<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
QUICKTURN DESIGN SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MENTOR GRAPHICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE>
JAMES MACK FOLSOM
CURRICULUM VITAE
POSITION: Economic Consultant
Mack Folsom, Inc.
ADDRESS: Home: 2664 North Marcey Road
Arlington, Virginia 22207
Telephone: 540-527-0102
540-527-1699
Fax: 540-527-1006
Office: Same
DATE & PLACE OF BIRTH: May 16, 1932
Barney, Georgia
EDUCATION:
Institution Attended Dates Degree
Georgia Southwestern College 1949-51
University of Georgia 1951-53 BBA (marketing)
Vanderbilt University 1953-54
Vanderbilt University 1556-59
(Completed all requirements for Ph.D. except thesis.)
Major Fields: Industrial Organization and Agricultural Economics
HONORS, SCHOLARSHIPS, FELLOWSHIPS:
Special Scholarship, Vanderbilt University
Earhart Fellowship - 2 years
Ford Foundation Dissertation Fellow
Valedictorian, UGA, Class of 1953
Phi Kappa Phi National Honorary
Beta Gamma Sigma National Honorary
Distinguished Service Award, Federal Trade Commission
Exhibit 1, Page 1 of 4
<PAGE>
PROFESSIONAL EXPERIENCE:
Research Assistant - Displaced Persons' Adjustment to U.S. Economy,
Gregor Sebba, UGA.
Instructor, Industrial Organization and Statistics, Vanderbilt, Summer
1959.
Instructor and Assistant Professor, Duke University, 1959-1964.
(Courses Taught: Principles of Economics, Marketing, Managerial
Economics, and Industrial Organization)
Economist, Division of Economic Evidence, Bureau of Economics, Federal
Trade Commission, 1964-68.
Assistant to the Director, Bureau of Economics, Federal Trade
Commission, 1969.
Chief, Division of Economic Evidence, Bureau of Economics, Federal
Trade Commission, 1970-72.
Assistant Director, Bureau of Economics, Federal Trade Commission,
1972-73.
Acting Director, Bureau of Economics, Federal Trade Commission,
1973-74.
Deputy Director, Bureau of Economics, Federal Trade Commission, 1974-77
and 1978.
Acting Director, Bureau of Economics, Federal Trade Commission,
1977-78.
Senior Vice President, Glassman-Oliver Economic Consultants, Inc., 1828
L Street, N.W., Suite 405, Washington, D.C. 20036, 1978-1997.
PUBLICATIONS:
"Trends in Employment and Earned Income of Older Workers" with Juanita
M. Kreps and C.E. Ferguson, Employment, Income, and Retirement Problems
of the Aged, Duke University Press, 1963.
The Use of Games of Chance in Food and Gasoline Retailing, FTC Economic
Staff Report, 1968.
The 1973 Line of Business Report, FTC Economic Staff Report, 1976, with
F.M. Scherer, et al.
Comment on State of Competition in Food, American Journal of
Agricultural Economics, Vol. 61, No. 1, Feb. 1979, pp. 186-7.
Exhibit 1, Page 2 of 4
<PAGE>
TESTIMONY IN SELECTED LEGAL PROCEEDINGS:
Allied Custom Gypsum vs. United States Gypsum Company, U.S. District
Court for the Western District of Oklahoma, Case No. CIV-91-1409L,
Deposition (1992, 1993)
Red Eagle Resources Corporation, Inc., and its Two Subsidiaries United
Drilling Company and Cimmaron Operating Company, Suits Drilling
Company, and B.A. Newman Well Servicing Co., Inc., on Behalf of
Themselves And All Others Similarly Situated, v. Baker Hughes
Incorporated; Hughes Tool Company; Reed Tool Company, A/K/A Baker RTC,
Inc.; Camco International Inc.; Smith International, Inc.; and Dresser
Industries, Inc., U.S. District Court, Southern District of Texas,
Houston Division, Civil Action No. H-91-627, Deposition (1993)
El Cajon Cinema, Inc., A California Corporation v. American
Multi-Cinema Inc., et al., U.S. District Court, Southern District of
California, Case No. 900710 IEG, Deposition. (1993)
J. Webb Shelley, d/b/a Shelley's Inc. v. Kraft General Foods, Inc., a
Delaware Corporation, and National Dairy Products Corporation, a
Delaware Corporation, U.S. District Court for the Western District of
North Carolina, Civil Action No. C-C-91-427-MU, Affidavit. (1993)
Cleo Stinnett, et al., Plaintiffs, vs. BellSouth Telecommunications,
Inc. D/B/A South Central Bell Telephone Company, Defendant, U.S.
District Court, Eastern District of Tennessee, Docket No. CIV-2-92-207.
(1994)
Irfan Khalid Ali v. His Highness Prince Khalid Bin Fahd Al-Faisal Bin
Abdul-Rahman Al-Sa'ud, et al., C.A. No. 94-41-A, United States District
Court, Eastern District of Virginia, Alexandria Division, Deposition.
(1994)
Broadmoor Theatre v. Ralph Slaughter, et al., B.T. A. No. 4137, Board
of Tax Appeals, State of Louisiana, Deposition. (1994)
The Bon Ton Inc., v. The May Department Stores Co., et al.,
(94-CV-6454L) and State of New York By G. Oliver Koppell, Attorney
General v. The May Department Stores Company, et al. (94-CV-6479L),
United States District Court, Western District of New York, Testimony
by Affidavit and at hearing. (1994)
Cynmarlyn, Inc. v. Hardee's Food System's, Inc., Case No. 94-00540-8C1,
United States Bankruptcy Court, Middle District of Florida, Tampa
Division, Testified by Affidavit. (1994)
Sportmart, Inc., Plaintiff, v. No Fear, Inc., Defendant, Civil Action
No. 94C-4890, United States District Court For the Northern District of
Illinois, Eastern Division (1995), Deposition.
Exhibit 1, Page 3 of 4
<PAGE>
Omega Environmental, Inc. et al., Plaintiffs, v. Gilbarco, Inc., et
al., Defendants, United States District Court, Western District of
Washington at Seattle, No. C94-887Z (1995), Deposition and Trial. In
Re: Brand Name Prescription Drugs Antitrust Litigation, United States
District Court for the Northern District of Illinois Eastern Division,
Case No. 94 C 897, MDL 997, Deposition. (1996)
Ameron v. Total Containment, Inc., et al., CV 94-7871 HLH and Environ
Products, Inc. v. Total Containment, Inc., et al., CV 95-6464, United
States District Court, Central District of California, Deposition and
trial. (1996)
In The Matter of Hardware Logic Emulation Systems and Components
Thereof, Investigation No. 337-TA-383, United States International
Trade Commission, Washington, D.C. (1996 and 1997)
Mexinox, et al. v. Acerinox, et al. and Mexinonx et al. v. Thyssen, et
al., Civ. No. 96-164-A, United States District Court, Eastern District
of Virginia, Deposition. (1996)
Pat's Auto Parts, Inc. v. DuPont, et al., CV-96-02976-RVM, United
States District Court for the Southern District of the Southern
Division-AL, Deposition. (1996)
Testified in Cinamerica Theatres, et al. v. City of Boulder, Colorado,
et al., City's Hearing on Standing. (1997)
Dillard's Virginia v. Crown American Financing Partnership, et al.,
Civil Action No. 4:97cv96, United States District Court for the
District of Virginia, Newport News Division, Deposition (1997).
General Surgical Innovations, Inc. v. Origin Medsystems, Inc. & Origin
v. GSI, United States District Court for the Northern District of
California, Deposition (1998).
Aptix Corporation v. Quickturn Design Systems, United States District
Court for the North District of California, San Jose Division,
Deposition (1998).
Intermedics, vs. Cardiac Pacemakers Inc., United States District Court
for the District of Minnesota, Fourth Division, Deposition (1998).
TESTIMONY AND SPEECHES:
Testified before several congressional committees on diverse subjects -
Sweepstake Promotions, Price Discrimination, Small Business Role in
Economy, Food Retailing, Steel Imports and on FTC Budget.
Speeches before lawyers (e.g., Practicing Law Institute and Ohio Bar
Continuing Legal Education) and business groups.
Exhibit 1, Page 4 of 4
<PAGE>
[Letterhead of Latham & Watkins]
August 7, 1998
Via Fax and Federal Express
Lawrence R. LaPorte, Esq.
Lyon & Lyon
633 W. Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
Re: Mentor & Meta v. Quickturn: Updating Damages Discovery
Dear Larry:
I enclose documents on all five of the issues on which you
asked for more information:
1. U.S. sales of emulation systems made by Mentor/Meta.
2. U.S. customers to whom Mentor/Meta demonstrated,
benchmarked, or price quoted on a SimExpress, in the U.S.
3. Documents showing Mentor's U.S. inventory of emulations
systems and replacement parts from January 1996 to the present.
4. Documents reflecting or relating to price quotes,
benchmarks, or demos to U.S. customers.
5. Correspondence to/from U.S. Customs relating to emulation
systems or replacement parts to emulation systems.
Let me briefly run through the documents so it'll be easier
for you to review them.
Exhibit 2, Page 1 of 3
<PAGE>
LATHAM & WATKINS
August 7, 1998
Page 2
MGDC0023001 through MGDC002389 are documents prepared by
Mentor personnel from a database in Wilsonville, and should reflect every formal
price quote and sales order on the SimExpress in the United States. I say
"should" with some emphasis. MGDC002390, for example, reflects an instance where
the sales person created a quotation on his personal computer instead of using
the centralized database. The only way to find that information is to contact
every sales person at Mentor who was involved in selling the SimExpress. Towards
that end, I have spoken to sales people, account managers, regional managers,
and applications engineers across the country to determine the customer sites at
which SimExpress was demonstrated, benchmarked, or price quoted. Other than the
sites listed in MGDC002300 through MGDC002389, such activity took place at the
following sites: Cabletron (NH); Kodak (Rochester, MA); Nat'l Security Agency
(MD); Cisco Systems (Raleigh & Santa Clara); Honeywell (FL); LexMark (FL);
Motorola (Phoenix, AZ); Brooktree (Austin, TX); TI Semiconductor (Dallas, TX);
Cyrix (Dallas, TX); Fujitsu (Dallas, TX), Alcatel Network Systems (Dallas, TX);
Chip & Technology (Santa Clara); LSI Logic (Milpitas); and Transmeta (Santa
Clara). To my knowledge, after dozens of hours of tracking this information
down, that list is complete. However, given the turnover in the sales force,
etc., it is possible a few companies may not have turned up in my search. If you
believe that to be the case, please feel free to ask me to follow up on any
specific companies. Also, don't hesitate to ask for clarification on how to
interpret these documents, or what exact activity took place at any customer
site.
Returning to the documents themselves, MGDC002300 is a chart
of quote numbers and corresponding sales orders (where a quote did result in a
sales order) from the introduction of the SimExpress to about April 1997, when
Mentor switched over to a new database. MGDC002301-12 is a list of the parts
numbers we searched under, which should be all of the Meta software and hardware
parts. MGDC002313-54 are price quotes issued from introduction of the SimExpress
to about April 1997; MGDC002355-64 are corresponding sales orders.2 (Thus,
MGDC002300 summarizes MGDC002313-64.) MGDC002365-90 are price quotes from April
1997 through the present; none of these were
- -----------------------------
1 I began with Bates Number MGDC002300, leaving a gap from the last Bates
number I am aware of (MGDC002257) out of caution. I labeled them all
Attorneys Eyes Only out of convenience, as most are, but I am willing
to discuss lowering the level of confidentiality on selected documents.
Also, as the financier of the Radix sale is confidential, I have
redacted identifying information from MGDC002315, -17, -19-21, -24-26,
and -57 (relating to Radix quotes and sales orders).
2 The documents reflect the following sales within the United States:
<TABLE>
<CAPTION>
Customer Sale Amount
--------- -----------
<S> <C>
UB Networks $580,268.00
Radix $885,939.00
National Semiconductor $590,952.72
</TABLE>
Mr. Folsom's initial expert report had also listed Bull HN and Motorola
as lost sales. Bull HN is not listed here because the sale occurred
outside the United States. (In any case, you already have the documents
showing the sale price.) Motorola was not a sale but rather a lease;
the documents reflecting the lease amount and the value of the machine
that was leased are included in the materials you received (see
Quotation nos. 63652 & 65075, and Sales Order 68909).
Exhibit 2, Page 2 of 3
<PAGE>
converted into sales orders. Attached to this letter is a chart I prepared this
morning summarizing MGDC002300 through MGDC002380.3
MGDC002390 is a quotation to VLSI Technologies.
MGDC002391-2491 are sales documents relating to UB Networks. MGDC002492-26 are
sales documents relating to DEC. MGDC002527-2645 are sales documents relating to
3Com. MGDC002646-54 are sales documents relating to Cardiac Pacemakers.
MGDC002655-64 are sales documents relating to Cyrix (Dallas). MGDC002665-79 are
the documents I provided you last week relating to alleged lost sales.
MGDC002680-85 are sales documents relating to Lucent.
MGDC002687-2779 are directed towards answering your questions
about inventory. When combined with Gary Hnath's semi-annual declarations in the
ITC, which you should have, these documents provide as clear a picture as is
possible as to the state of Mentor's inventory at various points in time.
MGDC002780-2820 are the documents relating to customs you
requested.
MGDC002821-2910 are sales documents relating to Ericsson, RTP.
Again, do not hesitate to call with questions.
Very truly yours,
/s/ Sanjay Bhandari
-----------------------
Sanjay Bhandari
of LATHAM & WATKINS
cc: Craig Allison, Esq.
- -------------------------
3 As we discussed, I am not providing this as a formal discovery
response, but merely to help you make sense of what you've received --
I felt the need to make it this morning, so I thought I'd spare you the
effort. The chart lists every SimExpress price quote and sales order
contained in Mentor's database. The "Sale?" column indicates whether a
sales order issued on that quote, and if so, the sales order number. In
all instances but one (quotation 62344 & sales order 69314), the quoted
price was the sales order price.
Exhibit 2, Page 3 of 3
<PAGE>
EXHIBIT 3
[UB Networks Purchase Order - Exhibit 3, Pages 1-3 of 3]
<PAGE>
[Letterhead of Latham & Watkins]
July 23, 1998
Lawrence R. LaPorte, Esq.
Lyon & Lyon
633 W. Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
Dear Larry:
I enclose documents relating to the four of the five
transactions claimed by Quickturn as diverted sales: Radix (with redactions of
third-party financier's identity), National Semiconductor, Motorola, and UB
Networks. As to Bull, see the Giordano and Guenthner depositions, the recent
Guenthner declaration, and Giordano Dep. Exs. 6, 14. I have not Bates-numbered
these documents yet; I will number and formally produce them as soon as I can
gather all of the documents responsive to the topics we discussed in our July
14, 1998 conversation.
In the meantime, the attached documents should permit you to
provide us a preliminary estimate of Quickturn's total damages. Please include
in your discounting claims any customer sites / sales in which Mentor may have
been the cause of price discounting. I will continue to gather documents and
information on customer sites at which Mentor demo'd, benchmarked, or price
quoted Meta's emulation system, and will hopefully provide that information
shortly after receiving your estimate.
Very truly yours,
/s/Sanjay Bhandari
--------------------
Sanjay Bhandari
of LATHAM & WATKINS
cc: Craig Allison, Esq.
Exhibit 4, Page 1 of 13
<PAGE>
EXHIBIT 4
[Purchase Order; Exhibit 4, Page 2 of 13]
[Customer Quotation for National Semiconductor Corporation; Exhibit 4, Page 3
of 13]
[National Semiconductor Corporation Purchase Order; Exhibit 4, Pages 4-5 of 13]
[Customer Quotation for Motorola Inc.; Exhibit 4, Pages 6-7 of 13]
[Motorola Inc. Purchase Order; Exhibit 4, Pages 8-9 of 13]
[Customer Quotation for Motorola Inc.; Exhibit 4, Page 10 of 13]
[Motorola Inc. Purchase Order; Exhibit 4, Pages 11-12 of 13]
[Customer Quotation for UB Networks; Exhibit 4, Page 13 of 13]
<PAGE>
LUCENT TECHNOLOGIES LETTERHEAD
LUCENT TECHNOLOGIES
Bell Labs Innovations
GLOBAL WIRELESS PRODUCTS GROUP
Lucent Technologies
101 Crawfords Corner Road
Holmdel, NJ 07733
October 2, 1996
Bob Mareiniss
Mentor Graphics Corporation
15 Independence Boulevard
Warren, NJ 07059
Please use Lucent Purchase Order # xxx in reference to the MGC Corporate
Agreement #1214 (Lucent # G17959D). Mentor Graphics SimExpress emulation product
(Base systems without options A or B) referenced by Quotation # 60908 which
totals $265,413.00 is requested to be shipped immediately to Lucent
Technologies.
Tax status is non-taxable.
Shipping address:
330 South Randolphville Road
Piscataway, N.J. 08855
Attention: John Kolchmeyer
Billing address:
P.O. Box 105466
Atlanta, GA 30348
Regards,
- ----------------------------
Sanjay Kasturia
Director
GWPG, Core Technology Group
Exhibit 5, Page 1 of 1
<PAGE>
MENTOR GRAPHICS LETTERHEAD
October 10, 1996
Lucent Technologies, Inc.
Global Wireless Products Group
101 Crawfords Corner Road
Holmdel, New Jersey 07733
Attention: Sanjay Kasturia
Director, GWPG Core Technology Group
Re: SimExpress Product Delivery
Thank you for your commitment to purchase Mentor Graphics SimExpress emulation
product (Mentor Graphics Customer Quotation No. 60908). This letter confirms
that the shipment has been delivered per your request dated October 3, 1996.
At the time of your letter, the actual anticipated purchase order number had not
been assigned; however, to expedite our project, the system was configured and
shipped to Lucent. Please have a Lucent buyer assign the purchase order number,
co-sign the original letter dated October 3, 1996 and return a copy to me by
October 22, 1996.
We look forward to mutual project success in the first phases of SimExpress
implementation and to Lucent's long-term satisfaction with Mentor Graphics
emulation technology.
If you have any questions, please do not hesitate to call me.
Sincerely,
MENTOR GRAPHICS CORPORATION
/s/ Bob Mareiniss
Lucent Sr. Global Account Manager
cc: Don Cantow, Mentor Graphics
Suhas Pai, Lucent
Exhibit 6, Page 1 of 1
<PAGE>
- -------------------------------------------------------------------------------
Printed By: Matthew Fisch 1/8/4 2:20 AM Page: 1
- -------------------------------------------------------------------------------
From: Steve Duffett (4/1/96)
To: Matthew Fisch
Steve Duffett
NorthEast Sales
Q1 Forecasted Orders - not closed
Matt: Below is the email I sent to Ken and Mike. FYI. Steve.
Ken/Mike: As you know the NorthEast missed our Q1 objective by $190K. The only
Q1 deal that we forcasted and did not close was UB Networks for $710K. MA/Com
has a Q1 swing order ($1.45M RF Partnership) that we will close in April.
What went wrong in the closing of this deal in Q1?
First off, this deal is still very much active and we expect to close this by
April 12th. We are one signature away (Marius Able Sr. VP and GM of the UB
Networks business unit of Tandem Computer). We just ran out of time to get this
done in Q1 mainly because of the lawsuit Quickturn filed against MGC.
Quickturn's lawyers sent letters to UB management informing them of the ITC suit
that will block importation of Sim Express and the patent infringement suit they
have brought against MGC. Also, Frank Caufield of Kleiner, Perkins, Caufield &
Byers a member of Tandem and Quickturn's board of directors sent a letter on
behalf of Quickturn to Roel Piper Pres. of Tandem questioning the UB division's
plans to use Sim Express when Tandem is already successfully using six Quickturn
systems. The net effect of these two tactics is the deal was slowed down by a
few weeks, however UB is committed to move forward with Sim Express and MGC.
Matt Fisch and I were at UB until 6PM on Fri. March 29th trying to get Marius
Able's approval and then have to PO issued. We never gave up trying to get this
done in Q1. The legal T's and C's did not get completed between UB's Legal and
MGC's Dean Freed until 4:30pm EST on Friday. UB is sold on Mentor Graphics and
Sim Express. They have recently hired two people to work exclusively on the
implementation of the SimExpress system. We have told Marius Able, Dan
Schumacher, Dir. Eng Serv., Landis Rogers Dir. ATM Dev., and Jim Welch Dir.
Ethernet Dev. that the resources we have allocated for the implementation of Sim
Express and the development of the 10 Mbit/100Mbit Ethernet and ATM interface
boards to enable them to plug their network traffic into Sim Express are at risk
if we do not receive a PO by April 12th at the latest. They have been told that
the PSD resources they need to be successful will be committed to other customer
programs on April 12th. They know that they need to issue a PO ASAP.
We started the UB sales campaign in mid Feb. We have run a masterful sales
campaign in light of the difficulties we have run into in getting UB to become
MGC's first SimExpress customer in the United States. We have overcome the
lawsuit, legal issues, and board member intervention, lack of PSD resources,
lack of application interfaces, lack of marketing and sales collateral and
Exhibit 7, Page 1 of 2
<PAGE>
lingering customer problems with our Verilog flow for the BSD Architect and
Autologic II licenses we sold to UB in December 95. We have had to create our
own solutions to resolve many of these issues. We took UB to Paris for a
corporate visit to help overcome and address all of the outstanding questions
and concerns Quickturn has raised.
The NorthEast needed the win at UB to happen in Q1. We need a local success
under our belts to help us in Q2 HW Emulation sales campaigns at 3Com-Chipcom,
Cabletron and Digital. Quickturn is going to fight us to the death on these
three sales campaigns. Having a SimExpress reference and customer in the US is
critical for us to be successful in 1995. We will close the UB business.
The NorthEast is working on a number of big Q2 deals that collectively are over
$8M. We will be successful.
Exhibit 7, Page 2 of 2
<PAGE>
EXHIBIT 8
[Target Account Selling Form, Initial Assessment for SimExpress and Services;
Exhibit 8, Page 1 of 1]
Exhibit 8, Page 1 of 1
<PAGE>
EXHIBIT 9
[Spreadsheet titled "Build Configuration"; Exhibit 9, Page 1 of 1]
Exhibit 9, Page 1 of 1
<PAGE>
- -------------------------------------------------------------------------------
Printed By: Matthew Fisch 1/8/4 2:20 AM Page: 2
- -------------------------------------------------------------------------------
outstanding questions and concerns Quickturn has raised.
The NorthEast needed the win at UB to happen in Q1. We need a local success
under our belts to help us in Q2 HW Emulation sales campaigns at 3Com-Chipcom,
Cabletron and Digital. Quickturn is going to fight us to the death on these
three sales campaigns. Having a SimExpress reference and customer in the US is
critical for us to be successful in 1995. We will close the UB business.
The NorthEast is working on a number of big Q2 deals that collectively are over
$8M. We will be successful.
Exhibit 10, Page 1 of 1
<PAGE>
As of 7/21/98
<TABLE>
<CAPTION>
Part Qty Qty Standard Damaged
Number Description good damaged Cost Value Total Value
- -------------- ----------------------------------- --------- ------------ ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
61336 Mother board 1 0 $2,008.00 $1,004.00 $2,008.00
61374 Logic board 5 2 2,467.00 1,233.50 14,802.00
61375 I/O board 0 1 2,530.00 1,265.00 1,265.00
61278 Service board Master 1 1 1,193.00 596.50 1,789.00
61279 Service board Slave 1 1 322.00 161.00 483.00
61277 Sbus Board 2 0 346.00 173.00 692.00
61337 Transition - FAR board 0 1 181.00 90.50 90.50
61338 Memory board 12M 1 0 6,013.00 3,006.50 6,013.00
61339 Memory board 64M 1 0 4,040.00 2,020.00 4,040.00
61341 Display multi-rack board 2 0 113.00 56.50 226.00
61342 Safety Supply board 4 0 467.00 233.50 1,868.00
61343 Display Power-on light 2 0 117.00 58.50 234.00
61344 Fan 12V 2 0 46.00 24.00 96.00
61346 Power Supply 5V 1000W 1 0 2,111.00 1,055.50 2,111.00
61347 Service Connection-FAR 1 0 101.00 50.50 101.00
61348 I/O brd Connection-FAR 1 0 88.00 44.00 88.00
61350 POD Connection-FAR 1 0 215.00 107.50 215.00
61300 Board Extractor Tool (pair) 1 0 55.00 0.00 55.00
61340 POD Assembly 0 1 424.00 212.00 212.00
- -------------- ----------------------------------- --------- ------------ ---------------- ----------------- ---------------
Total Inventory Value = $36,389.00
</TABLE>
Exhibit 11, Page 1 of 1
<PAGE>
TABLE 1
SUMMARY OF QUICKTURN'S LOSSES CAUSED BY
MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Sales - Lost Profits
- -------------------------------------------
<S> <C>
Past Sales $3,468,000
Maintenance, Past Sales 1,032,400
Future Sales 20,965,000
Maintenance, Future Sales 5,508,000
------------
TOTAL: $30,973,700
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Price Erosion - Lost Profits
- -------------------------------------------
<S> <C>
Past Price Erosion $19,298,400
Future Price Erosion 28,443,900
------------
TOTAL: $47,742,300
------------
------------
TOTAL LOSSES: $78,716,000
</TABLE>
Exhibit 12, Page 1 of 19
<PAGE>
TABLE 2
LOST PROFITS ON ACTUAL SALES AND MAINTENANCE
<TABLE>
<CAPTION>
Equipment Sales Sales
--------------- -----
<S> <C> <C>
UB Network REDACTED
Radix REDACTED
National Semiconductor REDACTED
Motorola REDACTED
Bull REDACTED
-----------
$4,950,000
70% Margin
Lost Profit $3,815,000 $3,468,000
</TABLE>
<TABLE>
<CAPTION>
Maintenance Sales Sales
------------------ -----
<S> <C> <C>
UB Network REDACTED
Radix REDACTED
National Semiconductor REDACTED
Motorola REDACTED
Bull REDACTED
----------
TOTAL: $1,474,900
----------
70% Margin ----------
Lost Profit $1,032,400
</TABLE>
Exhibit 12, Page 2 of 19
<PAGE>
TABLE 3
RADIX -- MAINTENANCE SALES
<TABLE>
<CAPTION>
Radix Q2 `96 Equipment Sale: $REDACTED
------------ ---------------------------
<S> <C>
Maintenance Sales Q3 `96 $REDACTED
Q3 `97 $REDACTED
Q3 `98 $REDACTED
---------
Lost Maintenance: $REDACTED
</TABLE>
Exhibit 12, Page 3 of 19
<PAGE>
TABLE 4
NATIONAL SEMICONDUCTOR -- MAINTENANCE SALES
<TABLE>
<CAPTION>
National Seminconductor Equipment Sale: $REDACTED
----------------------- ---------------------------
<S> <C>
Maintenance Sales Q2 `97 REDACTED
Q2 `98 REDACTED
Q2 `99 REDACTED
--------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
</TABLE>
Exhibit 12, Page 4 of 19
<PAGE>
TABLE 5
UB NETWORK -- MAINTENANCE SALES
<TABLE>
<CAPTION>
UB Network Equipment Sale: $REDACTED
---------- ---------------------------
<S> <C>
Maintenance Sale Q3 `96 REDACTED
Q3 `97 REDACTED
Q3 `98 REDACTED
---------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
</TABLE>
Exhibit 12, Page 5 of 19
<PAGE>
TABLE 6
BULL -- MAINTENANCE SALES
<TABLE>
<CAPTION>
Bull Maintenance Equipment Sale: $REDACTED
----------------- ---------------------------
<S> <C>
Maintenance Sale Q3 `95 REDACTED
Q3 `96 REDACTED
Q3 `97 REDACTED
---------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
</TABLE>
Exhibit 12, Page 6 of 19
<PAGE>
TABLE 7
MOTOROLA -- MAINTENANCE SALES
<TABLE>
<CAPTION>
Equipment Sale: $REDACTED
--------------------------
<S> <C>
Maintenance Sale Q1 `97 REDACTED
Q1 `98 REDACTED
Q1 `99 REDACTED
---------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
</TABLE>
<PAGE>
TABLE 8
QUICKTURN DESIGN SYSTEMS AVERAGE PRICE PER GATE
<TABLE>
<CAPTION>
Period Average Price
------ -------------
<S> <C>
Q3 `94 - Q2 `95 REDACTED(cent)
Q3 `95 - Q2 `96 REDACTED(cent)
Q3 `96 - Q2 `97 REDACTED(cent)
Q3 `97 - Q2 `98 REDACTED(cent)
</TABLE>
Exhibit 12, Page 8 of 19
<PAGE>
TABLE 9
QUICKTURN'S LOSSES ON FUTURE SALES OF
EQUIPMENT AND MAINTENANCE CAUSED BY
MENTOR GRAPHICS INFRINGEMENT
<TABLE>
<CAPTION>
MPV Of Lost Profit On NPV Of Lost Profit on
Equipment Sales Maintenance Sales
---------------------- ---------------------
<S> <C> <C>
UB Network $REDACTED $REDACTED
Bull REDACTED REDACTED
Motorola REDACTED REDACTED
National Semiconductor REDACTED REDACTED
TOTAL $20,965,000 $5,508,300
</TABLE>
Exhibit 12, Page 9 of 19
<PAGE>
TABLE 10
QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO UB NETWORK
(TANDEM) CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Equipment Sales
---------------
<S> <C>
Q1 `97 $REDACTED
Q1 `98 REDACTED
$REDACTED
70% Margin
Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 10 of 19
<PAGE>
TABLE 11
QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO
UB NETWORKS CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
NPV Maintenance Sales
---------------------
<S> <C>
Q2 `97 $REDACTED
Q2 `98 REDACTED
Q2 `99 REDACTED
Q2 `00 REDACTED
---------
$REDACTED
20% Margin
NPV of Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 11 of 19
<PAGE>
TABLE 12
QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO MOTOROLA
CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Equipment Sales
---------------
<S> <C>
Q2 `97 $REDACTED
Q3 `97 REDACTED
Q4 `97 REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
--------
$REDACTED
70% Margin
Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 12 of 19
<PAGE>
TABLE 13
QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO MOTOROLA
CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
NPV of Maintenance Sales
------------------------
<S> <C>
Q3 `97 $REDACTED
Q4 `97 REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
Q4 `98 REDACTED
Q1 `99 REDACTED
Q2 `99 REDACTED
Q3 `99 REDACTED
Q4 `99 REDACTED
Q1 `00 REDACTED
Q2 `00 REDACTED
Q3 `00 REDACTED
Q4 `00 REDACTED
--------
$REDACTED
70% Margin
NPV of Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 13 of 19
<PAGE>
TABLE 14
QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO NATIONAL
SEMICONDUCTOR CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Equipment Sales
---------------
<S> <C>
Q3 `97 $REDACTED
Q4 `97 REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
---------
$REDACTED
70% Margin
Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 14 of 19
<PAGE>
TABLE 15
QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO NATIONAL
SEMICONDUCTOR CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
NPV of Maintenance Sales
------------------------
<S> <C>
Q4 `97 $REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
Q4 `98 REDACTED
Q1 `99 REDACTED
Q2 `99 REDACTED
Q3 `99 REDACTED
Q4 `99 REDACTED
Q1 `00 REDACTED
Q2 `00 REDACTED
Q3 `00 REDACTED
Q4 `00 REDACTED
--------
$REDACTED
70% Margin
NPV of Lost Maintenance Sale $REDACTED
</TABLE>
Exhibit 12, Page 15 of 19
<PAGE>
TABLE 16
QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO
BULL CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Equipment Sales
---------------
<S> <C>
Q1 `97 $REDACTED
70% Margin
Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 16 of 19
<PAGE>
TABLE 17
QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO
BULL CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
NPV of Future Maintenance Sales
-------------------------------
<S> <C>
Q2 `97Q4 `97 $REDACTED
Q2 `98 REDACTED
Q2 `99 REDACTED
--------
$REDACTED
70% Margin
NPV of Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 17 of 19
<PAGE>
TABLE 18
QUICKTURN'S LOSSES FROM PRICE EROSION CAUSED BY
MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Expected Actual No. of Domestic Domestic Price
Period Price Price Gates Share Erosion Loss
------ -------- ------ ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Q3 `96 $0.85 REDACTED REDACTED REDACTED $4,415,800
Q4 `96 0.85 REDACTED REDACTED REDACTED 1,781,300
Q1 `97 0.85 REDACTED REDACTED REDACTED 2,968,200
Q2 `97 0.85 REDACTED REDACTED REDACTED 641,600
Q3 `97 0.83 REDACTED REDACTED REDACTED 930,100
Q4 `97 0.83 REDACTED REDACTED REDACTED 2,294,200
Q1 `98 0.83 REDACTED REDACTED REDACTED 510,700
Q2 `98 0.83 REDACTED REDACTED REDACTED 5,756,500
-----------
TOTAL: $19,298,400
</TABLE>
Exhibit 12, Page 18 of 19
<PAGE>
TABLE 19
QUICKTURN'S LOSSES FROM FUTURE PRICE EROSION CAUSED BY
MENTOR GRAPHICS' INFRINGEMENT
FIVE YEARS -- DISCOUNT RATE 20%
LAST FULL ACTUAL YEAR, Q3 `97-Q2 `98: $9,451,500
<TABLE>
<CAPTION>
Discount Factor NPV
--------------- ---
<S> <C> <C> <C>
Q3 `98 - Q2 `99 $9,149,100 .9129 $8,352,200
Q3 `99 - Q2 `00 8,856,300 .7607 6,737,000
Q3 `00 - Q2 `01 8,572,900 .6339 5,434,400
Q3 `01 - Q2 `02 8,298,600 .5283 4,384,200
Q3 `02 - Q2 `03 8,033,000 .4402 3,536,100
------------
TOTAL: $28,443,900
</TABLE>
Exhibit 12, Page 19 of 19
<PAGE>
EXHIBIT 13
[Line Graph titled "Quickturn's Average Price Per Gate in Years Ending in the
Second Quarter, 1995-1998"; REDACTED]
Exhibit 13, Page 1 of 1
<PAGE>
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION Civil No. C96-00342-RE
an Oregon corporation,
CONSOLIDATED CASES
Plaintiff,
v.
QUICKTURN DESIGN SYSTEMS, INC.
a Delaware corporation,
Defendant.
META SYSTEMS, a French
corporation,
Plaintiff,
v.
QUICKTURN DESIGN SYSTEMS, INC.
a Delaware corporation,
Defendant.
Expert Report of James Mack Folsom
I. Qualifications and Experience
1. My name is James Mack Folsom. I am an economist with almost four
decades of experience in analyzing the impact of actions by one firm or a group
of firms on the income of other firms. I received my Bachelor of Business
Administration Degree with a major in marketing from the University of Georgia
in 1953 and did post graduate work at Vanderbilt
Exhibit 14
<PAGE>
University where I completed all the requirements for a Ph.D. except for the
dissertation. I taught economics and marketing at Duke University from 1959
until 1964.
2. From 1964 through 1978, I held various positions in the Bureau of
Economics at the Federal Trade Commission. Among the positions held were staff
economist in the Division of Economic Evidence, assistant to the Director of the
Bureau of Economics, Chief of the Division of Economic Evidence, Assistant
Director, Deputy Director and Acting Director of the Bureau of Economics.
3. Since 1978 I have been employed at Glassman-Oliver Economic
Consultants, Inc. where I am currently a senior vice president. During my
employment at Glassman-Oliver, I have testified either in deposition or at trial
in more than 30 matters where damages were an issue. In addition, I have worked
on a number of matters involving measurement of damages where I did not testify.
4. Attached is my resume (Tab A) which includes my educational
background, all testimony in the last four years and all publications in the
last 10 years. Charges for my time are $300 per hour.
II. Background and Material Studied
5. I was retained by Lyon & Lyon, Quickturn's law firm, to perform an
economic analysis, for presentation to the International Trade Commission (ITC),
of the damage to Quickturn as a result of Mentor Graphics/Meta Systems'
(hereinafter "Mentor") infringement of Quickturn's patents, including the
calculation of an appropriate bond for Mentor to post to ensure that Quickturn
would be made whole if an ITC exclusion order based on a patent violation was
granted and to calculate, to the extent possible, the damages to Quickturn as a
result of the patent infringement. I have provided both written and oral
testimony before the International Trade
Exhibit 14
<PAGE>
Commission in related action at the Temporary Exclusion Order (TEO) Hearing and
the Permanent Exclusion Order (PEO) Hearing.
6. As preparation for my analysis in the TEO phase, I reviewed and
analyzed publicly available documents on emulation, the depositions of Dragani,
Garity, Tarlecki, and Hoteling (Account Managers for Quickturn); Ostby,
Cibulski, Moore, Huang, Antle and Lobo (Officers of Quickturn); Kenney, Zafar,
Tung and Rhines (Officers of Mentor); and Reblewski (Volume 3 only - President
of Meta) and the exhibits to those depositions. I attended the depositions of
Mentor's expert, Hoffman, discussed the business with Ostby, Moore and Cibulski,
reviewed Quickturn's financial data, attended a sales conference at Quickturn
and reviewed sales, financial, marketing and business plans of both Mentor and
Quickturn; and attended the TEO Hearings to listen to the oral testimony of both
Mentor and Quickturn witnesses who addressed business and economic matters as
opposed to technical issues. Subsequent to my testimony, I reviewed the total
record developed at the TEO Hearing to help locate record support for
Quickturn's proposed findings of fact.
7. In the PEO phase of the ITC Investigation, I studied Administrative
Law Judge Paul J. Luckern's Findings of Fact in his TEO Decision finding a
likelihood of patent infringement and granting a TEO, the Commission's
Investigative Staff's Pre-Trial Memorandum (4/4/97) and the Commission Opinion
on Remedy, the Public Interest, And Bonding, which approved the TEO, and
reviewed and analyzed the depositions (including exhibits thereto) of Wally
Rhines, Brian Dalio, Callan Carpenter, R. Douglas Norby and Gabriele Pulini; the
witness statements of Ostby and Jordan of Quickturn; Meta's Third Quarter 1996
YTD P&L Statement (MG017788 - MG017832); the Meta Business Unit Plan, 1997
(MG018490 - MG018508); information available over Mentor's internet address;
publicly
Exhibit 14
<PAGE>
available data on Quickturn's 1996 sales and margins and data obtained via
telephone from Ray Ostby; discussed Quickturn's business with Ostby and Jordan;
and attended the PEO Hearings to hear the live testimony of the business
witnesses.
8. In further preparation for analyzing the damages to Quickturn from
Mentor's alleged patent infringement, I reviewed Quickturn's proposed findings
of fact for the PEO Hearing, requested data from Mr. Ostby and Mr. Jordan on the
impact of Mentor's presence on the prices which Quickturn was able to obtain as
compared to the prices which Quickturn would have obtained absent Mentor and on
the size of the sales situations where Quickturn lost in competition with
Mentor. (Examples of items reviewed are attached as Tab B.)
III. Types of Damages to Quickturn
9. The analysis which follows is based on the assumption that the
Mentor's emulation system infringes patents owned by Quickturn. This
infringement results in harm and damages to Quickturn in, at least, the
following ways:
a. Quickturn has lost United States sales to Mentor. (See Tab
C.) As a result of these lost sales, Quickturn has lost the profit on both the
equipment and service which would have accompanied the sale of equipment. The
immediate loss suffered by Quickturn is the difference between the revenue which
Quickturn would have received from the sale and the variable costs which
Quickturn would have incurred in making the sale.
b. As a result of the competition from Mentor, Quickturn has
been forced to reduce its price to prevent additional loss of sales in the
united States. The loss suffered by Quickturn is the difference between the
price it would have received without the competition from Mentor and the price
it did receive in the situations where it faced competition from Mentor.
Exhibit 14
<PAGE>
c. In instances where Quickturn loses a sale to Mentor, it
also loses the sale of the service which accompanies the sale of emulation
equipment. The service sale always covers at least one year and frequently is
extended for an additional year or for several years.
d. When Quickturn loses a sale to Mentor, the probability that
Quickturn will be able to make a sale to that same customer in the future is
greatly reduced. Approximately three-fourths of Quickturn's sales are repeat
purchases by past customers. Mentor is targeting Quickturn's largest customers
which are also Quickturn's repeat customers. This means that the customer who
has used Mentor equipment is substantially less likely to favor Quickturn over
other competitors than in the situation where the customer has been using
Quickturn equipment. In the worst case scenario, the customer who is
particularly pleased with the performance of the Mentor emulation system might
transfer it overseas if he could not obtain another Mentor emulator in the
United States. Thus, this loss of future sales can be substantial.
e. A loss of a sale by Quickturn in the United States may also
lead to a loss of sales outside the United States. Mentor specifically
recognized that making a sale in United States might lead to additional sales
outside the United States, e.g., Texas Instruments. (E.g., Pulini Deposition
Exhibit 28 indicates that the TI benchmark in the Dallas territory is being
followed by several TI locations outside the U.S., which are looking at "this
benchmark as a milestone in their decision making process.)
f. Sales officials from Quickturn have been uniform in stating
that the presence of Mentor as a competitor has caused potential emulation
purchasers to delay their decisions to purchase, thus delaying the receipt of
revenue. The delay in the receipt of revenue is important because it may impact
on Quickturn's ability to fund research and development for future products or
product improvements and because it may impact on the value of Quickturn's
Exhibit 14
<PAGE>
stock. Quickturn's expenditure for research and development amounts to about 18
percent of sales and exceed its profits. Since stock incentives are an important
part of the compensation of the top Quickturn managers, a reduction in the value
of Quickturn's stock increases the probability that Quickturn will lose some of
its important managers. Quickturn's stock, and its corresponding price, is also
a resource that can be used by Quickturn management in building a relatively
small company like Quickturn through acquisition(s). Anything which depresses
the price of Quickturn's stock makes acquisitions more expensive.
g. The presence of Mentor as a competitor has raised the cost
of attempting to sell emulators by making benchmark tests a part of the sales
process.
h. Mentor's presence in the marketplace for emulators has
led to reduced prices to the customers where Mentor competed with Quickturn.
That price erosion may extend beyond the immediate equipment sold. Quickturn,
even in the instances where it wins the competition, may find it difficult to
return to pre-Mentor pricing levels even if Mentor is no longer in the market.
IV. Measurement of Damages
10. The damages which are measured herein are limited to those direct
damages that are that result from sales of equipment and service which have been
lost to Mentor. This restriction means that damages are estimated only for items
a and part of c, above. Additionally, a measurement of damages associated with
items b and the remainder of c will be furnished. Because of the difficulties of
predicting what will happen in the future as well as the effect of certain
harms, damages presently cannot be estimated for items d - h.
11. Damages on Lost Sales. The first item of information required in
estimating the damages from lost sales is the dollar volume of those lost sales
of both equipment and service.
Exhibit 14
<PAGE>
Estimates of the size of the sales contracts for both equipment and one year of
service were obtained from Quickturn's management and reflect their judgment of
what sales revenues would have been, absent Mentor. Tab C shows that the
estimated sales which Quickturn lost to Mentor equaled $5,450,000. The next step
is to ascertain what Quickturn's profits above its variable costs would have
been on those lost sales. The analysis begins with the calculation of
Quickturn's margin over cost of revenue. For 1996, the margin over cost of
revenue (cost of goods) was 69 percent as shown in the publicly available
financial statement of Quickturn. Cost of revenue, however, includes items which
are fixed, i.e., not a function of the number of units sold. For example, the
1996 plan shows: (QM 56911)
<TABLE>
<CAPTION>
<S> <C>
Sales $104,000,000
Cost of Goods Sold 32,240,000
Obsolescence 1,365,361
R&D Allocation 1,470,000
Customer Support Allocation 1,992,000
</TABLE>
The last three items are fixed costs and account for 15 percent of the cost of
goods sold and 4.6 percent of sales. Other fixed or largely fixed items include
depreciation of the manufacturing facility, property taxes, repair and
maintenance, rent and utilities. Quickturn begins by assigning all of these
costs to manufacturing and then reallocates them to the other company operations
(sales, R&D, etc.) These costs are estimated to represent approximately one
percent of sales. Thus, the margin after variable cost of goods sold is
approximately 74.5 percent.
12. To arrive at the margin after all variable costs are considered
requires that variable selling costs be subtracted from the margin left after
the variable cost of goods sold is subtracted from sales. The variable sales
cost is commissions on sales which were planned to be
Exhibit 14
<PAGE>
REDACTED percent of sales in 1996. (QM 56915) Subtracting these costs from the
margin over variable manufacturing costs results in a margin of 70 percent which
is the percentage lost that Quickturn suffers from each sale of equipment and
service that Mentor won from them. The dollar loss is 70 percent of the sales
loss of $5,450,000 shown in Tab C, or $3,815,000.
13. Damages From Price Erosion. Quickturn's loss because it had to
accept a lower price in United States situations where it faced competition from
Mentor than the prices it received in situations where Mentor was not a
competitor is estimated by examining the discounts which Quickturn had to offer
to complete the sale where Mentor was a competitor as compared to the discounts
where Mentor was not a competitor. In the TEO hearings, the evidence presented
showed that the average discount where Mentor was a competitor was 50 percent
off list as compared to an average of 25 percent off list where Mentor was not a
competitor but other sellers were. (Administrative Law Judge Luckern's Finding
of Fact No. 336) Judge Luckern also found that in situations where Quickturn
faced competition from Mentor/Meta the average discount from list was 40 percent
as compared to 10 to 20 percent average where Mentor/Meta was not a competitor -
and concluded that the average difference was about 25 percent. (Commission
Opinion, page 18) Both approaches demonstrate that Quickturn's offered price
where Mentor is a competitor is less than its offered price where Mentor is not
a competitor. To determine whether this continues to be the appropriate measure
of price erosion caused by the presence of Mentor in the accounts requires an
analysis of information available only from Mentor on Mentor's pricing activity
which has not yet been furnished. Without this, it is not possible to determine
whether the additional discounts offered by Quickturn are the result of the
presence of Mentor or are the result of the presence of some other competitor.
When information on Mentor's pricing activity is received, the analysis
Exhibit 14
<PAGE>
of price erosion caused by Mentor's presence will be completed and an estimate
of Quickturn's losses from price erosion will be calculated.
14. Quickturn's short run loss profits on lost sales and service are,
as indicated above, $3,815,000. In addition, Quickturn suffered a loss of income
which it would have received from the lost profits if it had received them at
the proper time. This simply recognizes that money received earlier is more
valuable than money received later, because investment income can be earned with
the money received earlier. Quickturn's income from its investments, which
averaged $32,811,000 in 1996, was $1,785,000 or 5.4 percent. This is comparable
to the rate on one year T bills which was 5.25 percent on February 29, 1996. A
conservative time period of 18 months has been assumed (although the sale to
Bull (AZ) was made more than 18 months ago) and has been divided by two to allow
for the fact that the income flow was over time. With a 5.2 percent interest and
a nine month period, Quickturn's lost interest income amounts to $149,000. The
total short run loss to Quickturn from lost sales is $3,815,000 + $149,000 =
$3,964,000.
V. Reasonable Royalty
15. I have examined the question as to what would be a reasonable
royalty for Mentor to pay Quickturn if Mentor is allowed to continue to sell
emulators which, without a license, would violate Quickturn's patents. The
analysis is based upon the guidelines provided by the court in the Georgia
Pacific v. United States Plywood case (318 F. Supp. 1116). A brief discussion of
the 15 factors mentioned by the court follows:
a. The royalty received by the patentee for the licensing of
the patent in question. Quickturn has not licensed any party to use the patents
in question. Quickturn has not licensed any party to use the patents in
question.
Exhibit 14
<PAGE>
b. The rates paid by the licensee for the use of other patents
comparable to the patents in question. No information was available to
demonstrate that the licensee had any comparable patents.
c. The nature and scope of the license. It is assumed that
Mentor would not have been limited geographically since they were attempting to
sell emulation systems all over the world and that Quickturn would not have
considered licensing any other firm to use the patents in question.
d. The licensor's established policy and marketing program to
maintain his patent monopoly. The available evidence does not demonstrate any
willingness on the part of Quickturn to license its patents to any party.
e. The commercial relationship between the licensor and
licensee. Quickturn and mentor are direct competitors throughout the world in
the sale of emulation equipment and service.
f. The effect of selling the patented item in promoting sales
of other products of the licensee and the existing value of the invention to the
licensor as a generator of sales of his nonpatented items. Both Quickturn and
Mentor will make a service sale in connection with each emulator sold. The
service sale will be equal to 10 to 15 percent of the value of the emulator. In
addition, Mentor views its emulation product as allowing it to offer a complete
service to designers of application specific integrated circuits and its
documents indicate an expectation of additional sales because of its emulation
line. Over ninety percent (90%) of Quickturn's revenues are a direct result of
the sale of emulation systems and service which contain the patented technology.
That patented technology is the key to Quickturn's business operations.
Exhibit 14
<PAGE>
g. The duration of the patent and the term of the license.
There are approximately 8 years left in the patent life and it is assumed that
mentor would want a license for the remaining life of the patents.
h. The established profitability of the product made under the
patent; its commercial success; and its current popularity. The product has
become profitable for Quickturn in recent years, specifically since about 1994.
Quickturn's before tax profit on marginal sales in 1996 was 41 percent if
Quickturn had held research and development expense constant at its 1995 level.
This profit would have been even higher except for the presence of Mentor as a
competitor. Emulation has recently become a growing commercial success and it is
probable that designers of large ASIC's and other computer chips will continue
to use or begin, to use emulation in future design efforts.
i. The utility and advantages of the patent property over old
modes or devices, if any, that had been used for working out similar results.
Large ASIC's were designed before there was emulation by having the chip
manufactured and then testing. However, the fact that designers of these large
ASIC's are now willing to pay hundreds of thousands or even millions of dollars
for access to emulation indicates that the product is considered highly
desirable. In certain designs (e.g., gate size in excess of 100,000 gates)
hardware emulation appears to be the most beneficial method of development.
j. The nature of the patented invention; the character of the
commercial embodiment of it as owned and produced by the licensor; and the
benefits to those who have used the invention. The patents provide the basis to
allow field programmable gate arrays to communicate with one another in order to
emulate (copy) an ASIC. This is embodied in a piece of equipment called an
emulator. In 1995, Quickturn's two largest customers in the U.S.
Exhibit 14
<PAGE>
purchased in excess of REDACTED million dollars ($REDACTED million) each of
emulation equipment and the accompanying service - indicating that customers
place a high value on the equipment.
k. The extent to which the infringer has made use of the
invention; and any evidence probative of the value of that use. Mentor has been
using the invention in its emulators which it has sold or offered for sale in
the United States. Mentor's documents show that its intent is to become the
largest seller of emulation equipment, displacing Quickturn from the position
which it now occupies. Mentor's documents also show Mentor's integration (i.e.,
bundling) of emulation with other products so as to increase sales of its
software products.
l. The portion of the profit or of the selling price that may
be customary in the particular business or in comparable businesses to allow for
the use of the invention or analogous inventions.
No analogous inventions are known.
m. The portion of the realizable profit that should be
credited to the invention as distinguished from non-patented elements, etc.
Without the invention, Mentor would have no product to sell and thus would also
not be able to sell the service associated with its emulator. It is my opinion
that 100 percent of the realizable profit should be credited to the inventions
of the Quickturn patents.
n. The opinion testimony of qualified experts. The expert
preparing this report did not have any testimony from other experts.
o. What a willing buyer and a willing seller would have agreed
upon. Given that Quickturn's fortunes depend solely on its ability to sell
emulators, that Mentor had additional contacts with customers because it sold an
array of products and services far beyond emulators, that Mentor claimed that
its emulator was better, than that of Quickturn - particularly
Exhibit 14
<PAGE>
with respect to speed, and that Mentor had financial resources far in excess of
Quickturn, it is unlikely that Quickturn would have been a willing licensor of
the patents in questions. More likely, Quickturn would have felt that it would
lose any competitive battle with Mentor over the longer run, given Mentor's
superior monetary and sales resources.
16. When one considers all the factors, it seems obvious that Quickturn
would at least want the marginal profit which it would make from selling
emulation equipment and service. The increase in sales can be obtained by
subtracting 1995 sales from 1996 sales ($104,370,000 - $81,800,000 = $22,570,
000). The increase in profit can be obtained by subtracting net income before
taxes in 1995 from net income in 1996 ($18,054,000 - $12,471,000 = $5,583,000).
In addition to this lost profit, Quickturn would also lose $3,684,000 of
research and development - the increase in research and development expenditure
from 1995 to 1996. Thus, the total lost to Quickturn would have been $9,267,000
on sales of $22,570,000. The marginal profit rate with the additional
competition from Mentor was 41 percent of sales in 1996 ($9,267,000 an a percent
of $22,570,000). In addition, Quickturn's profits would have been higher on its
actual sales except for the price erosion caused by Mentor's presence as a
competitor. Once discovery is complete and an estimate of Quickturn's losses
from price erosion can be made, it will be possible to calculate the marginal
profit rate Quickturn would have made, absent price erosion. Since this will be
higher than 41 percent, it seems certain that Quickturn would not be a willing
licensor for less than the 41 percent of Mentor's sales of emulation equipment
and service in the United States. In fact, it is reasonably certain that
Quickturn would not agree to license the patent unless it was paid a royalty
equal to the profit which it would have made on marginal sales if Mentor had not
been a competitor since Quickturn had the capacity to fill the market needs.
Exhibit 14
<PAGE>
17. In fact, the 41% royalty takes into account only the profit which
Quickturn loses on its marginal sales. It does not consider the price erosion
which occurs because of the presence of Mentor as a competitor and which reduces
Quickturn's profit on the sales which it does make. This is particularly
important because the price erosion is likely to expand as Mentor grows.
18. One should note that I have eliminated the additional expenditure
for R&D by Quickturn in calculating the marginal profit for 1996. This is
appropriate in determining a reasonable royalty because Quickturn hopes to gain
in the future from the current expenditure on R&D. An alternative approach would
have been to calculate the profit counting R&D as a cost and then to add the R&D
expenditure which Quickturn lost because of Mentor being a licensee to the
profit lost. The results should be the same and are what one would expect
Quickturn to demand if it agreed to license its patents.
19. I also note that during the TEO phase of the ITC Investigation, the
Commission set a bond of 43% of the entered value of the Meta emulation system.
The 43% was calculated based upon the price erosion when Mentor/Meta was present
in an account (25%), plus 18%, which represents Quickturn's lost R&D investment
from the lost marginal sales. This supports my determination of a 41% reasonable
royalty. However, this has not been an effective deterrent and Quickturn has
filed a motion to increase the bond to 106 percent. This motion has been
supported by the ITC staff, who have sought to increase the bond to 180 percent.
20. As noted above, damage discovery is not yet complete in this matter
in that Mentor has not provided complete disclosure of its recent sales and
pricing activity and its importation and domestic manufacturing activity. This
has prevented an estimate being made of Quickturn's damages from price erosion.
In addition, Quickturn may make additional sales where price erosion is factor
because Mentor is a competitor between the date of this report and
Exhibit 14
<PAGE>
the trial. Mentor may also make additional sales during that same time period.
Thus, the above calculations on lost sales and price erosion are subject to
upward revision, based upon newly discovered information from Mentor. Finally,
an estimate will be made of the damages to Quickturn from price erosion once
discovery is complete.
/s/ James Mack Folsom
----------------------
James Mack Folsom
Exhibit 14
<PAGE>
QUOTATIONS & SALES ORDERS PRINTED FROM DATABASE IN WILSONVILLE
<TABLE>
<CAPTION>
Date of Quoted
Customer Quote Quote # Amount Sale?
- -------- ----- ------- ------ -----
<S> <C> <C> <C> <C>
Integrated Device Technology (Santa Clara) 2/12/96 57231 $1,560,886 N
UB Networks (Andover, MA) 3/4/96 57695 $580,268 Y-65183
7/18/96 60109 $8,900 Y-67291
8/19/96 60749 $17,900 Y-67290
(as Newbridge Networks) 6/19/97 4302 $66,537 N
Newbridge Networks (Kanata, Ontario) 6/19/97 4300 $97,686 N
Radix 4/26/96 58745 $1,032,874 N
5/13/96 59051 $885,939 Y-65528
5/14/96 59062 $250,042 N
5/28/96 59316 $0 N
7/25/97 5302 $7,627,200 N
7/25/97 5305 $247,328 N
Motorola (Austin) 4/30/96 58806 $499,415 N
(Austin) 12/26/96 63652 $158,466 Y-68909 (lease)
(Austin) 3/18/97 65075 $590,000 N
(Austin) 4/22/96 65662 $100,000 N
(Austin) 7/18/97 5166 $30,000 N
(Boynton Beach, FL) 7/23/96 60244 $392,696 N
(Boynton Beach, FL) 7/23/96 603267 $570,760 N
(Boynton Beach, FL) 7/23/96 60244 $293,696 N
(Plantation, FL) 1/30/97 64094 $1,880,330 N
(Plantation, FL) 3/10/97 64846 $230,000 N
(Plantation, FL) 3/10/97 64847 $237,865 N
(Plantation, FL) 3/24/97 65192 $237,865 N
(Plantation, FL) 4/28/97 65682 $280,000 N
Chipcom Corp. (Southborough, MA) 7/12/96 59210 $1,401,953 N
Digital Equipment Corp. (Hudson, MA) 6/20/96 59225 $1,246,632 N
(Littleton, MA) 6/19/96 59685 $765,113 N
(Littleton, MA) 6/19/96 59692 $317,351 N
AT&T (Holmdel, NJ) 6/6/96 59447 $378,200 N
Lucent Technologies (Piscataway, NJ) 8/23/96 60908 $265,415 N
(Naperville, IL) 11/27/96 63054 $609,711 N
Hughes Aircraft Co. (Los Angeles, CA) 9/19/96 61428 $4,631,125 N
9/20/96 61450 $3,093,750 N
National Semiconductor (Santa Clara) 11/1/96 62344 $498,648 Y-69314 ($590,952.72)
Cardiac Pacemakers (St. Paul, MN) 2/18/97 64439 $129,010 N
Hughes Missile Systems (Tucson, AZ) 4/9/97 65508 ?? N
Ericsson (RTP,NC) 4/24/97 65667 $374,870 N
4/24/97 65668 $210,000 N
Advanced Micro Devices (Austin, TX) 5/19/97 65788 $598,500 N
5/19/97 3275 $506,818 N
Adaptec (Milpitas, CA) 5/5/97 2942 $870 N(error)
7/2/97 4864 $462,896 N
Newbridge Networks (Kanata, Ontario) 6/19/97 4300 $97,686 N
Myotronx (Torrance, CA) 6/25/97 4540 $213,000 N
6/25/97 4542 $182,198 N
6/25/97 4565 $271,225 N
</TABLE>
Exhibit 15, Page 1 of 2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
New Customer (unknown) 6/26/97 4608 $635,525 N
New Customer (unknown) 7/2/97 4863 $817,290 N
</TABLE>
Exhibit 15, Page 2 of 2
<PAGE>
As you may know, Quickturn Design Systems has made three announcements on
January 27, 1997. The Accelerated Verification business unit's position on these
announcements follows.
SpeedSim Merger
Recently, Quickturn announced a merger with SpeedSim, a cycle-based simulator
provider. This merger is a clear indicator that Quickturn is feeling pressure to
offer a more comprehensive verification environment. In fact, a quote from the
release states "Quickturn is changing from being an emulation company to being a
design verification company." The SpeedSim acquisition is a very limited step in
the right direction of providing a more comprehensive verification solution.
Quickturn has clearly fallen behind in the technology required to build a
comprehensive system verification solution. The company is playing catch up, but
an acquired cycle-based simulator coupled with limited emulation technology is
not a complete verification environment! Although SpeedSim has solid technology
for rapid verification, it is really limited to large scale synchronous circuits
normally found in large microprocessor design houses. This technology has not
been successfully deployed in the traditional system, board or ASIC design flows
normally found in telecom and datacom applications.
CoBALT-OEM arrangement with IBM
In yet another attempt to fill their technology gaps, Quickturn signed an
exclusive OEM agreement with IBM to offer an alternative to the company's
existing commercial FPGA-based systems. Quickturn is providing only software in
this arrangement while all the hardware will be supplied by IBM. Since IBM's
main business is still heavily related to the high-end computer market, it seems
very questionable that IBM would want to sell verification products to their
chief competitors. How long will it last? How responsive will IBM be to
problems?
CoBALT (Concurrent Broadcast Array Logic Technology) is limited to synchronous
designs that lend themselves to a cycle-based verification methodology and thus
will only appeal to high-performance CPU customers. It is based on a custom chip
designed by IBM in their 0.25 micron semiconductor process and is part of the
compiled-code logic emulation family with time multiplexed logic and
interconnect. Large synchronous designs are not very common, a fact that has
historically stood in the way of the broader adoption of the CoBALT technology.
This puts Quickturn into the position of having two incompatible solutions with
significant weaknesses. System Realizer is versatile but has slow design
iteration times, and CoBALT offers higher performance but places significant
constraints on design methodology.
Mentor's SimExpress actually offers customers the best of both technologies.
SimExpress has compile times and debug capabilities that are found in the CoBALT
product, while allowing the design flexibility and ICE capability of Quickturn's
System Realizer family of products.
SimExpress is based on a custom emulation chip and architecture, and with links
to Seamless and QuickHDL, we already offer our customers unsurpassed early
hardware and software debug, in-circuit verification for final integration and
validation, as well as intellectual property support.
Exhibit 16, Page 1 of 2
<PAGE>
Q/Bridge Software Tool
Q/Bridge is an interface for co-simulation. Q/Bridge is designed to enable
third-party vendors of electronic design automation tools to easily create
co-simulation interfaces between their products and Quickturn's Quest emulation
software environment. While we welcome creation of public interfaces that
facilitate improved overall verification solutions for the end user, some
skepticism about co-simulation performance is in order. Traditional hardware
emulators are very inefficient with co-simulation applications because the
start/stop operation consumes huge amounts of time relative to that of
emulation. SimExpress has been specifically optimized for co-simulation. Special
high-speed interface circuitry gets around traditional data transfer and
synchronization penalties, thus enabling fast co-simulation performance.
Clearly SimExpress offers the only complete solution for our customers, helping
them bridge the productivity gap between silicon availability and system
verification. We offer a custom emulation architecture, which is the backbone of
a comprehensive accelerated verification methodology. SimExpress is the only
solution that offers:
hardware and software co-verification
RTL (VHDL and Verilog-XL) acceleration
intellectual property support for emulation
in-circuit verification for final system integration and validation.
Truly-ACCELERATED VERIFICATION WITHOUT COMPROMISE!
As always, your comments are welcome. Happy Selling! Gabriele Pulini, Meta
Systems Director of Marketing Ext. 5232; John Ott, Accelerated Verification SBU
Director of Marketing-Ext. 1706.
Exhibit 16, Page 2 of 2
<PAGE>
EXHIBIT 17
[Customer Quotation for Digital Equipment Corporation; Exhibit 17, Page 1 of 2]
[Customer Quotation for Digital Equipment Corporation; Exhibit 17, Page 2 of 2]
Exhibit 17, Page 1 of 1
<PAGE>
EXHIBIT 18
[Order, UB Networks; Exhibit 18, Page 1 of 2]
[Order, UB Networks; Exhibit 18, Page 2 of 2]
Exhibit 18, Page 1 of 1
<PAGE>
PROOF OF SERVICE
I am employed in the County of Los Angeles, State of
California. I am over the age of 18 and not a party to the within action. My
business address is 633 West Fifth Street, Suite 4700, Los Angeles, California
90071-2066.
On October 05, 1998, I served the foregoing document described
as INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM on each interested
party, as follows:
Sanjay Bhandari, Esq. Craig Allison, Esq.
LATHAM & WATKINS BROBECK, PHLEGER & HARRISON LLP
75 Willow Road 2200 Geng Road
Menlo Park, CA 94025 Palo Alto, CA 94303
(BY HAND DELIVERY - FEDERAL EXPRESS) I caused each such
envelope to be delivered by hand to the offices of the above
addressee(s).
Sanjay Bhandari, Esq.
LATHAM & WATKINS
75 Willow Road
Menlo Park, CA 94025
(BY FACSIMILE) I served a true copy of the foregoing document
on each interested party as set forth above via facsimile
((650) 463-2600).
Executed on October 05, 1998, at Los Angeles, California. I declare under
penalty of perjury that the foregoing is true and correct.
Elaine Chacon Acuna /s/ Elaine Chacon Acuna
- ------------------------------------- --------------------------
(Name)
