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SCHEDULE 14A INFORMATION
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ALTERA CORPORATION
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(Name of Registrant as Specified in Its Charter)
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[BODY OF LETTER TO BE SENT TO CERTAIN
ALTERA CORPORATION SHAREHOLDERS]
April 6, 2001
Reference: Altera Corporation 2001 Annual Meeting and Vote on Amendments to
the 1996 Stock Option Plan and 1987 Employee Stock Purchase Plan
Dear [XXX]:
Because [XXX] is a major shareholder of Altera Corporation, I would like to
encourage your support of Altera's management and Board in our recommendation to
approve amending the 1996 Stock Option Plan and 1987 Employee Stock Purchase
Plan to increase the shares reserved for issuance by 15,000,000 and 500,000,
respectively. Our annual meeting for voting on these items is May 1, 2001. We
believe these actions are in the best interests of Altera's shareholders
because:
- These plans are necessary for Altera's continued ability to attract and
retain the highest caliber employees.
- These plans have been implemented in a manner responsible to Altera
shareholders. Compared to its peers, Altera's plans are among the lowest
in shareholder dilution. Additionally, the long-term nature of this
compensation is ensured by Altera's extended vesting schedule for
ongoing grants.
I hope that [XXX] will share this opinion after considering the following:
WHAT IS AT ISSUE?
At issue is Altera's continued ability to attract and retain the best employees.
The Silicon Valley has one of (if not) THE most competitive job markets in the
world. If Altera is to attract and retain the talented individuals and
management necessary for its continued success, then it must be able to offer
compensation packages that are competitive with the best companies in the area.
Employee stock options and stock purchase plans are essential components of
competitive compensation plans in the Valley. Without shareholder approval of
both of these amendments, Altera will be unable to offer new and ongoing
employees these key elements of a competitive compensation package.
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Altera Proxy
Page 2 of 3
HAS ALTERA'S USE OF EQUITY-BASED COMPENSATION BEEN RESPONSIBLE AND IS IT IN OUR
SHAREHOLDERS' INTEREST?
We believe the answer to both questions is `yes' and would offer the following
points in support of this position.
1. Altera's `BURN RATE', i.e., the number of shares granted to employees each
year as a percentage of the total shares outstanding, is and historically
has been low in comparison to other semiconductor companies. For the last
four years for which comparative data is available, Altera's burn rate has
been at the median or (most recently) in the lower 25th percentile in its
peer group of companies (see Attachment 1 -- this data is taken from the
most recent annual survey conducted by iQuantic in which Altera
participates. The Semiconductor Peer Group in the iQuantic survey is made up
of 32 publicly traded semiconductor companies.)
2. Altera's `VESTING SCHEDULE' for ongoing employee option grants generally
begins at the end of the third year with option grants becoming fully vested
by the end of the fourth year. Last year was a particularly robust hiring
year and about half of Altera's option grants were awarded as ongoing
employee options as compared to new hire options. In a more typical year
about two thirds of option grants go to existing employees. This
conservative vesting schedule provides Altera's shareholders with the
assurance that these option grants are true long-term compensation - the
value of which is based upon long-term growth and enhanced shareholder
value. Altera is one of two companies among its peers to use this extended
vesting schedule (see Attachment 2). However, this extended vesting - a
benefit to shareholders - biases Altera's `overhang', i.e., the total number
of shares available for grant plus the number of unexercised shares granted
(also often expressed as a percentage of shares outstanding), to the high
side of companies with shorter vesting terms. An example of this bias is
provided in Attachment 3 in which the overhang for ongoing grants of 2.0
million shares per year over a four-year period using Altera's three-year
vesting schedule as compared to the far more typical one-year vesting
period. In this example a steady state bias of 40 percent results. We ask
you to weigh this bias effect carefully when using overhang or other
measurements of shareholder value transfer that rely on overhang in your
decision-making process. A recent Watson Wyatt survey disclosed that typical
overhang in the technology industry was 23% in 2000. Altera's overhang is
13.5%, low by these standards, and below the comparable median for the
semiconductor industry as reported by iQuantic (See attachment 4).
3. OPTION REPRICING REQUIRES SHAREHOLDER APPROVAL. In October 2000, the board
of directors passed a resolution prohibiting repricing of employee stock
options without approval of a majority of the stockholders, present in
person or by proxy, at a meeting of the stockholders. Under the resolution,
Altera may not, without such shareholder approval, amend any granted option
to reduce the exercise price of the granted option or cancel any granted
option in exchange for any other option with a lower exercise price. These
restrictions apply to all of the company's option plans.
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Altera Proxy
Page 3 of 3
4. CUMULATIVE TOTAL FIVE-YEAR RETURN TO ALTERA SHAREHOLDERS AT YEAR-END 2000
WAS 323 PERCENT. Similar returns for the S&P500 and S&P Semiconductor index
were 114 percent and 222 percent respectively.
In closing, the management and employees of Altera have performed well and we
plan to deliver value to our shareholders. To do this, we require your support
to enable us to continue to offer competitive, equity-based compensation.
Thank you very much for your attention and continued support--please vote "For"
amending both of our plans. Since we believe that the passage of these proxy
issues is absolutely essential to Altera's continued success, I would like to
further discuss this with you, at your convenience, by phone or in person.
Please expect my call, and I look forward to talking with you.
Sincerely yours,
Nathan Sarkisian
Senior Vice President and Chief Financial Officer
Enclosures: Attachments 1-4
Annual Report
Proxy
Via Federal Express
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Attachment #1
Altera's Low "Burn Rate"
Semiconductor Company Peer Group (w/o cancellations)
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Market Percentile 2000 1999 1998 1997 1996
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75th 8.7% 6.0% 6.1% 6.4%
Median 4.9% 4.3% 3.7% 3.8%
25th 3.3% 3.7% 2.5% 2.4%
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ALTERA
w/o cancellations 3.31% 2.12% 2.22% 2.18% 3.74%
w/cancellations 2.77% 1.36% 1.39% 1.42% 3.32%
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Sources: iQuantic Inc., most recent (1999) survey
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Attachment #2
Vesting Aligned with Shareholder Interests
- - Ongoing Employee Options initial vesting period is 3 years from grant date.
Semiconductor Peer Group
[BAR GRAPH DEPICTING WHEN FIRST OPTION VESTS]
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3% 6% 6% 66% 6% 11%
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Immed. 1 mo. 3 mos. 1 year 3 years Other
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ALTERA
Source: iQuantic Inc.
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Attachment #3
Overhang Bias Due to Altera Vesting
Altera 3-Year Vesting *
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Grant Year Year Year Year
1 2 3 4
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YEAR 1 2.0 2.0 2.0 2.0 1.0
YEAR 2 2.0 2.0 2.0 2.0
YEAR 3 2.0 2.0 2.0
YEAR 4 2.0 2.0
TOTAL OVERHANG@ MID-YEAR 2.0 4.0 6.0 7.0
--- --- --- ---
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Typical 1-Year Vesting *
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Grant Year Year Year Year
1 2 3 4
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YEAR 1 2.0 2.0 1.5 1.0 .5
YEAR 2 2.0 2.0 1.5 1.0
YEAR 3 2.0 2.0 1.5
YEAR 4 2.0 2.0
TOTAL OVERHANG@ MID-YEAR 2.0 3.5 4.5 5.0
--- --- --- ---
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STEADY STATE OPTION OVERHANG IS 40% MORE!!
*Assumes 2.0 million share grants are issued to ongoing employees each year and
the grantees exercise shares when vested, therefore removing the exercised
shares from the calculated overhang
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Attachment #4
Altera Overhang
(Options Granted but Unexercised as a % of Outstanding)
Semiconductor Company Peer Group
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Market Percentile 2000 1999 1998 1997 1996
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75th 18.1% 16.4% 14.6% 14.3%
Median 13.7% 13.4% 13.7% 10.9%
25th 11.5% 11.9% 9.5% 9.9%
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ALTERA 13.0%(1) 11.7% 13.0% 14.0% 14.1%
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(1) Total overhang (available for grant and granted but unexercised) = 13.5%
Source: iQuantic Inc., most recent (1999) survey