. . . [T]he time required for completion of evaluations has been increasing, I 

believe due to anticipation of competitive product announcements during the 

quarter.

* * * 

With regard to semiconductor industry restructuring, our third quarter growth in 

contract renewal value was affected by one major contract where a portion of the 

company was spun off from the parent. While the parent company executed an 

early renewal contract for the portion of the business they retained, we expect the 

renewal of the contract for the portion of the business that was spun off will not be 

concluded until the fourth quarter. 

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* * * 

[HINCKLEY:] [T]otal bookings were down 20% year-over-year and were flat to 

down across all product categories. After two consecutive quarters of record 

growth, Design to Silicon, which includes our Calibre product family, was down 

35% . . . .

Scalable Verification was down 25%. It’s probable that a competitor’s recent 

announcement of the release of their next generation emulation product has 

temporarily frozen activity in that market. 

* * * 

Guidance. Appropriate longer than our typical guidance, our fourth quarter and 

FY16 guidance reflects three challenges. First, there has been an unprecedented 

level of semiconductor M&A activity recently, approaching $100 billion of 

announced transactions in the past 12 months, well over 10% of the global IC 

industry’s market capitalization. This is on top of a challenging demand 

environment for ICs. 

* * * 

Second, immediate demand for emulation has stalled as the result of the expected 

introduction of competitive products.

* * * 

Taking into account these challenges, we are reducing fourth quarter and FY16 

guidance. For the fourth quarter of FY16, we are now forecasting revenue to be 

approximately $336 million and non-GAAP and GAAP earnings per share of about 

$0.47 and $0.32, respectively. For the full year, we are projecting revenue of 

approximately $1.18 billion, with non-GAAP and GAAP earnings per share of

$1.40 and $0.63, respectively. 

102. Defendants made a number of further statements during the November 19, 2015 

earnings call which disclosed that the “normal” result from consolidations was, at best, a delay in 

booking new business and renewing contracts: 

 “Normally, the result of [consolidations is that it] takes a longer period of 

time [to book business].” 

 “[T]here is a delay period . . . .” 

 “Industry consolidation is causing companies to look for synergies in the 

combined [entities], including the spend on R&D. This is not just for those 

companies involved in M&A, but also those independent companies that 

must execute in this new competitive environment.” 

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103. On November 20, 2015, Mentor’s stock price plunged 36%, closing at $17.85 per 

share, down from the previous day’s close of $27.78 per share, on over 19.9 million shares traded, 

compared to only 602,000 on November 19, 2015. 

POST-CLASS PERIOD EVENTS 

104. Following the publication of the Company’s November 19, 2015 financial results, 

The Wall Street Journal reported on November 19, 2015, in an article entitled “Mentor Graphics 

Shares Plunge Amid Lower Forecast, Quarterly Profit,” that the Company’s stock price was 

declining because of the poor 3Q FY16 financial results, lowered guidance and what that revealed 

about the Company’s performance and prospects: 

Shares of Mentor Graphics plunged as the company slashed its profit and 

revenue outlooks, said it was having problems closing business and reported that 

profit in its latest quarter declined. 

The stock fell 23% after market hours to $21.42, which would be its lowest 

level since January. 

For the fourth quarter, Mentor projected adjusted earnings per share of 

about 47 cents and revenue of about $336 million, far lower than analysts’ 

expectations of 97 cents and $439 million. 

105. That same day, on November 19, 2015, Pacific Crest Securities issued an analyst 

report entitled “Mentor Graphics Corp.: Impact of Semiconductor Consolidation Could Linger; 

Downgrading to Sector Weight.” In the report, Pacific Crest described Mentor’s explanation for the 

drastically lowered guidance as “puzzling,” explaining that the numbers did not add up: 

Mentor’s FQ4 shortfall of $105 million is a significant miss. Taking out 

currency impact, Mentor still had $92 million shortfall, per our estimates. 

* * * 

Mentor lowered its FQ4 guidance significantly by $105 million. The 

company cited delayed adoption of emulation, impact from consolidation and 

currency as the reasons for the lower guidance. Cadence released its new 

emulation tool during the quarter. Mentor said this led customers to delay 

decisions around emulation in anticipation of Cadence’s release. 

The company said revenue was down $25 million y/y due to FX. Assuming 

50% less currency impact in FQ4 (a $13 million negative impact) still leaves a $92 

million shortfall due to emulation and lower core EDA sales. 

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Then assuming about $42 million adverse impact from emulation means core 

EDA sales could be down $50 million. (Our previous emulation revenue estimate for 

Mentor was about $145 million. Assuming a $42 million negative impact to 

emulation means emulation sales could be now down 29% compared with our 

previous estimate.) Since Mentor recognizes 60% revenue upfront, this would 

mean core EDA license sales could be down close to $83 million, which is a 

significant license shortfall, in our view. Mentor sounded confident when it said the 

company has not lost any customers, so the magnitude of negative impact from 

consolidation is puzzling. 

106. In the same report, Pacific Crest also explained that, contrary to Defendants’ previous 

denials, consolidation among the Company’s customers was not a short-term and minor risk: 

Preliminary F2017 Guidance Was Meaningfully Lower Than Our 

Estimates 

Mentor guided growth for F2017 to low single digits. Mentor’s guidance 

implies that revenue could grow only $45 million y/y in F2017. Revenue growth 

could be even lower than the negative impact in FQ4. We are concerned that 

consolidation in the semiconductor industry could continue for some time; more 

semiconductor M&A deals were announced recently. This means consolidation 

could have more impact on Mentor in the coming years. 

107. Like Pacific Crest, who found Defendants’ explanations “puzzling,” analysts were 

skeptical of Defendants’ stated explanations for Mentor’s dramatically reduced guidance. RBC 

Capital Markets, for example, in a November 19, 2015 report on Cadence titled “EDA – Mentor 

miss likely company specific, no implication for SNPS/CDNS” concluded that “[w]e find the logic 

behind the miss a little confusing. We believe that the big miss is the feature of upfront revenue 

recognition which lends itself to pull in/push out of recognition.” 

108. On December 2, 2015 in a publication by Semiconductor Engineering called 

“Consolidations Aftermath,” Defendant Rhines was quoted admitting his knowledge that the 

“normal delay in booking new business as a result of consolidations could be “measured in years” 

and that announced consolidations renewals impacted: 

Short-term, there is a lot of uncertainty. If you don’t know the size or strength of 

the company, you’re generally less aggressive about renewal commitments. 

Historically, M&A has had only a temporary effect on the semiconductor industry. 

That could be measured in years, not months . . . . 

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109. The next day, on December 3, 2015, Defendants filed the Company’s 3Q FY16 Form 

10-Q. The 10-Q confirmed what investors and analysts had already surmised from Defendants’ 

November 19, 2015 reports and statements – Mentor’s problems were systemic with bookings down 

20% year over year, while the number of new customers was down 15% for the fiscal year, not just 

the most recent quarter: 

Bookings during the first nine months of fiscal 2016 increased by 

approximately 5% compared to the first nine months of fiscal 2015 primarily due to 

the timing of term license contract renewals. Bookings for the three months ended 

October 31, 2015 decreased by approximately 20% compared to the three months 

ended October 31, 2014 primarily due to a decrease in term license contract 

renewals. Bookings are the value of executed orders during a period for which 

revenue has been or will be recognized within six months for software products and 

within twelve months for emulation hardware systems, professional services, and 

training. Ten customers accounted for approximately 40% of total bookings for the 

first nine months of fiscal 2016 and 2015. The number of new customers during the 

first nine months of fiscal 2016 decreased approximately 15% from the levels 

experienced during the first nine months of fiscal 2015. 

* * * 

System and software revenues decreased $(9.4) for the three months ended 

October 31, 2015 compared to the three months ended October 31, 2014, primarily 

due to a decrease in sales of emulation hardware systems. 

110. Mentor also admitted in its 3Q Form 10-Q filed on December 3, 2015 that “[w]e 

believe the expected release of a competitor’s emulation product earlier this year may have resulted 

in the deferral of orders for our emulation products.” 

111. Defendants also disclosed for the first time in Mentor’s December 3, 2015 3Q Form 

10-Q that: 

Merger and acquisition activity in the semiconductor industry has been unusually 

strong during 2015. This activity appears to be the result of semiconductor 

companies, experiencing slower sales in their existing market segments, desiring to 

broaden the scope of their businesses and to spread the rising costs of product 

development and use of advanced technologies across a larger organization.

Increasing consolidation could result in fewer customers in these industries or the 

loss of some customers to competitors, or reduced customer spending on software 

and services due to redundancies or stronger customer negotiating power, which 

could have an adverse effect on our business and future revenues. 

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112. These additional disclosures evidence facts Defendants had known but did not 

disclose. Namely, deferral of emulation orders, loss of customers, reduction in spending and 

stronger customer negotiating power with respect to pricing. 

113. Analysts following the EDA market quickly concluded that Mentor’s problems were 

specific to Mentor. Griffin Securities, for example, in reporting on December 3, 2015, the 

Company’s competitor, explained that, far from seeing delays in emulation orders due to the release 

of Cadence’s new product, Synopsys had certainly taken market share from Mentor, and indeed 

probably from Cadence as well: 

Synopsys’ emulation revenues have typically been considerably smaller than 

for Cadence Design Systems (CDNS, $22.22, Buy) and Mentor Graphics’ (MENT, 

$17.96, Neutral). However, if our inferred revenues for Synopsys are about right, 

then their emulation revenues may have exceeded Cadence’s and certainly 

exceeded Mentor’s in the quarter (though not for the trailing-twelve months in either 

case). 

114. Summit Research also issued a report on Synopsys, in a December 4, 2015 article, 

titled “SNPS F4Q15 Results=Good. MENT’s Issues with Semi-M&A Specific to MENT,” 

concluding that any effect from consolidations was muted for the Company’s competitor: 

MENT Problems Seem Company Specific: While this note is about SNPS, 

the most relevant topic in EDA is now MENT's shortfall. It would seem that 

Mentor's lower guide was a unique, company-specific issue. Alternatively put, 

Synopsys said they aren't observing any problems with respected to the emulation 

market. We think that Mentor had previously overestimated growth in all its markets, 

especially in its emulation market. In addition, Global Foundries, which got IBM’s 

foundry biz, is on the sales block with Mubadala corp. trying to sell it. In that 

scenario, MENT does not get to count on both IBM and Global Foundries, both of 

which were paying customers of MENT. Synopsys’ results and guide confirm that 

MENT’s issues are unique to the company. 

115. On January 13, 2016, Defendant Hinckley appeared at a Needham Growth 

Conference where, in addition to conceding that Broadcom had announced “a year ago, a year and a 

half ago” that “they were exiting the cell phone market,” and taking “like $300 million” out of 

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EDA industry in doing so,9 he also admitted that “approximately 25% of the entire digital IC 

market by market cap has either completed an important big transaction, or is in negotiation.” 

116. Defendant Hinckley further admitted on January 13, 2016 that Mentor knew its 

renewals for the current fiscal year were going to be heavily concentrated in semiconductor 

customers, making guidance particularly difficult to meet given the downturn and unprecedented 

wave of consolidations in the semiconductor industry: 

[HINCKLEY:] And while we’ve had a many, many year track record of having our 

renewals grow at the expiration of our three-year leases by 25%, what we’ve seen 

this year is we expect the growth of our renewals will be flat and it will all be 

concentrated within our IC sector. 

Making it – compounding the challenges we’ve had this year is while we are 

typically 50% systems companies and 50% IC companies, this year we have 70% of 

our portfolio of renewals are IC targeted [i.e., semiconductor], IC companies, and 

only 30%, 25%, 30% are systems companies. 

117. On March 3, 2016, Mentor held an earnings call which offered further clarification 

regarding the impact of competitive product introductions during the Class Period, with Defendants 

telling investors: 

 “Last quarter, we attributed this slowdown largely to an increase in 

evaluation time, as some customers were able to wait for competitive 

product introductions.” 

 “[T]he evaluations are taking longer and longer to close. Pricing is also 

more challenging and has reduced the values of many of our 

opportunities.” 

 “[W]e’ve had, generally the evaluation periods for emulation have stretched 

out from approximately a quarter to now it seems like it's closer to nine 

months. So that’s part of what’s going on. So it’s taking more time to close 

business.” 

 Rhines admitted when asked about what was driving the six-month extra 

stretch in emulation evaluation: “So we don't know exactly. But our 

judgment says that a year or two ago, we were pretty much the only game in 

town. Now with announcements this past year, there are now competitors 

to evaluate. Those people really didn't have much that could compete with 

the Veloce in the past. So I think customers are both squeezed and they feel 

 

9

 In fact, Broadcom announcement occurred on June 2, 2014, wherein Broadcom said it 

expected to save $600 million in research and development and administrative costs. 

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they need to evaluate, and evaluations are not easy to do. So it seems to have 

stretched out.” 

 Rhines when asked, “maybe three years or so ago, maybe around 2013, give 

or take, is when you guys started gaining traction against Cadence on 

emulation. During that timeframe, how long did it take for customers to 

switch from your competitor to you guys?” Rhines responded, “We typically 

planned for nine months from initial contact to actually completing the 

sale. But of that, about six months was the evaluation cycle. And clearly, 

this has gotten longer.” 

118. Defendant Rhines further explained during the March 3, 2016 4Q FY16 earnings call 

that “[i]n the largest of [the post-consolidation contract renewals Mentor Graphics had negotiated], 

the acquiree [IBM] renewed in the third quarter, just before completion of the merger, with a 

decrease in annual run rate. . . .” Because the IBM-GlobalFoundries acquisition was completed on 

July 1, 2015, that means that Mentor had secured a contract renewal from IBM “just before” July 

(calendar 3Q), and knew by then that the renewal came with a decrease in annual run rate. 

119. On March 22, 2016, Griffin Securities issued a report titled “Review of FY16 10-K 

new data.” Although Defendants had cited foreign currency as one reason for the drastic cut in their 

4Q FY16 guidance, Griffin’s review of the Company’s data showed that foreign currency’s 

unfavorable impact on sales revenues was more than made up for by the favorable effect it had on 

operating expenses: “Foreign currency had an unfavorable impact of ($21.1) million for the 

year . . . . On the other hand, there was a favorable effect on operating expenses of $36.5 million in 

FY16 . . . .” 

120. On May 19, 2016, Defendants further clarified of the impact of emulation 

competition and consolidations in the semiconductor market: 

 “[T]he total industry emulation revenue has stalled in the $300 million to 

$315 million range per year, likely due to price erosion after rapidly 

doubling from the previous long-term run rate in just two years, from 2010 to 

2012.” 

 “Continued weakness in semiconductor related design software, including 

emulation . . . .” 

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 “Weakness in bookings from semiconductor companies in Q4 of FY16 

accurately reflect what has become general weakness in semiconductor 

revenue and R&D spending.” 

 “[O]ur Japan bookings in FY15 reflected weakness in EDA demand by 

Japan’s semiconductor companies.” 

 “[T]here is more competition [for all small and medium-sized customers] 

because all three vendors have viable products.” 

121. On May 19, 2016, J.P. Morgan issued a report stating: “[W]eakness in the 

semiconductor market and the competitive emulation market continues to be challenging. . . . We 

remain Underweight on MENT until we see signs of improvement in the core semiconductor EDA 

business that is needed to deliver consistent growth.” 

122. Three days later, on May 23, 2016 Griffin Securities issued a report stating that 

Defendants had confirmed that for emulation “the evaluation/procurement cycle had lengthened 

substantially,” due not just to the release of “Cadence’s new Z1,” but also because “Synopsys [is] 

now [] a clearly more material competitor in this space.” 

ADDITIONAL ALLEGATIONS OF SCIENTER 

123. As alleged herein, each of the Defendants acted with scienter in that each Defendant 

knew or recklessly disregarded that the public documents and statements issued or disseminated in 

the name of the Company were materially false and misleading or omitted to state facts necessary in 

order to make the statements made, in light of the circumstances under which they were made, not 

misleading. Each Defendant knew that such statements or documents would be issued or 

disseminated to the investing public and knowingly and substantially participated or acquiesced in 

the making, issuance or dissemination of such statements or documents as a primary violation of the 

federal securities laws. By virtue of their receipt or reckless disregard of information reflecting the 

true facts regarding Mentor, their control over and/or receipt and/or modification of Mentor’s 

materially misleading statements, and/or their other associations with the Company, each defendant 

was privy to confidential information concerning Mentor and knowingly or recklessly participated in 

the fraudulent scheme and conduct alleged herein. 

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124. Substantial visibility as to its customers purchases: In addition to Defendants’ 

statements on the very topics that misled investors and knowledge of the material adverse facts 

alleged herein, Defendants had substantial visibility into the Company’s bookings and backlog. In 

turn, Defendants had substantial visibility into Mentor’s potential revenues and the timing of those 

revenues based on: (i) the timing of software contract renewals, typically every three years (¶10); 

and (ii) delivery lead times for its emulation hardware.10 The Company’s onsite employees at 

existing customers also provided realtime feedback on competitors as Mentor’s executive testified at 

trial. ¶53. 

125. Defendants also personally met with customers and tracked new customers giving 

them further visibility into whether customers were engaged in competitive evaluations and the 

impact of economic changes of those customers expenditures: 

 “I have met with more than 20 present and perspective [sic] emulation 

customers [th]is quarter . . . .” (Rhines – Aug. 21, 2014 Mentor Earnings 

Call 2Q FY15). 

 Rhines referred to his “meetings with leading customers in Korea, China and 

the US . . . .” (Rhines – Feb. 26, 2015 Mentor Earnings Call 4Q FY15). 

 “We track new customers . . . .” (Hinckley – May 22, 2014 Mentor Earnings 

Call 1Q FY15). 

 “We . . . track new customers, both in terms of number of transactions, and 

the value of those transactions.” (Hinckley – Feb. 26, 2015 Mentor Earnings 

Call 4Q FY15). 

 “We . . . track new customers, both in count and average transaction because 

we’ve seen through the years that small customers react more quickly to 

economic changes than the larger companies do.” (Hinckley – May 19, 2016 

Mentor Earnings Call 1Q FY17). 

126. Defendants capitalized on Mentor’s artificially inflated stock price selling stock for 

proceeds of over $10.5 million: Defendant Rhines sold Mentor stock at artificially inflated prices for 

proceeds of more than $6.8 million on the heels of Defendants’ materially false and misleading 

 

10 For example, Defendants claimed on May 23, 2013 that those emulation hardware orders booked 

in 1Q FY14 would not be shipped and revenue recorded until the 4Q FY14. 

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statements. He sold his stock with knowledge of the material adverse information alleged herein. 

His sales were as follows: 

Date Shares Price Proceeds

4/13/2015 55,437 $24.90 $1,380,381

4/14/2015 44,563 $24.46 $1,090,011

10/9/2015 150,000 $25.63 $3,844,500

10/12/2015 20,000 $25.82 $516,400

270,000 $6,831,292

127. Rhines sold a significant amount of his stock, both in absolute value of shares sold 

and as a percentage of total shares owned, 18.17%.11 Because Rhines, according to the Company’s 

proxy materials, was to maintain a 3x multiple of his base salary in stock at all times, his percentage 

of total shares available for sale was much higher than 18.17%. 

128. Defendant Rhines unloaded 170,000 of his shares between October 9, 2015 and 

October 12, 2015 for proceeds of $4.3 million, just two weeks before the end of 3Q FY16. On 

November 19, 2015 when Defendants reduced 4Q FY16 revenue guidance by $104 million 

Defendants would admit that for the third quarter (ending October 31, 2015): (i) bookings declined 

20% across the Company’s products year-over-year; (ii) Scalable Verification (including emulation) 

( suffered a 25% decrease in bookings; and (iii) that Mentor’s business had been negatively impacted 

by, inter alia, the “expected introduction of competitive products,” delays in booking business as a 

result of consolidations and that contract renewals in the 3Q had been negatively impacted by the 

IBM/GlobalFoundries deal (see also ¶¶22-23, 100-102, 118). His trades were suspicious and 

dramatically out of line with prior trading history. 

 

11 This percentage is calculated by dividing shares sold by the total number of shares held by each 

insider. 

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129. In addition to Defendant Rhines, Defendant Hinckley’s stock sales were highly 

suspicious in terms of amount and timing. Defendant Hinckley sold 157,000 shares of Mentor stock 

for proceeds of more than $3.7 million: 

Date Shares Price Proceeds 

5/9/2015 110,000 $23.11 $2,542,100

9/2/2015 47,000 $24.99 $1,174,530

 157,000 $3,716,630

130. Hinckley’s sales were significant, both in absolute value of shares sold and as a 

percentage of total shares owned, selling 11.87% of his shares.12 As with Defendant Rhines, the 

Company required him to maintain a 3x multiple of his base salary in stock at all times, thus the 

percentage of total shares available to Defendant Hinckley was higher than 11.87%. 

131. Like Defendant Rhines, Defendant Hinckley sold shares after the price of Mentor’s 

stock had been artificially inflated as a result of Defendants raising FY16 revenue guidance on 

August 20, 2015, and confirming that raised guidance on August 31, 2015 while denying the impact 

of semiconductor consolidations on the Company. Defendant Hinckley sold his shares of Mentor 

stock with knowledge of the material adverse information alleged herein. 

ADDITIONAL ALLEGATIONS OF LOSS CAUSATION/ECONOMIC LOSS 

132. As detailed herein, Defendants engaged in a fraudulent and wrongful course of 

business, which was designed to and did deceive Class Period purchasers of Mentor’s common stock 

as Defendants misrepresented and/or omitted material information about Mentor’s growth, sales, 

market share and financial performance. When the market learned that Mentor was negatively 

impacted by its competitors’ products and the anticipated release of another competitor’s new 

product as well as by semiconductor customer consolidations, Mentor’s stock fell precipitously as 

the prior artificial inflation came out of the price. As a result of their purchases of Mentor’s common 

 

12 This percentage is calculated by dividing shares sold by the total number of shares held by each 

insider. 

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stock during the Class Period, Lead Plaintiff and other members of the Class suffered economic loss, 

i.e. damages, under the federal securities laws. 

133. Defendants’ false statements and omissions, identified herein in at ¶¶37-39, 42-43, 

58-59, 62-63, 67-69,72-74, 78-80, 82-83, 87-91, 94-95, had the intended effect and caused Mentor 

stock to trade at artificially inflated levels during the Class Period. 

134. As a direct result of Mentor’s disclosures on November 19, 2015, including a 20% 

decline in bookings across the Company’s products year-over-year, a 25% decrease in Scalable 

Verification bookings and a $104 million reduction in projected 4Q FY16 year revenues, as well as 

that Mentor’s business had been negatively impacted by, inter alia, the “expected introduction of 

competitive products,” delays in booking business as a result of consolidations and that contract 

renewals in the third quarter had been negatively impacted by the IBM/Global Foundries deal (see 

also ¶¶22-23, 100-102, 118), the Company’s stock price plunged 35.7%, from a close of $27.78 on 

November 19, 2015 to $17.85 on November 20, 2015. As demonstrated in the chart in ¶24 above, 

this drop removed the inflation from Mentor’s stock price, causing real economic loss to investors 

who had purchased Mentor’s common stock during the Class Period. 

135. The decline in the Company’s stock price at the end of the Class Period was a direct 

result of the nature and extent of Defendants’ prior false statements and omissions being revealed to 

investors and the market. The timing and magnitude of Mentor’s stock price declines negate any 

inference that the loss suffered by Lead Plaintiffs and other class members was caused by changed 

market conditions, macroeconomic or industry factors or Company-specific facts unrelated to 

Defendants’ fraudulent conduct. The economic loss, i.e., damages, suffered by Lead Plaintiffs and 

other members of the Class, was a direct result of Defendants’ concealing from investors the 

negative impact of the announced and actual release of competitive emulation products, its reliance 

on a few customers, the weakening semiconductor business and the impact of the consolidations in 

the semiconductor industry on Mentor’s sales. Indeed, financial analysts explicitly arrived at that 

same conclusion. Summit Research, for example, concluded that Mentor’s issues “were specific to” 

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Mentor. ¶¶113-114. Defendants’ false and misleading statements and omissions artificially inflated 

Mentor’s stock price and maintained the price at artificially inflated levels until the subsequent 

significant decline in the value of the Company’s stock occurred when Defendants’ prior 

misrepresentations and omissions were revealed. 

136. Investment analysts indeed attributed the stock price decline on November 19, 2015, 

to Defendants’ revelations. The Wall Street Journal, for example, reported on November 19, 2015, 

that the Company’s stock price was declining because of the poor 3Q FY16 financial results, 

lowered 4Q FY16 guidance and what that revealed about the Company’s performance and prospects: 

Shares of Mentor Graphics plunged as the company slashed its profit and 

revenue outlooks, said it was having problems closing business and reported that 

profit in its latest quarter declined. 

The stock fell 23% after market hours to $21.42, which would be its lowest 

level since January. 

For the fourth quarter, Mentor projected adjusted earnings per share of 

about 47 cents and revenue of about $336 million, far lower than analysts’ 

expectations of 97 cents and $439 million. 

CLASS ACTION ALLEGATIONS 

137. Court appointed Lead Plaintiff Western Pennsylvania brings this action as a class 

action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of all persons who 

purchased or otherwise acquired Mentor common stock during the Class Period and who were 

damaged thereby (the “Class”). Excluded from the Class are Defendants and their family members, 

directors and officers of Mentor and their families and affiliates. 

138. This action meets the requirements of Federal Rules of Civil Procedure Rule 23(a) 

because the members of the Class are so numerous that joinder of all members is impracticable. The 

disposition of their claims in a class action will provide substantial benefits to the parties and the 

Court. Mentor has more than 106,000,000 million shares of stock outstanding, owned by hundreds 

or thousands of persons. 

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139. This action meets the requirements of Federal Rules of Civil Procedure Rule 23(a) 

because there is a well-defined community of interest among class members in the questions of law 

and fact involved in this case, common questions of law and fact predominate, Lead Plaintiff’s 

claims are typical of the members of the class and Lead Plaintiff can fairly and adequately request 

the interests of the Class. 

140. This action satisfies the requirements of Federal Rules of Civil Procedure Rule 

23(b)(3) because it involves questions of law and fact common to the members of the Class that 

predominate over questions that may affect individual Class members, including but not limited to: 

(a) Whether the 1934 Act was violated by Defendants; 

(b) Whether Defendants omitted and/or misrepresented material facts; 

(c) Whether Defendants’ statements omitted material facts necessary in order to 

make the statements made, in light of the circumstances under which they were made, not 

misleading; 

(d) Whether Defendants knew or recklessly disregarded that their statements were 

false and misleading; 

(e) Whether the price of Mentor common stock was artificially inflated; and 

(f) The extent of damage sustained by Class members and the appropriate 

measure of damages. 

141. Western Pennsylvania’s claims are typical of those of the Class because Lead 

Plaintiff and the Class sustained damages from Defendants’ wrongful conduct. 

142. Western Pennsylvania is an institutional investor that was appointed by the Court as 

Lead Plaintiff. It suffered significant financial losses as a result of Defendants’ misconduct, and 

Western Pennsylvania’s interests are therefore aligned with those of other class members. 

Accordingly, Western Pennsylvania will be an adequate representative and will adequately protect 

the interests of the Class. 

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143. Lead Plaintiff has also retained counsel who are experienced in class action securities 

litigation, and Western Pennsylvania has no interests which conflict with those of the Class. 

144. A class action is superior to other available methods for the fair and efficient 

adjudication of this controversy. Lead Plaintiff knows of no difficulty that will be encountered in the 

management of this litigation that would preclude its maintenance as a class action under Rule 

23(b)(3). 

THE STATUTORY SAFE HARBOR DOES NOT APPLY 

145. The statements alleged herein to be false and misleading are not subject to the 

protections of the Private Securities Litigation Reform Act’s (“PSLRA”)’s statutory safe harbor for 

forward-looking statements because they are either: (i) not forward-looking; (ii) subject to exclusion; 

or (iii) not identified as forward looking or accompanied by meaningful cautionary language. 

146. Under the PSLRA’s statutory safe harbor for written statements, a forward-looking 

statement is protected if it is: (i) identified as such; and (ii) accompanied by meaningful cautionary 

language. 15 U.S.C. §78u-5(c)(1)(A)(i).

147. For oral statements, an oral forward-looking statement must be: (i) accompanied by a 

cautionary statement that it is forward-looking, that actual results may differ materially and that 

additional information concerning risk factors is contained in a readily available written document; 

(ii) the oral statement must identify the written document, or portion thereof that contains such 

factor; and (iii) the referenced written documents must contain meaningful cautionary language. 15 

U.S.C. §78u-5(c)(2)(B).

148. The safe harbor excludes from protection all forward-looking statements that are 

included in financial statements purportedly prepared in compliance with Generally Accepted 

Accounting Principles (“GAAP”), including those filed with the SEC on Form 8-K. 15 U.S.C. §78u5(b)(2)(A).

149. Statements of historical fact, current condition, or a mixture thereof are not “forwardlooking” and thus not protected by the safe harbor. Among the false statements alleged herein, the 

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following false oral and written statements are actionable and the safe harbor does not apply because 

they are statements of current or historical fact:

 “We already know that we had more than 50% of the revenue in first quarter, so that 

almost guarantees that we are number one. It does guarantee we are number one[.]” (¶38); 

 “we haven’t seen much direct competition from Cadence . . . .” (¶69); 

 “our emulation business is affected by a big decline in the level of activity with our 

single-largest customer. It’s quite isolated. This has nothing to do with what is going 

on in the overall emulation market. ” (¶69); 

 “no material portion of our business is dependent on a single or a few customers. We 

do not believe that the competitive loss of one or more individual products at one or 

more of our customers would have a material adverse effect on our revenues.” (¶¶43, 

73); 

 “at this point, that the activity for evaluations is so strong, that we are booked to 

capacity in the number of customers we can evaluate.” (¶79); 

 “we think the most compelling indicator of the strength of the business is actually what 

out bookings are . . . . Bookings for the quarter were, in fact, up 65%. So, the business 

is robust.” (¶80); 

 “We were impressed by the breadth of demand growth in our two largest and fastestgrowing product categories. . . .” (¶88); and 

 “While the actual number of mergers and acquisitions is up only modesty in 2015

compared to prior history, the magnitude of announced deals is up dramatically. 

Historically, these changes simply add to the strength of the de facto standard leader in 

EDA in each tool category . . . .” (¶89). 

150. None of the historic or present-tense statements made by Defendants were 

assumptions underlying or relating to any plan, projection or statement of future economic 

performance, as they were not stated to be such assumptions underlying or relating to any projection 

or statement of future economic performance when made, nor were any of the projections or 

forecasts made by Defendants expressly related to or stated to be dependent on those historic or 

present-tense statements when made. The safe harbor simply does not apply to Defendants’ 

statements of current or historical fact. 

151. To the extent that the false and misleading statements are forward looking, defendants 

are still liable. Defendants knew at the time they spoke or failed to speak fully that each of their 

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forward-looking false and misleading statements were false and misleading. Defendants’ false and 

misleading forward-looking statements were authorized or approved by an executive officer or 

director of Mentor , who knew that the forward-looking statements were false when made. The 

forward-looking statements were contradicted by existing, undisclosed material facts that were 

required to be disclosed so that the forward-looking statement would not be misleading. And the 

safe harbor warnings were themselves misleading because they warned of “risks” that had already 

materialized or failed to provide meaningful disclosures of the relevant risks. See 15 U.S.C. §78u5(c)(1)(A)(i). 

152. For example, no safe harbor applies to Defendants’ statements contained in the 

Company’s 2Q FY15 Form 10-Q, 3Q FY15 Form 10-Q, FY15 Form 10-K, 1Q FY16 Form 10-Q and 

2Q FY16 Form 10-Q September 5, 2014 Form S-8 regarding: (i) the pre-announcements of 

competitors’ products; (ii) the competitive loss of one or more individual products; and (iii) 

semiconductor consolidations identified in ¶¶42-43, 62, 72-73, 82 and 94 because those statements 

were knowingly false when issued. 

153. Close examination of other purportedly cautionary language contained in the 

Company’s Class Period quarterly and annual filings (summarized below) shows that this language 

was likewise inadequate because Defendants knew that these risks had already materialized: 

 “Our pipeline estimates may prove to be unreliable either in a particular 

quarter or over a longer period of time, in part because the “conversion 

rate” of the pipeline into contracts can be very difficult to estimate and 

requires management judgment. A variation in the conversion rate could 

cause us to plan or budget incorrectly and materially adversely impact our 

business or our planned results of operations. In particular, a slowdown in 

customer spending or weak economic conditions generally can reduce the 

conversion rate in a particular quarter as purchasing decisions are delayed, 

reduced in amount, or canceled.” 

 “We derive a substantial portion of our revenues from sales of relatively few 

product groups and related support services. As a result, any factor 

adversely affecting sales of these products, including product release 

cycles, market acceptance, product competition, performance and 

reliability, reputation, price competition, and economic and market 

conditions, could harm our operating results.” 

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 “Price competition in the EDA industry is intense, which can lead to, 

among other things, price reductions, longer selling cycles, lower product 

margins, loss of market share, and additional working capital 

requirements.” 

 “Sales of our products and services are sometimes discretionary and may 

be delayed if customers delay approval or commencement of projects due to 

budgetary constraints, internal acceptance review procedures, timing of 

budget cycles, or timing of competitive evaluation processes.” 

 “Any loss of our leadership position in certain categories of the EDA 

market could harm our business.” 

 “Our competitors may acquire technology or companies offering competing 

or complementary product offerings which could adversely impact our 

ability to compete in the marketplace. They may be able to deliver better or 

broader product offerings, offer better pricing, or otherwise make it more 

desirable for our customers to buy more of the tools in their design flow

from the competitor after the acquisition.” 

154. Mentor’s purported cautionary language was inadequate to insulate Defendants’ false 

statements under the statutory safe harbor because each of the disclosures was boilerplate language 

that remained unchanged throughout the Class Period, and failed to warn investors of the known 

risks that materialized during the Class Period, including inter alia: (a) Mentor’s competitors’ new 

emulation products were causing delays in emulation orders and negatively impacting Mentor’s 

bookings; (b) with Synopsys’ acquisition of the ZeBu 3 it was a competitive threat for virtually all of 

Mentor’s emulation accounts and Mentor’s business had changed dramatically; (c) Mentor’s loss of 

its largest emulation customer, Intel, to Synopsys had an adverse effect on Mentor’s revenue and 

sales; and (d) due to the overall downturn in the semiconductor industry and consolidations among 

semiconductor companies, Mentor’s sales were negatively impacted as semiconductor customers 

were declining to renew contracts, delaying contracts, decreasing contracts and/or price erosion. 

Case 3:16-cv-00470-PK Document 47 Filed 08/10/16 Page 68 of 77
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PRESUMPTION OF RELIANCE 

155. Lead Plaintiff will rely upon the presumption of reliance established by the fraud-onthe-market doctrine in that, among other things: 

(a) Defendants made public misrepresentations or failed to disclose material facts 

during the Class Period; 

(b) The omissions and misrepresentations were material; 

(c) The Company’s stock traded in an efficient market; 

(d) The misrepresentations alleged would tend to induce a reasonable investor to 

misjudge the value of the Company’s stock; and 

(e) Lead Plaintiff and other members of the Class purchased Mentor common 

stock between the time Defendants misrepresented or failed to disclose material facts and the time 

the true facts were disclosed, without knowledge of the misrepresented or omitted facts. 

156. At all relevant times, the market for Mentor common stock was efficient for the 

following reasons, among others: 

(a) As a regulated issuer, Mentor filed periodic public reports with the SEC; and 

(b) Mentor regularly communicated with public investors via established market 

communication mechanisms, including through regular dissemination of press releases on the major 

news wire services and through other wide-ranging public disclosures, such as communications with 

the financial press, securities analysts and other similar reporting services. 

157. Further, to the extent that Defendants concealed or improperly failed to disclose 

material facts with regard to the Company, Lead Plaintiff and Class is entitled to a presumption of 

reliance in accordance with Affiliated Ute Citizens v. United States, 406 U.S. 128, 153 (1972). 

Case 3:16-cv-00470-PK Document 47 Filed 08/10/16 Page 69 of 77
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COUNT I

For Violation of §10(b) of the 1934 Act and Rule 10b-5 

Against All Defendants 

158. Lead Plaintiff incorporates ¶¶1-157 by reference. 

159. During the Class Period, Defendants disseminated or approved the false statements 

specified above, which they knew or deliberately disregarded were misleading in that they contained 

misrepresentations and failed to disclose material facts necessary in order to make the statements 

made, in light of the circumstances under which they were made, not misleading. 

160. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they: 

(a) Employed devices, schemes and artifices to defraud; 

(b) Made untrue statements of material facts or omitted to state material facts 

necessary in order to make the statements made, in light of the circumstances under which they were 

made, not misleading; or 

(c) Engaged in acts, practices and a course of business that operated as a fraud or 

deceit upon plaintiff and others similarly situated in connection with their purchases of Mentor 

common stock during the Class Period. 

161. Lead Plaintiff and the Class have suffered damages in that, in reliance on the integrity 

of the market, they paid artificially inflated prices for Mentor common stock. Lead Plaintiff and the 

Class would not have purchased Mentor common stock at the prices they paid, or at all, if they had 

been aware that the market prices had been artificially and falsely inflated by Defendants’ 

misleading statements or material omissions. 

COUNT II

For Violation of §20(a) of the 1934 Act 

Against All Defendants 

162. Lead Plaintiff incorporates ¶¶1-161 by reference. 

163. The Individual Defendants acted as controlling persons of Mentor within the meaning 

of §20(a) of the 1934 Act. By virtue of their positions with the Company, and ownership of Mentor 

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stock, the Individual Defendants had the power and authority to cause Mentor to engage in the 

wrongful conduct complained of herein. Mentor controlled the Individual Defendants and all of its 

employees. By reason of such conduct, Defendants are liable pursuant to §20(a) of the 1934 Act. 

PRAYER FOR RELIEF 

WHEREFORE, Lead Plaintiff prays for judgment and relief as follows: 

A. Determining that this action is a proper class action, designating plaintiff as Lead 

Plaintiff and certifying Lead Plaintiff as Class representative under Rule 23 of the Federal Rules of 

Civil Procedure and Lead Plaintiff’s counsel as Lead Counsel; 

B. Awarding Lead Plaintiff and the members of the Class damages and interest; 

C. Awarding Lead Plaintiff and the members of the Class their reasonable costs and 

expenses incurred in this action, including counsel fees and expert fees; and 

D. Such other and further relief as the Court may deem just and proper. 

JURY DEMAND 

Lead Plaintiff hereby demands a trial by jury. 

DATED: August 10, 2016 s/ Willow E. Radcliffe 

 ROBBINS GELLER RUDMAN & DOWD LLP

Shawn A. Williams, pro hac vice 

shawnw@rgrdlaw.com 

Willow E. Radcliffe, pro hac vice 

willowr@rgrdlaw.com 

Amanda M. Frame, pro hac vice 

aframe@rgrdlaw.com 

Kenneth J. Black, pro hac vice 

kennyb@rgrdlaw.com 

Post Montgomery Center 

One Montgomery Street, Suite 1800 

San Francisco, CA 94104 

Telephone: (415) 288-4545 

Facsimile: (415) 288-4534 

Lead Counsel for Plaintiff

Case 3:16-cv-00470-PK Document 47 Filed 08/10/16 Page 71 of 77
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STOLL STOLL BERNE LOKTING 

& SHLACHTER P.C. 

Gary M. Berne, OSB No. 774077 

gberne@stollberne.com 

Jennifer S. Wagner, OSB No. 024470 

jwagner@stollberne.com 

209 S.W. Oak Street, 5th Floor 

Portland, OR 97204 

Telephone: (503) 227-1600 

Facsimile: (503) 227-6840 

Local Counsel 

Case 3:16-cv-00470-PK Document 47 Filed 08/10/16 Page 72 of 77
CERTIFICATION OF NAMED PLAINTIC~~'

PURSUANT TO FEDERAL SECURITIES LAWS

WESTERN PENNSYLVANIA ELECTRICAL EMPLOYEES FENSION

FUND ("Plaintiff') declares:

1. Plaintiffhas reviewed a complaint and authorized its filing.

2. Plaintiff did not acquire the security that is the subject of this action at

the direction of plaintifF's counsel or in order to participate• in this private action or

any other litigation under the federal securities laws.

3. Plaintiff is willing to serve as a representative party on behalf of the

class, including providing testimony at deposition and trial, if necessary.

4. PlaintifFhas made the following transactions) during the Class Period

in tha securities that are the subject of this action:

,~

Securi Transaction Date ;,;Price Per Share

See attached Schedule A.

5. Plaintiff has not sought. to serve ar served as a representative party in

a class action tr►at was filed under the federal securities laws withiu~tlie three-year

period prior to the date of this C~rtificarion except as detailed below: `` "`"' ` `'

In re Silver Wheaton Corp. Sea Litig., No. 2:15-cv-5146 (C.11: Cal.) ' "`'' "'''` `~~~

;~.

6. The Pla}n~iff will not accept any payment for s~rv~~. ~ as a '' '

,.,;....

representative party on behalf of the class beyond the Plaintiffs pro rata shaze of """""

MENTOR

~~ ~

Case 3:16-cv-00470-PK Document 47 Filed 08/10/16 Page 73 of 77
any recovery, except such reasonable costs and expenses (including lost wages)

directly relating to the representation of the class as ordered or approved by the

court.

I declare under penalty of perjury that the foregoing is tzue and correct.

Executed this ~o day of M,a~~h , 2016.

WESTERN PENNSYLVANI,~1

ELECTRICAL. EMPLOYEES PENSION

FUND

By:

Its: Das~u~, R~or~~~s~4

s a. ... r. ~rik .'~

_2-

MEM'OR

Case 3:16-cv-00470-PK Document 47 Filed 08/10/16 Page 74 of 77
SCHEDULER

Ji:4 Uf~111C:9 1 i[rUVJHI. i iU lY.7

A~`f711 1p If If1/1C

n_a.. _I~.__......_~ ..I

Acquired Securities AcquirQd

08/07/2015 5,200

08/10/2015 1 DO

Price

$25.9

$26.0 ~3

i,~ ,r , ~~r lit-~l ,:;.,:u

>~ ,y.-'

it l~i ~n~.,4 a?~ .~,,

Case 3:16-cv-00470-PK Document 47 Filed 08/10/16 Page 75 of 77
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AMENDED CONSOLIDATED CLASS ACTION ALLEGATION 

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CERTIFICATE OF SERVICE 

I hereby certify that on August 10, 2016, I authorized the electronic filing of the foregoing 

with the Clerk of the Court using the CM/ECF system which will send notification of such filing to 

the e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I 

caused to be mailed the foregoing document or paper via the United States Postal Service to the nonCM/ECF participants indicated on the attached Manual Notice List. 

I certify under penalty of perjury under the laws of the United States of America that the 

foregoing is true and correct. Executed on August 10, 2016. 

 s/ Willow E. Radcliffe 

 WILLOW E. RADCLIFFE 

ROBBINS GELLER RUDMAN 

 & DOWD LLP 

Post Montgomery Center 

One Montgomery Street, Suite 1800 

San Francisco, CA 94104 

Telephone: 415/288-4545 

415/288-4534 (fax) 

E-mail: willowr@rgrdlaw.com

Case 3:16-cv-00470-PK Document 47 Filed 08/10/16 Page 76 of 77
Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

Gary M. Berne

gberne@stollberne.com,gseaman@stollberne.com

Kenneth J. Black

kennyb@rgrdlaw.com,e_file_sd@rgrdlaw.com,inavarrete@rgrdlaw.com

Amanda M. Frame

aframe@rgrdlaw.com

Barry M. Kaplan

bkaplan@wsgr.com,rcarter@wsgr.com,npierce@wsgr.com

Robert J. McGaughey

bob@law7555.com,office@law7555.com

Elizabeth A. Tedesco Milesnick

elizabeth.milesnick@millernash.com,sandy.hanson@millernash.com

Brian O. O'Mara

bomara@rgrdlaw.com

Willow E. Radcliffe

willowr@rgrdlaw.com

Jennifer S. Wagner

jwagner@stollberne.com,gseaman@stollberne.com

Gregory L. Watts

gwatts@wsgr.com,rcarter@wsgr.com,npierce@wsgr.com

Shawn A. Williams

shawnw@rgrdlaw.com,AFrame@rgrdlaw.com,Willowr@rgrdlaw.com

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore

require manual noticing). You may wish to use your mouse to select and copy this list into your word processing

program in order to create notices or labels for these recipients.

(No manual recipients)

District of Oregon CM/ECF LIVE Release Version 6.1- https://ecf.ord.uscourts.gov/cgi-bin/MailList.pl?762717848177756-L_1_0-1

1 of 2 8/10/2016 4:37 PM

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