Edgar Filing: LOGICVISION INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant x
Filed by a party other than the Registrant o

Check the appropriate box:
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LOGICVISION, INC.
(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGICVISION, INC.
25 METRO DRIVE, THIRD FLOOR
SAN JOSE, CALIFORNIA 95110
(408) 453-0146

PROXY STATEMENT/PROSPECTUS
A MERGER IS PROPOSED – YOUR VOTE IS VERY IMPORTANT

July 15, 2009

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of LogicVision, Inc., or LogicVision, that will be held on August 18, 2009, at 9 a.m. Pacific Daylight Time (the “Annual Meeting”), at the executive offices of LogicVision, 25 Metro Drive, Third Floor, San Jose, California 95110.

At the meeting, you will be asked to adopt the Agreement and Plan of Merger, or the merger agreement, that LogicVision has entered into with Mentor Graphics Corporation, or Mentor Graphics, and its wholly owned subsidiary, Fulcrum Acquisition Corporation, and approve the merger contemplated by the merger agreement. If the merger agreement is adopted and the merger approved, and the other conditions in the merger agreement are satisfied or waived, Mentor Graphics will acquire LogicVision, and each share of outstanding common stock of LogicVision will be converted into the right to receive 0.2006 of a share of Mentor Graphics common stock. Mentor Graphics common stock is listed on The NASDAQ Global Select Market, or NASDAQ, under the symbol “MENT.” On July 14, 2009, the last full trading day prior to the date of this proxy statement/prospectus, the last reported sale price per share of Mentor Graphics common stock on NASDAQ was $6.25.

The board of directors of LogicVision has unanimously determined the merger to be advisable and fair to and in the best interests of LogicVision and its stockholders and approved the merger agreement. The board of directors of LogicVision unanimously recommends that you vote “FOR” the adoption of the merger agreement and approval of the merger.

This document provides you with detailed information about the merger. In addition to being a proxy statement of LogicVision, this document is also the prospectus of Mentor Graphics for Mentor Graphics common stock that will be issued to you in connection with the merger. We encourage you to read the entire document carefully. Please pay particular attention to “Risk Factors” beginning on page 19 for a discussion of the risks related to the merger and owning Mentor Graphics common stock after the merger.

At the Annual Meeting, you will also be asked to elect directors to the board of directors of LogicVision. If LogicVision stockholders approve the merger, the directors on LogicVision’s board of directors will be replaced upon completion of the merger. The board of directors of LogicVision recommends that you vote “FOR” each of the nominees for election to the board of directors of LogicVision, and that you vote “FOR” the adjournment, if necessary, of the Annual Meeting for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and the approval of the merger.

Only stockholders who hold shares of LogicVision common stock at the close of business on July 8, 2009 will be entitled to vote at the Annual Meeting.

Your vote is very important. Whether or not you plan to attend the Annual Meeting, please take the time to vote by completing and mailing the enclosed proxy card, or voting via telephone or Internet by following the instructions provided on the proxy card, at your earliest convenience to ensure that your shares will be represented. If you are a holder of record, you may also cast your vote in person at the meeting. If you hold shares of LogicVision common stock through a broker or other custodian, please vote your shares by following the voting instructions that the applicable institution provides to you.

Sincerely yours,

James T. Healy

President and Chief Executive Officer

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER, OR DETERMINED WHETHER THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This proxy statement/prospectus is dated July 15, 2009, and is expected to be first mailed to LogicVision stockholders on or about July 20, 2009.

LOGICVISION, INC.
____________________

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 18, 2009
____________________

To the Stockholders of LogicVision, Inc.:

The Annual Meeting of Stockholders of LogicVision, Inc., a Delaware corporation, will be held on August 18, 2009, at 9 a.m. Pacific Daylight Time, at the executive offices of LogicVision, 25 Metro Drive, Third Floor, San Jose, California 95110, for the following purposes:

1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger by and among Mentor Graphics, Fulcrum Acquisition Corporation, a wholly owned subsidiary of Mentor Graphics, and LogicVision, dated as of May 6, 2009, and approve the merger contemplated by the merger agreement;

2. To elect six directors to serve on LogicVision’s board of directors, each to hold office until the earliest of LogicVision’s 2010 annual meeting of stockholders, his removal or resignation or, if the merger is completed, the effective time of the merger;

3. To approve a proposal to adjourn the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and approval of the merger contemplated thereby; and

4. To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement of the Annual Meeting.

Stockholders of record as of the close of business on July 8, 2009 are entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. A majority of the shares of LogicVision common stock outstanding on the record date must be voted in favor of the adoption of the merger agreement and approval of the merger contemplated thereby in order for the merger to be completed. For the election of directors, the six nominees receiving the highest number of votes of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors will be elected as directors. A majority of the shares represented at the meeting in person or by proxy must be voted in favor of any adjournment of the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and the approval of the merger contemplated thereby.

All LogicVision stockholders are cordially invited to attend the Annual Meeting. However, we encourage you to vote by proxy so that your shares will be represented and voted at the meeting even if you cannot attend. Of course, voting by proxy will not prevent you from voting in person at the meeting. Your failure to vote your shares or an abstention will have the same effect as voting against the proposal to adopt the merger agreement and approve the merger. Your failure to vote your shares will not affect the outcome of the election of directors. Your failure to vote your shares will not affect any proposal to adjourn the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and the approval of the merger, however, an abstention will have the same effect as voting against any such proposal to adjourn the Annual Meeting. A complete list of stockholders entitled to vote at the Annual Meeting will be available at the Secretary’s office, 25 Metro Drive, Third Floor, San Jose, California 95110, for ten days before the meeting.

After careful consideration, the board of directors of LogicVision has unanimously determined that the merger is advisable, fair to and in the best interests of LogicVision and its stockholders and it recommends that you vote “FOR” the adoption of the merger agreement and approval of the merger contemplated thereby. The board of directors of LogicVision recommends that you vote “FOR” each of the nominees for election to the board of directors of LogicVision, and that you vote “FOR” the adjournment, if necessary, of the Annual Meeting for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and approval of the merger contemplated thereby.

By Order of the Board of Directors

Mei Song

Secretary

July 15, 2009

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 18, 2009.

The Proxy Statement/Prospectus and Annual Report are available at http://bnymellon.mobular.net/bnymellon/lgvn.

To obtain directions to attend the Annual Meeting, please contact the Secretary of LogicVision, 25 Metro Drive, Third Floor, San Jose, California 95110.

Your vote is important. Please return your proxy as soon as possible, whether or not you expect to attend the Annual Meeting in person.

You may submit your proxy by telephone or by the Internet by following the instructions on the enclosed proxy or voting form or by completing, dating and signing the enclosed proxy card and returning it in the enclosed postage prepaid envelope. You may revoke your proxy at any time before the Annual Meeting. If you attend the Annual Meeting and vote in person, your proxy vote will not be used. If you hold shares of LogicVision common stock through a broker or other custodian, please follow the voting instructions that the applicable institution provides to you.

Please do not send your common stock certificates at this time. If the merger is consummated, you will be sent instructions regarding the surrender of your certificates.

TABLE OF CONTENTS

Cautionary Statement Regarding Forward-Looking Statements	1
Questions and Answers About the Merger	2
Questions and Answers Relating to the Annual Meeting	4
Summary	8
Mentor Graphics Summary Selected Historical Consolidated Financial Data	14
LogicVision Summary Selected Historical Consolidated Financial Data	16
Comparative Historical and Pro Forma Per Share Data	17
Comparative Per Share Market Price Data	18
Risk Factors	19
Risks Related to the Merger	19
Risks Related to LogicVision	22
The Companies	34
The Annual Meeting of LogicVision Stockholders	35
Time and Place of Annual Meeting	35
Matters to be Considered at the Annual Meeting	35
Record Date for the Annual Meeting and Voting Rights	35
Quorum; Required Votes; Abstention and Broker Non-Votes	35
Voting Your Proxy	36
How to Vote	36
Revoking Your Proxy	37
Other Voting Matters	37
Adjournment and Postponement	38
Householding of Annual Meeting Materials	38
Proposal One—The Merger	39
General	39
Structure of the Merger	39
What You Will Receive in the Merger	39
Treatment of Stock Options and Warrants	39
Background of the Merger	40
Recommendation of LogicVision’s Board of Directors; LogicVision’s Reasons for the Merger	45
Opinion of LogicVision’s Financial Advisor	49
Mentor Graphics’ Reasons for the Merger	57
Interests of Certain Persons in the Merger	57
Material U.S. Federal Income Tax Consequences of the Merger	59
Restrictions on Sales of Shares of Mentor Graphics Common Stock by Certain Affiliates	61
Accounting Treatment	61
No Appraisal Rights	61
Delisting and Deregistration of LogicVision Common Stock After the Merger	62
Listing of Mentor Graphics Common Stock	62
The Merger Agreement and the Support Agreements	63
The Merger Agreement	63
The Support Agreements	84
Proposal Two—Election of Directors	86
Proposal Three—Adjournment of the Annual Meeting	88
Information About LogicVision	89
Business	89
Executive Officers	96
Management’s Discussion and Analysis of Financial Condition and Results of Operations	96
Quantitative and Qualitative Disclosure About Market Risk	113
Corporate Governance and Executive Compensation	113
Principal Accountant Fees and Services	121
Report of the Audit Committee of the Board of Directors	122

Security Ownership of Certain Beneficial Owners and Management of LogicVision	123
Comparison of Rights of Holders of Mentor Graphics Common Stock and LogicVision Common Stock	125
Legal Matters	138
Experts	138
Stockholder Proposals for the 2010 Annual Meeting	138
Where You Can Find Additional Information	139

Annexes:
Agreement and Plan of Merger	A-1
Form of Support Agreement	B-1
Opinion of Needham & Company, LLC	C-1
Financial Statements of LogicVision, Inc.	D-1

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus “incorporates by reference” important business and financial information about Mentor Graphics from documents that are not included in or delivered with this proxy statement/prospectus. This information is available to you without charge upon request. For a more detailed description of the information incorporated by reference into this proxy statement/prospectus and how you may obtain it, see “Where You Can Find Additional Information” beginning on page 139 of this proxy statement/prospectus. Mentor Graphics will provide you with copies of this information relating to Mentor Graphics (excluding all exhibits unless Mentor Graphics has specifically incorporated by reference an exhibit in this proxy statement/prospectus), without charge, upon written or oral request to:

Mentor Graphics Corporation
8005 SW Boeckman Road
Wilsonville, Oregon 97070-7777
Attn: Investor Relations
(503) 685-7000

Investors may also consult Mentor Graphics’ or LogicVision’s websites for more information concerning the merger described in this proxy statement/prospectus. Mentor Graphics’ website is www.mentor.com. LogicVision’s website is www.logicvision.com. Information included on any of these websites is not incorporated by reference into this proxy statement/prospectus.

In order to receive timely delivery of the documents before the stockholder meeting, you must make your requests no later than August 11, 2009.

You should rely only on the information contained or incorporated by reference in this proxy statement/prospectus. Mentor Graphics and LogicVision have not authorized anyone to provide you with information that is different from, or in addition to, what is contained in this proxy statement/prospectus or in any of the materials that have been incorporated by reference in this proxy statement/prospectus. If anyone does give you any other information, you should not rely on it. You should assume that the information in this proxy statement/prospectus is accurate only as of July 15, 2009. You should also assume that the information contained in any document incorporated by reference herein is accurate only as of the date of such document, except to the extent that such information is contained in an additional document filed with the Securities and Exchange Commission, or SEC, under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, between the date of this proxy statement/prospectus and the date of the LogicVision stockholder meeting and is incorporated by reference herein. Neither the mailing of this proxy statement/prospectus to stockholders nor the issuance of Mentor Graphics common stock in the merger creates any implication to the contrary.

ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms a part of a registration statement on Form S-4 filed with the SEC by Mentor Graphics, constitutes a prospectus of Mentor Graphics under Section 5 of the Securities Act of 1933, as amended, or the Securities Act, with respect to the shares of Mentor Graphics common stock to be issued to LogicVision stockholders in connection with the merger. This document also constitutes a proxy statement under Section 14(a) of the Exchange Act and the rules thereunder, and a notice of meeting with respect to the meeting of LogicVision stockholders to consider and vote upon, among other matters, the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement, including the merger, as well as the election of directors to LogicVision’s board of directors.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities described in this proxy statement/prospectus, or the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer, solicitation of an offer or proxy solicitation in such jurisdiction. Information contained in this proxy statement/prospectus regarding Mentor Graphics has been provided by Mentor Graphics and information contained in this proxy statement/prospectus regarding LogicVision has been provided by LogicVision.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions, that, if they never materialize or if they prove incorrect, could cause the results of Mentor Graphics and its consolidated subsidiaries, LogicVision and its consolidated subsidiaries, or the combined company, to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements about future financial and operating results (including projections of earnings, revenues, synergies, accretion, margins or other financial items); products and operations; benefits of the transaction to customers, stockholders and employees; the expected tax treatment of the transaction; potential cost savings resulting from the transaction; the ability of the combined companies to drive growth and expand customer and partner relationships; any statements of the plans, strategies and objectives of management for future operations, including the execution of integration plans and the anticipated timing of filings, approvals and closings relating to the merger; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “may,” “should,” “would,” “projects,” “predicts,” “continues,” and similar expressions or the negative of these terms help to identify these forward looking statements.

The risks, uncertainties and assumptions referred to above include the challenges of integration associated with the merger and the challenges of achieving anticipated synergies and cost savings; the possibility that the merger may not close; the challenges of maintaining and increasing revenues on a combined company basis following the close of the merger; the challenges of retaining key employees; other economic, business, competitive, and/or regulatory factors affecting the businesses of Mentor Graphics and LogicVision generally, including the risks that are described in the section entitled “Risk Factors,” which begins on page 19, and in the documents that are incorporated by reference into this proxy statement/prospectus.

If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, results of Mentor Graphics, LogicVision and the combined company could differ materially from the expectations in these statements. These forward-looking statements speak only as of the date hereof. Except to the extent required by applicable law, Mentor Graphics and LogicVision undertake no obligation to publicly release the results of any revisions or updates to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:		Why am I receiving this proxy statement/prospectus?

A:		Mentor Graphics has agreed to acquire LogicVision under the terms of a merger agreement that is described in this proxy statement/prospectus. See “Proposal One—The Merger” and “The Merger Agreement and the Support Agreements.” A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A. This proxy statement/prospectus contains important information about the merger agreement, the merger and the Annual Meeting. You are receiving this proxy statement/prospectus because you have been identified as a stockholder of LogicVision and may be entitled to vote at the upcoming Annual Meeting. To complete the merger, LogicVision stockholders must vote to adopt the merger agreement and approve the merger, and all other conditions to the merger must be satisfied or waived. You should read this proxy statement/prospectus carefully.

Q:		What will happen in the proposed merger?

A:		In the merger, Fulcrum Acquisition Corporation, a wholly owned subsidiary of Mentor Graphics, will merge with and into LogicVision and, as a result, LogicVision will become a wholly owned subsidiary of Mentor Graphics. See “Proposal One—The Merger—Structure of the Merger.”

Q:		What will I receive in exchange for my LogicVision common stock?

A:		Upon completion of the merger, each outstanding share of LogicVision common stock will be converted into the right to receive 0.2006 shares of Mentor Graphics common stock, which is referred to in this proxy statement/prospectus as the “exchange ratio,” and the Mentor Graphics common stock received in such exchange is referred to in this proxy statement/prospectus as the “merger consideration.” You will receive cash in lieu of any fractional share of Mentor Graphics common stock that you would otherwise be entitled to receive in the merger. See “Proposal One—The Merger—What You Will Receive in the Merger.”

Q:		How will the merger affect stock options and warrants to acquire LogicVision common stock?

A:		At the effective time of the merger, each option to purchase LogicVision common stock outstanding immediately prior to the merger and held by an employee or consultant of LogicVision, whether or not vested or exercisable, will be assumed by Mentor Graphics and converted upon completion of the merger into an option to purchase Mentor Graphics common stock, or, in Mentor Graphics’ discretion, Mentor Graphics will substitute equivalent options under one of its equity plans, in either case for an adjusted number of shares and with an adjusted exercise price based on the exchange ratio. Other than the adjustment with respect to the underlying shares and per share exercise price, the employee or consultant options to purchase Mentor Graphics stock will have equivalent terms and conditions as the LogicVision options for which they were assumed or substituted. In addition, each outstanding option to purchase LogicVision common stock that is held by a person who is not an employee or consultant of LogicVision immediately prior to the effective time of the merger will be cancelled and the vested portion will automatically be converted into the right to receive cash (if any), based on the product of (1) the number of LogicVision shares issuable upon exercise of the option, (2) the exchange ratio and (3) the excess (if any) of the closing sale price of Mentor Graphics common stock on the trading day immediately prior to the effective time of the merger over the adjusted option exercise price. Each outstanding option to purchase LogicVision common stock that is held by a non-employee member of LogicVision’s board of directors will be converted into the right to receive cash as described in the preceding sentence to the extent that such option has been outstanding for not less than six months or is otherwise vested pursuant to its terms.

		Outstanding warrants to purchase LogicVision common stock will automatically terminate upon the merger and be converted into the right to receive a number of shares of Mentor Graphics common stock, if any, based on the exchange ratio.

		See “The Merger Agreement and the Support Agreements—The Merger Agreement—Treatment of LogicVision Options in the Merger” and “The Merger Agreement and the Support Agreements—The Merger Agreement—Treatment of LogicVision Warrants in the Merger.”

Q:		Are there any risks involved in undertaking the merger?

A:		Yes. In evaluating the merger, you should carefully consider the factors discussed in the section of this proxy statement/prospectus entitled, “Risk Factors” beginning on page 19.

Q:		Are there conditions to completion of the merger?

A:		Yes. Mentor Graphics and LogicVision’s respective obligations to complete the merger are subject to the satisfaction or waiver of certain specified closing conditions. See “The Merger Agreement and Support Agreements—The Merger Agreement—Conditions to the Consummation of the Merger.”

Q:		Am I entitled to appraisal rights?

A:		No. Holders of LogicVision common stock are not entitled to dissenters’ rights of appraisal for their shares under the Delaware General Corporation Law in connection with the merger. See “Proposal One—The Merger—No Appraisal Rights.”

Q:		What are the U.S. federal income tax consequences of the merger?

A:		The merger has been structured to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Assuming the merger qualifies as a reorganization, for U.S. federal income tax purposes, LogicVision stockholders will generally not recognize any gain or loss upon the receipt of Mentor Graphics common stock in exchange for LogicVision common stock in connection with the merger, except in respect of any cash received in lieu of fractional shares of Mentor Graphics common stock. See “Proposal One—The Merger—Material U.S. Federal Income Tax Consequences of the Merger.”

Q:		What stockholder approvals are required for the merger?

A:		The holders of a majority of the outstanding shares of LogicVision common stock on the record date for the Annual Meeting must vote in favor of the adoption of the merger agreement and the approval of the merger. Only holders of record of LogicVision common stock at the close of business on July 8, 2009, referred to in this proxy statement/prospectus as the “record date,” are entitled to notice of and to vote at the Annual Meeting. As of the record date, there were 9,473,572 shares of LogicVision common stock outstanding and entitled to vote at the Annual Meeting. Failure to vote your shares, abstentions and broker non-votes will have the same effect as voting against the proposal to adopt the merger agreement and approve the merger. See “The Annual Meeting of LogicVision Stockholders—Quorum; Required Votes; Abstention and Broker Non-Votes.”

Q:		What stockholder approvals are required for the adjournment of the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and the approval of the merger?

A:		The holders of a majority of the shares of LogicVision common stock represented in person or by proxy at the Annual Meeting must vote in favor of the adjournment of the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and the approval of the merger for such proposal to be approved. Abstentions will have the same effect as voting against any such proposal to adjourn the Annual Meeting. Broker non-votes will not affect the outcome of any proposal to adjourn the Annual Meeting. See “The Annual Meeting of LogicVision Stockholders—Quorum; Required Votes; Abstention and Broker Non-Votes.”

Q:		How does LogicVision’s board of directors recommend that I vote on the merger and adjournment proposals?

A:		The board of directors of LogicVision unanimously recommends that you vote “FOR” the adoption of the merger agreement and the approval of the merger and vote “FOR” the adjournment of the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and the approval of the merger. See “Proposal One—The Merger—Recommendation of LogicVision’s Board of Directors; LogicVision’s Reasons for the Merger.”

Q:		Are there risks I should consider in deciding whether to vote for the merger?

A:		Yes. In evaluating the merger, you should carefully consider the factors discussed in the section of this proxy statement/prospectus entitled, “Risk Factors” beginning on page 19.

Q:		How can I vote my LogicVision shares in connection with the adoption of the merger agreement and approval of the merger?

A:		You may vote your LogicVision shares at the Annual Meeting either in person or by proxy. For a description of how to vote your shares, see “Questions and Answers Relating to the Annual Meeting” below.

Q:		Do I need to send in my LogicVision stock certificate now?

A:		No. Once the merger is consummated, instructions will be sent to you regarding the exchange of your LogicVision stock certificates for the merger consideration payable to you in the merger.

Q:		When do you expect the merger to be completed?

A:		Mentor Graphics and LogicVision are working to complete the merger as quickly as practicable and currently expect that the merger could be completed promptly after the Annual Meeting.

QUESTIONS AND ANSWERS RELATING TO THE ANNUAL MEETING

Q:		What other matters will be voted on at the Annual Meeting?

A:		In addition to the merger and adjournment proposals described above, you will be asked to vote upon the election of directors to the LogicVision board of directors.

Q:		Who are the director nominees?

A:		LogicVision’s board of directors has nominated each of Gregg E. Adkin, James T. Healy, Randall A. Hughes, Richard Okumoto, Matthew Raggett and Richard C. Yonker (each of whom is currently a director of LogicVision) for election to the board of directors of LogicVision. See “Proposal Two—Election of Directors.”

Q:		What vote is needed to elect directors?

A:		Directors are elected by a plurality vote. The six nominees for director who receive the most votes cast in their favor will be elected to serve as directors. Any LogicVision shares not voted will have no impact on the election of directors, except to the extent the withholding of authority to vote for an individual director results in another individual receiving a larger number of votes. See “The Annual Meeting of LogicVision Stockholders—Quorum; Required Votes; Abstention and Broker Non-Votes.”

Q:		How does LogicVision’s board of directors recommend that I vote with respect to the election of directors?

A:		The board of directors of LogicVision unanimously recommends that you vote “FOR” the election of each of the nominated directors. See “Proposal Two—Election of Directors.”

Q:		As a LogicVision stockholder, why am I electing LogicVision’s directors when I am being asked to adopt the merger agreement and approve the merger?

A:		Delaware law requires LogicVision to hold a meeting of its stockholders each year. LogicVision has determined that it will observe this requirement and hold the meeting to elect directors to the LogicVision board of directors. The LogicVision directors elected at the Annual Meeting will serve as directors of LogicVision following the meeting through the earliest of the completion of the merger, LogicVision’s 2010 annual meeting of stockholders, or the director’s removal or resignation. Upon completion of the merger, the individuals serving as LogicVision directors immediately prior to the completion of the merger will be replaced by designees of Mentor Graphics.

Q:		When and where will the Annual Meeting take place?

A:		The Annual Meeting will be held at the executive offices of LogicVision, 25 Metro Drive, Third Floor, San Jose, California 95110, on August 18, 2009, starting at 9:00 a.m. Pacific Daylight Time.

Q:		Who can vote at the Annual Meeting?

A:		LogicVision stockholders of record at the close of business on the record date are entitled to vote at the Annual Meeting.

Q:		What is the record date for the Annual Meeting?

A:		The record date for the Annual Meeting is July 8, 2009.

Q:		What constitutes a quorum for purposes of the Annual Meeting?

A:		The presence in person or by proxy of the holders of a majority of shares of LogicVision common stock outstanding at the close of business on the record date will constitute a quorum for purpose of the Annual Meeting. See “The Annual Meeting of LogicVision Stockholders—Quorum; Required Votes; Abstention and Broker Non-Votes.”

Q:		How can I vote?

A:		You may vote your LogicVision shares at the Annual Meeting either in person or by proxy. To vote by proxy, you should mark, date, sign and mail the enclosed proxy in the prepaid envelope. Giving a proxy will not affect your right to vote your LogicVision shares if you attend the Annual Meeting and want to vote in person. The LogicVision shares represented by the proxies received in response to this solicitation and not properly revoked will be voted at the Annual Meeting in accordance with the instructions therein. On the matters coming before the Annual Meeting for which a choice has been specified by a stockholder on the proxy card, the shares will be voted accordingly.

	LogicVision stockholders of record can simplify their voting and save LogicVision additional expense by calling 1-866-540-5760 or voting via the Internet at http://www.proxyvoting.com/lgvn. Telephone and Internet voting information is provided on the proxy card if these options are available to you. Votes submitted via the Internet or by telephone must be received by 11:59 p.m., Eastern Time, on August 17, 2009. Submitting your proxy via the Internet or by telephone will not affect your right to vote in person should you decide to attend the Annual Meeting. If you hold your shares through a broker, bank or other nominee rather than directly in your own name, see “What is the difference between holding shares as a stockholder of record and as a beneficial owner?” below and “The Annual Meeting of LogicVision Stockholders—How to Vote.”

Q:	What happens if I do not vote?

A:	For the adoption of the merger agreement and the approval of the merger, the failure to execute and return your proxy card or to submit a proxy card by telephone or over the Internet will have the same effect as voting against the adoption of the merger agreement and the approval of the merger. For the election of directors and the adjournment proposal, the failure to execute and return your proxy card or to submit a proxy by telephone or over the Internet will not affect the outcome of either proposal but will reduce the number of votes required to approve such proposal. See “The Annual Meeting of LogicVision Stockholders—Quorum; Required Votes; Abstention and Broker Non-Votes.”

Q:	What happens if I abstain?

A:	If you execute and return your proxy card or submit a proxy by telephone or over the Internet and vote “ABSTAIN” or if you vote “ABSTAIN” at the Annual Meeting, this will have the same effect as voting against the adoption of the merger agreement and the approval of the merger and against any proposal to adjourn the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and the approval of the merger. See “The Annual Meeting of LogicVision Stockholders—Quorum; Required Votes; Abstention and Broker Non-Votes.”

Q:	What is the difference between holding shares as a stockholder of record and as a beneficial owner?

A:	Many LogicVision stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name. There are some important distinctions between shares held of record and shares beneficially owned. Stockholder of Record. If your shares are registered directly in your name with LogicVision’s transfer agent, you are considered the stockholder of record with respect to those shares and this proxy statement/prospectus is being sent directly to you by LogicVision. As a stockholder of record, you have the right to grant your proxy directly to LogicVision or to vote in person at the Annual Meeting. LogicVision has enclosed a proxy card for your use. Beneficial Owner. If your shares are held in a brokerage account, bank account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and this proxy statement/prospectus is being forwarded to you by your broker, bank or nominee together with a voting instruction card. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote and are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you obtain a legal proxy from the broker, bank or nominee that holds your shares, giving you the right to vote the shares instead of the broker, bank or nominee holding your shares. Your broker, bank or nominee has enclosed voting instructions for your use in directing your broker, bank or nominee how to vote your shares.

	See “The Annual Meeting of LogicVision Stockholders—How to Vote.”

Q:	If my shares are held in “street name” by my broker, will my broker automatically vote my shares for me?

A:	If you do not provide your broker with instructions on how to vote your shares that are held in “street name,” your broker will not be permitted to vote them on the proposal to adopt the merger agreement and approve the merger. Therefore, you should be sure to provide your broker with instructions on how to vote these shares. See “The Annual Meeting of LogicVision Stockholders—Quorum; Required Votes; Abstention and Broker Non-Votes.”

Q:	Can I change my vote?

A:	Yes. If you submit a proxy, you may revoke it at any time before the Annual Meeting by: delivering to the Secretary of LogicVision a written notice, dated later than the proxy you wish to revoke, stating that the proxy is revoked; submitting to the Secretary of LogicVision a new, signed proxy with a date later than the proxy you wish to revoke; submitting another proxy by telephone or over the Internet (your latest telephone or voting instructions will be followed); or attending the Annual Meeting and voting in person. Notices to the Secretary of LogicVision should be addressed to Secretary, LogicVision, Inc., 25 Metro Drive, Third Floor, San Jose, California 95110. If you hold your shares in “street name,” you must give new instructions to your broker prior to the Annual Meeting or obtain a signed legal proxy from the broker to revoke your prior instructions and vote in person. See “The Annual Meeting of LogicVision Stockholders—Revoking Your Proxy.”

Q:	Are there any other matters to be addressed at the Annual Meeting?

A:	LogicVision knows of no other matters to be brought before the meeting, but if other matters are properly brought before the meeting or any adjournment or postponement of the meeting, the officers named in your proxy intend to take such action as in their judgment is in the best interests of LogicVision and its stockholders.

Q:	Whom do I call if I have questions about the Annual Meeting or the merger?

A:	You should direct any questions regarding the Annual Meeting or the merger, including the procedures for voting your shares, to BNY Mellon Shareowner Services, which is assisting LogicVision with the solicitation of proxies, at 1-877-265-2632.

Q:	What do I need to do now?

A:	After you carefully read this proxy statement/prospectus, mail your signed proxy card in the enclosed return envelope, or submit your proxy by telephone or the Internet in accordance with the instructions on the proxy cards. In order to ensure that your shares are represented and voted, please submit your proxy as soon as possible even if you currently plan to attend the Annual Meeting in person. If your shares are held in “street name” by your broker or another nominee, you must instruct your broker or other nominee on how to vote the shares you beneficially own.

SUMMARY

This proxy statement/prospectus pertains to the merger of Mentor Graphics and LogicVision, and it is being sent to the holders of common stock of LogicVision. This summary highlights selected information from this document. It may not contain all of the information that is important to you with respect to the adoption of the merger agreement and the issuance of Mentor Graphics common stock. We urge you to read carefully this proxy statement/prospectus, as well as the documents attached to and those referenced in this proxy statement/prospectus, to fully understand the merger. In particular, you should read the merger agreement and the form of support agreement, which are attached as Annex A and B. In addition, we encourage you to read the information incorporated by reference into this proxy statement/prospectus, which includes important business and financial information about Mentor Graphics that has been filed with the SEC. You may obtain the information incorporated by reference into this proxy statement/prospectus without charge by following the instructions in the section entitled “Where You Can Find Additional Information” beginning on page 139. When this proxy statement/prospectus refers to the “combined company,” it means Mentor Graphics Corporation and its subsidiaries, and LogicVision, Inc. and its subsidiaries. All dollar amounts referred to in this proxy statement/prospectus are in U.S. dollars.

The Companies

Mentor Graphics Corporation
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777
(503) 685-7000

Mentor Graphics Corporation, an Oregon corporation, is a technology leader in electronic design automation (EDA). Mentor Graphics provides software and hardware design solutions that enable its customers to develop better electronic products faster and more cost effectively. Mentor Graphics markets its products and services worldwide, primarily to large companies in the military/aerospace, communications, computer, consumer electronics, semiconductor, networking, multimedia, and transportation industries. The electronic systems that Mentor Graphics’ customers create with its products include printed circuit boards (PCBs), integrated circuits (ICs), field programmable gate arrays (FPGAs), embedded software solutions, and wire harness systems. Mentor Graphics’ products are used in the design and development of a diverse set of electronic products, including automotive electronics, video game consoles, digital cameras, cellular telephones, computer network hubs and routers, personal computers, and products enabled with the Bluetooth^® short-range wireless radio and networking technology.

Mentor Graphics was incorporated in Oregon in 1981 and its common stock is traded on The NASDAQ Global Select Market under the symbol “MENT.” Additional information about Mentor Graphics and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find Additional Information” beginning on page 139.

LogicVision, Inc.
25 Metro Drive, Third Floor
San Jose, California 95110
(408) 453-0146

LogicVision, Inc., a Delaware corporation, is a test and yield learning company in the semiconductor design-for-test sector. Its proprietary technologies for embedded test and diagnostics enable more efficient test of complex semiconductor devices. LogicVision technology allows semiconductor designers to insert test structures inside semiconductor integrated circuits. These test structures allow designers and engineers to test the functionality and performance of their devices throughout each key stage of a complex semiconductor’s life cycle. The most complex of these circuits are called System-on-a-Chip (SoC) semiconductors. LogicVision’s embedded test solutions have been deployed in SoC’s found in digital consumer products, medical products, automotive electronics, networking and wireless communications devices, computers and satellite systems.

LogicVision was incorporated as LV Software in California in 1992, and changed its name to LogicVision, Inc. in 1996. LogicVision reincorporated in Delaware in 2000. LogicVision common stock is traded on The NASDAQ Capital Market under the symbol “LGVN.” For additional information about LogicVision, see “Information About LogicVision” beginning on page 89.

Fulcrum Acquisition Corporation
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777
(503) 685-7000

Fulcrum Acquisition Corporation is a wholly owned subsidiary of Mentor Graphics and was incorporated in Delaware in May 2009 solely for the purpose of facilitating the merger. Fulcrum Acquisition Corporation has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

The Annual Meeting of LogicVision Stockholders; Required Vote

Date, Time and Place. The Annual Meeting of LogicVision stockholders will be held on August 18, 2009, at 9:00 a.m. Pacific Daylight Time, at the executive offices of LogicVision, 25 Metro Drive, Third Floor, San Jose, California 95110.

Matters to be Considered at the LogicVision Annual Meeting. At the Annual Meeting, and any adjournments or postponements thereof, LogicVision stockholders will be asked:

to consider and vote upon a proposal to adopt the merger agreement and approve the merger contemplated by the merger agreement;
to elect six directors to serve on LogicVision’s board of directors, each to hold office until the earliest of LogicVision’s 2010 annual meeting of stockholders, his removal or resignation or, if the merger is completed, the effective time of the merger;
to approve a proposal to adjourn the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and approval of the merger contemplated by the merger agreement; and
to transact such other business as may properly come before the Annual Meeting and any adjournment or postponement of the Annual Meeting.

Record Date. LogicVision’s board of directors has fixed the close of business on July 8, 2009 as the record date for determination of LogicVision stockholders entitled to notice of and to vote at the Annual Meeting and any adjournment thereof.

Required Vote. Adoption of the merger agreement and approval of the merger requires the affirmative vote of holders of a majority of the outstanding shares of LogicVision common stock. For the election of directors, the six nominees receiving the highest numbers of votes of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors will be elected as directors. Approval of a proposal to adjourn or postpone the meeting, if necessary, for any purpose, including to solicit additional proxies would require the affirmative vote of the holders of a majority of the shares of LogicVision common stock represented at the Annual Meeting. As of the record date, there were 9,473,572 shares of LogicVision common stock outstanding.

For additional information about the Annual Meeting, see “The Annual Meeting of LogicVision Stockholders.”

What LogicVision Stockholders Will Receive in the Merger

If the merger agreement is approved and the merger completed, LogicVision stockholders will receive 0.2006 shares of Mentor Graphics common stock for each share of LogicVision common stock they hold. Only whole shares of Mentor Graphics common stock will be issued in the merger. LogicVision stockholders will receive a cash payment in lieu of any fractional shares of Mentor Graphics common stock to which they would otherwise be entitled. See “Proposal One—The Merger—What You Will Receive in the Merger.”

What LogicVision Option Holders and Warrant Holders Will Receive in the Merger

At the effective time of the merger, each option to purchase LogicVision common stock outstanding immediately prior to the merger and held by an employee or consultant of LogicVision, whether or not vested or exercisable, will be assumed by Mentor Graphics and converted upon completion of the merger into an option to purchase Mentor Graphics common stock, or, in Mentor Graphics’ discretion, Mentor Graphics will substitute equivalent options under one of its equity plans, in either case for an adjusted number of shares and with an adjusted exercise price based on the exchange ratio. Other than the adjustment with respect to the underlying shares and per share exercise price, the employee or consultant options to purchase Mentor Graphics stock will have equivalent terms and conditions as the LogicVision options for which they were assumed or substituted. In addition, each outstanding option to purchase LogicVision common stock that is held by a person who is not an employee or consultant of LogicVision immediately prior to the effective time of the merger will be cancelled and the vested portion will automatically be converted into the right to receive cash (if any), based on the product of (1) the number of LogicVision shares issuable upon exercise of the option, (2) the exchange ratio, and (3) the excess (if any) of the closing sale price of Mentor Graphics common stock on the trading day immediately prior to the effective time of the merger over the adjusted option exercise price. Each outstanding option to purchase LogicVision common stock that is held by a non-employee member of LogicVision’s board of directors will be converted into the right to receive cash as described in the preceding sentence to the extent that such option has been outstanding for not less than six months or is otherwise vested pursuant to its terms. See “The Merger Agreement and the Support Agreements—The Merger Agreement—Treatment of LogicVision Options in the Merger.”

Outstanding warrants to purchase LogicVision common stock will automatically terminate upon the merger and be converted into the right to receive a number of shares of Mentor Graphics common stock, if any, based on the exchange ratio. See “The Merger Agreement and the Support Agreements—The Merger Agreement—Treatment of LogicVision Warrants in the Merger.”

Recommendation of the LogicVision Board of Directors; LogicVision’s Reasons for the Merger

The LogicVision board of directors has unanimously approved the merger agreement and the merger. The LogicVision board of directors has determined that the merger agreement, including the merger contemplated by the merger agreement, is advisable and fair to, and in the best interests of, LogicVision and its stockholders, and therefore unanimously recommends that LogicVision stockholders vote “FOR” the proposal to adopt the merger agreement and approve the merger contemplated by the merger agreement. In reaching its decision, the LogicVision board of directors considered a number of factors, see “Proposal One—The Merger—Recommendation of LogicVision’s Board of Directors; LogicVision’s Reasons for the Merger.”

Opinion of LogicVision’s Financial Advisor

At the meeting of the LogicVision board of directors on May 6, 2009, LogicVision’s financial advisor, Needham & Company, LLC, or Needham & Company, delivered its opinion to LogicVision’s board of directors that, as of May 6, 2009 and based upon and subject to the assumptions and other matters described in its written opinion, the exchange ratio pursuant to the merger agreement was fair to the holders of LogicVision common stock from a financial point of view. See “Proposal One—The Merger—Opinion of LogicVision’s Financial Advisor.”

The full text of the written opinion of Needham & Company, dated May 6, 2009, which sets forth assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Needham & Company, is attached as Annex C to this proxy statement/prospectus. Needham & Company provided its opinion for the information and assistance of LogicVision’s board of directors in connection with the board of directors’ consideration of the transactions contemplated by the merger agreement. The Needham & Company opinion is not a recommendation as to how any holder of LogicVision common stock should vote with respect to the merger or any other matter.

The Merger Agreement

Structure of the Merger. This proxy statement/prospectus relates to the proposed acquisition of LogicVision by Mentor Graphics pursuant to an Agreement and Plan of Merger, dated as of May 6, 2009, by and among Mentor Graphics, Fulcrum Acquisition Corporation, a wholly owned subsidiary of Mentor Graphics, and LogicVision. Pursuant to the merger agreement, at the effective time of the merger, Fulcrum Acquisition Corporation will be merged with and into LogicVision, as a result of which LogicVision will continue as a wholly owned subsidiary of Mentor Graphics. See “Proposal One—The Merger—Structure of the Merger.”

Consideration. Upon completion of the merger, LogicVision stockholders will receive 0.2006 shares of Mentor Graphics common stock for each share of LogicVision common stock they hold. Only whole shares of Mentor Graphics common stock will be issued in the merger. LogicVision stockholders will receive a cash payment in lieu of any fractional shares of Mentor Graphics common stock to which they would otherwise be entitled. See “Proposal One—The Merger—What You Will Receive in the Merger.”

Closing. The merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware. Mentor Graphics and LogicVision currently intend to file the certificate of merger as soon as practicable after the required approval of LogicVision’s stockholders is obtained and the other conditions set forth in the merger agreement have been satisfied or, where permissible, waived. See “The Merger Agreement and the Support Agreements—The Merger Agreement—The Merger” and “The Merger Agreement and the Support Agreements—The Merger Agreement—Conditions to the Consummation of the Merger.”

No Solicitation of Alternative Proposals. The merger agreement contains provisions restricting LogicVision’s right to solicit a competing acquisition transaction. See “The Merger Agreement and the Support Agreements—The Merger Agreement—LogicVision’s Non-Solicitation Covenant.”

Termination of the Merger Agreement. LogicVision and Mentor Graphics have the right to terminate the merger agreement under certain circumstances. In certain cases, termination of the merger agreement will require payment of a termination fee by LogicVision to Mentor Graphics. See “The Merger Agreement and the Support Agreements—The Merger Agreement—Termination” and “The Merger Agreement and the Support Agreements—The Merger Agreement—Termination Fee.”

A copy of the merger agreement is attached as Annex A to this proxy statement/prospectus. You are strongly encouraged to read it in its entirety.

Support Agreements

In connection with entering into the merger agreement, Mentor Graphics entered into support agreements with each of the current directors and executive officers of LogicVision and certain funds affiliated with Valley Ventures entities (which are affiliated with one of LogicVision’s directors), pursuant to which those stockholders have agreed to vote the shares of LogicVision common stock held by them to adopt the merger agreement and approve the merger and, subject to certain exceptions, not to dispose of their shares prior to the date of the LogicVision Annual Meeting. As of the record date, the outstanding shares subject to the support agreements represented approximately 10.8% of the votes eligible to be cast at the Annual Meeting. A form of the support agreement is attached to this proxy statement/prospectus as Annex B. See “The Merger Agreement and the Support Agreements—The Support Agreements.”

Interests of Certain Persons in the Merger

Some of LogicVision’s directors and executive officers may have interests in the merger that are different from, or in addition to, their interests as stockholders of LogicVision. LogicVision’s board of directors was aware of these interests and took them into account at the time they approved the merger agreement and the merger. These interests include, among other things, change of control severance agreements entered into with LogicVision’s executive officers. In the event of the involuntary termination of any of these officers within 12 months following the merger, these agreements entitle that executive officer to a lump sum severance payment equal to one year’s base salary and immediate acceleration of vesting of outstanding options. These interests, among others, are more fully described in this proxy statement/prospectus under the section entitled, “Proposal One—The Merger—Interests of Certain Persons in the Merger.”

As of the record date for the Annual Meeting, directors and executive officers of LogicVision and their affiliates were entitled to vote 1,025,891 shares of LogicVision common stock, which represented approximately 10.8% of the outstanding shares of LogicVision common stock at that date.

Comparative Market Value of Securities

The following table sets forth the closing price per share of Mentor Graphics common stock and LogicVision common stock, as reported on The NASDAQ Global Select Market and The NASDAQ Capital Market, respectively, (a) on May 6, 2009, the last full trading day preceding public announcement that Mentor Graphics and LogicVision had entered into the merger agreement, and (ii) on July 14, 2009, the last full trading day prior to the date of this proxy statement/prospectus. The equivalent LogicVision per share price at each specified date represents the closing price of a share of Mentor Graphics common stock on the applicable date multiplied by 0.2006, rounded to the nearest penny.

			Closing		Equivalent
	Closing Mentor		LogicVision		LogicVision
	Graphics Price		Price		Price Per Share
May 6, 2009	$	7.08	$	0.93	$	1.42
July 14, 2009	$	6.25	$	1.24	$	1.25

Because the market prices of Mentor Graphics common stock and LogicVision common stock will fluctuate prior to the merger, the market value of the shares of Mentor Graphics common stock that LogicVision stockholders will receive in the merger may increase or decrease prior to the merger. You should obtain current market quotations for the shares.

No Appraisal Rights

LogicVision stockholders are not entitled to dissenters’ rights of appraisal for their shares under the Delaware General Corporation Law in connection with the merger. See “Proposal One—The Merger —No Appraisal Rights.”

Material U.S. Federal Income Tax Consequences

The merger has been structured to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, and the consummation of the merger is conditioned on the receipt by LogicVision of an opinion from its counsel to the effect that the merger will so qualify; provided, however, that if counsel to LogicVision does not render such an opinion, the condition shall be deemed satisfied if the opinion is rendered by counsel to Mentor Graphics. Assuming the merger qualifies as a reorganization, for U.S. federal income tax purposes, LogicVision stockholders generally will not recognize any gain or loss upon receipt of Mentor Graphics common stock in exchange for LogicVision common stock in connection with the merger, except in respect of any cash received in lieu of fractional shares of Mentor Graphics common stock. The tax consequences of the merger to you will depend on your own situation. You should consult your tax advisor for a full understanding of the U.S. federal and any state, local and foreign tax consequences of the merger to you. See “Proposal One—The Merger—Material U.S. Federal Income Tax Consequences of the Merger.”

Risk Factors

In evaluating the merger agreement and the merger, you should consider certain risks discussed in the section of this proxy statement/prospectus entitled, “Risk Factors” beginning on page 19.

Accounting Treatment

Mentor Graphics will account for the merger using the “acquisition method of accounting” as that term is used under Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations,” which Mentor Graphics adopted on February 1, 2009, and uses the fair value concepts defined in SFAS No. 157, “Fair Value Measurements” for accounting and financial reporting purposes. See “Proposal One—The Merger—Accounting Treatment.”

Rights of LogicVision Stockholders Will Change as a Result of the Merger

LogicVision stockholders receiving Mentor Graphics common stock as merger consideration will have different rights when they become Mentor Graphics stockholders. For a more complete description of the comparison of rights of stockholders of Mentor Graphics and LogicVision, see “Comparison of Rights of Holders of Mentor Graphics Common Stock and LogicVision Common Stock.”

The Exchange Agent

American Stock Transfer and Trust Company will act as the exchange agent in connection with the merger.

No Mentor Graphics Stockholder Approval

Mentor Graphics stockholders are not required to adopt the merger agreement or approve the merger or the issuance of Mentor Graphics common stock as merger consideration.

MENTOR GRAPHICS SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth Mentor Graphics’ summary selected historical consolidated financial data as of the dates and for the periods indicated. Mentor Graphics’ historical consolidated statement of operations data set forth below for each of the years ended January 31, 2009 and 2008, and December 31, 2006, and the historical consolidated balance sheet data as of January 31, 2009 and 2008 are derived from Mentor Graphics’ audited historical consolidated financial statements, which are incorporated by reference into this proxy statement/prospectus. Mentor Graphics’ historical consolidated statement of operations data set forth below for each of the years ended December 31, 2005 and 2004, and the historical consolidated balance sheet data as of December 31, 2006, 2005 and 2004 are derived from Mentor Graphics’ audited historical consolidated financial statements, which are not incorporated by reference into this proxy statement/prospectus. Mentor Graphics’ historical consolidated statement of operations data set forth below for each of the three months ended April 30, 2009 and 2008 and the historical consolidated balance sheet data as of April 30, 2009 are derived from Mentor Graphics’ unaudited historical consolidated financial statements, which are incorporated by reference into this proxy statement/prospectus.

You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the consolidated financial statements and notes to the consolidated financial statements included in Mentor Graphics’ Annual Report on Form 10-K for the fiscal year ended January 31, 2009 filed with the SEC and Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2009 filed with the SEC, all of which are incorporated by reference in this proxy statement/prospectus. See “Where You Can Find Additional Information” beginning on page 139 of this proxy statement/prospectus.

In thousands, except percentages and per share data

	Three Months Ended						Fiscal Year Ended
	April 30,			April 30,			January 31,			January 31,			December 31,			December 31,			December 31,
For the period ended	2009			2008 (1)(2)			2009 (1)(2)			2008 (1)(2)			2006 (1)(2)			2005			2004
Statement of
Operations
Data
Total revenues	$	193,775		$	179,207		$	789,101		$	879,732		$	802,839		$	713,401		$	716,893
Operating
income (loss)	$	(6,146	)	$	(30,665	)	$	(65,558	)	$	72,366		$	62,290		$	28,147		$	47,004
Net income (loss)	$	(12,956	)	$	(25,496	)	$	(91,252	)	$	24,309		$	25,131		$	5,807		$	(20,550	)
Gross margin
percent		85	%		81	%		84	%		85	%		86	%		84	%		85	%
Operating
income (loss)
as a percent of
revenues		(3	%)		(17	%)		(8	%)		8	%		8	%		4	%		7	%
Per Share Data
Net income (loss)
per share –
basic	$	(0.14	)	$	(0.28	)	$	(0.99	)	$	0.28		$	0.31		$	0.07		$	(0.28	)
Net income (loss)
per share –
diluted	$	(0.14	)	$	(0.28	)	$	(0.99	)	$	0.27		$	0.30		$	0.07		$	(0.28	)
Weighted
average
number of
shares
outstanding –
basic		94,168			90,750			91,829			88,086			81,303			78,633			72,381
Weighted
average
number of
shares
outstanding –
diluted		94,168			90,750			91,829			89,981			82,825			80,133			72,381

	April 30,		January 31,		January 31,		December 31,		December 31,		December 31,
As of	2009		2009 (2)		2008 (2)		2006 (2)		2005		2004
Balance Sheet Data
Cash, cash equivalents, and short-term
investments	$	78,783	$	95,639	$	126,215	$	129,857	$	114,410	$	94,287
Working capital	$	95,528	$	98,446	$	187,082	$	111,692	$	118,348	$	97,946
Property, plant, and equipment, net	$	95,866	$	100,991	$	100,421	$	86,100	$	81,614	$	91,224
Total assets	$	1,140,117	$	1,186,070	$	1,237,656	$	1,125,566	$	1,020,937	$	1,012,635
Short-term borrowings	$	29,738	$	36,998	$	14,178	$	7,181	$	11,858	$	9,632
Long-term obligations (3)	$	269,329	$	280,271	$	264,165	$	247,950	$	299,014	$	303,081
Stockholders’ equity (3)	$	587,234	$	586,445	$	654,182	$	554,206	$	448,140	$	433,715

____________________

No cash dividends have been declared or paid in the periods presented above.

(1)		On January 1, 2006, Mentor Graphics adopted Statement of Financial Accounting Standards No. 123 (revised 2004) and included share-based compensation for employee stock-based awards in Mentor Graphics’ results of operations.

(2)		On February 1, 2009, Mentor Graphics adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) Accounting Principles Board (“APB”) 14-1, “Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSB APB 14-1 specifies that issuers of convertible debt that may be settled in cash upon conversion (including partial cash settlement) separately account for the implied liability and equity components of the convertible debt in a manner that reflects the issuer’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 requires retrospective application to all periods for which convertible debt instruments with cash conversion features were outstanding prior to the date of adoption.

(3)		On February 1, 2007, Mentor Graphics adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109.” The adoption of FIN 48 did not have a cumulative effect on Mentor Graphics’ retained earnings.

LOGICVISION SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth LogicVision’s summary selected historical consolidated financial data as of the dates and for the periods indicated. LogicVision’s selected statement of operations data set forth below for each of the five years ended December 31, 2008, 2007, 2006, 2005 and 2004, and the balance sheet data as of December 31, 2008, 2007, 2006, 2005 and 2004 are derived from LogicVision’s consolidated financial statements. The selected statement of operations data and balance sheet data presented below as of March 31, 2009 and for the three months ended March 31, 2009 and March 31, 2008 are derived from LogicVision’s unaudited interim consolidated financial statements.

You should read this information together with “Information About LogicVision—Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 96 of this proxy statement/prospectus, and with the consolidated financial statements and notes to the consolidated financial statements included in Annex D of this proxy statement/prospectus.

In thousands, except percentages and per share data

	Three months ended
	March 31,						Year ended December 31,
For the period ended	2009			2008			2008(1)			2007(1)			2006(1)			2005			2004
Statement of
Operations Data
Total revenues	$	3,064		$	2,970		$	12,173		$	11,618		$	10,517		$	10,882		$	10,094
Loss from operations	$	(113	)	$	(1,269	)	$	(3,629	)	$	(4,109	)	$	(7,259	)	$	(10,328	)	$	(8,716	)
Net loss	$	(104	)	$	(1,266	)	$	(3,544	)	$	(3,723	)	$	(7,087	)	$	(9,973	)	$	(8,388	)
Gross margin percent		80	%		72	%		73	%		72	%		72	%		71	%		68	%
Loss from operations as a percent of revenues		(4	%)		(43	%)		(30	%)		(35	%)		(69	%)		(95	%)		(86	%)
Per Share Data
Net loss per share – basic and diluted		(0.01	)		(0.13	)		(0.37	)		(0.39	)		(0.90	)		(1.33	)		(1.28	)
Weighted average number of shares
outstanding – basic and diluted		9,468			9,674			9,581			9,654			7,860			7,471			6,535

	March 31,			March 31,			December 31,			December 31,			December 31,			December 31,			December 31,
As of	2009			2008			2008			2007			2006			2005			2004
Balance Sheet Data
Cash, cash equivalents,
and short-term investments	$	6,917		$	7,426		$	9,399		$	8,327		$	9,242		$	10,696		$	21,342
Marketable securities	$	-		$	-		$	-		$	-		$	-		$	-		$	4,960
Working capital (deficit)	$	(362	)	$	850		$	318		$	2,381		$	3,678		$	7,456		$	11,554
Property and equipment, net	$	347		$	454		$	411		$	510		$	743		$	1,097		$	907
Total assets	$	17,088		$	17,372		$	17,959		$	18,263		$	19,491		$	24,341		$	39,243
Short-term debt	$	-		$	-		$	-		$	-		$	-		$	-		$	3,500
Long-term obligations	$	1,119		$	250		$	1,890		$	770		$	285		$	1,607		$	3,184
Stockholders’ equity	$	5,915		$	8,130		$	5,891		$	9,206		$	11,801		$	15,438		$	24,808

____________________

(1)

On January 1, 2006, LogicVision adopted SFAS 123(R) and included share-based compensation for employee stock-based awards in LogicVision’s results of operations.

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

The following table presents comparative historical per share data regarding the net loss and book value of each of Mentor Graphics and LogicVision and unaudited combined pro forma per share data after giving effect to the merger as a purchase of LogicVision by Mentor Graphics assuming the merger had been completed throughout the period presented. The following data assumes 0.2006 shares of Mentor Graphics common stock will be issued in exchange for each share of LogicVision common stock in connection with the merger and the assumption of LogicVision options and warrants based upon the same exchange ratio. This data has been derived from and should be read in conjunction with the summary selected historical consolidated financial data contained elsewhere in this proxy statement/prospectus, and the separate historical consolidated financial statements of Mentor Graphics incorporated by reference into this proxy statement/prospectus (see “Where You Can Find Additional Information” beginning on page 139) and the separate historical consolidated financial statements of LogicVision and accompanying notes attached to this proxy statement/prospectus as Annex D. The unaudited pro forma per share data is presented for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial condition of Mentor Graphics that would have been reported had the merger been completed as of the date presented, and should not be taken as representative of future consolidated results of operations or financial condition of Mentor Graphics.

	Historical						Pro Forma
	Mentor Graphics			LogicVision
	Year ended			Year ended						Equivalent of
	January 31,			December 31,						One LogicVision
	2009			2008			Combined (2)			Share (3)
Basic and diluted net loss per share	$	(0.97	)	$	(0.37	)	$	(0.99	)	$	(0.20	)
Cash dividends per share		-			-			-
Book value per share (1)	$	6.10		$	0.62		$	6.12		$	1.23

	Historical						Pro Forma
	Mentor Graphics			LogicVision						Equivalent of
	Three months ended			Three months ended						One Logic Vision
	April 30, 2009			March 31, 2009			Combined (2)			Share (3)
Basic and diluted net loss per share	$	(0.14	)	$	(0.01	)	$	(0.14	)	$	(0.03	)
Cash dividends per share		-			-			-
Book value per share (1)	$	6.24		$	0.62		$	6.25		$	1.25

____________________

(1)		The historical book value per common share is computed by dividing stockholders’ equity at the end of the period by the number of shares outstanding at the end of the period.

(2)		Because of different fiscal period ends, the pro forma combined per share information combines Mentor Graphics’ financial information for the fiscal year ended January 31, 2009 and LogicVision’s financial information for the fiscal year ended December 31, 2008, combines Mentor Graphics’ financial information for the three months ended April 30, 2009 and LogicVision’s financial information for the three months ended March 31, 2009, and assumes the merger occurred as of the beginning of the earliest period presented and was accounted for using the acquisition method.

(3)		The Pro Forma Equivalent of One LogicVision Share amounts were calculated by multiplying the exchange ratio in the merger of 0.2006 by the pro forma combined basic and diluted net loss and book value per share, respectively.

COMPARATIVE PER SHARE MARKET PRICE DATA

Mentor Graphics common stock trades on The NASDAQ Global Select Market under the symbol “MENT.” LogicVision common stock trades on The NASDAQ Capital Market under the symbol “LGVN.”

The following table shows the high and low sales prices per share of Mentor Graphics common stock and LogicVision common stock, each as reported on The NASDAQ Global Select Market or The NASDAQ Capital Market, respectively, on (1) May 6, 2009, the last full trading day preceding public announcement that Mentor Graphics and LogicVision had entered into the merger agreement, and (2) July 14, 2009, the last full trading day for which high and low sales prices were available as of the date of this proxy statement/prospectus.

The table also includes the equivalent high and low sales prices per share of LogicVision common stock on those dates. These equivalent high and low sales prices per share reflect the fluctuating value of the Mentor Graphics common stock that LogicVision stockholder would receive in exchange for each share of LogicVision common stock if the merger was completed on either of these dates, applying the exchange ratio of 0.2006 of a share of Mentor Graphics common stock for each share of LogicVision common stock.

									Equivalent
	Mentor Graphics				LogicVision				LogicVision
	Common Stock				Common Stock				Price Per Share
	High		Low		High		Low		High		Low
May 6, 2009	$	7.40	$	6.86	$	0.93	$	0.93	$	1.48	$	1.38
July 14, 2009	$	6.28	$	6.15	$	1.24	$	1.20	$	1.26	$	1.23

The above table shows only historical comparisons. These comparisons may not provide meaningful information to LogicVision stockholders in determining whether to adopt the merger agreement and approve the merger. LogicVision stockholders are urged to obtain current market quotations for Mentor Graphics and LogicVision common stock and to review carefully the other information contained in this proxy statement/prospectus or incorporated by reference into this proxy statement/prospectus. Historical market prices are not indicative of future market prices.

RISK FACTORS

By voting in favor of adoption of the merger agreement and approval of the merger at the LogicVision stockholder meeting, LogicVision stockholders will be choosing to invest in Mentor Graphics common stock. An investment in Mentor Graphics common stock involves a high degree of risk. In deciding whether to vote in favor of the adoption of the merger agreement, you should consider the matters described below, as well as all of the information included in this proxy statement/prospectus and its annexes and all of the information included in the documents incorporated into this proxy statement/prospectus by reference, especially the risks described in Mentor Graphics’ Quarterly Report on Form 10-Q for the quarter ended April 30, 2009. A discussion of additional risks and uncertainties regarding Mentor Graphics can be found in the information that is incorporated by reference in this proxy statement/prospectus and referred to in the section entitled “Where You Can Find Additional Information” beginning on page 139 of this proxy statement/prospectus. Also see the matters addressed in “Cautionary Statement Regarding Forward Looking Statements” on page 1 of this proxy statement/prospectus.

If any of the events, contingencies, circumstances or conditions described in the following risks and in Mentor Graphics’ Form 10-Q referenced above actually occur, Mentor Graphics’ and LogicVision’s respective businesses, financial condition or their results of operations (both separately and as combined) could be impacted. If that happens, the trading price of Mentor Graphics common stock or LogicVision common stock could decline and you may lose part or all of the value of any Mentor Graphics shares or LogicVision shares held by you. Additional risks and uncertainties not presently known to Mentor Graphics and LogicVision or that they do not currently believe are important to an investor, if they materialize, also may adversely affect the merger, Mentor Graphics, LogicVision and the combined company.

Risks Related to the Merger

LogicVision stockholders will receive a fixed number of shares of Mentor Graphics common stock despite changes in the market value of Mentor Graphics common stock or LogicVision common stock.

Upon completion of the merger, each share of LogicVision common stock will be converted into 0.2006 shares of Mentor Graphics common stock. The market price of both Mentor Graphics and LogicVision common stock will fluctuate after the date of this proxy statement/prospectus. Fluctuations in the market price of Mentor Graphics and LogicVision common stock may be the result of general market and economic conditions, changes in the business, operations or prospects of Mentor Graphics or LogicVision, market assessments of the likelihood that the merger will be completed and the timing of closing of the merger and other factors independent of the merger. There will be no adjustment to the consideration payable to LogicVision stockholders in connection with the merger for changes in the market price of Mentor Graphics common stock or LogicVision common stock. In addition, neither Mentor Graphics nor LogicVision may terminate the merger agreement solely because of changes in the market price of the other company’s common stock. Accordingly, the dollar value of Mentor Graphics common stock that LogicVision stockholders will receive in the merger may be different from the dollar value of Mentor Graphics common stock on the date that LogicVision stockholders adopt the merger agreement and approve the merger. The historical share prices of both LogicVision common stock and Mentor Graphics common stock have experienced significant volatility. Mentor Graphics cannot predict or give any assurances as to the market price of Mentor Graphics common stock at any time before or after the completion of the merger. You should obtain recent market quotations of Mentor Graphics and LogicVision common stock before you return your proxy card or cast your vote at the LogicVision Annual Meeting.

If Mentor Graphics is not successful in integrating LogicVision into its own business, then the benefits of the merger will not be fully realized.

Mentor Graphics may not achieve successful integration of the LogicVision assets in a timely manner, or at all, and Mentor Graphics may not realize the benefits and synergies of the merger to the extent, or in the timeframe, anticipated. The challenges to the successful integration of LogicVision into Mentor Graphics include:

developing new products and services that optimize the assets and resources of both companies;
integrating the strategies and operations of the two companies;
retaining and assimilating the key personnel of LogicVision; and
retaining and maintaining relationships with existing customers, distributors and other partners of LogicVision.

Meeting these challenges will involve considerable risks, such as:

the potential disruption of each company’s ongoing business and distraction of their respective management teams;
the difficulty of fully leveraging acquired technology and intellectual property rights into Mentor Graphics’ products and services;
unanticipated expenses related to integration, including technical and operational integration; and
the impairment of relationships with employees, customers and channel partners as a result of the integration process or the merger.

A failure by Mentor Graphics to successfully integrate the operation of LogicVision or otherwise to realize any of the anticipated benefits of the merger could cause an interruption of, or a loss of momentum in, the activities of the combined company and could adversely affect Mentor Graphics’ financial position and results of operations.

If the merger is not completed, Mentor Graphics’ and LogicVision’s stock prices and future businesses and operations could be harmed.

Mentor Graphics’ and LogicVision’s obligations to complete the merger are subject to conditions, many of which are beyond the control of Mentor Graphics and LogicVision. If the merger is not completed for any reason, each company may be subject to a number of material risks, including the following:

LogicVision may be required under certain circumstances to pay Mentor Graphics a termination fee equal to $538,193 plus reimbursement of Mentor Graphics’ reasonable expenses up to $403,645;
the price of Mentor Graphics common stock and LogicVision common stock may decline;
Mentor Graphics and LogicVision may be subject to litigation related to any failure to complete the merger, which could require substantial time and resources to resolve;
costs related to the merger, such as financial advisory, legal, accounting and printing fees, must be paid even if the merger is not completed;

matters relating to the merger (including integration planning) require substantial commitments of time and resources by Mentor Graphics and LogicVision management, which could otherwise have been devoted to other opportunities that may have been beneficial to Mentor Graphics and LogicVision; and
if the merger is not completed, Mentor Graphics and LogicVision would fail to derive the benefits expected to result from the merger.

In addition, if the merger is terminated, LogicVision may be unable to find a partner willing to engage in a similar transaction on terms as favorable as those set forth in the merger agreement, or at all.

Uncertainty regarding the merger may cause customers, suppliers and channel partners to delay or defer decisions concerning Mentor Graphics and LogicVision and adversely affect LogicVision’s ability to attract and retain key employees.

The merger will occur only if stated conditions are met, including, among others, the adoption of the merger agreement and approval of the merger by LogicVision’s stockholders. Many of the conditions are outside the control of Mentor Graphics and LogicVision, and both parties also have rights to terminate the merger agreement under specified circumstances. Accordingly, there may be uncertainty regarding the completion of the merger. This uncertainty may cause customers, suppliers and channel partners to delay or defer decisions concerning certain Mentor Graphics or LogicVision products, which could negatively affect their respective businesses. Customers, suppliers and channel partners may also seek to change existing agreements with Mentor Graphics or LogicVision as a result of the merger. Any delay or deferral of those decisions or changes in existing agreements could materially impact the respective businesses of Mentor Graphics and/or LogicVision, regardless of whether the merger is ultimately completed. Moreover, diversion of management focus and resources from the day-to-day operation of the business to matters relating to the merger could materially impact each company’s business, regardless of whether the merger is completed. Current and prospective employees of LogicVision may experience uncertainty about their future roles with the combined company. This may adversely affect LogicVision’s ability to attract and retain applicable key management, sales, marketing, operations and technical personnel.

LogicVision officers and directors have conflicts of interest that may influence them to support or approve the merger.

The directors and officers of LogicVision have interests in the merger that are different from, or in addition to, those of LogicVision stockholders. The directors and officers of LogicVision could be more likely to recommend and approve the merger agreement than if they did not hold these interests. LogicVision stockholders should consider whether these interests might have influenced these directors and officers to support or recommend the merger. The members of the LogicVision’s board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to LogicVision’s stockholders that the merger agreement be adopted. See “Proposal One—The Merger—Interests of Certain Persons in the Merger.”

The termination fee and restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire LogicVision.

Until the completion of the merger, with limited exceptions, the merger agreement prohibits LogicVision from entering into an alternative acquisition transaction with, or soliciting any alternative acquisition proposal from, another party. LogicVision has agreed under certain circumstances to pay Mentor Graphics a termination fee equal to $538,193 plus reimbursement of Mentor Graphics’ reasonable expenses up to $403,645, including where LogicVision’s board of directors withdraws its support of the merger to enter into a business combination with a third party. These provisions could discourage other companies from trying to acquire LogicVision even though those other companies might be willing to offer greater value to LogicVision stockholders than Mentor Graphics has offered in the merger.

LogicVision stockholders, as a group, will have reduced ownership and voting interests after the merger. In addition, the rights of holders of LogicVision common stock will change as a result of the merger.

After the merger, former LogicVision stockholders will hold approximately 2% of the outstanding shares of Mentor Graphics common stock. Consequently, as a general matter, LogicVision stockholders, as a group, will have reduced ownership and voting interests in Mentor Graphics following the merger than they had in LogicVision prior to the merger and, as a result, they will have less influence over the management and policies of Mentor Graphics than they currently exercise over the management and policies of LogicVision.

In addition, after the merger, the rights of those stockholders of LogicVision who will become stockholders of Mentor Graphics will be governed by Mentor Graphics’ amended and restated articles of incorporation and by-laws, which are different from LogicVision’s amended and restated certificate of incorporation and by-laws. For more information, see “Comparison of Rights of Holders of Mentor Graphics Common Stock and LogicVision Common Stock.”

Mentor Graphics will incur additional integration expenses in connection with the merger.

In the event the merger is completed, Mentor Graphics expects to incur additional expenses in connection with the integration of LogicVision, including integrating personnel, information technology systems, accounting systems, vendors and strategic partners of each company and implementing consistent standards, policies, and procedures.

Risks Related to LogicVision

If the semiconductor industry does not adopt embedded test technology on a widespread basis, LogicVision’s revenues could decline and its stock price could fall.

To date, the semiconductor industry has not adopted embedded test technology as an alternative to current testing methods on a widespread basis. If the semiconductor industry does not adopt embedded test technology widely and in the near future, LogicVision’s growth will be limited, its revenues could decline, and its stock price could fall. LogicVision cannot provide assurance that integrated circuit designers and design companies’ customers will accept embedded test technology as an alternative to current testing methods in the time frame it anticipates, or at all. The industry may fail to adopt embedded test technology for many reasons, including the following:

LogicVision’s current and potential customers may not accept or embrace LogicVision’s Dragonfly Test Platform^TM integrated family of products;
potential customers may determine that existing solutions adequately address their testing needs, or the industry may develop alternative technologies to address their testing needs;
potential customers may not be willing to accept the perceived delays in the early design stages associated with implementing embedded test technology in order to achieve potential time and cost savings at later stages of silicon debugging and production testing;
potential customers may have concerns over the reliability of embedded testing methods relative to existing test methods;
LogicVision’s existing and potential customers may react to declines in demand for semiconductors by curtailing or delaying new initiatives for new complex semiconductors or by extending the approval process for new projects, thereby lengthening LogicVision’s sales cycles; and
designers may be reluctant to take on the added responsibility of incorporating embedded test technology as part of their design process, or to learn how to implement embedded test technology.

The current economic downturn and uncertainty in the global economy and effects on the industries into which LogicVision sells its products impacted LogicVision’s customers’ research and development budgets, and harmed LogicVision’s business and operating results.

The worldwide economy is currently undergoing significant turmoil, which together with uncertainty about future economic conditions, has negatively impacted LogicVision’s customers, and can cause its customers to postpone their decision making and decrease their spending. LogicVision sales are dependent upon capital spending trends and new design projects, and a substantial portion of its costs are fixed in the near term. The demand from LogicVision customers is uncertain and difficult to predict. Slower growth in the semiconductor and systems markets such as postponed or canceled capital expenditures for previously planned expansions or new fabrication facility construction projects, a reduced number of design starts, reduction of design and test budgets or continued consolidation among LogicVision customers would harm LogicVision’s business and financial condition.

The primary customers for semiconductors that incorporate LogicVision embedded test technology are companies in the automotive, consumer, communications, medical products, networking and server products industries. The current economic downturn and a downturn in these particular markets or in general economic conditions could result in the cutback of research and development budgets or capital expenditures, which would likely result in a reduction in demand for LogicVision products and services and could harm LogicVision’s business. If the economy continues to experience economic, political or social turmoil, existing and prospective customers may further reduce their design budgets or delay implementation of LogicVision’s products, which could harm LogicVision’s business and operating results.

LogicVision is subject to the cyclical nature of the semiconductor and electronics industries, and any downturn in these industries could harm its business, operating results, and financial condition.

In addition to the effects of macroeconomic factors, the markets for semiconductor products are cyclical. In recent years, most countries have experienced significant economic difficulties. These difficulties triggered a significant downturn in the semiconductor market, resulting in reduced budgets for chip design tools. In addition, the electronics industry has historically been subject to seasonal and cyclical fluctuations in demand for its products, and this trend may continue in the future. These industry downturns have been, and may continue to be, characterized by diminished product demand, excess manufacturing capacity and subsequent erosion of average selling prices. As a result, LogicVision’s future operating results may reflect substantial fluctuations from period to period as a consequence of these industry patterns, general economic conditions affecting the timing of orders from customers and other factors. Any negative factors affecting the semiconductor industry, including the downturns described here, could significantly harm LogicVision’s business, financial condition and results of operations.

LogicVision has a history of losses and an accumulated deficit of approximately $103.4 million as of March 31, 2009. If LogicVision does not generate sufficient net revenue in the future to achieve or sustain profitability, its stock price could decline.

LogicVision has incurred significant net losses since its inception, including losses of $3.5 million, $3.7 million and $7.1 million for the years ended December 31, 2008, 2007 and 2006, respectively. As of March 31, 2009, LogicVision had an accumulated deficit of approximately $103.4 million. LogicVision expects its future revenues to be impacted by its long sales cycle and its revenue recognition policies, and it expects to continue to invest in research and development projects as well as service operations required to support LogicVision business development activities. These product and business development expenditures as well as other operating expenses could continue to exceed LogicVision’s revenues, thus preventing it from achieving and maintaining profitability. To achieve and maintain profitability, LogicVision will need to generate and sustain substantially higher revenues while maintaining reasonable cost and expense levels. If LogicVision fails to achieve profitability within the time frame expected by securities analysts or investors and its cash balances continue to decline, the market price of LogicVision common stock will likely decline. LogicVision may not achieve profitability if its revenues do not increase or if they increase more slowly than LogicVision expects. In addition, LogicVision’s operating expenses are largely fixed, and any shortfall in anticipated revenues in any given period could harm LogicVision’s operating results.

The sales and implementation cycles for LogicVision products are typically long and unpredictable, taking from three months to one year or longer for sales and an additional one to six months for implementation. As a result, LogicVision may have difficulty predicting future revenues and its revenues and operating results may fluctuate significantly, which could cause LogicVision’s stock price to fluctuate.

LogicVision’s sales cycle has ranged from three months to one year or longer and its customers’ implementation cycle has been approximately an additional one to six months. LogicVision believes that convincing a potential customer to integrate its technology into an integrated circuit at the design stage, which LogicVision refers to as a design win, is critical to retaining existing customers and to obtaining new customers. However, acceptance of LogicVision’s embedded test technology generally involves a significant commitment of resources by prospective customers and a fundamental change in their method of designing and testing integrated circuits. Many of LogicVision’s potential customers are large enterprises that generally do not adopt new design methodologies quickly. Also, LogicVision may have limited access to the key decision-makers of potential customers who can authorize the adoption of its technology. As a result, the period between LogicVision’s initial contact with a potential customer and the sale of its products to that customer, if any, is often lengthy and may include delays associated with LogicVision’s customers’ budgeting and approval processes, as well as a substantial investment of LogicVision’s time and resources. LogicVision has incurred high customer engagement and support costs, including sales commissions, and the failure to manage these costs could harm its operating results.

If LogicVision fails to achieve a design win with a potential customer early in a given product cycle, it is unlikely that the potential customer will become a customer before its next product cycle, if at all. Because of the length of LogicVision’s sales cycle, its failure to achieve design wins could have a material and prolonged adverse effect on its sales and revenue growth. LogicVision’s revenue streams may fluctuate significantly due to the length of its sales cycle, which may make LogicVision’s future revenues difficult to project and may cause its stock price to fluctuate.

If a customer cancels its order or defaults on payment or if LogicVision renegotiates an existing order, LogicVision may be unable to recognize revenue from backlog, which could have a material adverse effect on its financial condition and results of operations.

A significant portion of the orders in LogicVision’s backlog provides customers with cancellation rights or is recognized as revenue when payment is due. In addition, some orders extend over periods ranging up to thirty-six months. If a customer cancels its order or delays its contractual payments LogicVision may not be able to realize revenue from backlog in the time frame expected or at all. Also, it is possible that customers from whom LogicVision expects to derive revenue from backlog will default, and as a result LogicVision may not be able to recognize expected revenue from backlog. If a customer defaults or fails to pay amounts owed, or if the level of defaults increases, LogicVision’s bad debt expense is likely to increase. Additionally, LogicVision’s customers may seek to renegotiate pre-existing contractual commitments. If the current economic downturn is prolonged, LogicVision’s customers’ financial condition and, in turn, their ability or willingness to fulfill their contractual obligations to LogicVision could be adversely affected. Any material payment default by LogicVision’s customers would harm its financial condition and results of operations.

Fluctuations in LogicVision’s revenues and operating results could cause the market price of its common stock to decline.

LogicVision’s revenues and operating results have fluctuated from quarter to quarter in the past and may do so in the future, which could cause the market price of its common stock to decline. Accordingly, quarter-to-quarter comparisons of LogicVision’s results of operations may not be an indication of its future performance. In future periods, LogicVision’s revenues and results of operations may be below the estimates of public market analysts and investors. This discrepancy could cause the market price of LogicVision’s common stock to decline.

Fluctuations in LogicVision’s revenues and operating results may be caused by:

timing, terms and conditions of customer agreements;
customers placing orders at the end of the quarter;
the mix of LogicVision license and service revenues;
timing of customer usage of LogicVision technology in their product designs and the recognition of revenues therefrom when amounts are due based on design usage;
timing of sales commission expenses and the recognition of license revenues from related customer agreements;
changes in LogicVision’s and its customers’ development schedules and levels of expenditures on research and development;
industry patterns and changes or cyclical and seasonal fluctuations in the markets LogicVision targets;
timing and acceptance of new technologies, product releases or enhancements by LogicVision, its competitors or its customers;
timing and completion of milestones under customer agreements; and
market and general economic conditions.

Delays or deferrals in purchasing decisions by LogicVision’s customers may increase as LogicVision develops new or enhanced products. LogicVision’s current dependence on a small number of customers increases the revenue impact of each customer’s actions relative to these factors. LogicVision’s expense levels are based, in large part, on its expectations regarding future revenues, and as a result net income (loss) for any quarterly period in which material customer agreements are delayed could vary significantly from LogicVision’s budget projections.

The accounting rules regarding revenue recognition may cause fluctuations in LogicVision’s revenues independent of LogicVision’s order position.

The accounting rules LogicVision is required to follow require it to recognize revenues only when certain criteria are met. As a result, for a given quarter it is possible for LogicVision to fall short in its revenues and/or earnings estimates even though total orders are according to LogicVision’s plan or, conversely, to meet its revenues and/or earnings estimates even though total orders fall short of LogicVision’s plan, due to revenues resulting from the recognition of previously deferred revenues. Orders for software support and consulting services yield revenues over multiple quarters, rather than at the time of sale. The specific terms agreed to with a customer and/or any changes to the rules interpreting such terms may have the effect of requiring deferral of product revenues in whole or in part or, alternatively, of requiring LogicVision to accelerate the recognition of such revenues for products to be used over multiple years.

Intense competition in the semiconductor and systems industries, particularly in the design and test of semiconductors, could prevent LogicVision from increasing or sustaining its revenues and prevent LogicVision from achieving or sustaining profitability.

The semiconductor and systems industries are extremely competitive and characterized by rapidly changing technology. The market for embedded test solutions is still evolving, and LogicVision expects competition to become more intense in the future. LogicVision’s current principal competitors in the design phase of product development include:

electronic design automation providers such as Cadence Design Systems, Inc., Magma Design Automation Inc., Mentor Graphics and Synopsys, Inc., all of which offer basic built-in self-test capability;
smaller test tool providers;
potential customers that develop test solutions internally; and
integrated device manufacturers, such as International Business Machines Corporation, that use their own test solutions in chips manufactured for and sold to others.

LogicVision’s embedded test technology also has the potential to impact the automated test equipment market, which may place it in competition with traditional hardware tester manufacturers such as Advantest Corporation, LTX-Credence Corporation, Teradyne, Inc. and Verigy Ltd. As embedded test becomes adopted more widely in the market, any of these automated test equipment companies, or others, may offer their own embedded test solutions. Most of LogicVision’s competitors in electronic design automation and external test equipment businesses are significantly larger than LogicVision is and have greater financial resources, greater name recognition and longer operating histories than LogicVision has. Some of LogicVision’s competitors offer a more comprehensive range of products covering the entire design flow and complete external test flow, and they may be able to respond more quickly or adjust prices more effectively to take advantage of new opportunities or customer requirements. In addition, all of the tester manufacturers listed above participate in LogicVision’s LVReady partner program through which LogicVision’s embedded test access software is integrated into their test platform, which may provide them with additional insight into LogicVision’s business and technology. Increased competition in the semiconductor industry could result in pricing pressures, reduced sales, reduced margins or failure to achieve or maintain widespread market acceptance, any of which could prevent LogicVision from increasing or sustaining its revenues and achieving or sustaining profitability.

LogicVision’s target markets are comprised of a limited number of customers. If LogicVision fails to obtain or retain customer relationships, its revenues could decline.

LogicVision derives a significant portion of its revenues from a relatively small number of customers. Two customers accounted for approximately 24% and 16%, respectively, of revenues for the three months ended March 31, 2009. Two customers accounted for approximately 18% and 16%, respectively, of total revenues in the year ended December 31, 2008; these customers accounted for approximately 21% and 19%, respectively, of total revenues in the year ended December 31, 2007, and 26% and 18%, respectively, of total revenues for the year ended December 31, 2006. LogicVision anticipates that it will continue to rely on a limited number of customers for a substantial portion of its future revenues and it must obtain additional large orders from customers on an ongoing basis to increase its revenues and grow its business. In addition, the loss of any significant or well-known customer could harm its operating results or its reputation. In particular, a loss of a significant customer could cause fluctuations in LogicVision’s results of operations because LogicVision’s expenses are fixed in the short term, it takes LogicVision a long time to replace customers and, because of required methods of revenue recognition, any offsetting license revenues may need to be recognized over a period of time.

LogicVision has relied and expects to continue to rely on its ETCreate products for a significant portion of its revenues.

Revenues from sales of LogicVision’s ETCreate products and related maintenance and training services accounted for 75% of its total revenues for the three months ended March 31, 2009, and 79%, 87% and 79% of its total revenues for the years ended December 31, 2008, 2007 and 2006, respectively. LogicVision currently expects that revenues from its ETCreate products will continue to account for a substantial percentage of its revenues in the foreseeable future and thereafter. Its future operating results are significantly dependent upon the continued market acceptance of LogicVision’s products. LogicVision’s business will be harmed if its products do not continue to achieve market acceptance or if LogicVision fails to develop and market improvements to its products or enhancements thereof. A decline in demand for LogicVision’s ETCreate products as a result of competition, technological change or other factors could harm LogicVision’s business.

LogicVision’s products incorporate technology licensed from third parties. If any of these licenses are terminated, its ability to develop and license its products could be delayed or reduced.

LogicVision uses technology, including software, which it licenses from third parties. If LogicVision dos not maintain its existing third party technology licenses or enter into licenses for alternative technologies, LogicVision could be required to cease or delay product shipments while it seeks to develop alternative technologies.

LogicVision depends on third parties to provide electronic design automation software that is compatible with its solution. If these third parties do not continue to provide compatible design products, LogicVision would need to develop alternatives, which could delay product introductions and cause LogicVision’s revenues and operating results to decline.

LogicVision’s customers depend on electronic design automation software to design their products using LogicVision’s solution. LogicVision depends on the same software to develop its products. Although LogicVision has established relationships with a variety of electronic design automation vendors to gain access to this software and to assure compatibility, these relationships may be terminated with limited notice. If any of these relationships were terminated and LogicVision were unable to obtain alternative software in a timely manner, its customers could be unable to use LogicVision’s solution. In addition, LogicVision could experience a significant increase in development costs, its development process could take longer, product introductions could be delayed and its revenues and operating results could decline.

If automated test equipment companies are unwilling to work with LogicVision to make LogicVision’s technology compatible with theirs, LogicVision may need to pursue alternatives, which could increase the time it takes LogicVision to bring its solution to market and decrease customer acceptance of LogicVision’s technology.

Although LogicVision is presently working with a number of automated test equipment companies to achieve optimal compatibility of its technologies, these companies may elect not to work with LogicVision in the future. If automated test equipment companies are unwilling to incorporate modifications into their equipment and operating systems to allow them to work with LogicVision’s technology, LogicVision may need to seek alternatives. These alternatives might not provide optimal levels of test function, and pursuing these alternatives could increase the time and expense it takes LogicVision to bring its technology to market, either of which could decrease customer acceptance of LogicVision’s technology and cause its revenues and margins to decline.

LogicVision’s future success will depend on its ability to keep pace with rapid technological advancements in the semiconductor industry. If LogicVision fails to develop and introduce new products and enhancements on a timely basis, its ability to attract and retain customers could be impaired, which would cause its operating results to decline.

The semiconductor industry is characterized by rapidly changing technology, evolving industry standards, rapid changes in customer requirements, frequent product introductions and ongoing demands for greater speed and functionality. LogicVision must continually design, develop and introduce new products with improved features to be competitive. Its products may not achieve market acceptance or adequately address the changing needs of the marketplace, and LogicVision may not be successful in developing and marketing new products or enhancements to its existing products on a timely basis. The introduction of products embodying new technologies, the emergence of new industry standards or changes in customer requirements could render LogicVision’s existing products obsolete and unmarketable. LogicVision may not have the financial resources necessary to fund future innovations. If it is unable, for technical, legal, financial or other reasons, to respond in a timely manner to changing market conditions or customer requirements, LogicVision’s business and operating results could be seriously harmed.

Future changes in financial accounting standards, including pronouncements and interpretations of accounting pronouncements on software revenue recognition and stock-based compensation, may cause adverse unexpected revenue and expense fluctuations and affect LogicVision’s reported results of operations.

A change in accounting policies can have a significant effect on LogicVision’s reported results and may even affect its reporting of transactions completed before a change is announced. In particular, new pronouncements and varying interpretations of pronouncements on software revenue recognition and stock-based compensation have occurred with frequency, may occur in the future and could impact LogicVision’s revenues, expenses and results of operations. Required changes in LogicVision’s methods of revenue recognition could result in deferral of revenues recognized in current periods to subsequent periods or accelerated recognition of deferred revenues to current periods, each of which could cause shortfalls in meeting the expectations of investors and securities analysts. LogicVision’s stock price could decline as a result of any shortfall.

For example, the adoption of SFAS 123(R), “Share-Based Payment,” which requires compensation costs relating to share-based payment transactions to be recognized in financial statements beginning in January 2006, had a negative impact on LogicVision’s results of operations and loss per share.

Accounting policies affecting many other aspects of LogicVision’s business, including rules relating to revenue recognition and purchase accounting for business combinations have recently been revised or are under review. Changes to those rules or the questioning of current practices may adversely affect LogicVision’s reported financial results or the way it conducts its business.

LogicVision is exposed to risks from legislation requiring companies to evaluate their internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires LogicVision’s management to report on the effectiveness of its internal control over financial reporting. LogicVision’s independent registered public accounting firm will be required to attest to the effectiveness of LogicVision’s internal control over financial reporting beginning as early as fiscal 2009. LogicVision has an ongoing program to perform the system and process evaluation and testing necessary to comply with these requirements. LogicVision expects to incur increased expense and to devote additional management resources to Section 404 compliance. In the event its chief executive officer, chief financial officer or independent registered public accounting firm determine that LogicVision’s internal control over financial reporting is not effective as defined under Section 404, investor perceptions of LogicVision may be adversely affected and could cause a decline in the market price of its stock.

Compliance with changing regulation of corporate governance and public disclosure may result in additional costs.

Changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and recent SEC and NASDAQ rules and regulations, are creating new duties and requirements for LogicVision and its executives, directors, attorneys and its independent registered public accounting firm. In order to comply with these rules, LogicVision will have to incur additional costs for personnel and use additional outside legal, accounting and advisory services, which will increase its operating expenses. Management time associated with these compliance efforts necessarily reduces time available for other operating activities, which could adversely affect operating results. To date, LogicVision’s costs to comply with these rules have not been significant; however, LogicVision cannot predict or estimate the amount of future additional costs it may incur or the timing of such costs.

LogicVision’s products may have errors or defects that users identify after deployment, which could harm its reputation and its business.

LogicVision’s products may contain undetected errors when first introduced or when new versions or enhancements are released. LogicVision has from time to time found errors in versions of its products, and it may find errors in its products in the future. The occurrence of errors could cause sales of LogicVision’s products to decline, divert the attention of management and engineering personnel from its product development efforts and cause significant customer relations problems. Customer relations problems could damage LogicVision’s reputation, hinder market acceptance of its products and result in loss of future revenues.

LogicVision must continually attract and retain engineering personnel, or it will be unable to execute its business strategy.

LogicVision’s strategy for encouraging the adoption of its technology requires that it employ highly skilled engineers to develop its products and work with its customers. In the past, LogicVision has experienced difficulty in hiring and retaining highly skilled engineers with appropriate qualifications to support its business. As a result, LogicVision’s future success depends in part on its ability to identify, attract, retain and motivate qualified engineering personnel. Competition for qualified engineers is intense, especially in the Silicon Valley where LogicVision’s headquarters are located. If LogicVision loses the services of a significant number of its engineers and cannot hire and integrate additional engineers, it could disrupt LogicVision’s ability to develop its products and implement its business strategy.

LogicVision may be unable to replace the technical, sales, marketing and managerial contributions of key individuals.

LogicVision depends on its senior executives, its research and development personnel and its sales and marketing personnel, all of whom are critical to its business. LogicVision does not have long-term employment agreements with its key employees nor does it maintain a key person life insurance policy on any of its key employees. If LogicVision loses the services of any of these key executives, its product development processes and sales efforts could be slowed. LogicVision may also incur increased operating expenses and be required to divert the attention of other senior executives to search for their replacements. The integration of any executives or new personnel could disrupt LogicVision’s ongoing operations.

If LogicVision fails to protect its intellectual property rights, competitors may be able to use its technologies, which could weaken LogicVision’s competitive position, reduce its revenues or increase its costs.

LogicVision’s success and ability to compete depend largely upon the protection of its proprietary technology. LogicVision relies on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect its proprietary rights. LogicVision’s pending patent applications may not result in issued patents, and its existing and future patents may not be sufficiently broad to protect its proprietary technologies. Policing unauthorized use of LogicVision’s products is difficult and LogicVision cannot be certain that the steps it has taken will prevent the misappropriation or unauthorized use of its technologies, particularly in foreign countries where the laws may not protect proprietary rights as fully as U.S. laws. Any patents LogicVision obtains or licenses may not be adequate to protect its proprietary rights. LogicVision’s competitors may independently develop similar technology, duplicate LogicVision’s products or design around any patents issued to LogicVision or LogicVision’s other intellectual property rights.

Litigation may be necessary to enforce LogicVision’s intellectual property rights or to determine the validity or scope of the proprietary rights of others. As a result of any such litigation, LogicVision could lose its proprietary rights and incur substantial unexpected operating costs. LogicVision may need to take legal action to enforce its proprietary rights in the future. Any action LogicVision takes to protect its intellectual property rights could be costly and could absorb significant management time and attention. In addition, failure to adequately protect LogicVision’s trademark rights could impair LogicVision’s brand identity and its ability to compete effectively.

Any dispute involving LogicVision’s patents or other intellectual property could include LogicVision’s industry partners and customers, which could trigger LogicVision’s indemnification obligations to them and result in substantial expense to LogicVision.

In any dispute involving LogicVision’s patents or other intellectual property, LogicVision’s licensees could also become the target of litigation. This could trigger technical support and indemnification obligations in some of LogicVision’s license agreements which could result in substantial expenses. In addition to the time and expense required for LogicVision to support or indemnify its licensees, any such litigation could severely disrupt or shut down the business of LogicVision’s licensees, which in turn could hurt LogicVision’s relations with its customers and cause its revenues to decrease.

Failure to obtain export licenses could harm LogicVision’s business.

LogicVision must comply with U.S. Department of Commerce regulations in shipping its software and hardware products and other technologies outside the United States. Although LogicVision has not had any significant difficulty complying with these regulations to date, any significant future difficulty in complying could harm its business, operating results and financial condition.

LogicVision has limited control over third-party representatives who market, sell and support its products in foreign markets. Loss of these relationships could decrease LogicVision’s revenues and harm its business.

LogicVision offers its products and services for sale through distributors and sales representatives in China, France, Germany, India, Israel, Japan, Korea, the UK and Sweden. LogicVision anticipates that sales in these markets will account for a portion of its total revenues in future periods. In 2005, LogicVision appointed a sales representative in Israel and distributors in France and the UK. In 2006, LogicVision appointed a sales representative in India. In 2007, LogicVision appointed a new distributor in Japan, augmenting its direct sales organization. In 2008, LogicVision appointed a new distributor in China, and two new sales representatives in Europe. LogicVision’s third-party representatives are not obligated to continue selling LogicVision’s products, and they may terminate their arrangements with limited prior notice. Growing LogicVision’s relationship with these new distributors and sales representatives, or establishing alternative distribution channels in these markets could consume substantial management time and resources, decrease LogicVision’s revenues and increase its expenses.

LogicVision faces business, political and economic risks because a portion of its revenues and operations are outside of the United States.

International revenues accounted for 28% of LogicVision’s total revenues for the three months ended March 31, 2009, and 30%, 25% and 16% of its total revenues for the years ended December 31, 2008, 2007 and 2006, respectively. In addition to LogicVision’s international sales, LogicVision has operations in Canada, Japan and the UK. LogicVision’s success depends upon continued expansion of its international operations, and LogicVision expects that international revenues will continue to be an important component of its total future revenues. LogicVision’s international business involves a number of risks, including:

LogicVision’s ability to adapt its products to foreign design methods and practices;
the uncertainty of international orders due to typically lengthy international selling cycles;
cultural differences in the conduct of business;
difficulty in attracting qualified personnel;
managing foreign branch offices and subsidiaries;

longer payment cycles for and greater difficulty collecting accounts receivable;
unexpected changes in regulatory requirements, royalties and withholding taxes that restrict the repatriation of earnings;
tariffs and other trade barriers;
the burden of complying with a wide variety of foreign laws; and
political, economic, health or military conditions associated with worldwide conflicts and events.

As a result of LogicVision’s direct selling activities in Japan, a portion of its international revenues is denominated in Japanese yen, which is subject to exposure from movements in foreign currency exchange rates. In addition, most of LogicVision’s remaining international revenues are denominated in U.S. dollars, creating a risk that fluctuation in currency exchange rates will make LogicVision’s prices uncompetitive. To the extent that profit is generated or losses are incurred in foreign countries, LogicVision’s effective income tax rate may be significantly affected. Any of these factors could significantly harm LogicVision’s future international sales and, consequently, its revenues and overall results of operations and business and financial condition.

LogicVision may be unable to consummate future potential acquisitions or investments or successfully integrate acquired businesses or investments or foreign operations with its business, which may disrupt its business, divert management’s attention and slow LogicVision’s ability to expand the range of its proprietary technologies and products.

LogicVision may expand the range of its proprietary technologies and products, acquire or make investments in additional complementary businesses, technologies or products, if appropriate opportunities arise. For example, in 2004, LogicVision completed the acquisition of SiVerion, Inc. LogicVision may be unable to identify suitable acquisition or investment candidates at reasonable prices or on reasonable terms, or consummate future acquisitions or investments, each of which could slow its growth strategy. LogicVision’s acquisition of SiVerion, Inc. and any future acquisitions may involve risks such as the following:

LogicVision may not achieve the anticipated benefits of the acquisitions;
LogicVision’s acquisition and integration costs may be higher than it anticipated and may cause its quarterly and annual operating results to fluctuate;
LogicVision may be unable to retain key employees, such as management, technical or sales personnel, of the acquired businesses;
LogicVision may experience difficulty and expense in assimilating the operations and personnel of the acquired businesses, which could be further affected by the acquired businesses not being located near LogicVision’s existing sites;
LogicVision may incur amortization or impairment expenses if an acquisition results in significant goodwill or other intangible assets;
LogicVision may be unable to complete the development and application of the acquired technology or products or integrate the technology or products with its own;
LogicVision may be exposed to unknown liabilities of acquired companies;
LogicVision may experience difficulties in establishing and maintaining uniform standards, controls, procedures and policies;
LogicVision’s relationships with key customers of acquired businesses may be impaired, due to changes in management and ownership of the acquired businesses; or
LogicVision’s stockholders may be diluted if LogicVision pays for the acquisition with equity securities.

These factors could disrupt LogicVision’s ongoing business, distract its management and employees and increase its expenses or otherwise harm its operating results.

Intellectual property litigation, which is common in LogicVision’s industry, could be costly, harm its reputation, limit its ability to license or sell its proprietary technologies or products and divert the attention of management and technical personnel.

The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. While LogicVision has not received formal notice of any infringement of the rights of any third party, questions of infringement in the semiconductor field involve highly technical and subjective analyses. Litigation may be necessary in the future to enforce any patents LogicVision may receive and other intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity, and LogicVision may not prevail in any future litigation. Any such litigation, whether or not determined in LogicVision’s favor or settled, could be costly, could harm its reputation and could divert the efforts and attention of LogicVision’s management and technical personnel from normal business operations. Adverse determinations in litigation could result in the loss of LogicVision’s proprietary rights, subject it to significant liabilities, require it to seek licenses from third parties or prevent it from licensing its technology or selling its products, any of which could harm LogicVision’s business.

LogicVision’s stock price may decline significantly because of stock market fluctuations that affect the prices of technology stocks. A decline in LogicVision’s stock price could result in securities class action litigation against the company that could divert management’s attention and harm its business.

The stock market has experienced significant price and trading volume fluctuations that have adversely affected the market prices of common stock of technology companies. These broad market fluctuations may reduce the market price of LogicVision’s common stock. In the past, securities class action litigation has often been brought against a company after periods of volatility in the market price of securities. In the future, LogicVision may be a target of similar litigation. Securities litigation could result in substantial costs and divert LogicVision’s management’s attention and resources, which in turn could harm LogicVision’s ability to execute its business plan.

LogicVision’s stock may fail to meet the requirements for continued listing on The NASDAQ Capital Market, in which case the price and liquidity of LogicVision’s common stock may decline. The reverse stock split of LogicVision’s common stock may reduce the liquidity of LogicVision’s common stock, and the market price of its common stock may decline.

LogicVision is subject to the continued listing requirements of The NASDAQ Capital Market, which include a $1.00 minimum closing bid price requirement. When LogicVision transferred from The NASDAQ Global Market to The NASDAQ Capital Market, it was not in compliance with this minimum closing bid price requirement. Effective March 12, 2008, LogicVision implemented a 1-for-2.5 reverse stock split of its common stock. On March 31, 2008, LogicVision received a notice from The NASDAQ Stock Market stating that, because the closing bid price of its common stock had been at $1.00 per share or greater for at least 10 consecutive business days, LogicVision had regained compliance. LogicVision cannot assure you, however, that it will be able to continue to maintain compliance with the minimum bid price requirement. If it fails to maintain compliance with the minimum bid price requirement and is delisted, LogicVision’s financial condition could be harmed and its stock price would likely decline. The reverse stock split reduced the number of shares of LogicVision’s common stock outstanding, which could adversely affect the liquidity of LogicVision’s common stock, which could adversely affect the market price of its common stock.

LogicVision’s ability to raise capital in the future may be limited and its failure to raise capital when needed could prevent LogicVision from growing.

LogicVision believes that its existing cash resources and available debt financing will be sufficient to meet its anticipated cash needs for at least the next 12 months. However, the timing and amount of LogicVision’s working capital and capital expenditure requirements may vary significantly depending on numerous factors, including:

the level and timing of license and service revenues;
the costs and timing of expansion of product development efforts and the success of these development efforts;
the extent to which LogicVision’s existing and new products gain market acceptance;
the costs and timing of expansion of sales and marketing activities;
competing technological and marketing developments;
the extent of international operations;
the need to adapt to changing technologies and technical requirements;
the costs involved in maintaining and enforcing patent claims and other intellectual property rights;
the existence of opportunities for expansion and for acquisitions of, investments in, complementary businesses, technologies or product lines; and
access to and availability of sufficient management, technical, marketing and financial personnel.

If LogicVision’s capital resources are insufficient to satisfy its liquidity requirements, it may seek to sell additional equity securities or debt securities or obtain debt financing. The sale of additional equity securities or debt securities would result in additional dilution to LogicVision’s stockholders. Additional debt would result in increased expenses and could result in covenants that would restrict LogicVision’s operations. If adequate funds are not available or are not available on acceptable terms, this would significantly limit LogicVision’s ability to hire, train or retain employees, support its expansion, take advantage of unanticipated opportunities such as acquisitions of businesses or technologies, develop or enhance products, or respond to competitive pressures.

THE COMPANIES

Mentor Graphics Corporation
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777
(503) 685-7000

LogicVision, Inc.
25 Metro Drive, Third Floor
San Jose, California 95110
(408) 453-0146

Fulcrum Acquisition Corporation
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777
(503) 685-7000

THE ANNUAL MEETING OF LOGICVISION STOCKHOLDERS

Time and Place of Annual Meeting

The Annual Meeting of Stockholders of LogicVision will be held on August 18, 2009, at 9:00 a.m. Pacific Daylight Time, at the executive offices of LogicVision, 25 Metro Drive, Third Floor, San Jose, California 95110.

Matters to be Considered at the Annual Meeting

The Annual Meeting is being held for the following purposes:

To consider and vote upon a proposal to adopt the merger agreement and approve the merger contemplated by the merger agreement;
To elect six directors to serve on LogicVision’s board of directors, each to hold office until the earliest of LogicVision’s 2010 annual meeting of stockholders, his removal or resignation or, if the merger is completed, the effective time of the merger;
To approve a proposal to adjourn the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and approval of the merger contemplated thereby; and
To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement of the Annual Meeting.

Record Date for the Annual Meeting and Voting Rights

Stockholders of record as of the close of business on July 8, 2009 are entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. At the close of business on the record date, there were 9,473,572 shares of LogicVision common stock outstanding held by approximately 53 stockholders of record. Each stockholder of record of LogicVision common stock on the record date will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting.

As of the record date, LogicVision’s directors and executive officers and certain entities affiliated with one of LogicVision’s directors, as a group, beneficially owned approximately 10.8% of the common stock of LogicVision. In connection with entering into the merger agreement, each of the current directors and certain executive officers of LogicVision and certain funds affiliated with Valley Ventures entities (which are affiliated with one of LogicVision’s directors) entered into support agreements with Mentor Graphics, pursuant to which such stockholders have agreed to vote their shares in favor of the proposal to adopt the merger agreement and approve the merger. A form of the support agreement is attached to this proxy statement/prospectus as Annex B.

Quorum; Required Votes; Abstention and Broker Non-Votes

The presence, in person or by proxy, of the holders of a majority of the outstanding shares of LogicVision common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum. Abstentions and broker non-votes (which are executed proxies returned by a broker that indicate that the broker has not received voting instructions from the beneficial owner of the shares and does not have discretionary authority to vote the shares) will be counted for purposes of determining whether a quorum exists.

Adoption of the merger agreement and approval of the merger requires the affirmative vote of the holders of a majority of the shares of LogicVision common stock outstanding as of the record date. For the election of directors, the six nominees receiving the highest numbers of votes of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors will be elected as directors. Approval of a proposal to adjourn or postpone the meeting, if necessary, for any purpose, including to solicit additional proxies would require the affirmative vote of the holders of a majority of the shares of LogicVision common stock represented at the Annual Meeting.

All properly executed proxies delivered and not properly revoked will be voted at the Annual Meeting as specified in such proxies. If you do not specify a choice, your shares represented by an authorized proxy will be voted “FOR” the adoption of the merger agreement and the approval of the merger, “FOR” the election of each of the nominated directors and, “FOR” any adjournment or postponement of the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies. The failure to submit a vote by proxy or in person at the Annual Meeting, abstentions and broker non-votes will have the same effect as a vote “AGAINST” the adoption of the merger agreement and the approval of the merger, but will not affect the outcome of the election of directors. Abstentions will have the same effect as a vote “AGAINST” any proposal to adjourn the Annual Meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption of the merger agreement and the approval of the merger. Broker non-votes will not affect the outcome of any such proposal to adjourn the Annual Meeting.

Voting Your Proxy

You may vote in person at the Annual Meeting or by proxy. LogicVision recommends you vote by proxy even if you plan to attend the Annual Meeting. You can change your vote at the Annual Meeting.

You may vote by proxy card, by completing and mailing the enclosed proxy card or the voting instruction form from your bank, broker or other nominee that you received along with this proxy statement/prospectus. You may also submit a proxy by Internet or telephone in accordance with the directions provided on the enclosed proxy card and under the subheading “How to Vote” immediately below. If you properly submit your proxy in time to vote, one of the individuals named as your proxy will vote your shares of LogicVision common stock as you have directed. You may vote for or against the proposals submitted at the Annual Meeting or you may abstain from voting.

LOGICVISION’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER; “FOR” THE ELECTION OF EACH OF THE NOMINATED DIRECTORS; AND “FOR” ANY PROPOSAL TO ADJOURN OR POSTPONE THE ANNUAL MEETING, IF NECESSARY, FOR ANY PURPOSE, INCLUDING TO SOLICIT ADDITIONAL PROXIES.

How to Vote

If you are a stockholder of record and you hold shares of LogicVision common stock in your name,

attend the Annual Meeting and vote your shares in person, or
complete, sign, date and return your proxy card in the enclosed envelope, or
authorize a proxy by the Internet at http://www.proxyvoting.com/lgvn, or
authorize a proxy by telephone at 1-866-540-5760.

Note that votes submitted via the Internet or by telephone must be received by 11:59 p.m., Eastern Time, on August 17, 2009.

If you hold shares of LogicVision common stock through a broker or other custodian, please follow the voting instructions that the applicable institution provides to you. If you do not return your proxy card, or if your shares are held in a stock brokerage account or held by a bank, broker or nominee, in other words, in “street name,” and you do not instruct your bank, broker or nominee on how to vote those shares, those shares will not be voted at the Annual Meeting.

A number of banks and brokerage firms participate in a program that also permits stockholders whose shares are held in “street name” to direct their vote by the Internet or telephone. This option, if available, will be reflected in the voting instruction form from the bank or brokerage firm that accompanies this proxy statement/prospectus. If your shares are held in an account at a bank or brokerage firm that participates in such a program, you may direct the vote of these shares by the Internet or telephone by following the voting instructions enclosed with this document from the bank or brokerage firm. Directing the voting of your shares will not affect your right to vote in person if you decide to attend the Annual Meeting; however, you must first obtain a signed and properly executed proxy from your bank, broker or nominee to vote your shares held in “street name” at the Annual Meeting.

If you submit your proxy but do not make specific choices, your proxy will be voted “FOR” each of the proposals presented.

Revoking Your Proxy

If you hold shares registered in your name and you wish to change any proxy granted on the proxy card or submitted by Internet or telephone, you may revoke your proxy before it is voted by:

delivering to the Secretary of LogicVision a written notice, dated later than the proxy you wish to revoke, stating that the proxy is revoked;
submitting to the Secretary of LogicVision a new, signed proxy with a date later than the proxy you wish to revoke;
submitting another proxy by telephone or over the Internet (your latest telephone or voting instructions will be followed); or
attending the Annual Meeting and voting in person.

Notices to the Secretary of LogicVision should be addressed to Secretary, LogicVision, Inc., 25 Metro Drive, Third Floor, San Jose, California 95110.

If you hold shares in “street name” and you wish to change any proxy granted on the voting instruction form or submitted by Internet or telephone, you should contact your bank, broker or nominee in accordance with the instructions provided to you.

Other Voting Matters

Voting in Person

If you are a registered holder and plan to attend the Annual Meeting and vote in person, you will be given a ballot at the Annual Meeting. However, if your shares of common stock are held in “street name,” you must first obtain a proxy from the registered holder authorizing you to vote the shares in person.

Proxy Solicitation and Expenses

LogicVision has retained the services of BNY Mellon Shareowner Services to assist in, among other things, the solicitation of proxies from its stockholders. LogicVision will pay Mellon a fee of $8,500, plus certain other customary fees and expenses. LogicVision will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses for sending proxy materials to the beneficial owners of LogicVision’s common stock.

DO NOT SEND IN ANY LOGICVISION STOCK CERTIFICATES WITH YOUR PROXY CARD.

After the merger, you will receive stock certificate transmittal materials. The transmittal materials will contain instructions for surrendering LogicVision stock certificates or book-entry shares in exchange for book-entry shares representing the number of whole shares of Mentor Graphics common stock issuable to you and the cash in lieu of fractional shares issuable to you, pursuant to the merger.

Adjournment and Postponement

Any adjournment or postponement may be made from time to time by approval of the holders of common stock representing a majority of the votes present in person or by proxy at the Annual Meeting, whether or not a quorum exists, without further notice other than by an announcement made at the Annual Meeting. If a quorum is not present at the Annual Meeting, LogicVision stockholders may be asked to vote on a proposal to adjourn or postpone the Annual Meeting to solicit additional proxies. If a quorum is present at the Annual Meeting, but there are not sufficient votes at the time of the Annual Meeting to approve the adoption of the merger agreement and the merger, LogicVision stockholders may also be asked to vote on a proposal to approve the adjournment or postponement of the Annual Meeting to permit further solicitation of proxies.

Householding of Annual Meeting Materials

Some banks, brokers and other nominee record holders may be participating in the practice of “householding.” This means that only one copy of this proxy statement/prospectus and the Annual Report of LogicVision may have been sent to multiple stockholders in your household. LogicVision will promptly deliver a separate copy of this proxy statement/prospectus and the Annual Report of LogicVision to you if you write or call LogicVision at the following address or telephone number: LogicVision, Inc., 25 Metro Drive, Third Floor, San Jose, California 95110, telephone (408) 452-0146. If you wish to receive separate copies of an annual report or proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee record holder, or you may contact LogicVision, as applicable, at the above address and telephone number.

PROPOSAL ONE—THE MERGER

This section of the proxy statement/prospectus describes the proposed merger. Although Mentor Graphics and LogicVision believe this section covers the material terms of the merger and the related transactions, this description may not contain all of the information that is important to you. You should carefully read the entire proxy statement/prospectus, including the annexes, for a more complete understanding of the merger.

General

On May 6, 2009, Mentor Graphics, Fulcrum Acquisition Corporation and LogicVision, entered into the merger agreement. LogicVision’s board of directors is using this document to solicit proxies from the holders of LogicVision common stock for use at the Annual Meeting, where holders of LogicVision common stock will be asked to vote upon the adoption of the merger agreement and the approval of the merger. In addition, Mentor Graphics is sending this document to LogicVision stockholders as a prospectus in connection with the issuance of shares of Mentor Graphics common stock in exchange for LogicVision common stock in the merger.

Structure of the Merger

In accordance with the merger agreement and Delaware law, at the effective time of the merger, Fulcrum Acquisition Corporation, a wholly owned subsidiary of Mentor Graphics formed for the purpose of carrying out the merger, will merge with and into LogicVision, with LogicVision continuing as the surviving corporation as a wholly owned subsidiary of Mentor Graphics. In the merger, each share of LogicVision common stock issued and outstanding as of the time of the merger will be converted into the right to receive 0.2006 shares of Mentor Graphics common stock. Upon completion of the merger, there will no longer be a public trading market for LogicVision common stock.

The merger will become effective when a certificate of merger is filed with the Secretary of State of the State of Delaware or at such other time as agreed to by the parties and specified in the certificate of merger. Mentor Graphics and LogicVision expect the merger to occur as soon as practicable following the Annual Meeting.

What You Will Receive in the Merger

In the merger, each share of LogicVision common stock outstanding at the effective time of the merger will be exchanged for the right to receive 0.2006 shares of Mentor Graphics common stock. No fractional shares of Mentor Graphics common stock will be issued in the merger and the cash equal to the value of a fractional share will be paid in lieu of any fractional share.

Treatment of Stock Options and Warrants

Background of the Merger

LogicVision has periodically reviewed and assessed trends and conditions impacting the company and the semiconductor design-for-test sector in which it operates. From time to time, LogicVision’s board of directors has reviewed the strategic options potentially available to LogicVision to increase stockholder value. LogicVision’s board has reviewed these options in part because of the small size of LogicVision as a public company and historically small addressable market for its products. In April 2006, LogicVision engaged Needham & Company, LLC to advise the company with respect to a range of strategic alternatives available to LogicVision, including possible add-on acquisitions, joint ventures or business combinations.

The Mentor Graphics board of directors and its management also periodically review and analyze potential strategic alternatives available to Mentor Graphics to enhance shareholder value and facilitate the continued growth of its business and development of its product offerings. Over the past several years, management of Mentor Graphics and LogicVision have informally discussed certain commercial arrangements and potential strategic possibilities, although none, prior to matters discussed in this proxy statement/prospectus, have advanced further than preliminary discussions or indications of interest.

In January 2008, following a meeting between members of Mentor Graphics management and representatives of Needham & Company, members of Mentor Graphics management met internally to discuss the possible benefits of a strategic transaction with LogicVision. On January 15, 2008, Mentor Graphics and LogicVision executed a mutual confidentiality agreement to facilitate the sharing of information between the parties in connection with the possibility of a future business relationship. On January 16, 2008, Walden C. Rhines, Chairman of the Mentor Graphics board of directors and its Chief Executive Officer, Gregory K. Hinckley, Mentor Graphics’ President, and Robert Hum, Mentor Graphics’ Vice President and General Manager, Deep Submicron Division, met with James T. Healy, LogicVision’s President and Chief Executive Officer, Bruce M. Jaffe, LogicVision’s former Vice President, Finance and Chief Financial Officer, Farhad Hayat, LogicVision’s former Vice President, Marketing, and a representative of Needham & Company, to discuss a possible strategic transaction or future business relationship between the two companies. Following this meeting and further internal discussion and consideration, however, management of Mentor Graphics determined it was not interested at that time in further discussion or evaluation of any potential strategic transaction or business relationship with LogicVision.

During 2008, LogicVision management continued to consider and discuss informally certain potential commercial arrangements and potential strategic transactions, including possible add-on acquisitions and business combinations, with a number of other companies. One of these companies was Virage Logic Corporation, or Virage Logic. Informal discussions with Virage Logic were held periodically in early through mid-2008, but did not progress further in part due to concerns by the LogicVision board of directors regarding the proposed valuation of LogicVision in such a transaction and concerns that the proposed structure of the transaction as an acquisition of all outstanding LogicVision shares for cash would not allow LogicVision stockholders to participate in the prospects of the combined entity. Communications between members of LogicVision’s board and Virage Logic’s chairman restarted in late October 2008, but the LogicVision representatives indicated their belief that valuation would still be a barrier to proceeding with any business combination transaction.

On November 10, 2008, Virage Logic sent to the LogicVision board of directors a non-binding indication of interest to acquire LogicVision for $0.85 per share in cash.

On November 11, 2008, the LogicVision board of directors met to consider the Virage Logic indication of interest.

On November 12, 2008, Mr. Healy responded to Virage Logic to communicate the LogicVision board of directors’ belief was that the Virage Logic indication of interest significantly undervalued the company and that LogicVision was not actively seeking a sale of the company and was focused on executing its strategic plan.

In the afternoon of December 2, 2008, Virage Logic sent to the LogicVision board of directors a letter containing a formal proposal to acquire LogicVision for $1.05 per share in cash, and indicated an intention to make the letter public before the trading market opened on December 3, 2008 if LogicVision did not indicate its willingness to enter into substantive discussions by midnight on December 2, 2008. LogicVision’s board of directors met later that day with management and representatives of LogicVision’s legal advisors, Pillsbury Winthrop Shaw Pittman LLP, or Pillsbury Winthrop, to discuss the Virage Logic proposal. Representatives of Pillsbury Winthrop provided a detailed review of the fiduciary duties of a board of directors upon receipt of an unsolicited proposal such as the one received from Virage Logic. The LogicVision board determined to evaluate the proposal from Virage Logic, but not to engage in discussions with Virage Logic until such time as the board had the opportunity to evaluate fully the proposal. The board also discussed the need to engage a financial advisor to assist it in evaluating the proposal and other strategic alternatives, noting that Needham & Company’s prior engagement had terminated in July 2008.

On December 3, 2008, Virage Logic publicly announced its proposal to acquire LogicVision for $1.05 per share in cash.

As initiated by a call from Dr. Rhines to Mr. Healy on December 3, 2008, Dr. Rhines and Mr. Hinckley met with Mr. Healy and Gregg E. Adkin, Chairman of the LogicVision board of directors, on December 5, 2008, to discuss a possible business combination transaction between Mentor Graphics and LogicVision.

The LogicVision board of directors met later on December 5, 2008 to discuss the Virage Logic offer together with communications between Mr. Healy and other companies, including the representatives from Mentor Graphics, following the Virage Logic public proposal. The LogicVision board authorized the engagement of Needham & Company as LogicVision’s financial advisor for purposes of assisting with strategic alternatives. The board also considered LogicVision’s ability to preserve its long-term value for its stockholders in the wake of the Virage Logic proposal and LogicVision’s structural defenses against potentially harmful takeover attempts. The board also discussed with representatives of Pillsbury Winthrop the absence of customary takeover defenses in place at LogicVision that could serve to provide the board with more time to negotiate with Virage Logic or to review other potential strategic alternatives. Representatives of Pillsbury Winthrop reviewed with the board a proposed form of stockholder rights plan and the benefits and corresponding risks that adoption of a stockholder rights plan might provide LogicVision in light of the outstanding Virage Logic proposal. The board established a Strategic Alternatives Committee, consisting of Mr. Adkin, Mr. Healy and Richard Okumoto, to assist management with interactions and negotiations with other companies and to work with management and the company’s financial and legal advisors to evaluate strategic alternatives available to the company, subject to the full board’s authority to approve any definitive agreement with respect to any strategic transaction. Following the meeting, LogicVision engaged Needham & Company as its financial advisor.

On December 10, 2008, the LogicVision board of directors met to consider further the proposal from Virage Logic and to review LogicVision’s strategic outlook, operating plan and five-year financial model.

On December 11, 2008, Joseph Sawicki, Vice President and General Manager Design-to-Silicon Division for Mentor Graphics, and Greg Aldrich, Marketing Director of Mentor Graphics’ Design for Test Division, met with Mr. Healy at LogicVision’s offices in San Jose, California to further discuss a possible business combination transaction between Mentor Graphics and LogicVision. At this time, Mentor Graphics engaged its outside legal advisor, Latham & Watkins LLP, in connection with the proposed transaction. Also at this time, Mentor Graphics and LogicVision extended the term of and scope of information covered in the mutual confidentiality agreement previously executed on January 15, 2008.

On December 15, 2008, the LogicVision board of directors met with management and financial and legal advisors to discuss the company’s 2009 operating plan and to consider further the proposal from Virage Logic and the possible adoption of a stockholder rights plan. Representatives of Needham & Company reviewed with the LogicVision board a preliminary financial analysis of LogicVision based on the company’s financial model and other factors. The board carefully considered this review as well as the company’s business, financial condition and prospects, the terms of the Virage Logic proposal, the nature and timing of the proposal, LogicVision’s strategic plan and other strategic alternatives and business opportunities. After extensive discussion, the LogicVision board determined that the Virage Logic proposal to acquire LogicVision for $1.05 per share in cash was inadequate and not in the best interests of stockholders. The board also determined to consider strategic alternatives and, to preserve the company’s long-term value for stockholders in the wake of the Virage Logic proposal and protect the company’s stockholders against potentially harmful takeover attempts, to adopt a stockholder rights plan with a term of one year. Later that day, LogicVision issued a press release containing the board’s response to the Virage Logic proposal.

On December 16, 2008, LogicVision issued a press release announcing the adoption of the stockholder rights plan. Also in the morning of December 16, 2008, Mr. Sawicki called Mr. Healy to request that the parties proceed with negotiations for a possible business combination transaction on an exclusive basis. In early afternoon on December 16, 2008, the LogicVision board of directors met to discuss with LogicVision’s financial and legal advisors the process for considering strategic alternatives. Later that day, at the direction of the LogicVision board, a representative of Needham & Company sent to legal counsel for Virage Logic a confidentiality agreement containing a “standstill” provision.

From December 16 through December 24, 2008, at the direction of the LogicVision board of directors, representatives of Needham & Company contacted a number of companies, including Mentor Graphics and Virage Logic, to discuss their interest in pursuing potential strategic transactions or business combinations with LogicVision or, in the case of Mentor Graphics and Virage Logic, to discuss the due diligence process to be commenced upon execution of mutually acceptable confidentiality agreements.

On December 17, 2008, a representative of Needham & Company, on behalf of LogicVision, informed Joe Reinhart, Director of Investor Relations and Corporate Development for Mentor Graphics, that LogicVision was unwilling to move forward on an exclusive basis. Also on December 17, Virage Logic publicly announced that it withdrew its offer to acquire LogicVision.

On December 23, 2008, negotiations between LogicVision and Virage Logic with respect to a mutually acceptable “standstill” provision in a confidentiality agreement between the parties were terminated due to the parties’ inability to reach agreement on such a provision. The LogicVision board of directors’ Strategic Alternatives Committee viewed such a provision as essential prior to allowing Virage Logic to conduct due diligence in light of Virage Logic’s unsolicited public proposal and Virage Logic’s competitive position with respect to LogicVision’s business.

On December 24, 2008, at the direction of LogicVision, a representative of Needham & Company informed Mr. Reinhart that LogicVision was interested in entering into discussions with Mentor Graphics with regard to a possible business combination transaction on an exclusive basis.

From December 26, 2008 through December 31, 2008, Mentor Graphics and LogicVision management and financial and legal advisors, as applicable, negotiated various matters related to an updated confidentiality and exclusivity agreement regarding the proposed business combination transaction.

On December 31, 2008, LogicVision’s board of directors met. Representatives of Needham & Company reviewed for the board communications and discussions with potential strategic partners and the Strategic Alternatives Committee’s process for considering potential strategic transactions. LogicVision’s financial and legal advisors reviewed the terms of the proposed confidentiality and exclusivity agreement with Mentor Graphics and noted Mentor Graphics’ unwillingness to move forward with discussions in the absence of an exclusivity agreement. The board discussed the limited term of the exclusivity agreement and the structure of the proposed transaction as a business combination in which LogicVision stockholders would receive Mentor Graphics stock and be able to participate in the prospects of the combined entity, noting that the withdrawn Virage Logic proposal called for a sale of LogicVision. After discussing and considering these matters, the board authorized Mr. Healy to execute the proposed confidentiality and exclusivity agreement with Mentor Graphics, and Mentor Graphics and LogicVision entered into the agreement. Under that agreement, the exclusive negotiation period was to expire on January 7, 2009 unless Mentor Graphics delivered prior to expiration a term sheet containing proposed terms upon which the parties would propose to negotiate a definitive agreement, in which event the exclusivity period would expire on January 25, 2009.

On January 5, 2009, Mentor Graphics management delivered to LogicVision management a non-binding term sheet setting forth material terms of the proposed business combination transaction to LogicVision management. The proposal contemplated an acquisition of LogicVision by Mentor Graphics pursuant to a merger at a preliminary valuation of $1.25 for each outstanding common share of LogicVision, to be paid in Mentor Graphics common stock.

From January 5, 2009 through January 29, 2009, representatives and advisors of each of Mentor Graphics and LogicVision, including members of the LogicVision board of directors’ Strategic Alternatives Committee, negotiated various matters related to the non-binding term sheet, including price and the method of calculating the exchange ratio, and amendments to the change in control severance agreements between LogicVision and its executive officers.

On January 9, 2009, the LogicVision board of directors met with management and financial and legal advisors to consider the non-binding term sheet received from Mentor Graphics. After lengthy discussion and following presentations by LogicVision’s management and financial and legal advisors, the board authorized LogicVision management and the board’s Strategic Alternatives Committee to proceed with discussions and negotiations with Mentor Graphics. Mr. Raggett was added to the Strategic Alternatives Committee.

Beginning January 14, 2009 and continuing until the signing of the definitive agreements for the transaction, the Mentor Graphics transaction team engaged in a due diligence review of the business, operations and financial and legal matters of LogicVision. As part of this due diligence process, on February 10, 2009 and February 11, 2009, LogicVision’s management and advisors made a presentation to Mentor Graphics and its representatives and advisors concerning the business and affairs of LogicVision.

On January 22, 2009, the LogicVision board of directors met in a regularly scheduled meeting. Representatives of Needham & Company and members of the Strategic Alternatives Committee reviewed for the board the status of discussions and negotiations with Mentor Graphics, including the proposed terms of the possible business combination transaction. The LogicVision board of directors also authorized an extension of the exclusive negotiation period with Mentor Graphics to February 8, 2009.

On January 29, 2009, Mentor Graphics management provided LogicVision management and its financial and legal advisors with a revised non-binding term sheet to be used by the parties as the basis for their negotiations of the terms of the definitive merger agreement and related transaction materials. The updated proposal by Mentor Graphics contemplated an acquisition of LogicVision by Mentor Graphics pursuant to a merger at a preliminary valuation of $1.25 for each outstanding common share of LogicVision, to be paid in Mentor Graphics common stock. The LogicVision board of directors held a meeting that day with its financial and legal advisors to review the revised non-binding term sheet and, after extensive discussion, authorized LogicVision management and the board’s Strategic Alternatives Committee to continued discussions and negotiations with Mentor Graphics. The board also authorized an extension of the exclusive negotiation period with Mentor Graphics to February 16, 2009.

On February 6, 2009, Mentor Graphics distributed an initial draft of the proposed merger agreement to LogicVision and its advisors for review, and shortly thereafter the parties and their respective advisors began to negotiate definitive documentation for the proposed transaction. These negotiations, including discussions related to the due diligence of LogicVision, continued up until the signing of the definitive agreements for the transaction.

On February 9, 2009, the Mentor Graphics board of directors met. The board reviewed and discussed the rationale for the proposed transaction and authorized the officers of Mentor Graphics to continue discussions with LogicVision regarding a possible business combination transaction and to negotiate the terms of a definitive agreement and related transaction materials with respect to such a transaction, with finalization of and entry into the same subject to certain parameters.

On February 27, 2009, the LogicVision board of directors met. Mr. Adkin updated the board on the status of negotiations with Mentor Graphics. Representatives of Needham & Company presented a preliminary financial analysis of the proposed transaction, and representatives of Pillsbury Winthrop reviewed with the board their duties in evaluating a merger with Mentor Graphics and the material provisions of the draft transaction documents that had previously been distributed to the board. Mr. Healy reviewed for the board management’s views with respect to the proposed transaction, and updated the board with respect to LogicVision’s financial outlook. After discussion of the terms and conditions of the proposed transaction with Mentor Graphics and consideration of the other alternatives available to LogicVision, including remaining a stand-alone company, the board instructed management and the Strategic Alternatives Committee to continue negotiations with Mentor Graphics. The board determined not to extend the exclusive negotiation period with Mentor Graphics, noting that it had lapsed in mid-February.

Over the following weeks, Mentor Graphics and LogicVision, together with their respective financial and legal advisors, as applicable, continued to negotiate and finalize the terms and conditions of the merger agreement and work through due diligence related items.

On April 13, 2009, members of Mentor Graphics’ management met with other members of the Mentor Graphics transaction team to discuss diligence findings related to LogicVision and the resolution of ongoing negotiations of proposed transaction terms with LogicVision management and its advisors.

On April 16, 2009, the LogicVision board of directors met in a regularly scheduled meeting. Representatives of the company’s financial and legal advisors and members of the Strategic Alternatives Committee reviewed for the board the status of discussions and negotiations with Mentor Graphics, including the proposed terms. The board discussed with its financial and legal advisors the terms and conditions of the proposed transaction with Mentor Graphics and other alternatives available to LogicVision, including remaining a stand-alone company.

On April 30, 2009, Mr. Reinhart called a representative of Needham & Company to propose Mentor Graphics’ final position on certain transaction terms, which specifically included an update to the previously proposed acquisition price at a fixed exchange ratio of 0.2006 shares of Mentor Graphics common stock for each outstanding share of LogicVision common stock.

On May 1, 2009, the LogicVision board of directors met with LogicVision management and the company’s financial and legal advisors. Representatives of Needham & Company reviewed for the board the revised Mentor Graphics proposal. The board noted that, based on the closing price of Mentor Graphics stock on April 30, 2009, the Mentor Graphics proposal represented a valuation of $1.35 for each outstanding common share of LogicVision, which was greater than the initially proposed valuation of $1.25 per share. It was noted that with the fixed exchange ratio the value per share of LogicVision common stock would fluctuate based on the trading price of Mentor Graphics stock. Representatives of Needham & Company then presented a preliminary financial analysis of the proposed transaction. Members of the Strategic Alternatives Committee updated the board with respect to the status of discussions with other third parties.

On May 4, 2009, the LogicVision board of directors met with management and the company’s financial and legal advisors to continue its consideration of the revised Mentor Graphics proposal. The board discussed with its financial and legal advisors the terms and conditions of the proposed transaction with Mentor Graphics and other alternatives available to LogicVision, including remaining a stand-alone company. After extensive discussion, the board instructed LogicVision management and the Strategic Alternatives Committee to continue negotiations with Mentor Graphics with a view to finalizing a merger agreement on terms and conditions as favorable as possible to the LogicVision stockholders.

From May 4, 2009 through May 6, 2009, representatives of Mentor Graphics and LogicVision and their respective advisors held multiple teleconferences and meetings to finalize the terms of the proposed merger agreement and other transaction materials.

On the evening of May 6, 2009, LogicVision’s board of directors met. Representatives of Pillsbury Winthrop reviewed for the board the terms and conditions of the merger agreement and related agreements, and again reviewed with the directors their fiduciary duties under applicable corporate law, focusing in particular on changes to the proposed transaction agreements and related matters since the February 27, 2009 board meeting. Representatives of Needham & Company presented a financial analysis and delivered its oral opinion to LogicVision’s board of directors (which was subsequently confirmed in writing) that, as of May 6, 2009 and based upon and subject to the assumptions and other matters described in its written opinion, the exchange ratio pursuant to the merger agreement was fair to the holders of LogicVision common stock from a financial point of view. After further discussion, the LogicVision board of directors unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement, declared them advisable, and recommended that the stockholders of LogicVision vote in favor of the adoption of the merger agreement and approval of the merger contemplated thereby. The LogicVision board also approved amended and restated change in control severance agreements with LogicVision’s executive officers to reduce certain payments that would have been payable to the executives under the prior agreements. See “Proposal One—The Merger—Interests of Certain Persons in the Merger.”

On the night of May 6, 2009, the parties executed and delivered the final merger agreement and other transaction-related materials. On May 7, 2009, prior to the opening of trading on The NASDAQ Global Market and The NASDAQ Capital Market, the parties issued a joint press release announcing the execution of the merger agreement.

Recommendation of LogicVision’s Board of Directors; LogicVision’s Reasons for the Merger

Recommendation of the LogicVision Board of Directors

After careful consideration, the LogicVision board of directors has:

determined that the merger agreement and the transactions contemplated by the merger agreement, including the proposed merger, are advisable and fair to, and in the best interests of, LogicVision and its stockholders;
approved the merger agreement and related documents and the transactions contemplated by those agreements and documents; and
determined to recommend that the LogicVision stockholders adopt the merger agreement and approve the merger.

Accordingly, the LogicVision board of directors unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement and to approve the merger contemplated by the merger agreement.

LogicVision’s Reasons for the Merger

The LogicVision board of directors carefully evaluated the merger agreement and the merger contemplated by the merger agreement, and unanimously approved the merger agreement and the merger, and determined that the merger agreement and the merger are advisable and fair to, and in the best interests of LogicVision and its stockholders. In the course of its evaluation, the LogicVision board of directors consulted with LogicVision’s management as well as its financial and legal advisors and considered a number of factors, including the following:

the board of directors’ familiarity with, and presentations by LogicVision’s management and its financial advisors regarding, the business, operations, technology, financial condition, competitive position, business strategy and prospects for LogicVision (as well as the risk involved in achieving those prospects), the current environment for the industry sector in which LogicVision competes, and current industry, economic and market conditions, both on a historical and on a prospective basis;
the judgment, advice and analyses of LogicVision’s management with respect to the potential strategic, financial and operational benefits of the merger;
the financial resources of Mentor Graphics and the quality of Mentor Graphics’ executive team;
the size of LogicVision and related economies of scale arising from the merger, including the fact that LogicVision will no longer incur the expenses and obligations of operating as an independent public company, which on a relative basis represent a significantly greater burden on a company with LogicVision’s small size and revenues;
the opportunity to realize the benefits of a significantly larger company when combined with Mentor Graphics, including a larger, more diversified earnings stream, customer base and portfolio of products, thereby mitigating some of the potential business and financial risks and constraints LogicVision has faced in the past and currently faces;
the opinions of management on the future prospects of LogicVision as an independent, stand-alone entity in the short- and long-term, and the perceived risks to continuing to operate as a stand-alone entity, including the small size and limited financial resources of LogicVision relative to other companies in the industry, the risks of executing LogicVision’s strategic plan, and current and perceived near-term economic environment;
dealings with other possible business combination and strategic partners both in the past and during the course of the negotiations with Mentor Graphics, and the perceived benefits and risks associated with possible alternative transactions;
current financial market conditions, current and recent market prices of Mentor Graphics common stock and LogicVision common stock, and volatility and trading information with respect to Mentor Graphics common stock and LogicVision common stock;
the relative lack of liquidity and the low historical trading volumes for LogicVision common stock, as compared with the historical trading volumes and significantly higher market float for Mentor Graphics common stock, and the possibility of a future delisting from The NASDAQ Capital Market for failure to meet the minimum bid requirement and potential effects on the trading price and liquidity of LogicVision common stock as a result thereof;

the opportunity for LogicVision stockholders to participate in the prospects of a combined company with considerably greater scale and breadth than LogicVision alone and to benefit from potential synergies that may be realized as a result of the merger;
the exchange ratio, which, based on the closing price of Mentor Graphics common stock on May 6, 2009, represented a premium of 52.7% to the closing price of LogicVision common stock on that date and a premium of approximately 150% to the closing price of LogicVision common stock on the last trading day prior to the public announcement by Virage Logic of its proposal to acquire LogicVision, and the fact that a fixed exchange ratio provides LogicVision stockholders with certainty regarding the number of Mentor Graphics shares they will receive in connection with the merger;
the analyses and presentations of Needham & Company on the financial aspects of the merger, and the opinion of Needham & Company dated May 6, 2009 that, as of that date, and based upon and subject to the assumptions and other matters described in the opinion, the exchange ratio pursuant to the merger agreement was fair to the holders of LogicVision common stock from a financial point of view, see “Proposal One—The Merger—Opinion of LogicVision’s Financial Advisor”;
information concerning Mentor Graphics’ and LogicVision’s respective businesses, financial condition, operating results and competitive position;
the potential effects of the announcement of the merger and the merger on the employees, customers, distributors, partners and other constituencies of LogicVision;
the likelihood that the merger will be completed, including the likelihood that any stockholder approvals needed to complete the merger will be obtained and the absence of any required regulatory or Mentor Graphics shareholder approvals;
the potential for the combined company to leverage Mentor Graphics’ and LogicVision’s complementary products and to expand product portfolios and customer base;
the opportunities to utilize the two companies’ established and complementary customer relationships to cross-sell existing LogicVision products and new products as they are developed;
the terms of the merger agreement and related agreements, including the parties’ respective representations, warranties and covenants, the conditions to their respective obligations to complete the merger and the ability of the respective parties to terminate the merger agreement;
the fact that the terms of the merger agreement provide that, under certain circumstances, and subject to certain conditions more fully described under “The Merger Agreement and the Support Agreements—The Merger Agreement— LogicVision’s Non-Solicitation Covenant,” LogicVision can furnish information to and conduct discussions with a third party in connection with an unsolicited proposal for a business combination or acquisition of LogicVision and can terminate the merger agreement for a superior proposal, as more fully described under “The Merger Agreement and the Support Agreements—The Merger Agreement—Termination” and “The Merger Agreement and the Support Agreements—The Merger Agreement—Termination Fee”; and
LogicVision’s expectation that the merger will qualify as a “reorganization” for U.S. federal income tax purposes, as discussed under “Proposal One—The Merger—Material U.S. Federal Income Tax Consequences of the Merger.”

The LogicVision board of directors also considered certain potentially negative factors in its deliberations concerning the merger, including the following:

the risk that the combined company will not achieve the growth or financial results anticipated or will otherwise fail to deliver greater value to LogicVision stockholders than they would have received had LogicVision remained independent;
the risks and contingencies related to the announcement and pendency of the merger, including the likely impact of the merger on LogicVision’s employees, customers, distributors and partners;
the possibility that the merger may not be completed in a timely manner, if at all, and the potential adverse consequences to LogicVision if the merger is not completed, including the potential to depress values offered by others to LogicVision in a business combination and to erode customer and employee confidence in LogicVision;
the risks associated with a fixed exchange ratio, which by its nature will not compensate LogicVision stockholders for any declines in the price of Mentor Graphics stock prior to the completion of the merger, and the absence of any termination rights in the merger agreement that would be triggered by a decrease in Mentor Graphics’ stock price (or the corresponding decrease in the value of the merger consideration to be received by LogicVision stockholders);
the challenges and costs inherent in integrating the two businesses and the time and effort that will be required from employees of both companies to successfully complete the integration;
the limitations imposed by the merger agreement on the conduct of LogicVision’s business during the preclosing period and its ability to solicit and respond to proposals for alternative transactions;
the possibility that LogicVision may be required to pay a termination fee of $538,193 plus reimbursement of Mentor Graphics’ reasonable expenses up to $403,645 if the merger agreement is terminated under certain circumstances;
the interests that LogicVision’s directors and executive officers may have with respect to the merger in addition to their interests as stockholders of LogicVision generally, as described in the section entitled “The Merger—Interests of Certain Persons in the Merger”;
the substantial costs to be incurred in connection with the merger, some of which have already been incurred, and the financial resources of LogicVision in the event the merger is not completed; and
the other risks described in this proxy statement/prospectus under “Risk Factors—Risks Related to the Merger” beginning on page 19.

The foregoing discussion of the information and factors considered by the LogicVision board of directors is intended to be illustrative and not exhaustive, but includes material reasons and factors considered. In view of the wide variety of reasons and factors considered, the LogicVision board of directors did not find it practical to, and did not, quantify or otherwise assign relative weights to the specified factors considered in reaching their determinations or the reasons for such determinations. Individual directors may have given differing weights to different factors or have had different reasons for their ultimate determination. In addition, the LogicVision board of directors did not reach any specific conclusion with respect to any of the factors or reasons considered. The LogicVision board of directors conducted an overall analysis of the factors and reasons described above and considered the relevant information and factors as a whole to be favorable to, and in support of, its determinations and recommendations.

Opinion of LogicVision’s Financial Advisor

LogicVision retained Needham & Company to act as its financial advisor in connection with the exploration of one or more strategic transactions for LogicVision and to render an opinion as to the fairness, from a financial point of view, of the exchange ratio pursuant to the merger agreement to the holders of LogicVision common stock.

On May 6, 2009, Needham & Company delivered to the LogicVision board of directors its verbal opinion, confirmed by its written opinion dated May 6, 2009, that, as of that date and based upon and subject to the assumptions and other matters described in the written opinion, the exchange ratio pursuant to the merger agreement was fair to the holders of LogicVision common stock from a financial point of view. Needham & Company provided its opinion for the information and assistance of the LogicVision board of directors in connection with and for the purpose of the board of directors’ evaluation of the transactions contemplated by the merger agreement. The Needham & Company opinion relates only to the fairness, from a financial point of view, to the holders of LogicVision common stock of the exchange ratio. The Needham & Company opinion does not address any other aspect of the merger or any related transaction, and does not constitute a recommendation to any LogicVision stockholder as to how that stockholder should vote or act on any matter relating to the merger.

The complete text of the Needham & Company opinion, which sets forth the assumptions made, procedures followed, matters considered, and qualifications and limitations on and scope of the review undertaken by Needham & Company, is attached to this proxy statement/prospectus as Annex C. You should read the Needham & Company opinion carefully and in its entirety.

In arriving at its opinion, Needham & Company, among other things:

reviewed a draft of the merger agreement dated May 6, 2009;
reviewed certain publicly available information concerning LogicVision and Mentor Graphics and certain other relevant financial and operating data of LogicVision furnished to Needham & Company by LogicVision;
reviewed the historical stock prices and trading volumes of LogicVision common stock and Mentor Graphics common stock;
held discussions with members of LogicVision management concerning the current operations of and future business prospects of LogicVision and Mentor Graphics;
reviewed certain financial forecasts with respect to LogicVision prepared by LogicVision management and held discussions with members of LogicVision management concerning those forecasts;
reviewed certain research analyst projections with respect to Mentor Graphics;
compared certain publicly available financial data of companies whose securities are traded in the public markets and that Needham & Company deemed relevant to similar data for LogicVision;
reviewed the financial terms of certain other business combinations that Needham & Company deemed generally relevant; and
reviewed such other financial studies and analyses and considered such other matters as Needham & Company deemed appropriate.

In connection with its review and in arriving at its opinion, Needham & Company assumed and relied on the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by Needham & Company for purposes of its opinion and did not independently verify, nor did Needham & Company assume responsibility for independent verification of any of that information. In addition, Needham & Company assumed that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and that the merger would be consummated upon the terms and subject to the conditions set forth in the draft merger agreement dated May 6, 2009, without waiver, modification or amendment of any material term, condition or agreement thereof and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on LogicVision, Mentor Graphics or the contemplated benefits of the merger. Needham & Company assumed that the financial forecasts for LogicVision provided to it by LogicVision management were reasonably prepared on bases reflecting the best currently available estimates and judgments of management, at the time of preparation, of the future operating and financial performance of LogicVision. With respect to the research analyst projections for Mentor Graphics, Needham & Company assumed that those projections represented reasonable estimates as to the future financial performance of Mentor Graphics. Needham & Company expressed no opinion with respect to any of those forecasts, projections or estimates or the assumptions on which they were based. Needham & Company did not assume any responsibility for or make or obtain any independent evaluation, appraisal or physical inspection of the assets or liabilities of LogicVision or Mentor Graphics and did not evaluate the solvency or fair value of LogicVision or Mentor Graphics under any state or federal laws relating to bankruptcy, insolvency or similar matters. Needham & Company’s opinion states that it was based on economic, monetary and market conditions as they existed and could be evaluated as of its date and that Needham & Company assumed no responsibility to update or revise its opinion based upon circumstances and events occurring after the date of the opinion. Needham & Company’s opinion is limited to the fairness, from a financial point of view, to the holders of LogicVision common stock of the exchange ratio pursuant to the merger agreement and Needham & Company expressed no opinion as to the fairness of the merger to the holders of any other class of securities, creditors or other constituencies of LogicVision, LogicVision’s underlying business decision to engage in the merger or the relative merits of the merger as compared to other business strategies that might be available to LogicVision. In addition, Needham & Company expressed no opinion with respect to the amount or nature or any other aspect of any compensation payable to or to be received by any officers, directors or employees of any party to the merger, or any class of those persons, relative to the exchange ratio pursuant to the merger agreement or with respect to the fairness of any such compensation. Needham & Company did not express any opinion as to what the value of Mentor Graphics common stock will be when issued to the stockholders of LogicVision pursuant to the merger or the prices at which Mentor Graphics common stock or LogicVision common stock will actually trade at any time.

In preparing its opinion, Needham & Company performed a variety of financial and comparative analyses. The following paragraphs summarize the material financial analyses performed by Needham & Company in arriving at its opinion. The order of analyses described does not represent relative importance or weight given to those analyses by Needham & Company. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by Needham & Company, the tables must be read together with the full text of each summary. The following quantitative information, to the extent it is based on market data, is, except as otherwise indicated, based on market data as it existed on or prior to May 6, 2009, and is not necessarily indicative of current or future market conditions.

Historical Stock Trading and Exchange Ratio Analysis

Needham & Company reviewed the historical trading prices of Mentor Graphics common stock and LogicVision common stock as of and for various periods prior to May 6, 2009, the last full trading day prior to the date of Needham & Company’s opinion, in order to determine the various implied exchange ratio premiums that existed for those periods. The following table presents:

The average stock price ratios for May 6, 2009, and the 30 day, 60 day, 90 day, 180 day and one year periods prior to May 6, 2009. “Average stock price ratio” data represent the daily closing price of LogicVision common stock divided by the daily closing price of Mentor Graphics common stock averaged over the respective periods.
The implied exchange ratio premium to the average stock price ratio, which is equal to the percentage by which the exchange ratio pursuant to the merger agreement (0.2006 shares of Mentor Graphics common stock for each share of LogicVision common stock) exceeds the average stock price ratio for the specified periods.
The implied exchange ratio premium to the average stock price ratio based on the closing price of LogicVision common stock on the last trading day prior to public announcement by Virage Logic Corporation of its proposal to acquire LogicVision for $1.05 per share in cash.

	Average	Implied Exchange
Date or Period	Stock Price Ratio	Ratio Premium
May 6, 2009	0.1314	52.7	%
Last 30 days	0.1629	23.1	%
Last 60 days	0.1952	2.8	%
Last 90 days	0.1930	3.9	%
Last 180 days	0.1321	51.8	%
Last day traded pre-Virage offer	0.0803	149.7	%
One year
Average	0.1355	48.0	%
Low	0.0530	278.2	%
High	0.2850	-29.6	%

Contribution Analysis

Needham & Company reviewed and analyzed the implied percentage contribution of each of Mentor Graphics and LogicVision to pro forma combined operating results for the last reported 12 months ended December 31, 2008 (January 31, 2009 in the case of Mentor Graphics), and pro forma projected fiscal year 2009 and fiscal year 2010 combined operating results, and pro forma combined December 31, 2008 balance sheet information (using, in the case of Mentor Graphics, balance sheet information as of January 31, 2009). In calculating the pro forma projected combined operating results, Needham & Company used consensus research analyst estimates for Mentor Graphics and LogicVision management estimates for LogicVision, based on fiscal years ending January 31 for Mentor Graphics and fiscal years ending December 31 for LogicVision. Needham & Company reviewed, among other things, the implied percentage contributions to pro forma combined sales, earnings before interest, taxes, depreciation and amortization, or EBITDA, net income, total assets, working capital, and shareholders’ equity. The following tables present the results of this analysis and the estimated percentage ownership of the combined company on a pro forma basis by the Mentor Graphics shareholders and the LogicVision stockholders and estimated pro forma enterprise value contributions of Mentor Graphics and LogicVision, based on the exchange ratio of 0.2006, and using the treasury stock method to calculate the number of pro forma shares of Mentor Graphics common stock outstanding after taking into account outstanding warrants and options.

	Implied Actual/Estimated
	Percentage Contribution
	Mentor Graphics		LogicVision
Pro forma combined sales
2008	98.48	%	1.52	%
2009E	98.46	%	1.54	%
2010E	98.51	%	1.49	%
Pro forma combined EBITDA
2008	104.18	%	(4.18	%)
2009E	98.23	%	1.77	%
2010E	98.92	%	1.08	%
Pro forma combined net income
2008	117.02	%	(17.02	%)
2009E	96.86	%	3.14	%
2010E	99.27	%	0.73	%
Pro forma combined December 31, 2008 balance sheet data:
Pro forma combined total assets	98.51	%	1.49	%
Pro forma combined working capital	97.16	%	2.84	%
Pro forma combined shareholders’ equity	90.69	%	9.31	%

	Estimated Pro Forma
	Percentage Contribution
	Mentor Graphics		LogicVision
Pro forma equity ownership contribution	98.02	%	1.98	%

The results of the contribution analysis are not necessarily indicative of the contributions that the respective businesses may have in the future.

Premiums Paid Analysis

Needham & Company analyzed publicly available financial information for seven stock-for-stock merger and acquisition transactions involving selected technology companies completed after January 1, 2006 with transaction values of less than $100 million, where the target company was traded on a U.S exchange. These transactions were:

Acquirer	Target	Date Completed
Bookham, Inc.	Avanex Corporation	April 2009
Kratos Defense & Security Solutions	Digital Fusion, Inc.	December 2008
ON Semiconductor Corporation	Catalyst Semiconductor, Inc.	October 2008
DG FastChannel, Inc.	Enliven Marketing Technologies Corporation	October 2008
L-1 Identity Solutions, Inc.	Bioscrypt, Inc.	March 2008
Sirenza Microdevices, Inc.	Micro Linear Corporation	October 2006
PFSweb, Inc.	eCOST.com, Inc.	February 2006

Needham & Company reviewed the per share daily closing trading prices for each of these transactions and calculated the historical implied exchange ratios by dividing the daily closing prices of the target company’s common stock by those of the acquirer’s common stock on the one-day prior to announcement and over various time periods ending on that date. Needham & Company then compared the implied exchange ratios over the same periods to the offered exchange ratio for each of the transactions and noted the amount by which the exchange ratio in the merger constituted a premium to the implied exchange ratios for those periods. Needham & Company then compared those results to the premium of the offered exchange ratio of 0.2006x per share to the implied exchange ratio of LogicVision common stock to Mentor Graphics common stock during the same time periods.

									0.2006
	Selected Transactions								Exchange
	Low		High		Mean		Median		Ratio
One day exchange ratio premium	-2	%	66	%	40	%	48	%	45	%
Five day exchange ratio premium	-12	%	65	%	38	%	47	%	40	%
30 day exchange ratio premium	-15	%	121	%	67	%	62	%	-5	%
60 day exchange ratio premium	-12	%	82	%	21	%	11	%	-3	%
90 day exchange ratio premium	-47	%	88	%	25	%	13	%	25	%
180 day exchange ratio premium	-59	%	50	%	-1	%	-12	%	124	%

Selected Company Analysis

Using publicly available information, Needham & Company compared selected historical and projected financial and market data ratios for LogicVision to the corresponding data and ratios of publicly traded semiconductor intellectual property and yield improvement companies that Needham & Company deemed relevant because they have lines of business and business scale that may be considered similar to those of LogicVision. These companies, referred to collectively as the selected companies, consisted of MoSys, Inc., PDF Solutions, Inc. and Virage Logic Corporation.

The following table sets forth information concerning the following multiples for the selected companies and for LogicVision:

enterprise value as a multiple of latest twelve month revenues;
enterprise value as a multiple of projected calendar year 2009 revenues; and
enterprise value as a multiple of projected calendar year 2010 revenues.

Needham & Company calculated multiples for the selected companies based on the closing stock prices of those companies on May 6, 2009 and estimated 2009 and 2010 revenue projections reported by research analyst reports. The multiples in the table below under the heading “LogicVision Implied by the Merger” were calculated based on the enterprise value for LogicVision implied by the exchange ratio (the total merger consideration payable for all of LogicVision’s outstanding shares, based on Mentor Graphics’s closing stock price on May 6, 2009, minus LogicVision’s net cash) and, in the case of LogicVision’s projected 2009 and 2010 revenues, forecasts by LogicVision management.

LogicVision

Implied by the

Low

High

Mean

Median

Merger

Enterprise value as a multiple of latest twelve month revenues

0.2

0.7

0.5

Enterprise value as a multiple of projected calendar year 2009 revenues

0.2

0.5

0.4

0.5

Enterprise value as a multiple of projected calendar year 2010 revenues

0.2

0.5

Selected Transactions Analysis

EDA Transactions. Needham & Company analyzed publicly available financial information for the following selected merger and acquisition transactions, which represent transactions completed since January 1, 2005 that involved target companies that were involved in the electronic design automation, or EDA, industry:

Acquirer	Target	Date Completed
Mentor Graphics Corporation	Flomerics Group PLC	October 2008
Synopsys, Inc.	Synplicity, Inc.	May 2008
PDF Solutions, Inc.	Si Automation SA	October 2006
Synopsys, Inc.	HPL Technologies, Inc.	December 2005
Synopsys, Inc.	Nassda Corporation	May 2005
Cadence Design Systems, Inc.	Verisity Ltd.	April 2005

In reviewing the transactions identified above, Needham & Company calculated, for the selected transactions and for LogicVision implied by the merger, the ratio of the enterprise value implied by the consideration offered in the transaction to the target company’s latest twelve months’ (LTM) revenue, as set forth in the following table:

			Enterprise value/LTM
Transaction			revenue
Mentor/Flomerics			1.6x
Synopsys/Synplicity			2.5x
PDF/Si Automation			2.7x
Synopsys/HPL			1.4x
Synopsys/Nassda			0.7x
Cadence/Verisity			2.3x
Median			2.0x
Mean			1.9x
Merger (Mentor Graphics /LogicVision)			0.5x

Needham & Company noted that most of the EDA transactions identified above occurred under different market conditions from those prevailing in May 2009. In addition, most of these transactions were much larger than the merger. Accordingly, as described below, Needham also analyzed a number of smaller transactions in a larger industry group that involved companies in the semiconductor industry as well as the EDA industry.

Semiconductor/EDA Transactions. Needham & Company analyzed publicly available financial information for the following selected merger and acquisition transactions, which represent transactions completed since January 1, 2006 that represented an enterprise value of less than $31 million and involved target companies in the semiconductor and electronic design automation industries that had latest twelve month revenues of more than $5.0 million:

Acquirer	Target	Date Completed
Microsemi Corporation	Endwave Corporation (Defense and Security Business)	April 2009
PLX Technology, Inc.	Oxford Semiconductor, Inc.	January 2009
TranSwitch Corporation	Centillium Communications, Inc.	October 2008
Imperium Partners Group	ESS Technology, Inc.	June 2008
Ikanos Communications, Inc.	Centillium Communications, Inc. (DSL Business)	February 2008
Magnum Semiconductor, Inc.	LSI Corporation (Consumer Products)	July 2007
Broadcast Microwave Services	TANDBERG Television AVS GmbH & Co. KG	April 2007
PDF Solutions, Inc.	Si Automation SA	October 2006
RF Monolithics, Inc.	Cirronet Inc.	September 2006

			Enterprise value/LTM
Transaction			revenue
Microsemi/Endwave			1.3x
PLX/Oxford			0.7x
TranSwitch/Centillium			0.1x
Imperium/ESS			0.1x
Ikanos/Centillium			0.4x
Magnum/LSI			0.2x
Broadcast/TANDBERG			1.2x
PDF/Si			2.7x
RF/Cirronet			2.3x
Median			0.7x
Mean			1.0x
Merger (Mentor Graphics /LogicVision)			0.5x

Needham & Company noted that most of the transactions identified above occurred under different market conditions from those prevailing in May 2009.

Discounted Cash Flow Analysis

Needham & Company performed an illustrative discounted cash flow analysis to determine indicators of illustrative implied equity values for LogicVision and illustrative implied equity values per share of LogicVision common stock based on LogicVision management’s financial forecasts. Needham & Company calculated ranges of the present values of multiples of projected 2013 EBITDA using discount rates of 15% to 35% and EBITDA multiples of 4.0x to 8.0x. The present values of the EBITDA multiples were added to the present value of LogicVision’s projected 2013 cash to derive a range of illustrative implied equity values, and the result was divided by the number of shares outstanding, to derive a range of illustrative implied equity values per share of $0.62 to $1.92, with a mean of $1.14 and a median of $1.08. Needham & Company compared these to the $1.42 per share value implied by the exchange ratio in the merger (based on Mentor Graphics’ closing stock price on May 6, 2009).

No company, transaction or business used in the “Premiums Paid Analysis,” “Selected Company Analysis” or “Selected Transactions Analysis” as a comparison is identical to Mentor Graphics, LogicVision or the merger. Accordingly, an evaluation of the results of these analyses was not entirely mathematical; rather, it involved complex considerations and judgments concerning differences in the financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the selected companies or selected transactions or the company or transaction to which they are being compared.

The summary set forth above does not purport to be a complete description of the analyses performed by Needham & Company in connection with the rendering of its opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Accordingly, Needham & Company believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying its analyses and opinion. Needham & Company did not attribute any specific weight to any factor or analysis considered by it. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis.

In performing its analyses, Needham & Company made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of LogicVision and Mentor Graphics. Any estimates contained in or underlying these analyses, including estimates of LogicVision’s and Mentor Graphics’ future performance, are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those estimates. Additionally, analyses relating to the values of businesses or assets do not purport to be appraisals or necessarily reflect the prices at which businesses or assets may actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. Needham & Company’s opinion and its related analyses were only one of many factors considered by the LogicVision board in its evaluation of the merger and should not be viewed as determinative of the views of the LogicVision board or management with respect to the exchange ratio or the merger.

Pursuant to the terms of an engagement letter between LogicVision and Needham & Company, LogicVision has agreed to pay Needham & Company a fee for its services equal to $700,000, of which $250,000 was payable upon Needham & Company’s delivery of its written opinion to the LogicVision board and the remainder of which is payable contingent upon completion of the merger. In addition, LogicVision has agreed to reimburse Needham & Company for its out-of-pocket expenses in connection with its engagement and to indemnify Needham & Company and related persons against various liabilities, including certain liabilities under the federal securities laws.

Needham & Company is a nationally recognized investment banking firm. As part of its investment banking services, Needham & Company is regularly engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of securities, private placements and other purposes. Needham & Company was retained by the LogicVision board of directors to act as its financial advisor based on Needham & Company’s experience as a financial advisor in mergers and acquisitions as well as Needham & Company’s familiarity with LogicVision and the electronic design automation industry generally. Needham & Company has in the past provided investment banking and financial advisory services to LogicVision and Mentor Graphics and has received customary fees for those services. Needham & Company may in the future provide investment banking and financial advisory services to Mentor Graphics or LogicVision unrelated to the merger, for which services Needham & Company would expect to receive compensation. In the ordinary course of its business, Needham & Company may actively trade the equity securities of LogicVision and Mentor for its own account or for the accounts of its customers or affiliates and, accordingly, may at any time hold a long or short position in those securities.

Mentor Graphics’ Reasons for the Merger

In reaching its decision to unanimously approve the merger agreement, the Mentor Graphics board of directors consulted with members of Mentor Graphics’ management team and considered the financial performance and condition, business operations and prospects of LogicVision and the combined company, the terms and conditions of the merger agreement, and the results of the due diligence investigation conducted by Mentor Graphics. There were several important factors that contributed to the board of directors’ approval of the merger, including:

the merger will enable Mentor Graphics to broaden its semiconductor design for test products and service offerings to include LogicVision’s built-in-self-test technology and products;
the merger will bring to Mentor Graphics LogicVision’s proprietary technologies and patents related to embedded test and diagnostics;
the merger will expand Mentor Graphics’ test customers and broaden the test offering relationship with a number of customers across the globe;
LogicVision has a talented group of employees and the merger will strengthen Mentor Graphics’ technical expertise and customer applications capabilities;
the merger is expected to allow for Mentor Graphics to optimize resources and achieve operating cost synergies; and
LogicVision is well capitalized with a strong balance sheet and the transaction value is viewed as compelling from a revenue, margin contribution and balance sheet perspective.

There can be no assurance, however, that the benefits of the potential synergies or opportunities considered by Mentor Graphic’s board of directors will be achieved through completion of the merger. Achieving Mentor Graphics’ objectives is subject to particular risks which are discussed in the section entitled, “Risk Factors” beginning on page 19 of this proxy statement/prospectus.

Interests of Certain Persons in the Merger

Certain of LogicVision’s directors and executive officers may have interests in the merger that are different from, or in addition to, their interests as stockholders of LogicVision. LogicVision’s board of directors was aware of these interests and took them into account at the time they approved the merger agreement and the merger.

Support Agreements

Each of the current directors and executive officers of LogicVision, and Valley Ventures II, L.P. and Valley Ventures III, L.P. (which are funds affiliated with one of LogicVision’s directors and collectively beneficially own approximately 9.9% of LogicVision common stock), have entered into support agreements with Mentor Graphics, pursuant to which they have agreed to vote all of their shares of LogicVision common stock to adopt the merger agreement and approve the merger and, subject to certain exceptions, not to dispose of their shares prior to the date of the Annual Meeting. The following directors and officers of LogicVision have entered into support agreements: Gregg E. Adkin, James T. Healy, Randall A. Hughes, Fadi Maamari, Richard Okumoto, Matthew Raggett, Mei Song and Richard C. Yonker.

Change of Control Severance Agreements

Existing change of control severance agreements entered into with certain of LogicVision’s executive officers provide for benefits in the event of the involuntary termination of the executive within three months prior to or within 12 months following the merger. On May 6, 2009, LogicVision entered into amended and restated agreements with these executive officers, which are subject to and conditioned upon, and will become effective immediately prior to, the completion of the merger, and which reduce certain payments that would be payable to them under the prior existing agreements. In the event of the involuntary termination of the executive within 12 months following the merger, these amended and restated agreements entitle the executive to a lump sum severance payment equal to one year’s base salary, immediate acceleration of vesting of outstanding options and reimbursement of health insurance premiums for the executive and eligible dependents for up to twelve months.

The following table describes the potential payments and benefits to which these executive officers would be entitled under their amended and restated change of control severance agreements upon an involuntary termination of employment (except in the case of termination for cause), in each case assuming the employment of the executive officer was terminated immediately following the completion of the merger, assuming the merger was completed on and based on the closing price of LogicVision common stock on July 14, 2009, the last full trading day prior to the date of this proxy statement/prospectus.

			Acceleration of
		Medical/Insurance	Equity Awards
Termination	Cash Payment ($)	Benefits ($)	($)(1)	Total ($)
James T. Healy	312,000	14,706	65,190	391,896
Fadi Maamari	240,240	15,198	32,800	288,238
Mei Song	170,000	14,882	30,340	215,222

____________________

(1)

Represents the amount by which the closing price of LogicVision common stock on July 14, 2009 exceeded the exercise price for equity awards for which vesting accelerated as result of termination of employment.

These agreements also provide that the executive officers shall not solicit employees of LogicVision or Mentor Graphics for twelve months following termination, and will not compete with LogicVision or Mentor Graphics for the period during which they receive severance payments.

Non-Employee Director Options

To the extent not already vested and exercisable, each option to purchase LogicVision common stock held by a non-employee director of LogicVision that has been outstanding for not less than six months shall vest and become exercisable in full as a result of the merger. Each outstanding option to purchase LogicVision common stock that is held by a non-employee director of LogicVision immediately prior to the effective time of the merger will be cancelled and, to the extent that such option has been outstanding for not less than six months or is otherwise vested pursuant to its terms, will automatically be converted into the right to receive cash, as described in greater detail in the section entitled, “The Merger Agreement and Support Agreements—Treatment of LogicVision Options in the Merger.”

Indemnification and Insurance

The merger agreement provides that, subject to certain exceptions, Mentor Graphics will, or will cause the surviving corporation of the merger and its subsidiaries to, honor and fulfill in all material respects the obligations of LogicVision and its subsidiaries pursuant to the indemnification agreements between LogicVision and its current and former directors and officers. For a period of six years following the effective time of the merger, the certificate of incorporation and bylaws of the surviving corporation will contain provisions with respect to indemnification, exculpation and advancement of expenses that are at least as favorable as those contained in the certificate of incorporation and bylaws of LogicVision as in effect on the date of the merger agreement, and, unless required by applicable law, such provisions will not be amended, repealed or otherwise modified for a period of six years from the effective time of the merger in any manner that would adversely affect the rights of individuals who were covered by such provisions.

For a period of six years after the effective time of the merger, Mentor Graphics will provide directors’ and officers’ liability insurance in respect of acts and omissions occurring at or prior to the effective time of the merger to LogicVision’s current and former directors and officers who are covered by LogicVision’s existing policies, on terms with respect to coverage and amount no less favorable than those contained in LogicVision’s existing policies in effect on the date of the merger agreement. Mentor Graphics will not be required to pay an annual aggregate premium for such policies in excess of 150% of the amount LogicVision paid in its last full fiscal year for such policies. Alternatively, Mentor Graphics may purchase a six year prepaid (or “tail”) policy on terms with respect to coverage and amount no less favorable than those contained in LogicVision’s existing policies, provided that the cost of such tail policy will not exceed 200% of the annual premium paid by LogicVision for such insurance.

Employment Relationships

Although to LogicVision’s knowledge, no agreements have been entered into as of the date of this proxy statement/prospectus, members of LogicVision management may enter into employment arrangements with Mentor Graphics.

Material U.S. Federal Income Tax Consequences of the Merger

The following discussion summarizes the material U.S. federal income tax consequences of the merger that are generally applicable to U.S. holders (as defined below) of LogicVision common stock that hold their LogicVision common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code. This discussion is based on the Internal Revenue Code, judicial decisions, and administrative regulations and interpretations in effect as of the date of this proxy statement/prospectus, all of which are subject to change, possibly with retroactive effect. Accordingly, the tax consequences of the merger to the holders of LogicVision common stock could differ from those described below. For purposes of this discussion, the term “U.S. holder” means (1) a citizen or resident of the United States, (2) a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes organized under the laws of the United States or any of its political subdivisions, (3) a trust if it (i) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person, or (4) an estate the income of which is subject to U.S. federal income tax regardless of its source.

This discussion does not address all aspects of U.S. federal income taxation that may be relevant to holders of LogicVision common stock in light of their particular circumstances, nor does it address the U.S. federal income tax consequences to holders who are subject to special rules under U.S. federal income tax law, including dealers in securities or foreign currencies, tax-exempt organizations, foreign persons, financial institutions or insurance companies, holders who have a “functional currency” other than the U.S. dollar, holders who own their shares indirectly through partnerships, trusts or other entities that may be subject to special treatment, holders who acquired their LogicVision common stock in connection with stock options or stock purchase plans or other compensatory transactions and holders who hold their shares as a hedge or as part of a straddle, constructive sale, conversion transaction or other risk management transaction. In addition, this discussion does not describe the federal income tax consequences of transactions other than those pursuant to the merger or the tax consequences of the merger under foreign, state or local law or federal estate and gift tax laws.

The obligation of LogicVision to consummate the merger is conditioned on the receipt by LogicVision of a written opinion, referred to in this proxy statement/prospectus as the “Tax Opinion,” from Pillsbury Winthrop Shaw Pittman LLP, counsel to LogicVision, to the effect that, on the basis of statements and representations made by LogicVision and by Mentor Graphics and Fulcrum Acquisition Corporation, and subject to the limitations, qualifications and assumptions set forth therein, for U.S. federal income tax purposes, the merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, provided, however, that if counsel to LogicVision does not render the Tax Opinion, the condition shall be deemed satisfied if the Tax Opinion is rendered by counsel to Mentor Graphics. The merger agreement provides that LogicVision may not waive the receipt of the Tax Opinion after the LogicVision stockholders have approved the adoption of the merger agreement unless further stockholder approval is obtained with appropriate disclosure. The Tax Opinion will not be binding on the Internal Revenue Service and will not preclude the Internal Revenue Service from taking a contrary position. Neither LogicVision nor Mentor Graphics has requested, nor will request, a ruling from the Internal Revenue Service regarding any of the federal income tax consequences of the merger.

Subject to the limitations and qualifications set forth in this discussion and assuming the merger qualifies as a reorganization under Section 368(a) of the Internal Revenue Code, the material federal income tax consequences to LogicVision stockholders of the exchange of LogicVision common stock for Mentor Graphics common stock pursuant to the merger are as follows:

Holders of LogicVision common stock will not recognize any gain or loss upon receipt of Mentor Graphics common stock solely in exchange for their LogicVision common stock in the merger.
A holder of LogicVision common stock who receives cash in the transaction in lieu of a fractional share of Mentor Graphics common stock will be treated as if the holder had received the fractional share and then exchanged that fractional share for cash. The holder of LogicVision common stock will recognize gain or loss equal to the difference between the cash received and that portion of the holder’s basis in the LogicVision common stock attributable to the fractional share. This gain or loss generally will be a capital gain or loss and will be a long-term capital gain or loss if the holding period for the LogicVision common stock exchanged is more than one year at the time of completion of the merger.
The aggregate tax basis in the Mentor Graphics common stock received by a holder of LogicVision common stock pursuant to the merger will be the same as the aggregate tax basis of the LogicVision common stock surrendered in the exchange, less that portion of the holder’s basis of the LogicVision common stock attributable to any fractional share of Mentor Graphics common stock for which cash is received.
The holding period of Mentor Graphics common stock received by a holder of LogicVision common stock in exchange for shares of LogicVision common stock will include the holding period of the shares of LogicVision stock surrendered in the exchange.

In the case of a holder of LogicVision common stock who holds shares of LogicVision common stock with differing tax bases or holding periods, the preceding rules must be applied to each identifiable block of LogicVision common stock.

These material federal income tax consequences have been described on the basis of certain assumptions, including assumptions regarding the absence of changes in existing facts and that the merger will be completed in accordance with the merger agreement. They also have been based on statements and representations, including those contained in the merger agreement, the registration statement of which this proxy statement/prospectus forms a part and officers’ certificates of LogicVision and Mentor Graphics, all of which must be true, correct and complete as of the effective date of the registration statement and must continue to be true, correct and complete at all relevant times thereafter, including as of the effective time of the merger. If any of those statements, representations or assumptions is untrue, incorrect, or incomplete, the conclusions contained in the Tax Opinion could be adversely affected, and the tax consequences described above, which description assumes the merger qualifies as a reorganization under Section 368(a) of the Internal Revenue Code, may not apply.

A “significant holder” of LogicVision common stock must file a statement with its U.S. federal income tax return setting forth certain information pertaining to the merger. For these purposes, a “significant holder” includes a holder of at least five percent (by vote or value) of the total outstanding shares of LogicVision common stock. In addition, all LogicVision stockholders must retain permanent records of certain information pertaining to the merger.

A holder of LogicVision common stock may be subject, under certain circumstances, to information reporting and backup withholding at a rate of 28% with respect to any cash received in lieu of a fractional share of Mentor Graphics common stock, unless such holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against such holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner.

Holders of LogicVision common stock are urged to consult their own tax advisors as to the specific tax consequences to them of the merger in light of their particular circumstances, including the applicability and effect of any federal estate and gift, state, local or foreign tax laws and of changes in applicable tax laws.

Restrictions on Sales of Shares of Mentor Graphics Common Stock by Certain Affiliates

The shares of Mentor Graphics common stock to be issued in connection with the merger will be freely transferable under the Securities Act, except for shares issued to any stockholder who may be deemed to be an “affiliate” of Mentor Graphics for purposes of Rule 144 under the Securities Act. Persons who may be deemed to be affiliates include individuals or entities that control, are controlled by, or under the common control with Mentor Graphics and may include the executive officers, directors and significant stockholders of Mentor Graphics.

Accounting Treatment

Mentor Graphics will account for the merger using the “acquisition method of accounting” as that term is used under SFAS No. 141 (revised 2007), or SFAS No. 141(R), “Business Combinations,” which Mentor Graphics adopted on February 1, 2009, and uses the fair value concepts defined in SFAS No. 157, “Fair Value Measurements” for accounting and financial reporting purposes. SFAS No. 141R requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the fair value of in-process research and development be recorded on the balance sheet regardless of the likelihood of success of the completion of the technology as of the acquisition date. Acquisition-related transaction costs (i.e., advisory, legal, valuation, other professional fees) and certain acquisition-related restructuring charges are not included as a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. Costs incurred associated with the issuance of common stock will be accounted for as a reduction of additional paid in capital.

The results of operations of LogicVision will be consolidated with those of Mentor Graphics beginning on the date of the merger.

No Appraisal Rights

LogicVision stockholders are not entitled to dissenters’ rights of appraisal for their shares under Section 262 of Delaware General Corporation Law in connection with the merger.

Delisting and Deregistration of LogicVision Common Stock After the Merger

Effects on the Market for LogicVision Common Stock

Shares of LogicVision common stock are currently listed and traded on The NASDAQ Capital Market under the symbol “LGVN.” If the merger is completed, shares of LogicVision common stock will be delisted from The NASDAQ Capital Market and shares of LogicVision common stock will not be publicly traded.

Exchange Act Deregistration

Shares of LogicVision common stock are currently registered under the Exchange Act. Following the merger, LogicVision will file a Form 15 with the SEC requesting the suspension and termination of registration of its common stock under the Exchange Act.

Listing of Mentor Graphics Common Stock

Mentor Graphics agreed to use its commercially reasonable efforts to cause the shares of Mentor Graphics common stock issuable in connection with the merger to be approved for listing upon the effective time of the merger on The NASDAQ Stock Market, subject to official notice of issuance.

THE MERGER AGREEMENT AND THE SUPPORT AGREEMENTS

The Merger Agreement

This section of the proxy statement/prospectus describes the material terms and provisions of the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus and is incorporated herein by reference. Mentor Graphics and LogicVision encourage you to carefully read the complete merger agreement for the precise legal terms of the merger agreement and other information that may be important to you.

The merger agreement and the following description are intended to provide information regarding the terms of the merger. Although the merger agreement contains representations and warranties made by each of Mentor Graphics, Fulcrum Acquisition Corporation and LogicVision as of specific dates, the assertions embodied in those representations and warranties were made for purposes of the merger agreement and the closing conditions under the merger agreement, and have been used for purposes of allocating risk between the respective parties, rather than establishing matters of fact. Although the representations and warranties in the merger agreement may not constitute the actual state of facts about the parties to the merger agreement as of a specific date, any specific material facts that qualify the representations and warranties in the merger agreement have been disclosed in this proxy statement/prospectus or in the information incorporated by reference herein, as applicable. You should read the merger agreement together with the other information regarding Mentor Graphics and LogicVision included in this proxy statement/prospectus and the information that each company publicly files in reports and statements with the SEC.

The Merger

The merger agreement provides that upon the effective time of the merger, Fulcrum Acquisition Corporation will be merged with and into LogicVision, with LogicVision continuing as the surviving corporation. The merger will become effective when a certificate of merger is filed with the Delaware Secretary of State, or such other date and time agreed to by the parties and specified in the certificate of merger. The effective time of the merger will occur as soon as practicable on the closing date.

What You Will Receive in the Merger

At the effective time of the merger:

each share of LogicVision common stock issued and outstanding immediately prior to the effective time (including the associated rights to the extent outstanding under LogicVision’s Rights Agreement) will cease to be outstanding and will be converted into the right to receive 0.2006 of a share of Mentor Graphics common stock, without interest; and
each share of LogicVision common stock which is, immediately prior to the effective time, held in the treasury of LogicVision or owned directly or indirectly by Mentor Graphics or Fulcrum Acquisition Corporation will automatically be canceled and retired without payment of any consideration for those shares.

No fractional shares of Mentor Graphics common stock will be issued in the merger. The treatment of fractional shares is described in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Exchange of Certificates” below.

At the effective time of the merger, each share of common stock of Fulcrum Acquisition Corporation will be converted into one share of common stock of the surviving corporation.

Treatment of LogicVision Options in the Merger

At the effective time of the merger, each outstanding option to purchase LogicVision common stock, whether or not currently vested or exercisable, will be assumed by Mentor Graphics and converted into an option to purchase Mentor Graphics common stock on substantially identical terms and conditions as were applicable under the option to purchase LogicVision common stock before the merger, except the number of shares subject to the option will be multiplied by the exchange ratio (with the number of shares rounded down to the nearest whole share) and the exercise price per share immediately prior to the effective time will be divided by the exchange ratio (with the exercise price rounded up to the nearest whole cent). Any vesting acceleration provisions in the LogicVision options that are triggered by virtue of a change of control of LogicVision (or potentially triggered by virtue of “double trigger” acceleration provisions) will be deemed to have been triggered by the merger. Mentor Graphics agreed to file a registration statement on Form S-8 within 15 business days after the effective time of the merger, for the shares of Mentor Graphics common stock issuable upon exercise of the assumed LogicVision stock options, and Mentor Graphics will use its commercially reasonable efforts to cause that registration statement to remain effective for so long as the assumed LogicVision stock options remain outstanding.

Instead of assuming the outstanding LogicVision options as described above, Mentor Graphics may, in its discretion, choose to terminate each LogicVision option and grant the holder a substitute option to purchase Mentor Graphics common stock under either its 1982 Stock Option Plan or its 1986 Stock Plan. The substitute options will be exercisable for that number of shares of Mentor Graphics common stock and have exercise prices determined in accordance with the formula described in the paragraph above, and otherwise will have equivalent terms and conditions as the LogicVision options for which they were substituted.

Each outstanding option to purchase LogicVision common stock that is held by a person who is not an employee or consultant of LogicVision immediately prior to the effective time of the merger will be cancelled and the vested portion will automatically be converted into the right to receive cash (if any) equal to (a) the number of shares of LogicVision common stock then issuable upon the exercise of such option multiplied by (b) the exchange ratio multiplied by the closing sale price of Mentor Graphics common stock on The NASDAQ Stock Market on the trading day immediately preceding the effective time of the merger as reported in the Wall Street Journal, National Edition, less any per share exercise price of such option. In addition, each outstanding option to purchase LogicVision common stock that is held by a non-employee member of LogicVision’s board of directors will be converted into the right to receive cash as described in the preceding sentence to the extent that such option has been outstanding for not less than six months or is otherwise vested pursuant to its terms.

Treatment of LogicVision Employee Stock Purchase Plan in the Merger

As of the last day of the payroll period ending immediately before the effective time of the merger (in any event at least five business days prior to the effective time of the merger), LogicVision will terminate the LogicVision Amended and Restated 2000 Employee Stock Purchase Plan, and terminate any offering period then in progress under the plan. Any outstanding purchase right under the plan will be exercised on such date for the purchase of LogicVision common stock according to the terms of the plan.

Treatment of LogicVision Warrants in the Merger

Immediately prior to the effective time of the merger, outstanding warrants to purchase LogicVision common stock will automatically terminate in accordance with their terms and will be converted into the right to receive a number of shares of Mentor Graphics common stock, if any, based on the exchange ratio.

Exchange of Certificates

Prior to the effective time, Mentor Graphics will appoint an exchange agent for purposes of exchanging shares of LogicVision common stock for shares of Mentor Graphics common stock. Promptly after the effective time of the merger, Mentor Graphics will cause the exchange agent to send to each stockholder of LogicVision at the effective time of the merger a letter of transmittal and instructions for use in such exchange. Those holders of LogicVision common stock who properly surrender their LogicVision certificates in accordance with the exchange agent’s instructions (or in the case of book-entry shares, followed the applicable procedures set forth in the letter of transmittal) will receive (a) shares of Mentor Graphics common stock which, at Mentor Graphics’ option, will be in uncertificated book-entry form, unless a physical certificate is requested by the holder of shares of LogicVision common stock or is otherwise required by applicable law, (b) cash in lieu of fractional shares of Mentor Graphics common stock (as described in the following paragraph), and (c) any dividends or distributions, if any, to which they may be entitled under the terms of the merger agreement. The surrendered certificates or book-entry shares representing LogicVision common stock will be canceled. After the effective time of the merger, each certificate or book-entry representing shares of LogicVision common stock that has not been surrendered will represent only the right to receive each of the items enumerated above.

No certificates or book-entry shares representing fractional shares of Mentor Graphics common stock will be issued in the merger. Instead, each holder of LogicVision common stock who would otherwise be entitled to receive a fraction of a share of Mentor Graphics common stock (after aggregating all fractional shares of Mentor Graphics common stock that otherwise would be received by that holder) will receive from the exchange agent an amount of cash (rounded up to the nearest whole cent), without interest, equal to the product of the relevant fraction multiplied by the closing price per share of Mentor Graphics common stock on The NASDAQ Stock Market on the trading day immediately preceding the effective time of the merger as reported in the Wall Street Journal, National Edition.

Transfers of Ownership, Stock Transfer Books

The exchange agent will only issue shares of Mentor Graphics common stock, cash for fractional shares and any dividends or distributions that may be applicable in the name of a person other than the name in which a surrendered LogicVision stock certificate or book-entry shares is registered, if the shares have been properly transferred and the person requesting that exchange pays to the exchange agent any applicable transfer or other taxes, or establishes to the satisfaction of the exchange agent that such taxes have been paid or are not payable.

Following completion of the merger, LogicVision will not register any transfers of LogicVision common stock. If certificates are presented to the surviving corporation or transfer is sought for book-entry shares, such certificates or book-entry shares will be cancelled and exchanged as set forth in this section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Exchange of Certificates.”

Return of Merger Consideration

Any shares of Mentor Graphics common stock and cash for fractional shares deposited with the exchange agent (and any interest or other income earned) that remains undistributed to the holders of certificates or book-entry shares six months after the effective time of the merger will be delivered to Mentor Graphics upon demand, and any LogicVision stockholders who have not complied with the exchange procedure will thereafter look only to Mentor Graphics for payment of the merger consideration.

Lost Certificates

If a LogicVision stock certificate is lost, stolen or destroyed, the holder of that certificate will need to deliver an affidavit of that fact prior to receiving any Mentor Graphics common stock. In addition, Mentor Graphics or the exchange agent may require the owner of the lost, stolen or destroyed certificate to deliver a bond in an amount as they may determine is reasonably necessary as indemnity against any claim that may be made against Mentor Graphics, the exchange agent or the surviving corporation of the merger with respect such lost, stolen or destroyed certificates.

Dividends on Mentor Graphics Common Stock

Holders of LogicVision common stock are not entitled to receive any dividends or other distributions paid or payable with respect to shares of Mentor Graphics Common Stock with a record date after the effective time of the merger until they surrender their LogicVision stock certificates to the exchange agent in accordance with the exchange agent’s instructions.

Withholding

Mentor Graphics, Fulcrum Acquisition Corporation, the surviving corporation and the exchange agent will be entitled to deduct and withhold from the consideration otherwise payable to any holder of shares of LogicVision common stock, stock options or otherwise pursuant to the merger agreement such amounts as required to be deducted and withheld under the Internal Revenue Code or any state, local or foreign tax law.

The Surviving Corporation

The Certificate of Incorporation of LogicVision will be amended and restated as of the effective time of the merger, and, as so amended, will be the Certificate of Incorporation of the surviving corporation, as set forth on Exhibit B to the merger agreement, a copy of which has been attached as Annex A to this proxy statement/prospectus. The bylaws of LogicVision will be amended and restated as of the effective time of the merger to be identical to the bylaws of Fulcrum Acquisition Corporation as in effect immediately prior to the effective time of the merger.

From and after the effective time of the merger, until successors are duly elected or appointed, the directors and officers of Fulcrum Acquisition Corporation at the effective time of the merger will be the directors and officers of the surviving corporation.

Representations and Warranties

The merger agreement contains representations and warranties made by LogicVision to Mentor Graphics and representations and warranties made by Mentor Graphics and Fulcrum Acquisition Corporation to LogicVision, each as of specific dates. The assertions embodied in those representations and warranties were made for purposes of the merger agreement and the closing conditions under the merger agreement, and have been used for purposes of allocating risk between the respective parties, rather than establishing matters of fact. Although the representations and warranties in the merger agreement may not constitute the actual state of facts about the parties to the merger agreement as of a specific date, any specific material facts that qualify the representations and warranties in the merger agreement have been disclosed in this proxy statement/prospectus or in the information incorporated by reference herein, as applicable. You should read the merger agreement together with the other information regarding Mentor Graphics and LogicVision included in this proxy statement/prospectus and the information that each company publicly files in reports and statements with the SEC. None of the representations and warranties of the parties to the merger agreement will survive the effective time of the merger.

In the merger agreement, LogicVision made representations and warranties relating to, among other things, the following matters:

corporate existence and power, and authority to enter into the merger agreement and consummate the transactions contemplated by the merger agreement, and enforceability of the merger agreement;
approval of the board of directors of LogicVision;
the absence of required governmental consents, approvals or authorizations other than those specified in the merger agreement;
the absence of conflict between the merger agreement, on the one hand, and organizational documents, applicable laws and agreements;
capital structure and indebtedness of LogicVision;
corporate existence of subsidiaries and LogicVision’s ownership of equity interests in its subsidiaries;
the filing of, and accuracy of information contained in, SEC filings, including financial statements;
compliance with certain provisions contained in the Sarbanes-Oxley Act, including matters related to internal controls of LogicVision;
compliance with the applicable listing and corporate governance rules and regulations of The NASDAQ Stock Market;
absence of undisclosed liabilities;
transactions with affiliates;
accuracy of information supplied by LogicVision in this proxy statement/prospectus;
the absence of certain changes since December 31, 2007;
compliance with applicable laws and possession of and compliance with necessary permits;
litigation matters and the absence of undisclosed pending or threatened litigation;
material contracts and the absence of breaches of material contracts;
the filing of tax returns and other tax-related matters;
employee benefit plans and other employment and labor related matters;
intellectual property matters;
compliance with environmental laws and regulations and other environmental matters;
insurance policies;
title to, and sufficiency of, assets;
engagement and payment of fees to brokers, finders, financial advisors and investment bankers;
receipt of the fairness opinion from the financial advisor; and
the inapplicability of state takeover statutes and LogicVision’s Rights Agreement.

The representations and warranties of Mentor Graphics and Fulcrum Acquisition Corporation relate to, among other things, the following matters:

corporate existence and power, and authority to enter into the merger agreement and consummate the transactions contemplated by the merger agreement, and enforceability of the merger agreement;
the absence of required governmental consents, approvals or authorizations other than those specified in the merger agreement;
the absence of conflict between the merger agreement, on the one hand, and organizational documents, applicable laws and agreements;
capital structure of Mentor Graphics;
the filing of, and accuracy of information contained in, SEC filings, including financial statements;
accuracy of information supplied by Mentor Graphics in this proxy statement/prospectus;
the absence of a material adverse effect (defined in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Representations and Warranties” below) since January 31, 2008;
compliance with applicable laws;
the absence of certain litigation;
the absence of brokers or finders in connection with the transactions contemplated by the merger agreement;
Fulcrum Acquisition Corporation’s formation for sole purpose of facilitation of the merger; and
the absence of actions or facts that would prevent the merger from qualifying as a “reorganization” under Section 368(a) of the Internal Revenue Code.

Many of LogicVision’s representations and warranties are qualified by a material adverse effect standard. For purposes of the merger agreement, “material adverse effect” for LogicVision is defined to mean any event, change or occurrence which, individually or together with any one or more other events, changes or occurrences, (a) has had, or is reasonably likely to have, a material adverse effect upon the business, assets, liabilities, condition (financial or otherwise) or operating results of LogicVision and its subsidiaries taken as a whole; provided, that in no event will any of the following events, changes, or occurrences constitute a material adverse effect or be considered in determining whether a material adverse effect has occurred or is likely or expected to occur: (i) changes in economic, business or political conditions generally in any location where LogicVision or any of its subsidiaries has material operations, except to the extent that such changes have a materially disproportionate effect (relative to other industry participants) on LogicVision and its subsidiaries, taken as a whole, (ii) changes in conditions generally affecting the industry in which LogicVision and its subsidiaries operate, except to the extent that such changes have a materially disproportionate effect (relative to other industry participants) on LogicVision and its subsidiaries, taken as a whole, (iii) any change in the trading price or trading volume of LogicVision common stock in and of itself (as distinguished from any change, event or occurrence giving rise or contributing to such change), (iv) changes in U.S. generally accepted accounting principles or applicable laws, (v) changes resulting from the compliance by LogicVision with its obligations under the merger agreement or (vi) any changes to LogicVision’s employee relationships or customer relationships resulting from the announcement or pendency of the merger, or (b) materially impairs the ability of LogicVision to consummate the merger, or prevents or materially delays the merger.

For purposes of the merger agreement, “material adverse effect” for Mentor Graphics is defined to mean any event, change or occurrence which, individually or together with any one or more other events, changes or occurrences, (a) has had, or is reasonably likely to have, a material adverse effect upon the business, assets, liabilities, condition (financial or otherwise) or operating results of Mentor Graphics and its subsidiaries taken as a whole; provided, that in no event will any of the following events, changes, or occurrences constitute a material adverse effect or be considered in determining whether a material adverse effect has occurred or is likely or expected to occur: (i) changes in economic, business or political conditions generally in any location where Mentor Graphics or any subsidiary has material operations, except to the extent that such changes have a materially disproportionate effect (relative to other industry participants) on Mentor Graphics and its subsidiaries, taken as a whole, (ii) changes in conditions generally affecting the industry in which Mentor Graphics and its subsidiaries operate, except to the extent that such changes have a materially disproportionate effect (relative to other industry participants) on Mentor Graphics and its subsidiaries, taken as a whole, (iii) any change in the trading price or trading volume of Mentor Graphics common stock in and of itself (as distinguished from any change, event or occurrence giving rise or contributing to such change), (iv) changes in U.S. generally accepted accounting principles or applicable laws, (v) changes resulting from the compliance by Mentor Graphics with its obligations under the merger agreement or (vi) any changes resulting from the announcement or pendency of the merger, or (b) materially impairs the ability of Mentor Graphics to consummate the merger, or prevents or materially delays the merger.

Conduct of Business Pending the Merger

Prior to the effective time of the merger, LogicVision agreed that it will and will cause its subsidiaries to conduct its business in the ordinary course consistent with past practice and use its commercially reasonable efforts to:

preserve intact its current business organization;
maintain in effect all necessary permits;
keep available the services of its present directors, officers and employees; and
maintain satisfactory relationships with customers, suppliers and others with which it has material business relationships.

Prior to the effective time of the merger, except as expressly contemplated by the merger agreement or consented to in writing by Mentor Graphics (which consent may not be unreasonably withheld, conditioned or delayed), LogicVision has additionally agreed that it will not and will not permit its subsidiaries to:

amend its certificate of incorporation, bylaws or other similar organizational documents;
split, combine or reclassify any capital stock, or declare, set aside or pay any dividend or other distribution (whether in cash, stock or property) in respect of any capital stock, or redeem, repurchase or otherwise acquire any capital stock;
issue, deliver or sell, or authorize the issuance, delivery or sale of, any capital stock, other than in connection with the Amended and Restated 2000 Employee Stock Purchase Plan in the ordinary course and upon the vesting and/or exercise of options that are outstanding on the date of the merger agreement or that are issued after the date of the merger agreement in compliance with the terms of the merger agreement, in each case in accordance with their respective terms;
amend any term of any capital stock including any discretionary acceleration of vesting of any LogicVision option;
acquire or make any loans, advances or capital contributions to, or investments in, any equity securities, assets, loans or debt securities of any corporation, partnership, limited liability company or other entity or organization;
sell, lease or otherwise dispose of, or create or incur any lien on, any business organization or any assets or securities, other than sales or dispositions of inventory and other assets in the ordinary course of business consistent with past practice or pursuant to existing contracts;

abandon, fail to maintain or allow to expire, or sell or exclusively license to any person, entity or organization any intellectual property;
authorize any new capital expenditures, in the aggregate, in excess of $50,000;
use any of the proceeds from loans drawn under the Third Amended and Restated Loan and Security Agreement with Comerica Bank other than in the ordinary course of business consistent with past practice;
adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;
create, incur, assume, suffer to exist or otherwise be liable with respect to any indebtedness, or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for, the indebtedness of any other person, entity or organization;
renew or enter into any contract or other arrangement that limits or otherwise restricts in any material respect LogicVision, its subsidiaries or their respective affiliates, or that could, after the effective time of the merger, limit or restrict in any material respect the surviving corporation, any of its subsidiaries, Mentor Graphics or any of their respective affiliates, from engaging or competing in any line of business, in any location or with any person, entity or organization;
enter into any new line of business outside of its existing business segments;
amend or modify in any material respect or terminate any material contract;
other than sales of products and nonexclusive licenses granted to customers in the ordinary course of business and consistent with past practice, enter into any material contract or otherwise waive, release or assign any material rights, claims or benefits;
enter into any exclusive license, distribution, marketing or sales contracts;
sell, transfer or otherwise dispose of any intellectual property other than sales of products and other non-exclusive licenses that are in the ordinary course of business and consistent with past practices;
grant “most favored nation” or similar pricing to any person, entity or organization;
pay, discharge, settle or satisfy any material claims, liabilities or obligations, other than (a) performance of contractual obligations in accordance with their terms, (b) payment, discharge, settlement or satisfaction in the ordinary course of business consistent with past practice, or (c) payment, discharge, settlement or satisfaction in accordance with their terms of claims, liabilities or obligations that have been disclosed in the most recent financial statements filed with the SEC or incurred in the ordinary course of business since most recent financial statements filed with the SEC, consistent with past practice or in connection with the transactions contemplated by the merger agreement;
settle, or offer or propose to settle, (a) any material litigation, investigation, arbitration, proceeding or other claim, (b) any stockholder litigation or dispute against LogicVision or any of its officers or directors or (c) any litigation, arbitration, proceeding or dispute that relates to the transactions contemplated by the merger agreement;
commence any material litigation, investigation, arbitration or proceeding against any person, entity or organization;

permit any intellectual property rights to be disclosed (other than under appropriate non-disclosure agreements) or abandoned, or otherwise permit such intellectual property rights to become unavailable to LogicVision and its subsidiaries on the same terms and conditions as such rights were available to them as of the date of the merger agreement;
fail to keep in force insurance policies or replacement or revised provisions regarding insurance coverage with respect to its assets, products, operations and activities substantially equal to those in effect as of the date of the merger agreement;
(a) grant or increase any severance or termination pay to (or amend any existing arrangement with) any director or officer, (b) increase benefits payable under any existing severance or termination pay policies or employment agreements, (c) enter into any employment, deferred compensation or other similar agreement (or amend any such existing agreement) with any director, officer or employee, (d) terminate, establish, adopt or amend (except as reasonably necessary to comply with applicable law) any benefit plan covering any director, officer or employee, or (e) increase compensation, bonus or other benefits payable to any director, officer or employee, or pay any benefit not provided for by any existing benefit plan;
change methods of accounting, except as required by concurrent changes in U.S. generally accepted accounting principles;
make or change or rescind any material tax election, change any annual tax accounting period, adopt or change any material accounting method for taxes, file any material amended tax return, enter into any closing agreement related to a material amount of taxes, settle any material tax claim or assessment, surrender any right to claim a refund of a material amount of taxes or consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment;
accelerate any payment in excess of $50,000 which is due from a customer or accelerate a renewal of a customer agreement;
incur, pay, settle or permit the incurrence of any fees payable for legal, financial advisor, investment banker or similar services in connection with the merger agreement exceeding a specified amount; or
agree, resolve or commit to do any of the items in the foregoing bullet points.

LogicVision’s Non-Solicitation Covenant

Under LogicVision’s non-solicitation covenant, LogicVision will not and will cause its subsidiaries and their respective officers, directors, employees, investment bankers, attorneys, accountants, consultants or other agents and advisors (such persons are referred to in this proxy statement/prospectus as “representatives”) not to, directly or indirectly:

solicit, initiate or take any other action to facilitate or encourage any inquiries or indication of interest regarding, or the making or submission of a proposal or offer that constitutes, or could reasonably be expected to result in, an acquisition proposal (defined in this section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—LogicVision’s Non-Solicitation Covenant” below);
enter into or participate in any discussions or negotiations regarding any acquisition proposal or any inquiry or indication of interest with respect to any such proposal, or furnish or disclose any information relating to LogicVision or any of its subsidiaries, or afford access to its business, properties, assets, books or records to, or cooperate in any way with, or take any action to facilitate or encourage any effort by, any third party that is seeking to make, or has made, any acquisition proposal or any inquiry or indication of interest with respect to such proposal;
withhold, amend, withdraw or modify in a manner adverse to Mentor Graphics, LogicVision’s board of directors’ recommendation that the LogicVision stockholders vote in favor of adoption of the merger agreement and approval of the merger (or recommend any acquisition proposal, or any inquiry or indication of interest with respect to such proposal, or take any action or make any statement inconsistent with the recommendation in favor of the merger agreement) (any of the foregoing in this bullet point is referred to in this proxy statement/prospectus as an “adverse recommendation change”); or
enter into any agreement, agreement in principle, letter of intent, term sheet or other similar instrument relating to any acquisition proposal.

However, at any time prior to obtaining LogicVision’s stockholders’ approval of the merger agreement, in response to a bona fide acquisition proposal that:

was not solicited in violation of the paragraph above or, if prior to the date of the merger agreement, was not solicited in violation of the confidentiality agreement between Mentor Graphics and LogicVision; and
LogicVision’s board of directors determines in good faith (after consultation with its outside legal counsel and financial advisors) (a) that such acquisition proposal constitutes, or could reasonably be expected to lead to, a superior proposal (defined in this section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement— LogicVision’s Non-Solicitation Covenant” below), and (b) that taking the actions set forth in this paragraph with respect to such acquisition proposal is necessary in order to comply with its fiduciary duties under applicable law;

the merger agreement permits LogicVision to (subject to compliance with the additional agreements and covenants with respect to acquisition proposals described below):

provide access to its properties, contracts, personnel, books and records and furnish information, data and/or draft agreements with respect to LogicVision to the party making such acquisition proposal and its representatives;
participate in discussions or negotiations with the party making such acquisition proposal and its representatives regarding such acquisition proposal; or
in the event that the board of directors of LogicVision determines in good faith (after consultation with its outside legal counsel and financial advisors) that such acquisition proposal constitutes a superior proposal, make an adverse recommendation change and/or enter into an agreement regarding such superior proposal; provided, however, that the board of directors of LogicVision will not make an adverse recommendation change or enter into any agreement regarding such superior proposal unless:

LogicVision has given Mentor Graphics five business days prior written notice of its intention to take such action, and any change to the consideration offered or other material terms of any superior proposal will require an additional notice to Mentor Graphics and a new five business day notice period;
the board of directors of LogicVision will have considered in good faith (after consultation with its outside legal counsel and financial advisors) any changes or revisions to the merger agreement proposed by Mentor Graphics and will not have determined that the superior proposal would no longer constitute a superior proposal if such changes were to be given effect;
LogicVision has complied in all material respects with its non-solicitation obligations summarized in this section entitled, “The Merger Agreement and the Support Agreements —The Merger Agreement—LogicVision’s Non- Solicitation Covenant”; and
LogicVision will have terminated this merger agreement and paid to Mentor Graphics any termination fees as described in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement— Termination Fee.”

Subject to the preceding paragraph, prior to the time of the LogicVision stockholder’s meeting and within 48 hours following any Mentor Graphics request, the board of directors of LogicVision will publicly reaffirm its recommendation that the LogicVision stockholders vote in favor of adoption of the merger agreement and approval of the merger.

LogicVision agreed to promptly (and in any event within one business day) advise Mentor Graphics orally and in writing of the receipt by LogicVision or any of its representatives of:

any indication that a third party is considering making an acquisition proposal;
any request for information by any third party that may be considering making an acquisition proposal or any inquiry or indication of interest with respect to such proposal; or
any acquisition proposal;

in each case, along with the identity of the party making any such acquisition proposal, and, to the extent available, LogicVision will provide Mentor Graphics with a copy or a written summary of the material terms of any such acquisition proposal. LogicVision will keep Mentor Graphics reasonably informed of the status on a current basis (including any change to the material terms) of any such acquisition proposal, potential acquisition proposal or information request. Following a determination by the board of directors of LogicVision that an acquisition proposal constitutes a superior proposal, LogicVision will deliver to Mentor Graphics a written notice advising it of such determination together with a summary of the material terms and a copy of any draft or definitive agreements related to such superior proposal. LogicVision agreed that it will not, and will cause its subsidiaries not to, enter into any confidentiality agreement or other agreement with any party subsequent to the date of merger agreement which prohibits LogicVision from providing such information to Mentor Graphics.

Prior to furnishing any information to or entering into discussions or negotiations with any party making an acquisition proposal, LogicVision agreed it will receive from such party an executed confidentiality agreement, the terms of which will be no less favorable to LogicVision than, in the aggregate, those contained in the confidentiality agreement between LogicVision and Mentor Graphics. LogicVision will promptly provide to Mentor Graphics any non-public information not previously provided to Mentor Graphics that is provided to any party making an acquisition proposal. LogicVision further agreed that neither it nor any of its subsidiaries will terminate, waive, amend or modify any provision or any existing standstill or confidentiality agreement, unless such action by the board of directors of LogicVision is necessary in order to comply with its fiduciary duties under applicable law (in which case, such termination, waiver, amendment or modification will also apply to the confidentiality agreement with Mentor Graphics, to the extent applicable).

Other than in connection with an acquisition proposal, which is subject to the restrictions described above in this section entitled “The Merger Agreement and the Support Agreements—The Merger Agreement—LogicVision’s Non-Solicitation Covenant,” at any time prior to obtaining LogicVision’s stockholders’ approval of the merger, if the board of directors of LogicVision determines in good faith (after consultation with its outside legal counsel and financial advisors) that an adverse recommendation change is necessary in order to comply with its fiduciary duties under applicable law, the board of directors of LogicVision may effect an adverse recommendation change, provided that (a) LogicVision has given Mentor Graphics five business days prior written notice of its intention to take such action, and (b) the board of directors of LogicVision will have considered in good faith (after consultation with its outside legal counsel and financial advisors) any changes or revisions to the merger agreement proposed by Mentor Graphics and will not have determined that the adverse recommendation change is no longer necessary in order to comply with its fiduciary duties under applicable law.

LogicVision agreed, as of the date of the merger agreement, to immediately cease and cause to be terminated, and to cause its subsidiaries and representatives to immediately cease and cause to be terminated, any discussions or negotiations with any third parties that might be ongoing with respect to any actual or potential acquisition proposal or any inquiry or indication of interest with respect to such proposal, and will use its commercially reasonable efforts to obtain the return or destruction of any confidential information previously provided to any such parties.

The merger agreement further provides that the board of directors of LogicVision is not prohibited or restricted from taking and/or disclosing to the stockholders of LogicVision a position contemplated by Rules 14d-9 or 14e-2 promulgated under the Exchange Act, or from making any disclosure to the stockholders if, in the good faith judgment of the board of directors of LogicVision, such disclosure would be necessary under applicable law, including Rules 14d-9 and 14e-2 promulgated under the Exchange Act.

As used in the merger agreement and other than in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Termination Fee” below, the term “acquisition proposal” means, other than the transactions contemplated by the merger agreement, any offer or proposal relating to, whether in a single transaction or series of related transactions:

any acquisition or purchase, direct or indirect, of 20% or more of the consolidated net revenues or assets (based on fair market value) of LogicVision or over 20% of any class of equity or voting securities of LogicVision or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 20% of the consolidated net revenues or assets (based on fair market value) of LogicVision (each such subsidiary is referred to in this proxy statement/prospectus as a “material subsidiary”);
any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in a third party beneficially owning 20% or more of any class of equity or voting securities of LogicVision or any of its material subsidiaries; or
a merger, consolidation, share exchange, business combination, sale of substantially all the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving LogicVision or any of its material subsidiaries.

As used in the merger agreement, the term “superior proposal” means any bona fide, written acquisition proposal (substituting “50%” for each reference to “20%” in the definition of “acquisition proposal”) received after the date of the merger agreement that was not solicited, prior to the date of the merger agreement, in violation of the confidentiality agreement between Mentor Graphics and LogicVision, and after the date of the merger agreement, in violation of the covenants summarized in this section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—LogicVision’s Non-Solicitation Covenant.” The acquisition proposal must be one which the board of directors of LogicVision determines in good faith (after consultation with its outside legal counsel and financial advisors) (a) is reasonably capable to be consummated and (b) if consummated, would result in a transaction more favorable to LogicVision’s stockholders than the transactions provided for in the merger agreement (including the terms and conditions of the merger agreement and any adjustment to such terms and conditions proposed by Mentor Graphics in response to such acquisition proposal), in each case taking into account such matters that the LogicVision board of directors deems relevant, including all of the terms and conditions of such acquisition proposal, the party making such acquisition proposal and the legal, financial, regulatory and other aspects of such acquisition proposal, including any conditions relating to financing, regulatory approvals or other relevant events or circumstances.

Additional Covenants and Agreements

Proxy Statement and Registration Statement

LogicVision agreed to file this proxy statement with the SEC as promptly as reasonably practicable after the date of the merger agreement. Mentor Graphics agreed to file with the SEC this registration statement in connection with the issuance of shares of Mentor Graphics common stock in connection with the merger, in which the proxy statement is included as a prospectus. Mentor Graphics and LogicVision will use their respective commercially reasonable efforts to respond promptly to any SEC comments with respect to this proxy statement/prospectus, and to have this proxy statement/prospectus become effective under the Securities Act as promptly as practicable after filing. If at any time prior to the effective time of the merger Mentor Graphics or LogicVision discovers any information that should be set forth in an amendment or supplement to this proxy statement/prospectus, it will promptly notify the other party and an appropriate amendment or supplement will be filed with the SEC and distributed to LogicVision stockholders, to the extent required by applicable law. Mentor Graphics and LogicVision will notify the other promptly of the time this proxy statement/prospectus has become effective, of the issuance of any stop order or suspension of qualification of Mentor Graphics common stock issuable in connection with the merger, of receipt of any SEC comments or requests, and will promptly supply each other with copies of all formal correspondences with the SEC.

LogicVision Stockholder Meeting

Unless the merger agreement has been terminated, LogicVision agreed to establish a record date for, duly call, give notice of, convene and hold a meeting of its stockholders to consider and vote upon the adoption of the merger agreement and the approval of the merger as promptly as reasonably practicable following the effectiveness of the registration statement, use its commercially reasonable efforts to obtain the approval of LogicVision stockholders for the merger, and comply with all legal requirements applicable to the stockholder meeting. Unless the merger agreement has been terminated as set forth in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Termination” below, LogicVision’s obligation with respect to holding the stockholder meeting will not be affected by the public announcement or public disclosure of, or the communication to LogicVision of, any acquisition proposal or inquiry or indication of interest with respect to such proposal, or by an adverse recommendation change.

Access to Information

Subject to the confidentiality agreement between the parties, until the effective time of the merger or the earlier termination of the merger agreement, LogicVision will, and will cause its subsidiaries and each of its and their representatives to:

provide to Mentor Graphics and its representatives reasonable access at reasonable times and upon reasonable prior notice, to the officers, employees, agents, contracts, properties, assets, offices and other facilities of LogicVision and its subsidiaries and to their books and records;
furnish, or cause to be furnished such reasonably available information concerning the business, properties, contracts, assets, liabilities, personnel and other aspects of or information concerning LogicVision and its subsidiaries as Mentor Graphics and its representatives may reasonably request; and
to the extent not in contravention of any applicable law, furnish, or cause to be furnished to Mentor Graphics with respect to each fiscal month ending after the date of the merger agreement, unaudited monthly consolidated balance sheets of LogicVision for each fiscal month then ended and related consolidated statements of earnings and cash flows (which LogicVision will furnish to Mentor Graphics at substantially the same time such information is furnished on a monthly basis to its board of directors or any committee of the board of directors in the ordinary course of business consistent with past practice).

The confidentiality agreement between Mentor Graphics and LogicVision will continue in full force and effect in accordance with its terms until the earlier of the effective time of the merger or its expiration according to its terms, and will survive any termination of the merger agreement.

Commercially Reasonable Efforts; Further Actions and Assurances

Mentor Graphics and LogicVision agreed to use their respective commercially reasonable efforts to effectuate the merger and the other transactions contemplated by the merger agreement and to fulfill and cause to be fulfilled the conditions to closing under the merger agreement, including:

the obtaining of all necessary actions or nonactions, waivers, consents and approvals from, and the making of all necessary registration and filings with, any governmental authority, and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental authority;
the obtaining of all necessary consents, approvals or waivers from third parties, provided that Mentor Graphics must give its prior consent to any payment of fees or expenses to any third party or amendments to any existing third party agreement in connection with such consents, approvals or waivers;
the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the transactions contemplated by the merger agreement, including seeking to have any stay or temporary restraining order entered by any court or other governmental authority vacated or reversed; and
at the reasonable request of the other party, the execution and delivery of such other instruments and doing and performing such other acts and things as may be necessary or desirable for effecting the consummation of the transactions contemplated by the merger agreement.

However, neither Mentor Graphics nor LogicVision will be required to hold separate (including by trust or otherwise) or divest any of their respective businesses or assets, or enter into any consent decree or other agreement that would restrict either party in the conduct of its business as conducted prior to the date of the merger agreement.

Additionally, LogicVision will provide notice of the merger to all holders of LogicVision warrants, and use its use commercially reasonable efforts to obtain the waiver of each former LogicVision director and officer regarding any obligation of LogicVision to maintain any standby letter of credit or other third party guarantee in connection with indemnification obligations described in any applicable indemnification agreement or arrangement between LogicVision and such director and/or officer.

Notice of Certain Events

Until the earlier of the effective time of the merger or the termination of the merger agreement, LogicVision and Mentor Graphics will give prompt written notice to the other party of:

any material notice or other material communication from any governmental authority in connection with the merger agreement, the merger or the other transactions contemplated by the merger agreement, or from any person, entity or organization alleging that the consent of such party is or may be required in connection with the merger agreement, the merger or the other transactions contemplated by the merger agreement;
any material claims, actions, suits, proceedings or investigations commenced or, to such party’s knowledge, threatened against, relating to or involving or otherwise affecting such party or any of its subsidiaries which relate to the merger agreement, the merger or the other transactions contemplated by the merger agreement; and
any fact, event or circumstance known to such party that would cause or constitute, or would reasonably be expected to cause or constitute, a breach in any material respect of any such party’s representations, warranties, covenants or agreements contained in the merger agreement or would, or would reasonably be expected to, prevent, materially delay or impede, the consummation of the merger or any other transaction contemplated by the merger agreement.

Public Announcements

Mentor Graphics and LogicVision will only issue any press release or make any public announcement concerning the merger agreement, the merger or the other transactions contemplated by the merger agreement after obtaining the prior written consent of the other party, which consent will not to be unreasonably conditioned, delayed or withheld, unless, based upon advice of counsel, such party determines that a press release or public announcement is required by, or reasonably necessary in order to comply with, applicable law or the rules or regulations of The NASDAQ Stock Market (in which case the disclosing party will use its commercially reasonable efforts to provide the other party reasonable time to comment on such release or announcement).

Continuing Employees and Benefit Matters

For a period of 12 months following the effective time of the merger, subject to compliance with applicable law and the terms of Mentor Graphics’ applicable benefit plans, the employees of LogicVision who remain employed with the surviving corporation will receive employee benefits that, in the aggregate, are substantially similar to those received by similarly situated employees of Mentor Graphics, but neither Mentor Graphics nor the surviving corporation will have any obligation to issue, or adopt any plans or arrangements providing for the issuance of, any capital stock or other securities.

Subject to compliance with applicable law and the terms of Mentor Graphics’ applicable benefit plans, Mentor Graphics will recognize the service of each such continuing employee as if such service had been performed with Mentor Graphics (except to the extent such treatment would result in duplicative benefits):

for purposes of eligibility for vacation;
for purposes of eligibility and participation under any health or welfare plan (other than any post-employment health or post-employment welfare plan);
for purposes of eligibility for any matching contributions under a cash or deferred arrangement intended to qualify under Section 401(k) of the Internal Revenue Code; and
for the purpose of determining the amount of any severance payable under any severance plan of general application.

Mentor Graphics will recognize any vacation time of such continuing employees that has accrued as of the effective time of the merger, but, except as required by applicable law, beginning on the six month anniversary of the effective time of the merger, such continuing employees will be subject to the maximum vacation accruals applicable to Mentor Graphics employees generally, such that any amounts of accrued vacation time in excess of applicable maximums will be forfeited on and after such date.

With respect to any group health plan maintained by Mentor Graphics in which such continuing employees are eligible to participate after the effective time of the merger, and subject to compliance with applicable law and the terms of any such group health plan, Mentor Graphics will take commercially reasonable steps to waive limitations as to preexisting conditions and exclusions with respect to participation and coverage requirements applicable to such continuing employees to the extent such conditions and exclusions were satisfied or did not apply to such continuing employees under the applicable LogicVision group health plans.

Unless otherwise directed by Mentor Graphics at least five business days prior to the closing date of the merger, LogicVision will terminate its 401(k) plan as of a date no later than one day prior to the closing date. If LogicVision is required to terminate its 401 (k) plan, Mentor Graphics will cause a retirement plan maintained by it that is qualified under Section 401(a) of the Internal Revenue Code to accept direct and indirect rollover distributions of the continuing employees’ balances from LogicVision’s 401(k) plan.

Indemnification; Directors’ and Officers’ Insurance

Tax Treatment as Reorganization

Mentor Graphics, Fulcrum Acquisition Corporation and LogicVision agreed to use their best efforts to cause the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, and will report the merger as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code.

Takeover Statutes and Regulations

In the event any state takeover statute or similar law becomes applicable to the merger agreement, the merger and the transactions contemplated by the merger agreement, Mentor Graphics, Fulcrum Acquisition Corporation and LogicVision, and their respective board of directors, will take all commercially reasonable action necessary so that the transactions contemplated by the merger agreement may be consummated as promptly as practicable on the terms contemplated by the merger agreement, or otherwise act to eliminate or minimize the effect of such state takeover statute or similar law on the merger agreement or the transactions contemplated by the merger agreement.

Section 16 Matters

Prior to the effective time of the merger, LogicVision will take all steps as may reasonably be necessary to cause the transactions contemplated by the merger agreement, including any disposition of LogicVision common stock (including derivative securities) by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to LogicVision, to be exempt under Rule 16b-3 promulgated under the Exchange Act.

Resignation of Directors and Officers

Prior to the effective time of the merger, the directors and officers of LogicVision will resign, such resignation to be effective as of the effective time of the merger.

Stock Exchange Listing

Stockholder Litigation

LogicVision agreed to give Mentor Graphics and its counsel the opportunity to participate in the defense or settlement of any stockholder litigation against LogicVision and/or its directors relating to the transactions contemplated by the merger agreement, and agreed to obtain Mentor Graphics’ prior written consent prior to settlement of any such litigation, such consent not to be unreasonably withheld, conditioned or delayed.

Conditions to the Consummation of the Merger

The respective obligations of each party to the merger agreement to consummate the merger are subject to satisfaction, or waiver, at or prior to the closing of the merger of the following conditions:

the LogicVision stockholders must have voted in favor of adopting the merger agreement in accordance with the General Corporation Law of the State of Delaware;
no applicable law preventing or making illegal the consummation of the merger or any other transaction contemplated by the merger agreement is in effect; and
this proxy statement/prospectus has become effective under the Securities Act and no stop order suspending the effectiveness of this proxy statement/prospectus is in effect and no proceedings for such purpose are pending before or threatened by the SEC.

The obligations of Mentor Graphics and Fulcrum Acquisition Corporation to consummate the merger and the other transactions contemplated in the merger agreement are also subject to the satisfaction, or waiver, at or prior to the closing of the merger of the following conditions:

(a) the representations and warranties of LogicVision relating to corporate existence and power, corporate authorization, capitalization, and the absence of a broker or finder other than Needham & Company (without regard to materiality or material adverse effect qualifications) were true and correct in all material respects as of the date of the merger agreement and true and correct in all material respects as of the closing date (other than representations and warranties that refer to another date), (b) the representation and warranty of LogicVision that since December 31, 2007 there has not been any material adverse effect on LogicVision was true and correct in all respects as of the date of the merger agreement, and (c) all other representations and warranties of LogicVision (without regard to materiality or material adverse effect qualifications) were true and correct as of the date of the merger agreement and true and correct as of the closing date (other than representations and warranties that refer to another date), except for such failures which do not have a material adverse effect on LogicVision;

LogicVision has performed or complied in all material respects with all agreements and covenants required by the merger agreement to be performed or complied with by LogicVision at or prior to the closing;
no material adverse effect on LogicVision has occurred since the date of the merger agreement;
Mentor Graphics has received a certificate of an officer of LogicVision confirming the satisfaction of the previous three conditions;
if LogicVision common stock is not listed on The NASDAQ Stock Market immediately prior to the effective time of the merger, LogicVision has delivered to Mentor Graphics an affidavit that LogicVision is not, and has not been during the applicable period described in Internal Revenue Code Section 897(c)(1)(A)(ii), a “United States real property holding corporation,” and proof that LogicVision has provided notice of such statement to the Internal Revenue Service in accordance with the provisions of Treasury Regulation Section 1.897-2(h)(2);
LogicVision has entered into and not amended, rescinded or otherwise altered the Amended and Restated Change in Control Severance Agreements as described in the section entitled, “Proposal One—The Merger—Interests of Certain Persons in the Merger”; and
Mentor Graphics has received evidence reasonably satisfactory to it that the LogicVision Amended and Restated 2000 Employee Stock Purchase Plan has been terminated, and unless directed by Mentor Graphics to maintain in effect, LogicVision’s 401(k) plan has been terminated.

The obligations of LogicVision to consummate the merger and the other transactions contemplated by the merger agreement are also subject to the satisfaction, or waiver, at or prior to the closing of the merger of the following conditions:

(a) the representation and warranty of Mentor Graphics and Fulcrum Acquisition Corporation that since January 31, 2008 there has not been any material adverse effect on Mentor Graphics was true and correct in all respects as of the date of the merger agreement, and (b) all other representations and warranties of Mentor Graphics and Fulcrum Acquisition Corporation (without regard to materiality qualifications) were true and correct as of the date of the merger agreement and true and correct as of the closing date of the merger (other than representations and warranties that refer to another date), except for such failures which do not materially impair the ability of Mentor Graphics or Fulcrum Acquisition Corporation to consummate the merger, or prevent or materially delay the merger;
Mentor Graphics and Fulcrum Acquisition Corporation have performed or complied in all material respects with all agreements and covenants required by the merger agreement to be performed or complied with by them at or prior to the closing;
no material adverse effect on Mentor Graphics has occurred since the date of the merger agreement;
LogicVision has received a certificate of an officer of Mentor Graphics confirming the satisfaction of the previous three conditions; and
LogicVision has received the written opinion of Pillsbury Winthrop Shaw Pittman LLP, counsel to LogicVision, to the effect that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code; provided, however, that if Pillsbury fails to deliver such opinion, this condition is not waivable by LogicVision but nonetheless will be deemed satisfied if Latham & Watkins LLP, counsel to Mentor Graphics, delivers such an opinion.

No party to the merger agreement may rely on the failure of any condition to closing to be satisfied if such failure was caused by the failure of such party to comply with its obligations set forth in the merger agreement.

Termination

The merger agreement may be terminated and the merger abandoned at any time prior to the effective time of the merger by either Mentor Graphics or LogicVision:

upon mutual written agreement of Mentor Graphics and LogicVision;
if the merger is not consummated by August 31, 2009; provided, however, that this right to terminate the merger agreement will not be available to any party if any action of such party or the failure by such party to perform its obligations under the merger agreement has been the cause of, or resulted in, the failure of the merger and the other transactions contemplated by the merger agreement to be consummated on or before August 31, 2009;
if any applicable law prohibits or makes consummation of the merger illegal, or the merger is enjoined and such injunction is final or non-appealable; or
if approval of the adoption of the merger agreement and the merger by LogicVision’s stockholders is not obtained at the LogicVision stockholder meeting or any adjournment or postponement thereof at which adoption of the merger agreement is voted upon.

The merger agreement may be terminated and the merger abandoned at any time prior to the effective time of the merger by Mentor Graphics if:

LogicVision breaches any representation or warranty that amounts to a material adverse effect, or fails to perform in any material respect any agreement or covenant contained in the merger agreement, and each such breach or failure is incapable of being cured or has not been cured prior to the earlier of (a) August 31, 2009 and (b) 20 business days after LogicVision receives written notice of such breach from Mentor Graphics (provided, however, that Mentor Graphics has no right to terminate the merger agreement if Mentor Graphics or Fulcrum Acquisition Corporation is then in material breach of its agreements or covenants in the merger agreement);
an adverse recommendation change has occurred;
LogicVision has failed to include in its proxy statement its board of director’s recommendation for stockholders to vote in favor of adoption of the merger agreement and approval of the merger;
the board of directors of LogicVision approves, recommends or adopts, or publicly proposes to approve, recommend or adopt, an acquisition proposal or approves or recommends that LogicVision’s stockholders tender their LogicVision common stock in any tender offer or exchange offer that constitutes an acquisition proposal; or
LogicVision has materially breached any of its non-solicitation obligations described in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—LogicVision’s Non-Solicitation Covenant” above or its obligations relating to the stockholder meeting described in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Additional Covenants and Agreements—LogicVision Stockholder Meeting” above.

The merger agreement may be terminated and the merger abandoned at any time prior to the effective time of the merger by LogicVision if:

Mentor Graphics breaches any representation or warranty so that it materially impairs the ability of Mentor Graphics or Fulcrum Acquisition Corporation to consummate the merger or prevents or materially delays the merger, or fails to perform in any material respect any agreement or covenant contained in the merger agreement, and each such breach or failure is incapable of being cured or has not been cured prior to the earlier of (a) August 31, 2009 and (b) 20 business days after Mentor Graphics receives written notice of such breach from LogicVision (provided, however, that LogicVision has no right to terminate the merger agreement if LogicVision is then in material breach of its agreements or covenants in the merger agreement); or
prior to LogicVision’s stockholders’ approval of adoption of the merger agreement and the merger, (a) LogicVision’s board of directors has received a superior proposal and has determined in good faith (after consultation with outside legal counsel) that the acceptance of such superior proposal is necessary to comply with its fiduciary duties under applicable law, (b) LogicVision has complied in all materials respects with the non-solicitation obligations described in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—LogicVision’s Non-Solicitation Covenant” above, and (c) LogicVision has paid any termination fee to Mentor Graphics as described under the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Termination Fee” below.

Effect of Termination

If the merger agreement is terminated, it will become void and have no effect, and there will be no liability or obligation on the part of Mentor Graphics, Fulcrum Acquisition Corporation or LogicVision (and their respective affiliates and representatives), except that (a) Mentor Graphics, Fulcrum Acquisition Corporation and LogicVision will remain liable for their willful and material breach of any provision of the merger agreement, and (b) designated provisions of the merger agreement will survive termination, including, but not limited to, the payment of a termination fee in certain circumstances and confidential treatment of information. No party will be liable for punitive damages.

Termination Fee

LogicVision agreed to pay a termination fee equal to $538,193 plus reimbursement of Mentor Graphics’ reasonable expenses up to $403,645 if the merger agreement is terminated by LogicVision prior to LogicVision’s stockholders’ approval of the adoption of the merger agreement and the merger as a result of LogicVision’s board of directors receiving a superior proposal and determining in good faith (after consultation with outside legal counsel) that the acceptance of such superior proposal is necessary to comply with its fiduciary duties under applicable law, and LogicVision has complied in all materials respects with the non-solicitation provisions described in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—LogicVision’s Non-Solicitation Covenant” above.

LogicVision also agreed to pay a termination fee equal to $538,193 plus reimbursement of Mentor Graphics’ reasonable expenses up to $403,645 if the merger agreement is terminated by Mentor Graphics under the following circumstances:

an adverse recommendation change has occurred;
LogicVision has failed to include in its proxy statement its board of director’s recommendation for stockholders to vote in favor of approval of the adoption of the merger agreement and the merger;
the board of directors of LogicVision approves, recommends or adopts, or publicly proposes to approve, recommend or adopt, an acquisition proposal or approves or recommends that LogicVision’s stockholders tender their LogicVision common stock in any tender offer or exchange offer that constitutes an acquisition proposal; or

LogicVision has materially breached any of its non-solicitation obligations described in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—LogicVision’s Non-Solicitation Covenant” above or its obligations relating to the stockholder meeting described in the section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Additional Covenants and Agreements—LogicVision Stockholder Meeting” above.

LogicVision also agreed to pay a termination fee equal to $538,193 plus reimbursement of Mentor Graphics’ reasonable expenses up to $403,645 if the merger agreement is terminated:

by either Mentor Graphics or LogicVision if approval of the adoption of the merger agreement and the merger by LogicVision stockholders is not obtained at the LogicVision stockholder meeting or any adjournment or postponement thereof at which adoption of the merger agreement is voted upon; or
by Mentor Graphics if LogicVision breaches any representation or warranty that amounts to a material adverse effect, or fails to perform in any material respect any agreement or covenant contained in the merger agreement, and each such breach or failure is incapable of being cured or has not been cured prior to the earlier of (a) August 31, 2009 and (b) 20 business days after LogicVision receives written notice of such breach from Mentor Graphics (provided, however, that Mentor Graphics has no right to terminate the merger agreement if Mentor Graphics or Fulcrum Acquisition Corporation is then in material breach of its agreements or covenants in the merger agreement);

and (a) at any time after the date of the merger agreement and prior to such termination any third party has publicly made, proposed, communicated or disclosed an intention to make a bona fide acquisition proposal, which bona fide acquisition proposal was not retracted or rescinded prior to such termination, and (b) within 12 months of the termination of the merger agreement, LogicVision or any of its subsidiaries enters into a definitive agreement with respect to an acquisition proposal or any acquisition proposal is consummated. Termination payments made pursuant to this paragraph will be made upon the earlier to occur of the execution of a definitive agreement relating to, or consummation of, the acquisition proposal.

If LogicVision fails to make the termination payments when due, and, in order to obtain such payment Mentor Graphics commences a legal action which results in a judgment against LogicVision for all or any portion of the payments, LogicVision will pay to Mentor Graphics its reasonable out-of-pocket expenses (including reasonable attorneys’ fees) in connection with such action.

As used in this section entitled, “The Merger Agreement and the Support Agreements—The Merger Agreement—Termination Fee,” the term “acquisition proposal” means, other than the transactions contemplated by the merger agreement, any offer or proposal from any third-party relating to, whether in a single transaction or series of transactions:

any acquisition or purchase, direct or indirect, of 50% or more of the consolidated net revenues or assets (based on fair market value) of LogicVision or over 50% of any class of equity or voting securities of LogicVision or any of its material subsidiaries;
any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in a third party beneficially owning 50% or more of any class of equity or voting securities of LogicVision or any of its material subsidiaries; or
a merger, consolidation, share exchange, business combination, sale of substantially all of the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving LogicVision or any of its material subsidiaries.

Amendments and Waivers

The merger agreement may be amended prior to the effective time of the merger if such amendment is in writing and is signed by each party to the merger agreement. However, after adoption of the merger agreement by the LogicVision stockholders, no amendment that, by applicable law or in accordance with the rules of any relevant stock exchange, requires further approval by such stockholders may be made without such stockholder approval.

At any time prior to the effective time of the merger, Mentor Graphics, Fulcrum Acquisition Corporation or LogicVision may, to the extent permitted by applicable law: extend the time for the performance of any of the obligations or other acts of the other parties under the merger agreement; waive any inaccuracies in the representations and warranties of the other parties contained in the merger agreement or in any instrument delivered pursuant to the merger agreement; or waive compliance with any of the covenants or agreements of the other parties or conditions to the obligations of the waiving parties contained in the merger agreement. However, after adoption of the merger agreement by the LogicVision stockholders, no extension or waiver that, by applicable law or in accordance with the rules of any relevant stock exchange, requires further approval by such stockholders may be made without such stockholder approval.

The Support Agreements

This section of the proxy statement/prospectus describes the material terms and provisions of the support agreements entered into by Mentor Graphics with each of the current directors and certain executive officers of LogicVision, as well as Valley Ventures II, L.P. and Valley Ventures III, L.P. (which are funds affiliated with one of LogicVision’s directors and collectively beneficially own approximately 9.9% of LogicVision common stock). A copy of the form of support agreement is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference. Mentor Graphics and LogicVision encourage you to carefully read the complete form of support agreement for the precise legal terms of the support agreements and other information that may be important to you, because they are the legal documents that govern the voting obligations of certain LogicVision stockholders in connection with the merger. The support agreements and the discussion under the section entitled, “The Merger Agreement and the Support Agreements—The Support Agreements” have been included to provide you with information regarding the terms of the support agreements. They are not intended to provide any other factual information about Mentor Graphics and LogicVision. That information can be found elsewhere in this proxy statement/prospectus and in the other public filings made by Mentor Graphics, see “Where You Can Find Additional Information” beginning on page 139 of this proxy statement/prospectus.

As a condition to its entering into the merger agreement, Mentor Graphics required all of the current directors, certain executive officers of LogicVision, Valley Ventures II, L.P. and Valley Ventures III, L.P. (referred to collectively in this proxy statement/prospectus as the “support agreement stockholders”) to each enter into a support agreement with Mentor Graphics, in each case with respect to all of the shares of LogicVision common stock beneficially owned by such stockholders on the date thereof, along with all such shares purchased or beneficially acquired after the execution of the support agreements (referred to collectively in this proxy statement/prospectus as the “support agreement shares”). As of the record date, the outstanding support agreement shares represent approximately 10.8% of the votes eligible to be cast at the LogicVision Annual Meeting.

Under the support agreements, the support agreement stockholders have agreed to do the following:

vote or exercise their rights to consent with respect to all support agreement shares in favor of approving and adopting the merger agreement, the merger and the other transactions contemplated by the merger agreement at any meeting of the stockholders of LogicVision, and at any adjournment or postponement of such stockholder meeting; and

vote the support agreement shares against and not consent to the approval of any acquisition proposal, reorganization, recapitalization, liquidation or winding-up of LogicVision or any other extraordinary transaction involving LogicVision, or corporate action the consummation of which would frustrate the purposes, or prevent or delay the consummation of, the transactions contemplated by the merger agreement.

The support agreement stockholders have agreed not to, and will not permit any entity under such stockholder’s control or any of its or their officers, directors, employees, agents or other representatives to:

solicit proxies or become a “participant” in a “solicitation,” as such terms are defined in Regulation 14A under the Exchange Act in opposition to or competition with the consummation of the merger or otherwise encourage or assist any party in taking or planning any action which competes with, impedes, interferes with or attempts to discourage the consummation of the merger or inhibit the timely consummation of the merger;
directly or indirectly encourage, initiate or cooperate in a stockholders’ vote or action by consent of LogicVision’s stockholders in opposition to or in competition with the consummation of the merger;
become a member of a “group” (as such term is used in Rule 13d-5 under the Exchange Act) with respect to any voting securities of LogicVision for the purpose of opposing or competing with the consummation of the merger; or
unless required by applicable law, make any press release, public announcement or other non-confidential communication with respect to the business or affairs of Mentor Graphics or LogicVision without the prior written consent of Mentor Graphics.

The support agreement stockholders agreed that, without the prior written consent of Mentor Graphics, they will not grant any proxies or enter into any voting trusts or other agreements or arrangements with respect to the voting of any of the support agreement shares. Subject to certain exceptions described in the support agreements, the support agreement stockholders agreed not to sell, transfer or otherwise dispose of any support agreement shares.

The support agreements terminate upon the earlier to occur of the effective time of the merger or the termination of the merger agreement in accordance with its terms.

PROPOSAL TWO—ELECTION OF DIRECTORS

LogicVision’s bylaws provide that LogicVision shall not have less than five nor more than nine directors, with the exact number of directors to be determined by the LogicVision board of directors. There are currently six members on LogicVision’s board of directors. The LogicVision board of directors proposes the election of six directors of LogicVision. Each director elected will hold office until the earliest of (a) the closing of the merger, (b) the 2010 annual meeting of stockholders, or when his successor is duly elected and qualified, or (c) his removal or resignation. Upon completion of the merger, the individuals serving as LogicVision directors immediately prior to the completion of the merger will be replaced by designees of Mentor Graphics.

Biographical information concerning each of the nominees, as of June 15, 2009, is set forth below.

	Served as
	Director
Name	Since	Age	Principal Business Experience for the Past Five Years
Gregg E. Adkin	2004	45	Mr. Adkin was appointed Chairman of the board in March 2006. Mr. Adkin has been a General Partner at Valley Ventures, a venture capital fund, since May 2001. From 1986 to April 2001, Mr. Adkin was employed at Intel Corporation, most recently as Director of Strategic Investments. Mr. Adkin is on the board of directors of Innovasic Semiconductor Corp, Newport Imaging Corporation and Seclarity, Inc. Mr. Adkin holds a BS in Electrical Engineering from Boston University.

James T. Healy	2003	68	Mr. Healy has served as LogicVision’s President and Chief Executive Officer since December 2003. From July 2002 to November 2003, Mr. Healy was President of Spirox USA and Executive Vice President of Business Development and Strategic Marketing for Spirox Corporation, a provider of semiconductor manufacturing equipment and software. From April 2000 to June 2002, Mr. Healy was President of ASAT, Inc., a provider of semiconductor design, assembly and test services. From December 1999 to March 2000, Mr. Healy served as an independent consultant to software companies and from May 1998 to November 1999, Mr. Healy was Executive Vice President, Sales & Marketing at FormFactor, Inc., a manufacturer of advanced semiconductor wafer probe cards. He holds a BS in Business and an MS in Psychology from California State University, Hayward.

Randall A. Hughes	2004	70	Mr. Hughes has been the Chairman, President, Chief Executive Officer and founder of ManSim Inc., a manufacturing software company, since June 2002. Mr. Hughes was a consultant to Valchemy, Inc. from May 2001 to September 2006. From November 1999 to October 2001, Mr. Hughes was Vice President of Business Development at Genesis Semiconductor. Mr. Hughes holds a BA with majors in Mathematics and Physics from Northern Michigan University.

Richard Okumoto	2007	57	Mr. Okumoto has been the Chief Financial Officer for Advanced Micro-Fabrication Equipment, Inc., a manufacturer of capital equipment for the semiconductor industry, since May 2007. Mr. Okumoto served as a director for Vitex Systems Inc., from January 2005 to January 2006. From May 2003 until May 2005, he was the Chief Financial Officer and Secretary of Photon Dynamics, Inc., a manufacturer of capital equipment for the flat panel display industry. From December 2002 until May 2003, Mr. Okumoto was Vice President of Administration and Chief Financial Officer at Electro Scientific Industries, Inc., a manufacturer of semiconductor capital equipment. Mr. Okumoto currently serves as a member of the board of directors for the San Jose State University Research Foundation. Mr. Okumoto holds a BS in Business Administration from San Jose State University.

	Served as
	Director
Name	Since	Age	Principal Business Experience for the Past Five Years
Matthew Raggett	2004	48	Mr. Raggett has been the President and Chief Executive Officer of Adaus Ventures since February 2004. From October 2002 to February 2004, Mr. Raggett served as the President and Chief Executive Officer of Analog Design Automation, Inc. From August 1995 to October 2002, Mr. Raggett was the Vice President of Worldwide Field Operations for inSilicon Corporation. Mr. Raggett holds a higher technical certificate in Electronic Engineering (BSEE) from Brighton Technical College, England.

Richard C. Yonker	2003	61	Mr. Yonker has been the Senior Vice President of Finance and the Chief Financial Officer of Vitesse Semiconductor Corporation since December 2006. Mr. Yonker was the Chief Financial Officer of Capella Photonics, Inc., an optical network company, from October 2005 to November 2006. He previously was the Chief Financial Officer of Avanex Corporation, an optical components company, from April 2005 to September 2005. From March 2004 to March 2005, he was the Chief Financial Officer of Actelis Networks, Inc., a fiber performance over copper telecom company. From February 2003 to February 2004 he was a consultant. Mr. Yonker served as Chief Financial Officer of Agility Communications, Inc., an optical networking component company, from November 2000 to January 2003. From March 2000 to October 2000, Mr. Yonker was Vice President and Chief Financial Officer of MMC Networks, Inc., a semiconductor company acquired by Applied Micro Circuits Corporation in October 2000. Mr. Yonker holds an MS in Management (Finance) from MIT, and a BS in Industrial Engineering from General Motors Institute.

THE LOGICVISION BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ELECTION AS DIRECTOR ALL OF THE NOMINEES SET FORTH ABOVE.

PROPOSAL THREE—ADJOURNMENT OF THE ANNUAL MEETING

Adjournment of the Annual Meeting

Although it is not currently expected, the Annual Meeting may be adjourned to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and approve the merger. In that event, LogicVision may ask its stockholders to vote upon the proposals to elect directors to the LogicVision board of directors and consider the adjournment of the Annual Meeting to solicit additional proxies, but not the proposal to adopt the merger agreement and approve the merger.

In this proposal, LogicVision is asking you to authorize the holder of any proxy solicited by the LogicVision board of directors to vote in favor of granting discretionary authority to the proxies to adjourn the Annual Meeting for any purpose, including soliciting additional proxies. If LogicVision stockholders approve the adjournment proposal, LogicVision could adjourn the Annual Meeting and any adjourned session of the Annual Meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders that have previously returned properly executed proxies or authorized a proxy by telephone or via the Internet. Additionally, LogicVision may seek to adjourn the Annual Meeting if a quorum is not present at the Annual Meeting.

Vote Required and Recommendation of the LogicVision Board of Directors

Approval of the proposal to adjourn the Annual Meeting, if necessary, for any reason, including to solicit additional proxies requires the affirmative vote of the holders of a majority of the shares of LogicVision common stock represented in person or by proxy at the Annual Meeting. No proxy that is specifically marked “AGAINST” adoption of the merger agreement and approval of the merger will be voted in favor of the adjournment proposal, unless it is specifically marked “FOR” the proposal to adjourn the Annual Meeting.

THE LOGICVISION BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO ADJOURN THE ANNUAL MEETING, IF NECESSARY, FOR ANY PURPOSE, INCLUDING TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES TO ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER.

INFORMATION ABOUT LOGICVISION

Business

Overview

LogicVision is a test and yield learning company in the semiconductor design-for-test sector. LogicVision’s proprietary technologies for embedded test and diagnostics enable more efficient test of complex semiconductor devices. LogicVision’s technology allows semiconductor designers to insert test structures inside semiconductor integrated circuits. These test structures allow designers and engineers to test the functionality and performance of their devices throughout each key stage of a complex semiconductor’s life cycle. The most complex of these circuits are called System-on-a-Chip, or SoC, semiconductors. LogicVision’s embedded test solutions have been successfully deployed in SoC’s found in digital consumer products, medical products, automotive electronics, networking and wireless communications devices, computers and satellite systems.

LogicVision’s solutions also allow testing of integrated circuits after they have been assembled onto boards and systems, enabling diagnostic test throughout the semiconductor’s life cycle. LogicVision’s analysis software aggregates and analyzes data from various semiconductor test sources to identify whether silicon behavior meets design criteria across varying manufacturing and operating conditions. LogicVision’s embedded test products generate proprietary circuit structures that are incorporated into an integrated circuit to test and diagnose the chip at full speed, without the signal delay or degradation experienced by external testers. LogicVision’s proprietary circuits are designed to be modular and reusable, to enable more efficient design and to address time-to-market and manufacturing yield issues.

LogicVision incorporated as LV Software in July 1992 in California and engaged principally in research and development activities through 1994. LogicVision first generated meaningful commercial revenues from the license of its initial embedded test product in 1995. In June 1996, LogicVision changed its corporate name to LogicVision, Inc. LogicVision reincorporated in Delaware in September 2000.

Technology

Embedded test

LogicVision believes that embedded test technology provides significant benefits for the new and complex SoC semiconductor devices being designed and manufactured today. Conventional test is performed with external equipment, while embedded test is performed primarily using circuitry resident in the semiconductor design. By embedding test circuit structures on the semiconductor itself, LogicVision’s embedded test solutions eliminate many of the key limitations associated with conventional external testing. LogicVision’s embedded test design software automatically analyzes the structure of complex circuits to determine requirements for at-speed testing and diagnostics, and creates and integrates LogicVision’s proprietary embedded test circuits with the existing design functions to address these requirements. LogicVision’s embedded test manufacturing software allows external test equipment to easily operate LogicVision’s proprietary embedded test circuits for pass-fail testing, chip debug or manufacturing datalogging. LogicVision’s technology also enables board and system level diagnostics, system bring-up and in-field testing and diagnostics.

Design phase

LogicVision’s embedded test technology is incorporated into integrated circuits in the form of user-configurable circuit structures that provide four functions:

access management—necessary scan chains, shared isolation collars, boundary scan and test points to enable access to any point within complex designs;
timing management—proprietary functionality for clock skew management, multiple cycle paths and multiple frequencies;

test data generation and analysis—proprietary functionality created for each design block to generate circuit test data and analyze circuit responses; and
external control—standard IEEE 1149.1 and IEEE 1149.6 compliant test access ports for access and control of all embedded test circuits.

Manufacturing phase

Because LogicVision’s embedded test circuits are incorporated in semiconductor designs, they are manufactured as part of the semiconductor devices. When the prototypes of a new integrated circuit arrive from fabrication for initial device bring-up, debug and characterization, LogicVision’s embedded test circuits and embedded test manufacturing software can be used to accelerate this process and allow lower cost equipment to be utilized. LogicVision’s embedded test circuit structures and embedded test manufacturing software also facilitate at-speed test during wafer probe and allow lower-cost test equipment to be used at wafer probe. Semiconductor devices that pass wafer probe test are then packaged, and LogicVision’s embedded test circuits and embedded test manufacturing software are used again during final test. LogicVision’s embedded test circuits are designed to be activated with simple external test signals applied through the industry standard IEEE 1149.1 and IEEE 1149.6 test access ports. LogicVision’s analysis software aggregates and analyzes data from various test sources to identify whether silicon behavior meets design criteria across varying manufacturing and operating conditions.

Test Development Functions. Using LogicVision’s technology, the bulk of the patterns applied to test the integrated circuit are created on-chip, with only minimal external control needed to achieve a pass-fail test. LogicVision’s embedded test design and manufacturing software provides the engineer with the ability to easily create pass-fail test patterns, and then optimize them for speed, execution time, accuracy, power and results.

Debug and Diagnostic Functions. LogicVision’s embedded test provides a number of debug and diagnostic modes to facilitate debug, diagnosis and datalogging. These are leveraged using LogicVision’s embedded test manufacturing software.

Implementation technologies

LogicVision has developed several technologies to facilitate the mainstream design and manufacturing use of embedded test technology. These include:

design automation algorithms and implementation for embedded test;
hierarchical isolation, access and assembly technologies;
embedded test design verification technologies;
high-performance circuit fault simulation algorithms and automation technologies;
capture-by-domain for multiple-clock timing;
at-speed, multi-frequency, multi-clock logic embedded test technology;
fault-insertion technology for system diagnostics;
at-speed, embedded and external memory test technologies;
at-speed interconnect test technology;
test and measurement technologies for embedded phase-locked-loops;

test and measurement technologies for high-speed serial I/O (SerDes I/O);
manufacturing automation for simplified access and control of embedded test circuits on test equipment;
accurate real-time identification of open connection lines between interconnects on a circuit;
analysis algorithms to facilitate the identification of parametric yield limiters;
signoff process and handoff database for robust transfer of embedded test information to manufacturing; and
parametric and input/output test technology to facilitate multi-site and reduced pin-count test, debug and datalogging.

Products

LogicVision offers a portfolio of products for the automated development, integration, and deployment of embedded test technology:

Technology products

Embedded Circuit Structures. LogicVision’s embedded test technology enables LogicVision’s customers to design and manufacture LogicVision’s embedded test circuit structures for a specific design. For a typical design of 1 million gates and above, LogicVision’s embedded testers are less than a few thousand gates and represent only 1% to 2% of chip area. LogicVision’s user-configurable embedded test circuit structures are designed to test memory, logic, high-speed input/outputs, phased-locked-loops, cores, hierarchical blocks and interconnect.

Design Software

LogicVision provides a suite of highly integrated embedded test design software tools for embedded test implementation on application specific integrated circuits, or ASIC, and SoC designs. LogicVision provides design software that automatically analyzes the structure of complex circuits to determine requirements for at-speed testing and diagnostics. LogicVision’s software creates and integrates its proprietary circuits with the existing design circuits to address these requirements. It also assists with the timing analysis and simulation processes necessary for proper verification by providing timing analysis scripts and simulation test benches.

Manufacturing Software products

LogicVision provides embedded test manufacturing software for access and control of embedded test during chip and system test program development, debug, manufacturing test and datalogging. This enables user interaction with the embedded test circuits to evaluate and diagnose chip-level and board-level failures during manufacturing. This includes pass-fail testing, debug and basic failure diagnostics and datalogging. LogicVision supports a wide set of third-party industry standard test equipment.

Product offerings

LogicVision currently offers its embedded test circuits, design software and manufacturing software in a variety of product bundles under the product family name Dragonfly Test Platform™ with the product sub-families named ETCreate™, Silicon Insight^®, and Yield Insight™.

The ETCreate product sub-family consists of embedded test intellectual property and corresponding design automation software that provide embedded test solutions for different components of an ASIC or SoC design.

The Silicon Insight™ product sub-family provides automated interactive graphical environments for test bring-up and silicon characterization of devices containing LogicVision’s embedded test capabilities. The Silicon Insight products can greatly increase productivity for chip designers and test engineers during the critical phase of silicon validation and debug, speeding time-to-market and yield improvement. Silicon Insight Automatic Test Equipment is a version of the Silicon Insight software that interfaces to most commercial tester platforms while Silicon Insight Desktop is a version of the Silicon Insight software that runs on any Linux PC or laptop.

The Yield Insight™ product provides automated yield learning capabilities based on embedded test failure and diagnostic data obtained during production test.

Services

Maintenance. LogicVision assists its customers with telephone and on-line support, bug fixes and upgrade privileges on a when and if available basis.

Design Services. LogicVision assists its customers with the design and manufacturing deployment of embedded test. LogicVision’s design services help its customers analyze, generate, assemble and verify embedded test circuits, and help LogicVision’s customers and partners rapidly adopt LogicVision’s technologies.

Technology Development Contracts. As a part of LogicVision’s strategy to make embedded test technology more applicable to custom designs, LogicVision enters into development contracts with industry leaders for specific projects. LogicVision’s development contracts include developing new embedded test capabilities and appropriate modifications to LogicVision’s standard automation software. These contracts help LogicVision’s customers and partners to rapidly adopt LogicVision’s technologies.

Customers

LogicVision licenses its proprietary technologies and software products to companies in key markets within the semiconductor, semiconductor diagnostics and systems industries. LogicVision’s customers include application specific integrated circuit or system-on-a-chip designers in systems companies, fabless companies and integrated device manufacturers. Customers accounting for more than 10 percent of revenue are as follows:

	Three Months		Year Ended
	Ended March 31,		December 31,
	2009	2008	2008	2007	2006
LSI Corporation	16%	16%	16%	21%	26%
Broadcom Corporation	24%	21%	18%	19%	18%

Timing of Orders

LogicVision’s past operating results have been, and LogicVision expects that its future operating results will be, subject to fluctuations due to a number of factors, including unpredictability of the buying patterns of LogicVision’s customers, the concentration of orders with large customers, dependence upon capital spending budgets and fluctuations in general economic conditions.

Research and Development

LogicVision’s ability to meet customer needs for improved technology, and maintain LogicVision’s technology leadership, depends largely on whether LogicVision can continue to rapidly develop and deploy new technology and introduce new products. LogicVision has made, and intends to continue to make, significant investments in research and development. In addition to an overall knowledge of test methodologies, embedded test requires an expertise in four diverse areas: integrated circuit design and verification, electronic design automation algorithms and software development, software development for manufacturing test and test equipment, and software development for analysis of yield issues. LogicVision has assembled a highly skilled and multi-disciplinary team for this purpose.

As of June 15, 2009 LogicVision’s engineering team comprised 22 employees, 12 of whom have advanced degrees, and most of whom have extensive industry experience in one or more of the aforementioned areas of expertise. LogicVision’s engineering team is organized into four development groups, each focusing on one of these four areas of expertise, and each contributing the related portion to the bundled product offerings. The development groups are:

Integrated Circuit Design—LogicVision’s integrated circuit design team focuses on the overall embedded test intellectual property architecture and its implementation and verification.
Design Software—LogicVision’s design software team focuses on developing the software that analyzes, generates, assembles, and verifies an integrated circuit design with embedded test.
Manufacturing Software—LogicVision’s manufacturing software team focuses on developing software for enabling test and diagnostic in manufacturing.
Analysis Software—LogicVision’s analysis software team focuses on developing software to analyze integrated circuit test and foundry data to identify and diagnose yield issues.

In addition to the four development groups, LogicVision has product engineering teams focused on software builds and release, documentation and quality assurance.

Sales and Marketing

The majority of LogicVision’s revenues are generated by LogicVision’s direct sales force. In the United States, LogicVision has sales and service personnel located in northern and southern California, Massachusetts, Pennsylvania and Texas. LogicVision also uses independent sales representatives in the United States. Internationally, LogicVision has sales and service personnel located in Japan; sales in China, France, Germany, India, Israel, Japan, Korea, the United Kingdom and Sweden are handled by distributors or independent sales representatives. Sales and service personnel consist of sales directors who are responsible for all business aspects of the customer relationship and application engineers who manage the technical pre-sales as well as the post-sales customer support issues. As of June 15, 2009, LogicVision had 18 employees involved in sales, marketing, application engineering and customer service.

The main goal of LogicVision’s sales force is to work with major systems, consumer electronics and semiconductor companies who have the expertise to implement LogicVision’s technology today. LogicVision focuses on leading companies because they are influential in setting standards. LogicVision focuses on developing customer relationships with companies in the areas of networking and wireless communications, medical products, computer servers and graphics, and consumer electronics. Additionally, as systems companies use LogicVision’s technology, they often require their component suppliers to supply semiconductors with LogicVision’s embedded test technology already designed-in for their system use. In this way LogicVision is able to create both push and pull demand for LogicVision’s technology.

LogicVision’s marketing efforts include product and technical marketing, public relations, corporate communications and business development functions. LogicVision strives to develop relationships with industry partners such as application specific integrated circuit suppliers, silicon foundries, electronic design automation tool suppliers, hardware tester manufacturers and intellectual property providers.

Sales and marketing expenses are allocated between cost of revenues and sales and marketing expenses. Application engineering efforts devoted to revenue-generating design and technology development projects and post-contract customer support activities are recorded as cost of revenues. Sales and marketing expenses incurred for general selling and marketing activities are recorded as sales and marketing expenses.

Intellectual Property

LogicVision has a portfolio of intellectual property covering the areas of test and diagnosis of logic, memory and mixed-signal circuits with focus on embedded, at-speed and parametric aspects. Both design and manufacturing methods are covered. As of June 15, 2009, LogicVision’s intellectual property portfolio consisted of 50 issued U.S. patents and 3 pending U.S. patent applications. Generally, the term of patent protection is 20 years from the earliest effective filing date of the patent application. LogicVision’s issued patents expire at various times between June 2016 and December 2024. LogicVision’s patents cover technology intended to address problems LogicVision considers fundamental to embedded test, such as timing, power consumption and parametric testing.

LogicVision’s existing and future patents may be circumvented, blocked, licensed to others or challenged as to inventorship, ownership, scope, validity or enforceability. LogicVision may not receive competitive advantages from the rights granted under LogicVision’s patents. Furthermore, LogicVision’s current or future patent applications may not be issued with the scope of the claims sought by LogicVision, if at all. In addition, others may develop technologies that are similar or superior to LogicVision’s proprietary technologies, duplicate LogicVision’s proprietary technologies or design around the patents owned or licensed by LogicVision. If LogicVision’s products, patents or patent applications are found to conflict with any patents held by third parties, LogicVision could be prevented from selling LogicVision’s products, LogicVision’s patents may be declared invalid or LogicVision’s patent applications may not result in issued patents. In addition, in foreign counties, LogicVision may not receive effective patent and trademark protection. LogicVision cannot be sure that steps LogicVision takes to protect LogicVision’s proprietary technologies will prevent misappropriation of LogicVision’s technologies.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions. There are numerous patents in the semiconductor industry and new patents are being issued at a rapid rate. This often results in significant and often protracted and expensive litigation. Litigation may be necessary to enforce LogicVision’s intellectual property rights or to determine the validity or scope of the proprietary rights of others. Litigation could cause LogicVision to incur significant expenses, harm LogicVision’s sales of the challenged technologies or products and divert the efforts of LogicVision’s technical and management personnel, whether or not a court decides in LogicVision’s favor. From time to time third parties may notify LogicVision of intellectual property infringement claims. If it is necessary or desirable, LogicVision may seek licenses under these third party patents or intellectual property rights. However, LogicVision cannot be sure that third parties will offer licenses to LogicVision on acceptable terms or at all.

If LogicVision fails to obtain a license from a third party for proprietary technologies that LogicVision uses, or receive an adverse result in any litigation, LogicVision could incur substantial liabilities, or be compelled to suspend sales of LogicVision’s products or LogicVision’s use of processes requiring the technologies or expend significant resources to develop or acquire non-infringing technology. LogicVision may not be successful in the development or acquisition of intellectual property. To date, LogicVision has had no such litigation matters concerning intellectual property.

LogicVision generally enters into confidentiality agreements with LogicVision’s employees, industry partners and customers, as well as generally control access to and distribution of LogicVision’s documentation and other proprietary information. Despite this protection, unauthorized parties may copy aspects of LogicVision’s current or future software products or obtain and use information that LogicVision regards as proprietary.

Competition

The semiconductor and systems industries are highly competitive and characterized by rapidly changing technology. The market for embedded test is still evolving, and LogicVision expects competition to continue to emerge and become more intense in the future.

Design

In the design phase of product development, LogicVision faces competition from traditional broad line electronic design automation providers such as Cadence Design Systems, Inc., Magma Design Automation Inc., Mentor Graphics Corporation and Synopsys, Inc. and from smaller test tool providers. These companies provide competing design-for-test technologies and some level of built-in self-test capability. LogicVision also faces competition from methodologies developed internally at large integrated device manufacturers, systems companies and electronic design automation providers.

Manufacturing

Because embedded test has the potential to impact the external test market, LogicVision believes traditional hardware tester manufacturers such as Advantest Corporation, LTX-Credence Corporation, Teradyne, Inc. and Verigy Ltd. all view embedded test and LogicVision as competition. Many of these companies are devoting significant resources to developing external solutions to testing complex integrated circuits, including working closely with some of LogicVision’s current and potential customers. Their efforts may result in the development of solutions that compete with LogicVision’s embedded test solution. In addition, all of the tester manufacturers above participate in LogicVision’s LVReady partner program through which LogicVision’s embedded test access software is integrated into their test platform, which may provide them with additional insight into LogicVision’s business and technology.

Most of the companies with whom LogicVision competes are significantly larger than LogicVision and have greater financial resources. As embedded test is more broadly adopted in the market, LogicVision faces the potential of one or more larger companies appearing as direct competition. LogicVision believes that the principal competitive factors in LogicVision’s market include proven technology, effective intellectual property, deployment automation, comprehensive manufacturing control and customer service. LogicVision believes it competes favorably with respect to all these factors.

Employees

As of June 15, 2009, LogicVision employed 45 total employees including 43 full-time employees worldwide, of which 25 employees were located in the United States, 16 employees were located in Canada, and 4 employees were located in Asia and Europe. This included 18 in sales and marketing, 22 in research and development, and 5 in finance, information technology and administration. LogicVision’s employees are not covered by any collective bargaining agreements, and LogicVision considers its relations with LogicVision’s employees to be good.

Properties

LogicVision’s principal executive offices are located in San Jose, California, where LogicVision leases approximately 18,000 square feet. LogicVision believes that these offices will be adequate to meet LogicVision’s requirements for the next 12 months. LogicVision has a research and development office in Ottawa, Canada. LogicVision has domestic sales and service representatives in Massachusetts, sales representatives in southern California and Texas, and engineering personnel in Arizona and Oregon. In addition, LogicVision has an international sales and service office in Japan and a customer service office in the UK. In December 2008, LogicVision exited out of its Massachusetts office and reduced the utilized space leased in San Jose, California.

Legal Proceedings

LogicVision is not currently a party to any material legal proceedings.

Executive Officers

The following table sets forth information regarding LogicVision’s executive officers as of June 15, 2009:

Name	Age	Position
James T. Healy	68	President, Chief Executive Officer and a director
Fadi Maamari	46	Chief Operating Officer
Mei Song	40	Vice President of Finance and Chief Financial Officer

James T. Healy has served as LogicVision’s President and Chief Executive Officer since December 2003. From July 2002 to November 2003, Mr. Healy was President of Spirox USA and Executive Vice President of Business Development and Strategic Marketing for Spirox Corporation, a provider of semiconductor manufacturing equipment and software. From April 2000 to June 2002, Mr. Healy was President of ASAT, Inc., a provider of semiconductor design, assembly and test services. From December 1999 to March 2000, Mr. Healy served as an independent consultant to software companies. He holds a B.S. in Business and a M.S. in Psychology from California State University, Hayward.

Fadi Maamari has served as LogicVision’s Chief Operating Officer since October 2008. From 2006 to October 2008, he served as LogicVision’s Vice President of Engineering. From 1996 to 2006, he held senior management positions in Engineering, Applications Engineering and Marketing at LogicVision. From 1990 to 1996, Dr. Maamari was a member of Technical Staff at AT&T Bell Labs’ Engineering Research Center in Princeton, New Jersey. He holds a Ph.D. in Electrical Engineering from McGill University, and M.S. and B.S. degrees from École Polytechnique in Montreal, Canada.

Mei Song has served as LogicVision’s Vice President of Finance and Chief Financial Officer since October 2008. From 2006 to 2008, Ms. Song served as LogicVision’s Controller. Prior to that, Ms. Song has held various finance positions at LogicVision since 2000. Prior to joining LogicVision, she held different positions with Communication Power Industries, Inc, Pharsight Corp., and Summit Micro Design. Ms. Song holds an M.B.A. from Auburn University and a B.S. from the Hefei Institute of Economics & Technology.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of LogicVision’s financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included in Annex D to this proxy statement/prospectus. All share and per share data has been adjusted to reflect the 1-for-2.5 reverse stock split of LogicVision’s common stock which became effective March 12, 2008.

Overview

General

LogicVision is a test and yield learning company in the semiconductor design-for-test sector. LogicVision’s proprietary technologies for embedded test and diagnostics enable the more efficient test of complex semiconductor devices. LogicVision’s technology allows semiconductor designers to insert test structures inside semiconductor integrated circuits. These test structures allow designers and engineers to test the functionality and performance of their devices throughout each key stage of a complex semiconductor’s life cycle. The most complex of these circuits are called System-on-a-Chip, or SoC, semiconductors. LogicVision’s embedded test solution has been successfully deployed in SoC’s found in digital consumer products, automotive electronics, medical products, networking and wireless communications devices, computers and satellite systems.

LogicVision’s solution also allows testing of integrated circuits after they have been assembled onto boards and systems, enabling diagnostic test throughout the semiconductor’s life cycle. LogicVision’s analysis software aggregates and analyzes data from various semiconductor test sources to identify whether silicon behavior meets design criteria across varying manufacturing and operating conditions. LogicVision’s embedded test products generate proprietary circuit structures that are incorporated into an integrated circuit to test and diagnose the chip at full speed, without the signal delay or degradation experienced by external testers. LogicVision’s proprietary circuits are designed to be modular and reusable, to enable more efficient design and to address time-to-market and manufacturing yield issues.

LogicVision believes its products can reduce semiconductor manufacturing and test costs, accelerate silicon bring-up times, provide for yield learning, improve time-to-yield and result in less field returns. The target market for LogicVision’s technology is SoC designs with feature widths of 130 nanometers, 90 nanometers, 65 nanometers, and 45 nanometers and smaller. A nanometer is one billionth of a meter.

LogicVision’s customers include application specific integrated circuit or SoC designers in systems companies, fabless companies and integrated device manufacturers that use LogicVision’s technology in their application specific integrated circuits or SoC as part of systems development and for complex chip development and testing. LogicVision licenses its intellectual property and software through LogicVision’s direct sales force in the United States and Japan, and through LogicVision’s distributors or independent sales representatives in China, Europe, Korea and Japan.

LogicVision has elected to focus its sales and marketing efforts on larger customers with greater resources. Such large customers generally do not adopt new design methodologies quickly. Also, LogicVision may have limited access to the key decision-makers of potential customers who can authorize the adoption of LogicVision’s technology. As a result, the period between LogicVision’s initial contact with a potential customer and the sale of LogicVision’s products to that customer, if any, is often lengthy and may include delays associated with LogicVision’s customers’ budgeting and approval processes, as well as a substantial investment of LogicVision’s time and resources.

LogicVision received new orders of $2.6 million in the first quarter of 2009, compared to $450,000 in the fourth quarter of 2008 and $10.5 million in the first quarter of 2008. These new orders are for periods ranging from one to three years. Receipt of new orders may fluctuate due to the lengthy sales cycles and LogicVision’s dependence on relatively few customers for large orders. One of the orders received in the first quarter of 2009 represented over 77% of the total of the new orders received; that order covered a two-year period and was from an existing customer.

LogicVision received new orders of $17.9 million in 2008 compared to $12.0 million in 2007. This increase in new orders was primarily due to the receipt of large renewal orders in 2008 from domestic customers. LogicVision expects receipt of new orders to fluctuate due to the lengthy sales cycles and LogicVision’s dependence on large orders.

LogicVision’s one-year backlog was $10.7 million at March 31, 2009, compared with $10.1 million at March 31, 2008. LogicVision’s backlog of orders, including deferred revenue, at December 31, 2008 which is expected to be recognized as revenue during 2009 was $9.9 million, compared with $8.7 million at the end of 2007. Backlog is comprised of deferred revenue (orders which have been billed but for which revenue has not yet been recognized) plus written purchase orders which have been accepted but have not yet been billed and for which no revenue has been recognized. A significant portion of the orders which have been accepted but have not yet been billed provides customers with cancellation rights and customers may also renew contracts before their expiration or modify that portion of their orders which is cancelable. Therefore, LogicVision’s backlog at any particular date is not necessarily indicative of revenues to be recognized during any succeeding period.

Restructuring

In the fourth quarter of 2008, LogicVision implemented a restructuring plan to reduce operating costs by consolidating facilities. Accordingly, LogicVision recognized a restructuring charge of approximately $0.3 million for facility abandonment expenses and other contractual charges associated with these facilities. The restructuring plan eliminated the Massachusetts facility and reduced the utilized space leased in San Jose, California. The restructuring plan was substantially completed by the end of December 2008.

Critical Accounting Policies and Estimates

LogicVision believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of LogicVision’s consolidated financial statements.

LogicVision’s discussion and analysis of its financial condition and results of operations are based upon LogicVision’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires LogicVision to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, LogicVision evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, investments, impairment of goodwill and intangible assets, accounting for stock-based compensation and income taxes. LogicVision bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

LogicVision accounts for its revenue under the provisions of Statement of Position 97-2, “Software Revenue Recognition,” (“SOP 97-2”) as amended by Statement of Position 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 98-9”).

LogicVision derives its revenues from three primary sources: license revenues, comprised of fees associated with the licensing of software; service revenues, from maintenance and consulting and training services; and product revenues, from the sale of hardware products. Revenue is recognized when persuasive evidence of an arrangement exists, all obligations have been performed pursuant to the terms of such an arrangement, the product has been delivered, the fee is fixed or determinable and the collection of the resulting receivable is reasonably assured. If any of these criteria are not met, LogicVision defers revenue recognition until such time as all criteria are met. Payments received in advance of revenues being recognized are presented as deferred revenue.

License revenues. LogicVision has three license types:

Subscription licenses – subscription licenses include software licenses and maintenance for a specific time period, generally three years or less. Maintenance is bundled into the license agreement for the term of the license and is not charged separately. Since vendor-specific objective evidence, or VSOE, of fair value does not exist for each element of the arrangement, revenues from subscription licenses are recognized ratably over the license term commencing upon the effective date of the license, if delivery and other revenue recognition criteria are met.
Term licenses – term licenses include software licenses for a specific time period, generally three to five years. Revenues associated with term licenses are recognized on the effective date of the license, if delivery and other revenue recognition criteria are met. Maintenance agreements for term licenses are sold separately for a specified period and may continue to be renewed for the balance of the license term.
Perpetual licenses – perpetual licenses consist of software licensed on a perpetual basis. Revenues associated with perpetual licenses are recognized on the effective date of the license, if delivery has occurred and other revenue recognition criteria are met. LogicVision no longer offers this type of license.

The timing of revenue recognition for licenses will differ depending on the license type and on the individual terms and conditions associated with each particular license agreement. LogicVision uses VSOE of fair value to allocate the total fee among all delivered and undelivered elements in those arrangements which contain multiple elements. If the arrangement includes the future delivery of a specified product or upgrade, all revenues under the arrangement are deferred until the specified product or upgrade has been delivered. If VSOE does not exist for one or more delivered elements, LogicVision applies the residual method of accounting to the delivered elements. Under the residual method, LogicVision defers the VSOE of the fair value of the undelivered elements and recognize revenue on the remaining portion of the arrangement. VSOE for maintenance is generally based upon the customer’s annual renewal rates as set forth in the license agreement. When VSOE for maintenance cannot be established, LogicVision recognizes all related revenues ratably over the term of LogicVision’s maintenance obligation. VSOE for services is generally based on the price charged when the services are sold separately. The timing of revenue recognition for both delivered and undelivered elements is in accordance with the relevant provisions of SOP 97-2.

On occasion LogicVision offers extended payment terms beyond LogicVision’s normal business practice of between 30 and 60 days to certain customers. LogicVision does not have sufficient experience collecting under these extended payment term arrangements. As a result, when payment terms are extended, the fee is not considered fixed or determinable and LogicVision recognizes revenue when the payment is due.

Service revenues. LogicVision recognizes maintenance revenue ratably over the maintenance period. Customers generally renew maintenance agreements for term and perpetual licenses annually. LogicVision allocates a portion of the subscription license revenue to maintenance revenue using the estimated fair value of the maintenance, which is based on maintenance renewals sold separately for similar products.

LogicVision generally recognizes consulting service revenues as the services are performed or when specified milestones are met. Training revenues are recognized when the training is performed.

Product revenues. LogicVision’s hardware products are generally sold together with a subscription license for software; therefore, LogicVision has been unable to establish VSOE for the product when sold separately. Product revenues are generally recognized ratably over the term of the subscription license sold together with the product commencing upon delivery of the product if other revenue recognition criteria are met.

Deferred revenue. Deferred revenue consists primarily of unearned license revenues and maintenance and support services under maintenance contracts. Deferred revenue represents the excess of amounts invoiced or received over the revenue recognized. Deferred revenue fluctuates at each period end based on invoice terms and the mix of contracts.

Allowance for Doubtful Accounts

LogicVision makes ongoing assumptions relating to the credit worthiness of its customers in estimating its allowance for doubtful accounts. LogicVision maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of LogicVision’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Valuation of Investments

Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurements,” (“SFAS 157”) defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. LogicVision’s investment portfolio may at any time contain investments in money market accounts, commercial paper and government agency securities. In the current market environment, the assessment of the fair value of the securities can be difficult and subjective. The volume of trading activity of certain securities has declined, and the rapid changes occurring in today’s financial markets can lead to changes in the fair value of financial instruments in relatively short periods of time. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.

Level 1 investments – Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Therefore, determining fair value for Level 1 investments generally does not require significant judgment, and the estimation is not difficult.

Level 2 investments – Pricing is provided by third party sources of market information obtained through LogicVision’s investment advisors. LogicVision does not adjust for or apply any additional assumptions or estimates to the pricing information LogicVision receives from the advisors.

Level 3 investments – Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 investments involves the most management judgment and subjectivity.

In October 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 became effective immediately, including prior periods for which financial statements have not been issued. Therefore, LogicVision adopted the provisions of FSP 157-3 in its consolidated financial statements for the year ended December 31, 2008. The adoption did not have a material impact on LogicVision’s consolidated results of operations or financial condition.

LogicVision measures its financial assets, specifically its cash equivalents and short-term investments, at fair value on a recurring basis. LogicVision does not have any financial liabilities that are measured at fair value on a recurring basis.

Goodwill impairment

LogicVision’s long-lived assets include goodwill and other intangible assets. SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests in certain circumstances. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of the reporting unit. Significant judgments required to estimate the fair value of a reporting unit include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for the reporting unit. Any impairment losses recorded in the future could have a material adverse impact on LogicVision’s consolidated financial condition and results of operations.

100

Valuation of long-lived intangible assets

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that LogicVision record an impairment charge on finite-lived intangibles or long-lived assets to be held and used when LogicVision determines that the carrying value of intangible assets and long-lived assets may not be recoverable. Based on the existence of one or more indicators of impairment, LogicVision measures any impairment of intangibles or long-lived assets based on a projected discounted cash flow method using a discount rate determined by its management to be commensurate with the risk inherent in its business model. LogicVision’s estimates of cash flows require significant judgment based on LogicVision’s historical results and anticipated results and are subject to many factors.

Accounting for Stock-Based Compensation.

SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases under LogicVision’s 2000 Employee Stock Purchase Plan based on estimated fair values.

Stock-based compensation expense recognized under SFAS 123(R) for the three months ended March 31, 2009 and 2008 was $120,000 and $177,000, respectively, which consisted of stock-based compensation expense related to employee stock options and the employee stock purchase plan.

Stock-based compensation expense for the three months ended March 31, 2008 includes compensation expense recognized as a result of the consummation of LogicVision’s stock option exchange offer on March 8, 2007, in accordance with SFAS 123(R); compensation cost associated with the incremental fair value of these option awards was calculated at approximately $579,000 using the Black-Scholes valuation option pricing model. To this total was added the remaining unamortized fair value of any exchanged options originally granted of $21,000 to arrive at a total fair value of $600,000 to be amortized to expense over the vesting period of these newly exchanged options. Of this amount, $548,000 was recognized as compensation expense for the year ended December 31, 2007. The remaining amount was fully recognized as compensation expense for the quarter ended March 31, 2008.

Compensation expense for all share-based payment awards is recognized using the multiple-option approach. As stock-based compensation expense recognized in the consolidated statements of operations for the three months ended March 31, 2009 and 2008 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

Stock-based compensation expense recognized under SFAS 123(R) for the years ended December 31, 2008, 2007 and 2006 was $513,000, $990,000 and $376,000, respectively, which consisted of stock-based compensation expense related to employee stock options and the employee stock purchase plan.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in LogicVision’s Consolidated Statements of Operations.

Stock-based compensation expense recognized during the current period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in LogicVision’s Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006 include compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, “Accounting for Stock-based Compensation,” and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Compensation expense for all share-based payment awards is recognized using the multiple option approach. As stock-based compensation expense recognized in the Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

101

LogicVision uses the Black-Scholes option-pricing model (“Black-Scholes model”) to determine the fair value of share-based awards granted. LogicVision’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by LogicVision’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, LogicVision’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Expected volatilities are based on the historical volatility of LogicVision’s common stock. LogicVision uses historical data to estimate option exercise and employee terminations. The expected term of the options granted represents the period of time that options are expected to be outstanding, based on historical information. The risk-free interest rate is based on the U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of LogicVision’s equity awards. LogicVision does not anticipate paying any cash dividends in the foreseeable future and therefore used an expected dividend yield of zero.

Accounting for Income Taxes

Effective January 1, 2007, LogicVision adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (“FIN No. 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109,” which provisions included a two-step approach to recognizing, de-recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109 (“SFAS No. 109”), “Accounting for Income Taxes.” As a result of the implementation of FIN No. 48, LogicVision recognized an increase of approximately $0.6 million in the liability for unrecognized tax benefits and a decrease in the related reserve of the same amount. Therefore upon implementation of FIN No. 48, LogicVision recognized no material adjustment to the January 1, 2007 balance of accumulated deficit.

LogicVision adopted a policy to classify accrued interest and penalties as part of the accrued FIN No. 48 liability in the provision for income taxes. For the year ended December 31, 2008, LogicVision did not recognize interest or penalties related to unrecognized tax benefits.

Unrecognized Tax Benefits

Balance at January 1, 2008	$600,000
Additions for tax positions of prior years	-
Reductions for tax position of prior years	-
Additions based on tax positions related to the current year	-
Decreases – Settlements	-
Reductions – Settlements	-
Balance at December 31, 2008	$600,000

None of the $0.6 million of tax positions would affect LogicVision’s income tax expense if recognized.

LogicVision’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2008, LogicVision had no accrued interest and penalties related to uncertain tax matters.

By the end of 2009, LogicVision expects to have no uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations. LogicVision does not anticipate the adjustments would result in a material change to LogicVision’s financial position.

LogicVision files income tax returns in the U.S. federal jurisdictions, and various states and foreign jurisdictions. The 1992 through 2008 tax years are open and may be subject to potential examination in one or more jurisdictions. LogicVision is not currently under federal, state or foreign income tax examination.

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Results of Operations

The table below sets forth the fluctuations in revenues, cost of revenues and gross profit data for the three months ended March 31, 2009 and 2008 and the years ended December 31, 2008, 2007 and 2006 (in thousands, except percentage data):

	Three Months Ended
	March 31,						Year Ended December 31,
	2009			2008			2008			2007			2006
Revenues:
License	$	1,514		$	1,384		$	5,771		$	5,279		$	4,984
Service		1,550			1,586			6,402			6,270			5,350
Product		-			-			-			69			183
Total revenues		3,064	(1)		2,970			12,173			11,618			10,517
Cost of revenues:
License		15			176			667			887			1,006
Service		589			655			2,572			2,326			1,887
Total cost of revenues		604	(1)		831			3,239			3,213			2,893
Gross profit		2,460			2,139			8,934			8,405			7,624
Operating expenses:
Research and development		800			1,008			3,246			3,637			4,133
Sales and marketing		843			1,506			5,336			5,090			7,032
General and administrative		687			894			3,647			3,787			3,718
Restructuring		-			-			334			-			-
Cost related to strategic alternatives		243			-			-			-			-
Total operating expenses		2,573			3,408			12,563			12,514			14,883
Loss from operations		(113	)		(1,269	)		(3,629	)		(4,109	)		(7,259	)
Interest and other income, net		9			18			107			349			316
Loss before provision (benefit) for income taxes		(104	)		(1,251	)		(3,522	)		(3,760	)		(6,943	)
Provision (benefit) for income taxes		-			15			22			(37	)		144
Net loss	$	(104	)	$	(1,266	)	$	(3,544	)	$	(3,723	)	$	(7,087	)
Net loss per common share, basic and diluted	$	(0.01	)	$	(0.13	)	$	(0.37	)	$	(0.39	)	$	(0.90	)
Weighted average number of shares outstanding, basic and
diluted		9,468			9,674			9,581			9,654			7,860

____________________

(1)

The presentation of revenues for the quarter ended March 31, 2009 has been revised to conform with the presentation used in 2008 and prior years.

Results of Operations for the Three Months Ended March 31, 2009 and March 31, 2008

Total revenues

Total revenues increased slightly for the three months ended March 31, 2009 compared to the same period in fiscal 2008 primarily due to orders received in the past three quarters. Professional service revenue did not materially change.

Total cost of revenues

Cost of license revenues consists of shipping, product packaging, software license and maintenance costs, materials and labor costs, amortization of developed technology and royalties paid to third party vendors. Cost of service revenues consists of compensation and related costs and third-party consultant costs associated with providing post contract customer support and consulting services.

103

Total cost of revenues decreased in the three months ended March 31, 2009 compared to the same period in fiscal 2008 primarily due to decreased post-sales support by LogicVision’s application engineering group, and a software license that had reached the end of its useful life by December 31, 2008. Cost of professional service did not materially change.

Revenues by product line and country

The table below sets forth the fluctuations in revenues by product line and geographic region for the three months ended March 31, 2009 and 2008 (in thousands, except percentage data):

Revenue by product line:

	Three Months Ended
	March 31,		%
	2009	2008	Change
ETCreate	$2,307	$2,361	-2%
Silicon Insight	474	454	4%
Others	283	155	83%
Total revenues	$3,064	$2,970	3%

Revenue by geographic region:

	Three Months Ended
	March 31,		%
	2009	2008	Change
United States	$2,217	$2,133	4%
Japan	447	549	-19%
Others	400	288	39%
	$3,064	$2,970	3%

Product line:

ETCreate™ consists of embedded test intellectual property and corresponding design automation software that provides embedded test solutions for different components of an application-specific integrated circuit or system-on-chip design. ETCreate revenues remained consistent for the three months ended March 31, 2009 compared to the same period in fiscal 2008.

Silicon Insight™ consists of hardware and software products for use with third party test platforms. Silicon Insight enables faster time-to-market and lower test costs through the support of interactive or test program controlled at-speed testing, datalogging, and debug of silicon designed with LogicVision’s embedded test IP. Silicon Insight revenues remained consistent for the three months ended March 31, 2009 compared to the same period in fiscal 2008.

Others included revenues from consulting and training activities. Consulting revenue increased compared to the same period in fiscal 2008 due to an increase in consulting services provided to customers.

Geographic region:

Revenue in the United States was slightly higher for the three months ended March 31, 2009 compared to the same period in fiscal 2008. Revenue in Japan decreased in the three months ended March 31, 2009 compared to the same period in fiscal 2008 primarily due to decreased orders in the past three months.

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Operating Expenses:

The table below sets forth operating expense data for the three months ended March 31, 2009 and 2008 (in thousands, except percentage data):

	Three Months Ended
	March 31,			%
	2009		2008	Change
Operating expenses:
Research and development	$	800	$1,008	-21%
Sales and marketing		843	1,506	-44%
General and administrative		687	894	-23%
Cost related to strategic alternatives		243	-	100%
Total operating expenses	$	2,573	$3,408	-25%
Percentage of total revenues:
Operating expenses:
Research and development		26%	34%
Sales and marketing		28%	51%
General and administrative		22%	30%
Cost related to strategic alternatives		8%	-
Total operating expenses		84%	114%

Research and development

Research and development expenses consist primarily of compensation and related costs for personnel. All research and development costs are expensed as incurred.

Research and development expenses decreased in the three months ended March 31, 2009 compared to the same period in fiscal 2008, primarily due to lower compensation and facility expenses resulting from LogicVision’s cost reduction effort.

Sales and marketing

Sales and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, marketing programs, public relations, promotional materials, travel and related trade show expenses.

Sales and marketing expenses decreased in the three months ended March 31, 2009 compared to the same period in fiscal 2008, primarily due to lower compensation expenses resulting from a reduction in headcount and lower commission expenses resulting from lower bookings.

General and administrative

General and administrative expenses consist primarily of compensation and related costs for general management, information technology, finance and accounting personnel, insurance, professional services and related fees and expenses.

General and administrative expenses decreased in the three months ended March 31, 2009, compared to the same period in fiscal 2008, primarily due to lower compensation and facility expenses resulting from LogicVision’s cost reduction effort.

Cost related to strategic alternatives

Cost related to strategic alternatives comprised primarily of legal expenses related to consideration of strategic alternatives as publicly announced in December of 2008.

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Other Items:

The table below sets forth other data for the three months ended March 31, 2009 and 2008 (in thousands, except percentage data):

	Three Months Ended
	March 31,				%
	2009		2008		Change
Interest and other income, net	$	9	$	18	-50%
Income tax provision	$	-	$	15	-100%

Percentage of total revenues:
Interest and other income, net		0%		1%
Income tax provision		-		1%

Interest and other income, net decreased in the three months ended March 31, 2009 compared to the same period in fiscal 2008, primarily due to lower interest rates earned on LogicVision’s investments as a result of lower market interest rates and lower investment balances.

Income tax provision LogicVision’s net operating losses are generated domestically, and amounts attributed to LogicVision’s foreign operations have been insignificant for all periods presented. LogicVision’s income tax provision is primarily related to state and foreign taxes. No benefit for income taxes has been recorded due to the uncertainty of the realization of deferred tax assets. From inception through December 31, 2008, LogicVision incurred net losses for federal and state tax purposes. As of December 31, 2008, LogicVision had federal and California net operating loss carryforwards of approximately $93.1 million and $33.8 million available to reduce future federal and California taxable income, respectively. These federal and California carryforwards will begin to expire in 2010 if not utilized. The extent to which these carryforwards can be used to offset future taxable income may be limited under Section 382 of the Internal Revenue Code and applicable state tax law.

LogicVision did not record a provision for income taxes in the three months ended March 31, 2009, and provision for income taxes in the three months ended March 31, 2008 was $15,000.

Results of Operations for the Years Ended December 31, 2008, 2007 and 2006

Total revenues

Total revenues increased in 2008 approximately 5% compared to 2007 primarily due to an increase in new orders received during 2008 and 2007. New orders received in 2008 were $17.9 million, an increase of 49% from $12.0 million in 2007. The new orders in 2008 generated revenue of $3.3 million. In 2007, revenue recognized from new orders in 2007 was about $3.1 million.

Total revenues increased in 2007 nearly 11% compared to 2006 primarily due to an increase in new orders received during the year. New orders received in 2007 were $12.0 million, an increase of 21% from $9.9 million in 2006. In 2006, revenue recognized from new orders in 2006 was about $1.1 million.

Total cost of revenues

Total cost of revenues in 2008 were approximately equal to 2007 at $3.2 million. Cost of license revenue decreased primarily due to a decrease in third party software license fees. Cost of service revenue increased primarily due to an increase in post-sales customer support.

Total cost of revenues increased in 2007 compared to 2006 primarily due an increase in post-sales customer support. Cost of license revenues decreased in 2007 compared to 2006 primarily due to a decrease in third party software license fees.

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Revenues by product line and country

The table below sets forth the fluctuations in revenues by product line and geographic region for the years ended December 31, 2008, 2007 and 2006 (in thousands, except percentage data):

	Year ended December 31,						% change
	2008		2007		2006		2008/2007	2007/2006
Revenue by product line:
ETCreate	$	9,608	$	9,621	$	7,774	-0.1%	23.8%
Silicon Insight		1,720		1,313		1,759	31.0%	-25.4%
Yield Insight							-
		-		93		134	100.0%	-30.6%
Consulting & Training		845		591		850	43.0%	-30.5%
Total revenues	$	12,173	$	11,618	$	10,517	4.8%	10.5%
Revenue by geographic region:
United States	$	8,580	$	8,766	$	8,827	-2.1%	-0.7%
Japan		2,118		1,901		1,176	11.4%	61.6%
Other		1,475		951		514	55.1%	85.0%
Total revenues	$	12,173	$	11,618	$	10,517	4.8%	10.5%
Percentage of total revenues:
Revenue by product line:
ETCreate		79%		83%		74%
Silicon Insight		14%		11%		17%
Yield Insight		0%		1%		1%
Consulting & Training		7%		5%		8%
Total revenues		100%		100%		100%
Revenue by geographic region:
United States		71%		76%		84%
Japan		17%		16%		11%
Other		12%		8%		5%
Total revenues		100%		100%		100%

Product line:

ETCreate revenue in 2008 compared to 2007 was relatively unchanged. ETCreate revenue increased in 2007 compared to 2006 due to an increase in new orders received in 2007. These new orders generated higher levels of recognizable revenue because of the license term and the timing of the receipt of the order.

Silicon Insight revenue increased in 2008 compared to 2007 due to more customer adoptions of the product. Silicon Insight revenue decreased in 2007 compared to 2006 due to lower sales of the Validator product.

The Yield Insight product was derived from technology obtained from the acquisition of SiVerion, Inc. in late 2004. The revenue data was too small to be meaningful in 2008, 2007 and 2006.

Consulting and Training revenues fluctuated between 2008 and 2007, and 2007 and 2006 based upon customer requirements for special work or training needs.

Geographic region:

Revenue in the United States and Japan remained essentially unchanged in 2008 and 2007. Revenue in other countries grew primarily due to the increase in business from a large multinational customer.

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Operating Expenses:

The table below sets forth operating expense data from 2008 to 2007 and 2007 to 2006 (in thousands, except percentage data):

	Year ended December 31,						% change
	2008		2007		2006		2008/2007	2007/2006
Operating expenses:
Research and development	$	3,246	$	3,637		4,133	-10.8%	-12.0%
Sales and marketing		5,336		5,090		7,032	4.8%	-27.6%
General and administrative		3,647		3,787		3,718	-3.7%	1.9%
Restructuring		334		-		-	100.0%	NM
Total operating expenses	$	12,563	$	12,514	$	14,883	0.4%	-15.9%
Percentage of total revenues:
Operating expenses:
Research and development		26%		31%		39%
Sales and marketing		44%		44%		67%
General and administrative		30%		33%		36%
Restructuring		3%		0%		0%
Total operating expenses		103%		108%		142%

Research and development

Research and development expenses decreased in 2008 compared with 2007 primarily due to decreases in compensation related expense of $0.2 million resulting from lower stock-based compensation expense, and an increase of $0.2 million in allocation to cost of service revenue resulting from more time spent on customer support. Research and development expenses decreased in 2007 compared with 2006 primarily due to decreases in compensation and facility related expense of $0.2 million and lower third-party software expense of $0.1 million.

Sales and marketing

Sales and marketing expenses increased in 2008 compared to 2007 primarily due to increases in compensation and facility related expenses of $0.3 million. Sales and marketing expenses decreased in 2007 compared to 2006 primarily due to decreases in compensation and facility related expenses of $1.6 million and travel expenses of $0.3 million.

General and administrative

General and administrative expenses remained consistent in 2008, 2007 and 2006.

Restructuring

In the fourth quarter of 2008, LogicVision implemented a restructuring plan to reduce operating costs by consolidating facilities. Accordingly, LogicVision recognized a restructuring charge of approximately $0.3 million for the facilities expenses. The restructuring plan eliminated the Massachusetts facility and reduced the utilized space leased in San Jose, California. The restructuring plan was substantially completed by the end of December 2008.

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Other Items:

The table below sets forth other data from 2008 to 2007 and 2007 to 2006 (in thousands, except percentage data):

	Year ended December 31,							% change
	2008		2007			2006		2008/2007	2007/2006
Interest and other income, net	$	107	$	349		$	316	-69.3%	10.4%
Provision (benefit) for income taxes	$	22	$	(37	)	$	144	NM	NM

Percentage of total revenues:
Interest and other income, net		1%		3%			3%
Provision (benefit) for income taxes		0%		0%			1%

Interest income

Interest income decreased in 2008 compared with 2007 primarily due to lower interest yields on investments. Interest income increased in 2007 compared with 2006 primarily due to higher interest yields on investments.

Income taxes

LogicVision’s net operating losses are generated domestically, and amounts attributed to LogicVision’s foreign operations have been insignificant for all periods presented. In 2008 and 2006, LogicVision recorded an income tax provision of $22,000 and $144,000, respectively, and in 2007, LogicVision recorded income tax benefits of $37,000 primarily related to foreign income taxes. No benefit for domestic income taxes has been recorded due to the uncertainty of the realization of deferred tax assets. From inception through December 31, 2008, LogicVision has incurred net losses for federal and state tax purposes. As of December 31, 2008, LogicVision had federal and California net operating loss carryforwards of approximately $93.1 million and $33.8 million available to reduce future federal and California taxable income, respectively. These federal and California carryforwards begin to expire in 2010 if not utilized. The extent to which these carryforwards can be used to offset future taxable income may be limited under Section 382 of the Internal Revenue Code and applicable state tax law.

Liquidity and Capital Resources

At March 31, 2009, LogicVision had cash and cash equivalents of $6.9 million and negative working capital of $362,000.

Net cash used in operating activities was $2.5 million and $0.9 million in the first three months of 2009 and 2008, respectively. Net cash used in operating activities for the three months ended March 31, 2009 was primarily due to a net loss of $0.1 million, decreases in deferred revenue of $0.8 million, accrued liabilities of $0.3 million, increases in accounts receivable of $1.5 million and prepaid expenses and other assets of $0.2 million; partially offset by non-cash charges from stock-based compensation and depreciation and amortization of $0.2 million, and an increase of accounts payable of $0.3 million. Net cash used in operating activities for the three months ended March 31, 2008 was primarily due to a net loss of $1.3 million, a decrease in accrued liabilities of $0.6 million and an increase in accounts receivable of $0.1 million; partially offset by non-cash charges from stock-based compensation and depreciation and amortization of $0.3 million, an increase in deferred revenue of $0.7 million and an increase in prepaid expenses and other current assets of $0.1 million.

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Net cash provided by operating activities was $1.6 million in 2008. Net cash used in operating activities was $1.0 million in 2007, and $4.3 million in 2006. Net cash provided by operating activities for 2008 was primarily due to an increase in deferred revenue of $3.1 million, a decrease in accounts receivable $0.5 million and prepaid expenses and other assets of $0.8 million, and non-cash charges relating to depreciation and amortization of property and equipment, stock-based compensation and restructuring, totaling $1.2 million. This was partly offset by LogicVision’s net loss of $3.5 million and a decrease of accrued liabilities of $0.5 million. Net cash used in operating activities for 2007 was primarily due to a net loss of $3.7 million, an increase in accounts receivable of $0.4 million, and an increase in prepaid expenses and other assets of $0.1 million. This was partly offset by increases in deferred revenue of $1.1 million and accounts payable of $0.1 million, a decrease in other long-term assets of $0.4 million, and non-cash charges relating to depreciation and amortization of property and equipment and stock-based compensation totaling $1.6 million. Net cash used in operating activities for 2006 was primarily due to a net loss of $7.1 million, a decrease in deferred revenue of $1.3 million and a decrease in accounts payable of $0.2 million. This was partly offset by a decrease in accounts receivable of $1.9 million, a decrease in prepaid expenses and other assets of $0.9 million, an increase in accrued liabilities of $0.3 million, and non-cash charges relating to depreciation and amortization of property and equipment and stock-based compensation totaling $1.2 million.

Net cash provided by investing activities was $150,000 in the first three months of 2009, and net cash used in investing activities was $341,000 in the first three months of 2008. Net cash provided by investing activities in the first three months of 2009 was due to proceeds from maturities of marketable securities of $150,000. Net cash used by investing activities in the first three months of 2008 was primarily due to the purchase of marketable securities of $0.8 million and fixed assets of $59,000, partially offset by the proceeds from maturities of marketable securities of $0.5 million.

Net cash provided by investing activities was $1.1 million in 2008, $0.6 million in 2007, and $4.6 million in 2006. Net cash provided by investing activities for 2008 was primarily from proceeds from maturities of investments of $3.1 million, partly offset by purchases of investments of $1.7 million and purchase of property and equipment of $0.3 million. Net cash provided by investing activities for 2007 was primarily from proceeds from maturities of investments of $3.8 million, partly offset by purchases of investments of $3.2 million. Net cash provided by investing activities for 2006 was primarily from proceeds from maturities of investments of $9.8 million, partly offset by purchases of investments of $4.9 million and purchases of property and equipment of $0.2 million.

Net cash provided by financing activities was $4,000 and $9,000 in the first three months of 2009 and 2008, respectively, and was primarily due to the proceeds from the issuance of common stock pursuant to the employee stock purchase plan, partially offset by payments made on capital leases.

Net cash used in financing activities was $228,000 in 2008. Net cash provided by financing activities was $69,000 in 2007 and $3.2 million in 2006. Net cash used in 2008 was primarily due to the repurchase of treasury stock of $223,000, and payment for leased equipment of $41,000; partially offset by proceeds from the issuance of common stock of $36,000. Net cash provided by financing activities for 2007 was due to the proceeds from issuance of common stock pursuant to employee stock purchase plan purchases and exercise of employee stock options. Net cash provided by financing activities for 2006 was primarily from the sale in a private placement of 1.6 million shares of common stock in December 2006.

As of March 31, 2009, LogicVision had a loan agreement with a bank under which it could borrow, on a revolving basis, up to $1.0 million at an interest rate equal to prime rate, which was equal to an annual rate of 3.25% at March 31, 2009. There were no outstanding borrowings under the agreement, and LogicVision was in compliance with the covenants under the agreement as of March 31, 2009. The agreement expired on April 26, 2009.

On April 24, 2009, LogicVision entered into a loan agreement with a bank under which it may borrow, on a revolving basis, up to $2.0 million. The interest rate applicable to any outstanding amounts is determined by reference to LIBOR plus a stated margin, and is subject to daily adjustment. In connection with entering into the agreement, LogicVision granted the bank a security interest in all of its existing and after-acquired property, including, but not limited to, intellectual property, inventory and equipment. Under the agreement, LogicVision must comply with certain operating and reporting covenants as a condition to receiving credit extensions. If LogicVision fails to perform any of its obligations, violate any of its covenants, suffer a material adverse change in its business or financial condition or become insolvent under the agreement, the bank can declare any outstanding amounts immediately due and payable and cease advancing LogicVision money or extending LogicVision credit. The agreement expires on February 24, 2010. LogicVision is currently in compliance with all the operating and reporting covenants under the agreement and there are currently no borrowings outstanding.

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LogicVision intends to continue to invest in the development of new products and enhancements to its existing products. LogicVision’s future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of product development efforts and the success of these development efforts, the costs and timing of sales and marketing activities, the extent to which its existing and new products gain market acceptance, competing technological and market developments, the costs involved in maintaining and enforcing patent claims and other intellectual property rights, the level and timing of license and service revenues, available borrowings under line of credit arrangements and other factors. In addition, LogicVision may utilize cash resources to fund acquisitions of, or investments in, complementary businesses, technologies or product lines. From time to time, LogicVision may be required to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that such funding, if needed, will be available on terms attractive to LogicVision, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Strategic arrangements, if necessary to raise additional funds, may require LogicVision to relinquish its rights to certain of its technologies or products. LogicVision’s failure to raise capital when needed could have a material adverse effect on its business, operating results and financial condition.

LogicVision expects to finance its future commitments using existing cash resources. LogicVision currently anticipates that its available cash resources will be sufficient to meet its anticipated operating, capital requirements and business acquisitions for at least the remainder of fiscal 2009.

Contractual Obligations and Other Commercial Commitments

At March 31, 2009, LogicVision’s contractual obligations and commercial commitments have been summarized below (in thousands):

	Operating		Capital		Purchase
Year ending December 31,	Leases		Lease		Obligations
2009	$	574		36	$	325
2010		305		66		650
2011		70		-		650
	$	949	$	102	$	1,625

The above include amounts for rent and estimated operating expenses required under the property leases.

Indemnification Obligations

LogicVision enters into standard license agreements in the ordinary course of business. Pursuant to these agreements, LogicVision agrees to indemnify its customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to LogicVision’s products. These indemnification obligations have perpetual terms. LogicVision’s normal business practice is to limit the maximum amount of indemnification to the amount received from the customer. On occasion, the maximum amount of indemnification LogicVision may be required to make may exceed its normal business practices. LogicVision estimates the fair value of its indemnification obligations as insignificant, based upon historical experience concerning LogicVision’s product and patent infringement claims. Accordingly, no liabilities have been recorded for indemnification under these agreements as of March 31, 2009.

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LogicVision has agreements whereby LogicVision’s officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at LogicVision’s request in such capacity. The maximum potential amount of future payments LogicVision could be required to make under these indemnification agreements is unlimited; however, LogicVision has a directors and officers insurance policy that reduces LogicVision’s exposure and enables LogicVision to recover a portion of future amounts paid. As a result of the insurance policy coverage, it is believed the estimated fair value of these indemnification agreements is minimal. Accordingly, no liabilities have been recorded for these agreements as of March 31, 2009.

Warranties

LogicVision offers its customers a warranty that LogicVision’s products will conform to the documentation provided with the products. To date, there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, LogicVision has no liabilities recorded for these warranties as of March 31, 2009. LogicVision assesses the need for a warranty reserve on a quarterly basis, and there can be no guarantee that a warranty reserve will not become necessary in the future.

Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. FSP FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 and shall be applied prospectively. LogicVision does not expect that the implementation of FSP FAS 107-1 and APB 28-1 will have a material impact on its consolidated financial statements.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). FSP FAS 157-4 clarifies when markets are illiquid or that market pricing may not actually reflect that “real” value of an asset. If a market is determined to be inactive and market price is reflective of a distressed price then an alternative method of pricing can be used, such as a present value technique to estimate fair value. FSP FAS 157-4 identifies factors to be considered when determining whether or not a market is inactive. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 and shall be applied prospectively. LogicVision is evaluating the impact the implementation of FSP FAS 157-4 will have on its consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments (OTTI)” (“FSP FAS 115-2 and FAS 124-2”) which is intended to provide greater clarity to investors about the credit and noncredit component of an OTTI event and to more effectively communicate when an OTTI event has occurred. The FSP applies to debt securities and requires that the total OTTI be presented in the statement of income with an offset for the amount of impairment that is recognized in other comprehensive income, which is the noncredit component. Noncredit component losses are to be recorded in other comprehensive income if an investor can assess that (a) it does not have the intent to sell or (b) it is not more likely than not that it will have to sell the security prior to its anticipated recovery. The FSP is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The FSP will be applied prospectively with a cumulative effect transition adjustment as of the beginning of the period in which it is adopted. An entity early adopting this FSP must also early adopt FSP FAS 157-4. LogicVision is evaluating the impact the implementation of FSP FAS 115-2 and FAS 124-2 will have on its consolidated financial statements.

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Quantitative and Qualitative Disclosure About Market Risk

Foreign Currency Fluctuations

In the normal course of business, LogicVision is exposed to market risk from the effect of foreign exchange rate fluctuations on the U.S. dollar value from its foreign operations. A significant portion of LogicVision’s revenues has been denominated in U.S. dollars; however, as LogicVision increases its direct sales activities in Japan, an increasing portion of its revenues may be denominated in Japanese yen. In addition, the operating expenses incurred by LogicVision’s foreign subsidiaries are denominated in local currencies. Accordingly, LogicVision is subject to exposure from movements in foreign currency exchange rates. To date, the effect of changes in foreign currency exchange rates on LogicVision’s financial position and operating results has not been material. LogicVision currently does not use financial instruments to hedge foreign currency risks. LogicVision intends to assess the use of financial instruments to hedge currency exposures on an ongoing basis.

Corporate Governance and Executive Compensation

Board of Directors

There are currently six members on LogicVision’s board of directors. The board of directors proposes the election of six directors of LogicVision. Each director elected will hold office until the earliest of (a) the closing of the merger, (b) the 2010 annual meeting of stockholders, or when his successor is duly elected and qualified, or (c) his removal or resignation. Following completion of the merger, the individuals serving as LogicVision directors immediately prior to the completion of the merger will be replaced by designees of Mentor Graphics. For more information on LogicVision’s nominees for the board of directors, see the section entitled, “Proposal Two—Election of Directors.”

Director Independence

The LogicVision board of directors has determined that, except for Mr. Healy, each individual who currently serves as a member of the board is, and each individual who served as a member of the board in 2008 was, an “independent director” within the meaning of Rule 5605 of The NASDAQ Stock Market. Mr. Healy is not considered independent as he is employed by LogicVision as its President and Chief Executive Officer.

Board Meetings

The LogicVision board of directors held twenty meetings during the year ended December 31, 2008. All directors attended at least 75% of the aggregate number of meetings of the board of directors and of the committees on which such directors served during his tenure in 2008, except for Mr. Yonker. The independent directors meet in regularly scheduled executive sessions at in-person meetings of the board of directors without the participation of the President and Chief Executive Officer or other members of management. In 2008, five of the six directors then serving on the board attended the annual meeting of stockholders.

Board Committees

The LogicVision board of directors has appointed a Compensation Committee, an Audit Committee and a Nominating and Corporate Governance Committee. The board has determined that each director who serves on these committees is “independent,” as that term is defined by applicable listing standards of The NASDAQ Stock Market and SEC rules. The board has approved a charter for each of these committees that can be found on LogicVision’s website at http://www.logicvision.com/company/governance.php.

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Compensation Committee
Number of Members:		Three
Current Members:		Randall A. Hughes, Richard Okumoto and Matthew Raggett
Number of Meetings in 2008:		Ten
Functions:		The Compensation Committee’s primary functions are to assist the board of directors in meeting its responsibilities with regard to oversight and determination of executive compensation and to review and make recommendations to the board of directors with respect to major compensation plans, policies and programs of LogicVision. Other specific duties and responsibilities of the Compensation Committee are to review, and make recommendations for approval by the independent members of the board of directors regarding, the compensation for the Chief Executive Officer and other executive officers of LogicVision, establish and modify the terms and conditions of employment of the Chief Executive Officer and other executive officers of LogicVision, and administer LogicVision’s stock plans and other compensation plans. The Compensation Committee has the authority to select, retain, terminate and approve the fees and other retention terms of consultants as it deems appropriate to perform its duties.

Audit Committee
Number of Members:		Three
Current Members:		Randall A. Hughes, Richard Okumoto and Richard C. Yonker
Number of Meetings in 2008:		Four
Functions:		The Audit Committee’s primary functions are to assist the board of directors in fulfilling its oversight responsibilities relating to LogicVision’s financial statements, system of internal controls, and auditing, accounting and financial reporting processes. Other specific duties and responsibilities of the Audit Committee are to appoint, compensate, evaluate and, when appropriate, replace LogicVision’s independent registered public accounting firm; review and pre-approve audit and permissible non-audit services; review the scope of the annual audit; monitor the independent registered public accounting firm’s relationship with LogicVision; and meet with the independent registered public accounting firm and management to discuss and review LogicVision’s financial statements, internal controls, and auditing, accounting and financial reporting processes.

Nominating and Corporate Governance Committee
Number of Members:		Three
Current Members:		Gregg Adkin, Matthew Raggett and Richard C. Yonker
Number of Meetings in 2008:		One
Functions:		The Nominating and Corporate Governance Committee’s primary functions are to identify qualified individuals to become members of the board of directors and determine the composition of the board of directors and its committees. Other specific duties and responsibilities are to recommend nominees to fill vacancies on the board of directors, investigate suggestions for candidates for membership on the board of directors, and monitor compliance with board of directors and board of directors committee membership criteria.

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Audit Committee

LogicVision has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Richard Okumoto (Chairperson), Randall A. Hughes and Richard C. Yonker. All of such members qualify as an “independent director” under applicable NASDAQ Stock Market standards and meet the standards established by The NASDAQ Stock Market for serving on an audit committee. LogicVision’s board of directors has determined that Mr. Okumoto qualifies as an “audit committee financial expert” under the definition outlined by the SEC.

Director Nominations

The LogicVision board of directors nominates directors for election at each annual meeting of stockholders and elects new directors to fill vacancies when they arise. The Nominating and Corporate Governance Committee has the responsibility to identify, evaluate, recruit and recommend qualified candidates to the board of directors for nomination or election.

The board of directors has as an objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives and skills. The Nominating and Governance Committee will select candidates for director based on their character, judgment, diversity of experience, business acumen, and ability to act on behalf of all stockholders. The Nominating and Corporate Governance Committee believes that nominees for director should have experience, such as experience in management or accounting and finance, or industry and technology knowledge, that may be useful to LogicVision and the board, high personal and professional ethics, and the willingness and ability to devote sufficient time to effectively carry out his or her duties as a director. The Nominating and Corporate Governance Committee believes it appropriate for at least one, and, preferably, multiple members of the board to meet the criteria for an “audit committee financial expert” as defined by SEC rules, and for a majority of the members of the board to meet the definition of “independent director” under the rules of The NASDAQ Stock Market. The Nominating and Corporate Governance Committee also believes it appropriate for certain key members of LogicVision’s management to participate as members of the board.

Prior to each annual meeting of stockholders, the Nominating and Corporate Governance Committee identifies nominees first by evaluating the current directors whose term will expire at the annual meeting and who are willing to continue in service. These candidates are evaluated based on the criteria described above, including as demonstrated by the candidate’s prior service as a director, and the needs of the board with respect to the particular talents and experience of its directors. In the event that a director does not wish to continue in service, the Nominating and Corporate Governance Committee determines not to re-nominate the director, or a vacancy is created on the board as a result of a resignation, an increase in the size of the board or other event, the Committee will consider various candidates for board membership, including those suggested by the Committee members, by other board members, by any executive search firm engaged by the Committee and by stockholders. The Committee recommended all of the nominees for election included in this proxy statement/prospectus. All of the nominees are current members of the board standing for re-election as directors.

A stockholder who wishes to suggest a prospective nominee for the board should notify the Secretary of LogicVision or any member of the Committee in writing with any supporting material the stockholder considers appropriate. In addition, LogicVision’s bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the board of directors at LogicVision’s Annual Meeting of Stockholders. In order to nominate a candidate for director, a stockholder must give timely notice in writing to the Secretary of LogicVision and otherwise comply with the provisions of LogicVision’s bylaws. To be timely, LogicVision’s bylaws provide that LogicVision must have received the stockholder’s notice not less than 60 days nor more than 90 days prior to the scheduled date of the meeting. However, if notice or prior public disclosure of the date of the annual meeting is given or made to stockholders less than 75 days prior to the meeting date, LogicVision must receive the stockholder’s notice by the earlier of (i) the close of business on the 15th day after the earlier of the day LogicVision mailed notice of the annual meeting date or provided public disclosure of the meeting date and (ii) two days prior to the scheduled date of the annual meeting. Information required by the bylaws to be included in the notice includes the name and contact information for the candidate and the person making the nomination and other information about the nominee that must be disclosed in proxy solicitations under Section 14 of the Exchange Act and the related rules and regulations under that Section.

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Stockholder nominations must be made in accordance with the procedures outlined in, and include the information required by, LogicVision’s bylaws and must be addressed to: Secretary, LogicVision, Inc., 25 Metro Drive, Third Floor, San Jose, California 95110. You can obtain a copy of LogicVision’s bylaws by writing to the Secretary at this address.

Stockholder Communications with the Board of Directors

If you wish to communicate with the LogicVision board of directors, you may send your communication in writing to: Secretary, LogicVision, Inc., 25 Metro Drive, Third Floor, San Jose, California 95110. You must include your name and address in the written communication and indicate whether you are a stockholder of LogicVision. The Secretary will review any communication received from a stockholder, and all material communications from stockholders will be forwarded to the appropriate director or directors or committee of the board based on the subject matter.

Compensation of Directors

LogicVision’s non-employee directors each receive a cash retainer of $10,000 per year, payable in equal quarterly installments. The chairman of the board receives an additional cash retainer of $10,000 per year, payable in equal quarterly installments. The Chair of the Audit Committee receives an additional cash retainer of $5,000 per year, payable in equal quarterly installments, and the Chairs of the other Committees of the board of directors receive an additional cash retainer of $2,000 per year, payable in equal quarterly installments. In addition, LogicVision reimburses directors for reasonable expenses in connection with attendance at meetings of the board of directors and committee meetings. Directors who are employees of LogicVision do not receive any cash compensation for their services as directors.

In addition to cash compensation for services as a member of the board, under LogicVision’s 2000 Stock Incentive Plan, directors who are not employees also receive an initial grant of an option to purchase 8,000 shares of LogicVision common stock at the fair market value of the common stock on the date of grant, which vests in two equal annual installments on each of the first two anniversaries of the date of grant, or, if earlier, immediately prior to the next two regular annual meetings of LogicVision’s stockholders following the date of grant. On the first business day following each regular annual meeting of LogicVision’s stockholders after appointment or election to the board, each non-employee director receives an option to purchase 4,000 shares of common stock at the fair market value of the common stock on the date of grant, which vests in full on the first anniversary of the date of grant, or if earlier, immediately prior to the next regular annual meeting of LogicVision’s stockholders following the date of grant. Each non-employee director who is not initially elected at a regular annual meeting of stockholders receives an option to purchase a pro rata portion of 4,000 shares based on the number of full months remaining from the date of election until the next regular annual meeting, which vests in full immediately prior to the next regular annual meeting of LogicVision’s stockholders following the date of grant. Each director option that has been outstanding at least six months will vest in full upon a change in control.

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The table below shows the compensation paid to each non-employee director for their service in 2008.

2008 Director Compensation

Director	Fees Earned or Paid in Cash ($)	Option Awards ($) (1) (2)	Total ($)
Gregg E. Adkin	20,000	3,248	23,248
Randall A. Hughes	10,000	3,248	13,248
Richard Okumoto	15,000	3,248	18,248
Matthew Raggett	12,000	3,248	15,248
Richard C. Yonker	12,000	3,248	15,248

____________________

(1)		Amounts listed in this column represent the compensation expense of option awards recognized by LogicVision under Statement of Financial Accounting Standards No. 123 (revised 2004) (FAS 123R) for the 2008 fiscal year, rather than amounts paid to or realized by a named individual, and includes expense recognized for awards granted prior to 2008. Please refer to Note 8 to LogicVision’s consolidated financial statements included in LogicVision’s Notes to Consolidated Financial Statements included in Annex D to this proxy statement/prospectus for the underlying assumptions for this expense. There can be no assurance the options will be exercised (in which case no value will be realized by the individual) or that the value on exercise will approximate the compensation expense recognized by LogicVision.
(2)		The following table provides the number of shares of LogicVision common stock subject to outstanding options held at December 31, 2008 for each director, as applicable (as adjusted for a 1-for 2.5 reverse split of LogicVision’s common stock effected on March 12, 2008):

			Number of Shares
			Underlying Unexercised
Name			Options
Gregg E. Adkin			26,000
Randall A. Hughes			27,000
Richard Okumoto			16,000
Matthew Raggett			27,000
Richard C. Yonker			24,000

Section 16(a) Beneficial Ownership Reporting Compliance

Under the securities laws of the United States, LogicVision’s directors, executive officers and any persons holding more than 10% of LogicVision’s common stock are required to report their initial ownership of LogicVision’s common stock and any subsequent changes in that ownership to the SEC. Specific due dates for these reports have been established and LogicVision is required to identify in those persons who failed to timely file these reports. To LogicVision’s knowledge, based solely on a review of such reports furnished to LogicVision and written representations that no other reports were required during the fiscal year ended December 31, 2008, all Section 16(a) filing requirements applicable to LogicVision’s officers, directors and 10% stockholders were satisfied for 2008, except for Gregg E. Adkin, Randall A. Hughes, Richard Okumoto, Matthew Raggett and Richard C. Yonker, who each filed one late report in connection with an annual grant of non-qualified stock options under LogicVision’s 2000 Stock Incentive Plan.

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Executive Compensation

The Summary Compensation Table and the tables that follow provide compensation information for James T. Healy, as President and Chief Executive Officer, the two most highly compensated executive officers of LogicVision who were serving as executive officers at the end of 2008, which in 2008 were Fadi Maamari and Mei Song, and Ronald H. Mabry, a former executive officer of LogicVision who was not serving as an executive officer at the end of 2008.

Summary Compensation Table

				Non-Equity
			Option	Incentive Plan
			Awards	Compensation	All Other
Name and Principal Position	Year	Salary ($)	($) (4)	($) (5)	Compensation ($)		Total ($)
James T. Healy	2008	311,000	176,079	-	12,000	(4)	535,994
President and Chief Executive Officer	2007	300,000	143,994	80,000	12,000	(4)	535,994
Fadi Maamari	2008	222,250	104,517	-	-		326,767
Chief Operating Officer (1)
Mei Song	2008	138,125	52,391	-	-		190,516
Vice President, Finance and Chief Financial Officer (2)
Ronald H. Mabry	2008	225,451	56,623	-	50,533	(6)	332,607
Former Vice President Field Operations &	2007	254,148	87,135	24,000	7,200	(7)	372,483
Applications Engineering (3)

____________________

(1)		Mr. Maamari was appointed Chief Operating Officer effective October 14, 2008.
(2)		Ms. Song was appointed Vice President, Finance and Chief Financial Officer effective October 14, 2008.
(3)		On October 24, 2008, LogicVision entered into a separation agreement with Ronald H. Mabry.
(4)		Amounts listed in this column represent the compensation expense of option awards recognized by LogicVision under FAS 123R for the corresponding fiscal year, rather than amounts paid to or realized by a named individual, and includes expense recognized for awards granted prior to such year. Please refer to Note 8 to LogicVision’s consolidated financial statements included in LogicVision’s Notes to Consolidated Financial Statements included in Annex D to this proxy statement/prospectus for the underlying assumptions for this expense. There can be no assurance the options will be exercised (in which case no value will be realized by the individual) or that the value on exercise will approximate the compensation expense recognized by LogicVision.
(5)		Amounts listed in this column represent bonuses paid under the annual incentive compensation plan for 2007 and 2008. These amounts are not reported in the Bonus column because the award is tied to corporate performance goals.
(6)		Represents severance payments and $7,200 in payments made with respect of an auto allowance.
(7)		Represents payments made with respect of an auto allowance.

Salary

The annual salaries of the named executive officers are reflected under the Salary column of the Summary Compensation Table. The Compensation Committee reviews salaries on an annual basis, and may recommend to the independent members of the board of directors adjustments to each executive officer’s salary from time to time based on the individual’s contributions and responsibilities on a case-by-case basis.

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Incentive Compensation

None of LogicVision’s named executive officers earned a bonus under LogicVision’s cash bonus plan for the 2008 fiscal year. Under the cash bonus plan for the 2008 fiscal year, which was based upon both qualitative and quantitative goals, bonuses to executive officers were based upon the achievement of specified targets relating to bookings, revenues, net income/net loss, net end-of-period cash and qualitative objectives. The independent members of the board of directors, taking into account the recommendations of the Compensation Committee of the board of directors, approved the 2008 cash bonus plan. Achievement of each of the target objectives for bookings, revenues, net income/net loss, and net end-of-period cash would have resulted in payment of up to 20% of the target bonus, provided that LogicVision met or exceeded minimum threshold targets of bookings, revenues, net income/net loss, and net end-of-period cash. Executive officers were eligible to receive 120% of their target bonuses if LogicVision met or exceeded the highest threshold targets for bookings, revenues, net income/net loss, net end-of-period cash and qualitative objectives.

Stock Option Awards

In 2008, all named executive officers received grants of options to purchase LogicVision common stock. The exercise price was the fair market value of LogicVision’s common stock on the grant date. Although these awards will generally vest and become exercisable over a four-year period, the amounts disclosed in the Option Awards column of the Summary Compensation Table attributable to the 2008 awards reflect the portion of these awards expensed by LogicVision in the 2008 fiscal year under FAS 123 (R). The balance of the amount set forth in the Option Awards column is attributable to the amounts expensed by LogicVision in the 2008 fiscal year for outstanding stock option awards from previous years under FAS 123(R).

The amounts, if any, actually realized by the named executive officers for the 2008 awards will vary depending on the vesting of the award and the price of LogicVision’s common stock in relation to the exercise price at the time of exercise. Detail regarding the number of exercisable and unexercisable options held by each named executive officer at year-end is set forth in the “2008 Outstanding Equity Awards at Fiscal Year-End Table” below.

Employment Contracts, Termination of Employment and Change-in-Control Arrangements

In 2003, the LogicVision Compensation Committee recommended, and the board of directors approved, the amendment of the outstanding stock option agreements then in effect and the form of stock option agreement used under LogicVision’s 2000 Stock Incentive Plan to provide for acceleration of vesting in full in certain circumstances following a change in control of LogicVision. Because the amendment applied to all outstanding stock option agreements and the form of stock option agreement, the provision regarding acceleration of vesting applies to options that are held by, or may be issued to, the named executive officers.

In October 2008, LogicVision entered into a separation agreement with Ronald H. Mabry, its former Vice President, Field Operations and Application Engineering. Under the separation agreement, Mr. Mabry continued receiving as separation payments his base salary until April 14, 2009 or, if earlier, until commencing new employment. In addition, LogicVision agreed to pay 75% of the premium payments for coverage under COBRA through April 30, 2009.

In May 2009, LogicVision entered into Amended and Restated Change of Control Severance Agreements that amended and restated the Change of Control Severance Agreements dated as of November 12, 2008 with James T. Healy, LogicVision’s President and Chief Executive Officer, Fadi Maamari, LogicVision’s Chief Operating Officer, and Mei Song, LogicVision’s Chief Financial Officer to reduce certain payments that would be payable to each of them under the prior agreements. The agreements are subject to and conditioned upon, and will become effective immediately prior to, the completion of the merger. Each agreement provides that in the event of an involuntary termination within three months before or twelve months after a change of control of LogicVision, each will be entitled to (i) a cash payment based on 100% of his or her annual base salary as of the termination date, (ii) the immediate acceleration of vesting and exercisability of his or her outstanding options to acquire the LogicVision’s common stock and (iii) reimbursement of health insurance premiums for each and his or her eligible dependents for up to twelve months measured from the date of termination. The agreements provide that each shall not to solicit employees of LogicVision for 12 months following termination of employment, and will not compete with LogicVision for the period during which they receive severance payments. A “change of control” includes a merger or consolidation involving LogicVision in which LogicVision’s stockholders immediately prior to such merger or consolidation own 50% or less of the voting power of the surviving entity’s voting securities, sale of all or substantially all of LogicVision’s assets, the approval by LogicVision’s stockholders of a plan of complete liquidation or dissolution, and the acquisition by a person or related group of persons of 50% or more of the voting power of LogicVision’s voting securities, and would include the proposed merger. For more information on LogicVision’s employment contracts, see the section entitled, “Proposal One—The Merger—Interests of Certain Persons in the Merger.”

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2008 Outstanding Equity Awards At Fiscal Year-End

	Option Awards (1)
		Number of Securities
	Number of Securities	Underlying Unexercised
	Underlying Unexercised	Options (#)	Option Exercise	Option Expiration
Name	Options (#) Exercisable	Unexercisable	Price ($)	Date
James T. Healy	25,000	15,000	3.30	2/15/2016
	6,000	10,000	2.68	2/2/2017
	97,778	-	2.50	3/8/2017
	64,000	-	2.50	3/8/2017
	8,000	-	2.50	3/8/2017
	14,222	-	2.50	3/8/2017
	10,000	70,000	1.75	1/24/2018
	-	159,000	0.83	12/5/2018
Fadi Maamari	5,000	3,000	2.90	2/3/2016
	2,000	2,000	3.63	7/20/2016
	21,000	35,000	2.68	2/2/2017
	4,480	-	2.50	3/8/2017
	400	-	2.50	3/8/2017
	4,800	-	2.50	3/8/2017
	2,800	-	2.50	3/8/2017
	1,680	-	2.50	3/8/2017
	4,800	-	2.50	3/8/2017
	2,800	-	2.50	3/8/2017
	5,760	-	2.50	3/8/2017
	7,000	49,000	1.75	1/24/2018
	-	80,000	0.83	12/5/2018
Mei Song	1,000	600	2.90	2/3/2016
	3,000	5,000	2.68	2/2/2017
	3,200	-	2.50	3/8/2017
	1,000	-	2.50	3/8/2017
	3,200	-	2.50	3/8/2017
	1,600	-	2.50	3/8/2017
	2,000	-	2.50	3/8/2017
	1,200	-	2.50	3/8/2017
	1,000	7,000	1.75	1/24/2018
	-	74,000	0.83	12/5/2018
Ronald H. Mabry	12,500	-	3.3	1/14/2009
	7,000	-	1.75	1/14/2009
	21,908	-	2.5	1/14/2009
	25,600	-	2.5	1/14/2009
	19,692	-	2.5	1/14/2009
	12,800	-	2.5	1/14/2009
	21,000	-	2.675	1/14/2009

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____________________

(1)		The number of shares of LogicVision common stock and the exercise price for each option listed in this table has been adjusted to reflect a 1-for 2.5 reverse split of LogicVision’s common stock effected on March 12, 2008.
(2)		Except as otherwise noted in note (3), all options listed in this table become exercisable as to 25% of the shares on the first anniversary of the grant date, with the remaining shares of LogicVision common stock vesting ratably each six-month period thereafter over the following three years. Except as otherwise noted, the options have a term of ten years, subject to earlier termination in certain events relating to termination of employment. Vesting of the options is subject to acceleration under the circumstances described under “Employment Contracts, Termination of Employment and Change-in-Control Arrangements.”
(3)		On March 8, 2007, LogicVision completed an exchange offer with its eligible employees, including its executive officers, to exchange some or all of their outstanding stock options to purchase LogicVision common stock that had an exercise price greater than $3.70 per share (as adjusted for a 1-for 2.5 reverse split of LogicVision’s common stock effected on March 12, 2008) for replacement options. Each of LogicVision’s executive officers exchanged all of their eligible options for replacement options. The exchange ratio applicable to LogicVision’s executive officers was one-for-1.25. The exercise price per share of each replacement option granted was $2.50 and each replacement option has a one year vesting period, one-half of which vested on the date that was six months after the replacement option’s issuance date and the remainder vesting in equal monthly installments over the next six months. Each replacement option has an expiration term of ten years. Options that did not have an exercise price greater than $3.70 per share were not eligible for exchange, and such options vest as to 25% of the shares on the first anniversary of the grant date, with the remaining shares vesting ratably each six-month period thereafter over the following three years.

Principal Accountant Fees and Services

Burr, Pilger & Mayer LLP served as LogicVision’s independent registered public accounting firm with respect to the audit of its financial statements for fiscal years ended December 31, 2007 and 2008. Representatives of Burr, Pilger & Mayer LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions.

The following table presents fees for professional audit services rendered by LogicVision’s independent registered public accounts for the audit of its annual financial statements for 2008 and 2007, and fees billed for other services rendered by its independent registered public accounts.

	Year Ended December 31,
	2008		2007
	(in thousands)
Audit Fees	$	245	$	181
Audit-Related Fees		-		3
Tax Fees		-		-
All Other Fees		-		18
Total	$	245	$	202

Audit Fees consist of fees billed for professional services rendered for the audit of LogicVision’s consolidated financial statements and the review of LogicVision’s interim consolidated financial statements included in quarterly reports and services that are normally provided by LogicVision’s independent registered public accounting firm in connection with statutory and regulatory filings or engagements.

Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of LogicVision’s consolidated financial statements and are not reported under “Audit Fees.”

Tax Fees consist of fees billed for professional services rendered for tax advice, planning and compliance (domestic and international). These services include the preparation and review of income tax returns, and international returns, and assistance regarding transfer pricing, federal, state and international tax compliance, and international tax planning.

All Other Fees consist of fees for products and services other than the services described above, including subscription to online services and attendance at training classes.

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Pre-Approval Policies and Procedures

It is LogicVision’s policy that all audit and non-audit services to be performed by LogicVision’s independent registered accounting firm be approved in advance by the Audit Committee. All of the services provided in 2008 were pre-approved.

Report of the Audit Committee of the Board Of Directors

The LogicVision Audit Committee operates under a written charter adopted by the board of directors and the Audit Committee on August 3, 2000 and amended on January 22, 2004. The members of the Audit Committee are Randall A. Hughes, Richard Okumoto and Richard C. Yonker, each of whom meets the independence standards established by The NASDAQ Stock Market.

The Audit Committee oversees LogicVision’s financial reporting process on behalf of the board of directors and is responsible for providing independent, objective oversight of LogicVision’s accounting functions and internal control over financial reporting. It is not the duty of the Audit Committee to plan or conduct audits or to determine that LogicVision’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management is responsible for LogicVision’s financial statements and the reporting process, including the system of internal control over financial reporting. The independent registered public accounting firm is responsible in their report for expressing an opinion on the conformity of those financial statements with generally accepted accounting principles.

The Audit Committee has reviewed and discussed LogicVision’s audited financial statements contained in the 2008 Annual Report on Form 10-K with LogicVision’s management and its independent registered public accounting firm. The Audit Committee met with the independent registered public accounting firm and discussed issues deemed significant by the independent registered public accounting firm, including those matters required by AICPA, Professional Standards, Vol. 1, AU Section 380, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence.

Based upon the reviews and discussions outlined above, the Audit Committee recommended to the board of directors that the audited financial statements be included in LogicVision’s Annual Report on Form 10-K for the year ended December 31, 2008, for filing with the Securities and Exchange Commission.

	Audit Committee

	Randall A. Hughes Richard Okumoto Richard C. Yonker

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF LOGICVISION

The following table sets forth certain information as of June 15, 2009 as to shares of LogicVision common stock beneficially owned by: (i) each person who is known by LogicVision to own beneficially more than 5% of its common stock, (ii) each of LogicVision’s current directors, (iii) each of LogicVision’s nominees for director, (iv) each of LogicVision’s executive officers named under “Information About Logic Vision—Corporate Governance and Executive Compensation—Executive Compensation—Summary Compensation Table,” and (v) all directors and executive officers of LogicVision as a group. Ownership information is based upon information furnished by the respective individuals or entities, as the case may be. Unless otherwise noted below, the address of each beneficial owner is c/o LogicVision, Inc., 25 Metro Drive, Third Floor, San Jose, California 95110. The percentage of LogicVision common stock beneficially owned is based on 9,473,572 shares outstanding as of June 15, 2009. In addition, shares issuable pursuant to options or warrants which may be exercised within 60 days of June 15, 2009 are deemed to be issued and outstanding and have been treated as outstanding in calculating the percentage ownership of those individuals possessing such interest, but not for any other individuals. Thus, the number of shares considered to be outstanding for the purposes of this table may vary depending on the individual’s particular circumstances.

		Right to
		Acquire
	Number of	Beneficial
	Shares of	Ownership		Percentage of
	Common Stock	within		Common Stock
	Beneficially	60 days of		Beneficially
Name and Address of Beneficial Owner	Owned (1)	June 15, 2009	Total	Owned
Directors, Nominees and Named Executive Officers:
Gregg E. Adkin (2)	939,169	26,000	965,169	10.2	%
James T. Healy	48,116	273,875	321,991	3.3	%
Randall A. Hughes	10,000	27,000	37,000	*
Richard Okumoto	0	16,000	16,000	*
Matthew Raggett	6,206	27,000	33,206	*
Richard C. Yonker	0	24,000	24,000	*
Fadi Maamari	13,250	103,520	116,770	1.2	%
Mei Song	9,150	30,850	40,000	*
Ronald H. Mabry	0	0	0	*
5% Stockholders:
Austin W. Marxe and David M. Greenhouse (3)	781,332	0	781,332	8.2	%
MicroCapital LLC (4)	1,088,534	0	1,088,534	11.5	%
Pacific Asset Partners (5)	484,000	0	484,000	5.1	%
Ruth and Roy Rogers (6)	881,451	0	881,451	9.3	%
Valley Ventures II, L.P. and Valley Ventures III, L.P. (7)	939,169	0	939,169	9.9	%
Wellington Management Co. LLP (8)	639,000	0	639,000