MENTOR GRAPHICS CORP, SC 14D1/A, 1998-11-04

MENTOR GRAPHICS CORP
SC 14D1/A, 1998-11-04
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

AMENDMENT NO. 20
TO SCHEDULE 14D-1

TENDER OFFER STATEMENT
(PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)

QUICKTURN DESIGN SYSTEMS, INC.

(Name of Subject Company)

MENTOR GRAPHICS CORPORATION
MGZ CORP.

(Bidders)

COMMON STOCK, PAR VALUE $.001 PER SHARE

(including the Associated Rights)

(Title of Class of Securities)

74838E102

(CUSIP Number of Class of Securities)

------------------------

WALDEN C. RHINES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MENTOR GRAPHICS CORPORATION
8005 S.W. BOECKMAN ROAD
WILSONVILLE, OREGON 97070-7777
(503) 685-1200

(Name, Address and Telephone Number of Persons Authorized
to Receive Notices and Communications on Behalf of Bidders)

COPY TO:

JOHN J. HUBER, ESQ. CHRISTOPHER L. KAUFMAN, ESQ.
LATHAM & WATKINS LATHAM & WATKINS
1001 PENNSYLVANIA AVENUE, N.W. 75 WILLOW ROAD
WASHINGTON, DC 20004 MENLO PARK, CALIFORNIA 94025
(202) 637-2200 (650) 328-4600

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MGZ Corp., a Delaware corporation ("Purchaser"), and Mentor Graphics
Corporation, an Oregon corporation ("Parent"), hereby amend and supplement their
Tender Offer Statement on Schedule 14D-1 filed on August 12, 1998 (the
"Statement"), as amended, with respect to the offer by Purchaser to purchase all
outstanding shares of Common Stock, par value $.001 per share, of Quickturn
Design Systems, Inc., a Delaware corporation, for a purchase price of $12.125
per share, net to the seller in cash, without interest thereon, as set forth in
this Amendment No. 20. Capitalized terms used herein and not defined have the
meanings ascribed to them in the Statement.

ITEM 10. ADDITIONAL INFORMATION.

Item 10(f) of the Statement is hereby amended and supplemented by the
following:

1. On November 3, 1998, Parent and the Company entered into a Stipulation
regarding the public disclosure in redacted form of certain expert reports, a
copy of which is attached hereto as Exhibit (a)(38) and is incorporated herein
by reference.

2. On November 4, 1998, Parent issued a press release, a copy of which is
attached hereto as Exhibit (a)(39) and is incorporated herein by reference.

3. Redacted Interim Supplemental Expert Report of James Mack Folsom, dated
October 5, 1998, a copy of which is attached hereto as Exhibit (a)(40) and is
incorporated herein by reference.

4. Redacted Supplemental Report of Blaine F. Nye, Ph.D., dated October 22,
1998, a copy of which is attached hereto as Exhibit (a)(41) and is incorporated
herein by reference.

ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.

(a)(38) Stipulation dated November 3, 1998.

(a)(39) Press Release dated November 4, 1998.

(a)(40) Redacted Interim Supplemental Expert Report of James Mack Folsom
dated October 5, 1998.

(a)(41) Redacted Supplemental Report of Blaine F. Nye, Ph.D. dated October
22, 1998.

2
<PAGE>
SIGNATURES

After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.

<TABLE>
<S> <C> <C>
Dated: November 4, 1998 MENTOR GRAPHICS CORPORATION

By: /s/ GREGORY K. HINCKLEY
--------------------------------------
Name Gregory K. Hinckley
Title: Executive Vice President, Chief Operating
Officer and Chief Financial Officer

MGZ CORP.

By: /s/ GREGORY K. HINCKLEY
--------------------------------------
Name: Gregory K. Hinckley
Title: Secretary and Chief Financial Officer
</TABLE>

<PAGE>

ATTORNEYS LISTED ON NEXT PAGE

UNITED STATES DISTRICT COURT
DISTRICT OF OREGON

MENTOR GRAPHICS CORPORATION, an Oregon corporation, CASE NO. C96-00342-RE

Plaintiff, STIPULATION

QUICKTURN DESIGN SYSTEMS, INC., a Delaware
corporation,

Defendant.

META SYSTEMS, a French corporation,

Plaintiff,

QUICKTURN DESIGN SYSTEMS, INC., a Delaware
corporation,

Defendant.

1
<PAGE>

LYON & LYON LLP
A Limited Liability Partnership
Including Professional Corporations
JAMES W. GERIAK
JAMES C. BROOKS
STEVEN D. HEMMINGER
LAWRENCE R. LAPORTE
THEODORE S. MACIEKO
JONATHAN T. LOSK
633 West Fifth Street, Suite 4700
Los Angeles, California 90071-2066
(213) 489-1600

ALAN T. McCOLLOM (OSB NO. 79080)
MARGER, JOHNSON & McCOLLOM, P.C.
1030 S.W. Morrison Street
Portland, Oregon 97205
(503) 222-3613

Attorneys for Defendant
QUICKTURN DESIGN SYSTEMS, INC.

James T. McDermott (Oregon Bar No. 93359)
BALL JANIK LLP
One Main Place
101 Southwest Main Street, Suite 1100
Portland, Oregon 97204
(503) 228-2525

David A. York (CSB No. 89942)
Steven M. Bauer (CSB No. 135067)
Sanjay Bhandari (CSB No. 181920)
LATHAM & WATKINS
75 Willow Road
Menlo Park, California 94025-3656
(650) 328-4600

Marc W. Rappel
LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
(213) 485-1234

Attorneys for Plaintiffs
MENTOR GRAPHICS CORPORATION and
META SYSTEMS

2
<PAGE>

The parties hereto stipulate and agree as follows:

1. In Civil Action No. C96-00342-RE, the Interim Supplemental
Expert Report of James Mack Folsom, dated October 5, 1998 (including all
Exhibits thereto), can be publicly disclosed by either party and otherwise used
as if it was not designated confidential information subject to protective order
in this litigation, immediately upon signature of this stipulation by both
parties, provided the information identified below as "REDACTED" is redacted:

a. Page 7, paragraph 18

<TABLE>
<CAPTION>
------------------------------- --------------------- --------------------- ---------------------
Customer Total Price Equipment Annual Service
------------------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Bull REDACTED REDACTED REDACTED
--------------------- --------------------- ---------------------

UB Networks REDACTED REDACTED REDACTED

--------------------- --------------------- ---------------------

Radix REDACTED REDACTED REDACTED
--------------------- --------------------- ---------------------

Motorola REDACTED REDACTED REDACTED
--------------------- --------------------- ---------------------

National Semiconductor REDACTED REDACTED REDACTED
------------------------------- --------------------- --------------------- ---------------------

</TABLE>

b. Page 9, paragraph 22

For UB Network (including its parent Tandem), Quickturn estimated that it would
have sold the company $REDACTED in equipment in the first quarter of 1997 and
$REDACTED in the first quarter of 1998. (See Table 10 attached at Exhibit 12.)
For Motorola, Quickturn estimated that the repeat sales would have been
$REDACTED per quarter after Motorola had a quarter to become accustomed to the
Quickturn equipment.
* * *

For National Semiconductor, Quickturn estimated that, after the one quarter lag,
National Semiconductor would have purchased $REDACTED per quarter.

c. Page 11, paragraph 25

In the year before Mentor began its infringement (Q3`94 through Q2'95), the
average price per gate was REDACTED CENT. In the next year the average price
fell slightly to REDACTED CENT.

* * *

<PAGE>

Thus, when one compares the price drop from the year before Mentor to the year
that Mentor began to sell actively, there was little impact on Quickturn's
average price because Mentor won most of the competitive situations. The price
per gate fell by REDACTED cents.

d. Page 11, paragraph 25, footnote 10

Quickturn indeed offered SGS a greater than REDACTED% discount off list but
still lost the sale.

e. Page 11, paragraph 26

As a result of this pricing change, the average prices per gate in the year,
Q3'96 to Q2'97, fell to REDACTED cents, a drop of REDACTED cents per gate from
the previous year. In the next year, prices stabilized at this low level and
assumed their more normal rate of decrease, dropping by REDACTED cents per gate.

f. Page 12, paragraph 27

In calculating the losses from price erosion, I have assumed that prices would
have dropped from REDACTED cents per gate to 85 cents for the year beginning
with Q3'96. I assume that the "normal" price would have declined to 83 cents per
gate in the next year.

g. Page 12, paragraph 28, footnote 11

For example, in Table 18, we see that when the share in the U.S. fell from
REDACTED% to REDACTED%, the price per gate rose from REDACTED cents to REDACTED
cents and when the share in the U.S. increased from REDACTED% to REDACTED%, the
price per gate fell from REDACTED cents to REDACTED cents. The pattern is
repeated in the next quarter. The domestic share fell from REDACTED% to
REDACTED% and the price per gate rose from REDACTED cents to REDACTED cents.

h. Page 13, paragraph 29

In making this calculation, I noted that the impact of price erosion shown in
Table 18 was that the amount of the price erosion declined REDACTED% from the
first year (Q3'96-Q2'97) to the second year (Q3'97-Q2'98).

<PAGE>

i. Exhibit 12, Table 2

LOST PROFITS ON ACTUAL SALES AND MAINTENANCE

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

Maintenance Sales Sales
----------------- -----
UB Network REDACTED
Radix REDACTED
National Semiconductor REDACTED
Motorola REDACTED
Bull REDACTED
----------
TOTAL: $1,474,900
----------
----------
70% Margin
Lost Profit $1,032,400
j. Exhibit 12, Table 3

RADIX-MAINTENANCE SALES
-----------------------
Radix Q2'96 Equipment Sales: $REDACTED
- ----------- ----------------
Maintenance Sales Q3'96 $REDACTED
Q3'97 $REDACTED
Q3'98 $REDACTED
----------
Lost Maintenance: $REDACTED
$4,950,000
k. Exhibit 12, Table 4

NATIONAL SEMICONDUCTOR-MAINTENANCE SALES

National Semiconductor Equipment Sale: $REDACTED
- ---------------------- ---------------
Maintenance Sales Q2'97 REDACTED
Q3'98 REDACTED
Q2'99 REDACTED
----------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED

</TABLE>

<PAGE>

l. Exhibit 13, Table 15

UB NETWORK-MAINTENANCE SALES

<TABLE>
<CAPTION>
<S> <C> <C>
UB Network Equipment Sale: $REDACTED
- ---------- ---------------
Maintenance Sale Q3'96 REDACTED
Q3'97 REDACTED
Q3'98 REDACTED
----------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
m. Exhibit 12, Table 6

BULL-MAINTENANCE SALES

Bull Maintenance Equipment Sale: $REDACTED
- ---------------- ---------------
Maintenance Sale Q3'95 REDACTED
Q3'96 REDACTED
Q3'97 REDACTED
----------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
n. Exhibit 12, Table 7

MOTOROLA MAINTENANCE SALES

Equipment Sale: $REDACTED
---------------
Maintenance Sale Q1'97 REDACTED
Q1'98 REDACTED
Q1'99 REDACTED
----------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
o. Exhibit 12, Table 8
QUICKTURN DESIGN SYSTEMS AVERAGE PRICE PER GATE

Period Average Price
------ -------------
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>
6

<PAGE>

p. Exhibit 12, Table 9

QUICKTURN'S LOSSES ON FUTURE SALES OF EQUIPMENT AND MAINTENANCE CAUSED BY MENTOR
GRAPHICS' INFRINGEMENT

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

q. Exhibit 12, Table 10

QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO UB NETWORK
(TANDEM) CAUSED BY MENTOR GRAPHICS' INFRINGEMENT

Equipment Sales
---------------
Q1 `97 $REDACTED
Q1 `98 REDACTED
----------
$REDACTED
70% Margin
Lost Profit $REDACTED

r. Exhibit 12, Table 11

QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO
UB NETWORKS CAUSED BY MENTOR GRAPHICS' INFRINGEMENT

NPV Maintenance Sales
---------------------
Q2 `97 $REDACTED
Q2 `98 REDACTED
Q2 `99 REDACTED
Q2 `00 REDACTED
----------
$REDACTED
20% Margin
NPV Lost Profit $REDACTED

</TABLE>

<PAGE>

s. Exhibit 12, Table 12

QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO MOTOROLA
CAUSED BY MENTOR GRAPHICS' INFRINGEMENT

<TABLE>
<CAPTION>
<S> <C> <C>
Equipment Sales
---------------
Q2 `97 $REDACTED
Q3 `97 REDACTED
Q4 `97 REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
$REDACTED
----------
70% Margin
Lost Profit $REDACTED

t. Exhibit 12, Table 13

QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO MOTOROLA
CAUSED BY MENTOR GRAPHICS' INFRINGEMENT

NPV of
Maintenance Sales
-----------------
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>

<PAGE>

u. Exhibit 12, Table 14

QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO NATIONAL
SEMICONDUCTOR CAUSED BY MENTOR GRAPHICS' INFRINGEMENT

<TABLE>
<CAPTION>
<S> <C> <C>
Equipment
Sales
---------
Q3 `97 REDACTED
Q4 `97 REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
$REDACTED
----------
70% Margin
Lost Profit $REDACTED

v. Exhibit 12, Table 15

QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO NATIONAL
SEMICONDUCTOR CAUSED BY MENTOR GRAPHICS' INFRINGEMENT

NPV of
Maintenance Sales
-----------------
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>

9
<PAGE>

w. Exhibit 12, Table 16

QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO
BULL CAUSED BY MENTOR GRAPHICS' INFRINGEMENT

<TABLE>
<CAPTION>
<S> <C> <C>
Equipment
Sales
-----
Q1 `97 $REDACTED

70% Margin
Lost Profit $REDACTED

x. Exhibit 12, Table 17

QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO BULL CAUSED
BY MENTOR GRAPHICS' INFRINGEMENT

NPV of Future
Maintenance Sales
-----------------
Q2 `97Q4 `97 $REDACTED
Q2 `98 REDACTED
Q2 `99 REDACTED
$REDACTED
70% Margin
NPV of Lost Profit $REDACTED

</TABLE>

y. Exhibit 12, Table 18

QUICKTURN'S LOSSES FROM PRICE EROSION CAUSED BY
MENTOR GRAPHICS' INFRINGEMENT

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>

<PAGE>

z. Exhibit 13, Chart (partial)

Quickturn's Average Price Per Gate in Years Ending in the Second Quarter, 1995-1998
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R
E
D
A
C
T
E
D
- ------------------- -------------------------------------------------------------------------------------------------
Q2'95 Q2'96 Q2'97 Q2'98
- ------------------- ---------------------- ---------------------- ----------------------- ---------------------------

</TABLE>

aa. Exhibit 14, Expert Report of James Mack Folsom, page 9, P. 12.

The variable sales cost is commissions on sales which were planned to be
REDACTED percent of sales in 1996.

bb. Exhibit 14, Expert Report of James Mack Folsom, page 14, P. 15.

In 1995, Quickturn's two largest customers in the U.S. 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.

2. In Civil Action No. C96-00342-RE, the Supplemental Report of
Blaine F. Nye, Ph.D., dated October 22, 1998 (including all Exhibits thereto),
can be publicly disclosed by either party and otherwise used as if it was not
designated confidential information subject to protective order in this
litigation, immediately upon signature of this stipulation by both parties,
provided the information identified below as "REDACTED" is redacted:

a. Page 22, Section IV, C.2

Mr. Folsom assumes that a "normal" price per gate was $REDACTED in 1995 and
$0.85 in 1996 and that price per gate would normally drop $REDACTED per year.
* * *
He testified that Quickturn's price per gate declined from $8 per gate in 1991,
to $6, to $4, and then to $2 by late 1994, then to $REDACTED by 1996.

<PAGE>

b. Page 28, Section V.A.

- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Customer Sale Amount Royalty Rate Total Royalty
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Radix $REDACTED 7.8% $REDACTED
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Motorola $REDACTED 7.8% $REDACTED
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
UB Networks $REDACTED 7.8% $REDACTED
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Bull HN $REDACTED 7.8% $REDACTED
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
TOTAL $4,454,000 7.8% $347,412
- ----------------------------- ----------------------------- ---------------------------- ----------------------------

</TABLE>

c. Exhibit I, LaPorte to Bhandari Letter, 8/12/98, p.4

- --------------------------------------- -------------------------------------- --------------------------------------
CUSTOMER LIST PRICE DISCOUNT
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
CPI $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
C-Cube $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
TI $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
AMD $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
Number Nine $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
DEC $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
SAI $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
DOD #2 $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
TI $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
ATT $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
Cabletron $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
Motorola $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
10,511,188 3,683,174 (Mentor present)
- --------------------------------------- -------------------------------------- --------------------------------------
25% Discount (Mentor absent) 2,627,797
- --------------------------------------- -------------------------------------- --------------------------------------
Price Erosion 1,055,377 (net price erosion)
- --------------------------------------- -------------------------------------- --------------------------------------

</TABLE>

d. Exhibit I, LaPorte to Bhandari Letter, 8/12/98, p.5

e. Exhibit M, Bhandari to LaPorte Letter, 9/12/98,
attach. (partial)

</TABLE>

<PAGE>

<TABLE>

<S> <C> <C>
DEC $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
SAI $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
DOD #2 $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
TI $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
AT&T $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
Cabletron $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
Motorola $REDACTED $REDACTED
- --------------------------------------- -------------------------------------- --------------------------------------
$8,681,480 $2,641,363
- --------------------------------------- -------------------------------------- --------------------------------------
Average Discount with Mentor Absent (25%) $2,170,370
- ------------------------------------------------------------------------------ --------------------------------------
TOTAL PRICE EROSION (Actual - Average) $470,993
- ------------------------------------------------------------------------------ --------------------------------------

</TABLE>

3. In both Civil Action No. C96-00342-RE and United States
International Trade Commission Proceedings, Investigation No. 337-TA-383, the
deposition transcripts and exhibits thereto of Guenther, Giordano, Bull and its
employees; Daniel Schumacher, Tim Parker, Motorola and its employees (when, and
if, taken); and National Semiconductor (when, and if, taken) shall not be
designated as confidential information subject to protective order in this
litigation (and may be publicly disclosed) by either plaintiffs or defendant to
the extent any of the witnesses' testimony concerns actual or potential
purchases of emulation equipment or any other matters relating to damages in
this action, immediately upon signature of this stipulation by both parties.
Additionally, the parties agree that neither party will disclose either the
Folsom or Nye reports to any non-party damages witnesses.

4. The following pleadings from the United States
International Trade Commission Proceedings, Investigation No. 337-TA-383,
excluding the portions thereof that contain a detailed description of machine
function, shall not be designated as confidential information subject to
protective order and may be publicly disclosed by either party, immediately upon
signature of this stipulation by both parties:

a. Order No. 34, Initial Determination, dated July 8, 1996;

b. Final Initial and Recommended Determinations, dated July 31, 1997;

c. Opinion on Remedy, The Public Interest and Bonding, dated
April 1, 1998;

<PAGE>

d. Commission Investigative Staff's Post-Hearing Reply Brief on
Permanent Relief, dated May 30, 1997;

e. Commission Opinion on Petition to Modify to Temporary Relief Bond,
dated October 28, 1997;

f. Commission Opinion on Remedy, The Public Interest and Bonding,
dated August 12, 1996; and

g. Order No. 96, dated July 31, 1997.

<PAGE>

IT IS SO STIPULATED:
LYON & LYON LLP
Dated: November 3, 1998 By /s/ Theodore S. Maceiko
-----------------------
Theodore S. Maceiko
633 West Fifth Street, Suite 4700
Los Angeles, California 90071-2066
(213) 489-1600

Alan T. McCollom
MARGER, JOHNSON & McCOLLOM, P.C.
1030 S.W. Morrison Street
Portland, Oregon 97205
(503) 222-3613

Attorneys for Defendant
QUICKTURN DESIGN SYSTEMS, INC.

LATHAM & WATKINS
Dated: November 3, 1998 By /s/ Marc W. Rappel
------------------
Marc W. Rappel
633 West Fifth Street, Suite 4700
Los Angeles, California 90071
(213) 485-1234

David A. York (CSB No. 89942)
Steven M. Bauer (CSB No. 135067
Sanjay Bhandari (CSB No. 181920)
LATHAM & WATKINS
75 Willow Road
Menlo Park, California 94025-3656
(650) 328-4600

James T. McDermott
(Oregon Bar No. 93359)
BALL JANIK LLP
One Main Place
101 Southwest Main Street,
Suite 1100
Portland, Oregon 97204
(503) 228-2525

Attorneys for Plaintiffs
MENTOR GRAPHICS CORPORATION and
META SYSTEMS

<PAGE>
MENTOR GRAPHICS CALLS QUICKTURN'S PATENT DAMAGES CLAIMS
"GROSSLY INFLATED"

WILSONVILLE, OR, NOVEMBER 4, 1998--Mentor Graphics Corporation (Nasdaq:
MENT) today called the amount of damages being sought by Quickturn Design
Systems, Inc. (Nasdaq: QKTN) in its patent infringement litigation with Mentor
"grossly inflated." Mentor stated its belief that the actual damages suffered by
Quickturn, if Quickturn succeeds in proving infringement, are at most
approximately $1 million (or up to a total of $3 million if the damages are
trebled)--not $75 million (or $225 million if trebled) as recently claimed by
Quickturn.

Mentor stated that the report submitted by its damages expert in the patent
case of "at most $1,091,724" of actual damages before any trebling is consistent
with Quickturn's prior willingness to enter into a stipulation limiting its
damages before any trebling to $3.5 million.

Mentor further stated that Quickturn, after strongly opposing the public
release of the Mentor and Quickturn experts' reports, has finally agreed to the
release of redacted versions of the two reports, exhibits to the reports and the
correspondence relating to the proposed cap on damages. Mentor is making both
experts' reports available today on a special Mentor Web site at
http://www.mentorg.com/file and intends to add the exhibits and correspondence
to this Web site at a later date.

Dr. Walden C. Rhines, President and Chief Executive Officer of Mentor
Graphics, said: "We have always believed that Quickturn's damages claims were
grossly inflated and that the claims were only made to try to mislead Quickturn
stockholders into rejecting our $12.125 per share, premium, cash tender offer
for all outstanding shares of Quickturn common stock.

"Quickturn has finally stopped trying to prevent the Quickturn stockholders
from seeing the so-called bases for Quickturn's damage claims. We are confident
that Quickturn stockholders will conclude that the report of Mentor's damages
expert, who stated that damages -- in the event that Quickturn actually proves
that Mentor infringed its patents --are 'not more than $548,336, and at the very
most, $1,091,724,' is grounded in reality. In our view, Quickturn's damage
claims are nothing more than a red herring in the context of Mentor's all-cash
premium offer."

Dr. Rhines called attention to these excerpts from the Mentor damages
expert's report:

- "First, it is simply inherently incredible to claim, as [Quickturn's
expert] does, that Quickturn has and will lose $93,000,000 in profits in
the period 1996-2003 because Mentor sold five items of equipment having a
gross value of $3.5 million during the period 1995-1997. No credible
analysis can reach those damage numbers based on Mentor's limited sales."

- "Second, [Quickturn's expert's] 'lost profits' damages with respect to
projected sales of equipment and maintenance to Bull, UB Networks, Radix,
Motorola, and National Semiconductor, which he states are $30,973,700
(even after discounting to present value), completely ignores sworn third
party testimony from the purchasing authorities of four of the five
companies that they WOULD NOT have purchased Quickturn's products. One
simply cannot base a rational lost profits claim on sales of equipment
that the purchaser states it would not have bought."

- "Third, [Quickturn's expert's] 'price erosion' claim (which yields
additional lost profits of $62,208,300 before discounting) is based on a
theory that (a) Quickturn would have been able to keep its prices
substantially the same as it charged in 1996 (in spite of the common
observation that electronics and computer equipment prices fell
dramatically over the same period), and (b) Mentor's limited presence in
the market in 1995-1997 caused and will cause Quickturn to dramatically
reduce its prices over a seven year period--including a six year period
after Mentor disappeared from the United States market."

- "Fourth, [Quickturn's expert] ignores some basic data points concerning
the behavior of the parties during this litigation that cast his numbers
into great doubt, including the facts that (a) Quickturn stipulated, and
the ITC [International Trade Commission] agreed, that its damages with
respect to Mentor's late 1996 and 1997 imports (which include the Motorola
and National Semiconductor
<PAGE>
sales) were only $425,000, and (b) Quickturn was apparently willing to
stipulate in August-September 1998 that its damages in the Portland case
were $3.5 million. There is no way to reconcile a number in the tens of
millions with this conduct."

As previously announced, the Dealer Manager for the Mentor Graphics Offer is
Salomon Smith Barney. MacKenzie Partners, Inc., which is acting as proxy
solicitor for the Special Meeting and as the Information Agent for Mentor's
Offer, can be reached toll-free at 800-322-2885 or by collect call at
212-929-5500.

Mentor Graphics' Offer to Purchase and ancillary documents are available on
a Mentor Graphics World Wide Web site at http://www.mentorg.com/file.

<TABLE>
<S> <C> <C>
Contacts: Anne M. Wagner Roy Winnick/Todd Fogarty
Vice President, Marketing Kekst and Company
503/685-1462 212/521-4800
</TABLE>

<PAGE>

LYON & LYON LLP
A Limited Liability Partnership
Including Professional Corporations
JAMES W. GERIAK
JAMES C. BROOKS
LAWRENCE R. LaPORTE
ARMAND F. AYAZI
633 West Fifth Street, Suite 4700
Los Angeles, California 90071-2066
Telephone: (213) 489-1600

MARGER, JOHNSON & McCOLLOM, P.C.
ALAN T. McCOLLOM, OSB No. 79080
1030 S.W. Morrison Street
Portland, Oregon 97205
Telephone: (503) 222-3613

Attorneys for Defendant
QUICKTURN DESIGN SYSTEMS, INC.

UNITED STATES DISTRICT COURT

DISTRICT OF OREGON

MENTOR GRAPHICS CORPORATION, an ) Civil No. C96-00342-RE
Oregon Corporation )
Plaintiffs, ) CONSOLIDATED CASES
)
v. ) INTERIM SUPPLEMENTAL EXPERT
) REPORT OF JAMES MACK FOLSOM
QUICKTURN DESIGN SYSTEMS, INC., a )
Delaware corporation, )
Defendants. )
)
)
)
- -------------------------------------------
)
META SYSTEMS, a French corporation, )
) FILED UNDER SEAL
Plaintiff, )
) CONTAINS CONFIDENTIAL
v. ) INFORMATION SUBJECT TO
) PROTECTIVE ORDER
QUICKTURN DESIGN SYSTEMS, INC., a )
Delaware corporation, )
Defendant. )
)
)
- -------------------------------------------

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 1

<PAGE>

TABLE OF CONTENTS
PAGE
----

<S> <C> <C>
I. BACKGROUND MATERIAL STUDIED AND SUMMARY..................................................................4

II. QUICKTURN'S LOST PROFIT ON SALES THAT MENTOR MADE -- LOST SALES..........................................6

A. Past Lost Sales.................................................................................6

1. Capacity and Substitutability..........................................................9

2. Lost Profit on Equipment..............................................................11

3. Lost Profit on Service/Maintenance....................................................12

B. Lost Future Sales (Repeat Sales)...............................................................13

1. Equipment.............................................................................13

2. Service/Maintenance...................................................................15

C. Price Erosion..................................................................................15

1. Past Price Erosion....................................................................17

2. Future Price Erosion..................................................................18

III. SUMMARY.................................................................................................19

</TABLE>

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 2

<PAGE>

1. My names is James Mack Folsom. As I have previously indicated in my
Expert Report, dated July 1, 1997 (attached as Exhibit 14), 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. This Interim
Supplemental Expert Report supplements my earlier expert report. My
educational background and experience are detailed in my earlier report at
PARAPARA1-4. I left my employ at Glassman-Oliver Economic Consultants, Inc.
after I completed the earlier report and now manage my own independent
consulting firm, Mack Folsom, Inc.

2. My updated resume is attached as Exhibit 1 and presents an updated list
of expert testimony I have given during the past four years. There has been no
change in the publications. Charges for my time are $325 per hour.

I. BACKGROUND MATERIAL STUDIED AND SUMMARY

3. This Interim Supplemental Expert Report analyzes the lost sales
(including service), lost future sales (including service), and generalized
price erosion (past and future) caused by Mentor's aggressive sales and
marketing efforts since June 1996 to the present in view of documents recently
produced by Mentor Graphics Corporation(1) ("Mentor").

4. Since completing the earlier report in July 1997, 1 have obtained
additional information on sales and marketing activities of Mentor, which
information shows the wide range of their marketing and sales activities in the
United States. Since the first International Trade Commission ruling adverse to
Mentor, the documents that Mentor has provided indicate that Mentor
significantly accelerated its sales and marketing efforts with respect to its
infringing emulation products in the United States. (I am advised that Mentor
has not provided information

- ------------------------------
(1) Mentor designates either or both Mentor and Meta.

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 3

<PAGE>

sufficient to assess its foreign sales and marketing activities.). The quotes to
customers indicate a big increase in selling activity after the first
International Trade Commission hearing. Mentor documents that have been produced
appear to indicate that Mentor submitted price quotes on four emulation projects
in the United States prior to June, 1996. Between June and December, 1996,
quotes were submitted on 13 jobs and in the first nine months of 1997 quotes
were made on another 13 jobs. (See letter 8/7/98 from Sanjay Bhandari to
Lawrence LaPorte (Exhibit 2), and attachments thereto (Exhibit 15).) I have also
obtained data from Quickturn Design Systems, Inc. ("Quickturn") which allows me
to measure the impact of Mentor's unrelenting marketing and sales activities on
the prices charged by Quickturn and on lost future sales.

5. My earlier report indicated that Mentor's infringement of
Quickturn's patent and Mentor's attempts to sell emulation products in the
United States had caused several categories of damage to Quickturn. Among
them were (1) the loss of the actual sale of equipment when Mentor made a
sale, (2) the loss of the sale of the service associated with that equipment,
(3) the loss of future sales of equipment to that customer, (4) the loss of
service associated with the sale of the equipment sold in the future, (5) the
possible loss of sales outside the United States because of the sales lost in
the United States,(2) (6) delays in purchasing which may decrease earnings,
adversely impacting impacting on stock prices and, thus, raising the cost of
potential acquisitions,(3) (7) increases in the cost of selling because of
Mentor's presence and (8) price

- ------------------------------
(2) I am advised Mentor has produced little or no information with respect to
its foreign sales efforts, and I reserve the right to supplement my report if
such information becomes available.

(3) Mentor has recognized Quickturn's need to add to their product portfolio,
saying: "Recently, Quickturn. announced a merger with SpeedSirn, 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 (announcing the merger) states
`Quickturn is changing from being an emulation company to be a design

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 4

<PAGE>

erosion caused by Mentor's selling activities. (See paragraph 9 of
my original report, Exhibit 14.)

6. With the information now available, I am able to measure the impact
on Quickturn's profits from the sale of infringing equipment and service by
Mentor. In addition, I have used the data to calculate Quickturn's lost
profits from future sales of equipment and service that Quickturn would have
made if Mentor had not sold an infringing product.(4) Finally, I have used
the information available to measure the price erosion, both past and into
the future, caused by Mentor's sales and marketing of its infringing
products. Due to inadequate information provided by Mentor, I am still unable
to quantify the impact of domestic sales activity by Mentor on Quickturn's
foreign sales.

II. QUICKTURN'S LOST PROFIT ON SALES THAT MENTOR MADE -- LOST SALES

A. Past Lost Sales

7. As indicated in my earlier report, the appropriate measure of
damages to a firm whose patent has been infringed is lost profits on the sales
it would have made but for the infringement, that is, the difference between the
sales the patentee would have made and the costs it would have incurred. In my
earlier report, I presented details which demonstrated that Quickturn's profit
rate (over its variable costs of manufacturing and selling the products and
service) is approximately 70%. (See Exhibit 14 at paragraphs 11 - 12.) In order
to determine

- --------------------------------------------------------------------------------
verification company.' The SpeedSirn acquisition is a very limited step in the
right direction of providing a more comprehensive verification solution."
(Emphasis added.) (MGDC 002874), attached at Exhibit 16.

(4) As indicated in my earlier report, for the purposes of damages analysis,
I assume Mentor infringed Quickturn's patents.

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 5

<PAGE>

Quickturn's lost profits, we must multiply this profit margin by
the dollar volume of sales Mentor took away from Quickturn.

8. Mentor admits making five sales where the product wound up in the
United States according to the information originally furnished to us. The
first lost sale was to Bull in 1995. The product was purchased to be used at
the Bull facility in Arizona.(5) Quickturn actively competed with Mentor in
this lost sale.

9. The second lost sale was to UB Networks in the second quarter of 1996.
(Pulini Deposition Exhibit 16 (purchase order) attached at Exhibit 3.) Quickturn
and Mentor were head to head competitors for this sale.(6)

10. The third lost sale was to Radix Technologies, again in the second
quarter of 1996. (The purchase order was signed on 5/16/96 and is attached
hereto at Exhibit 4, p. 2.) Quickturn actively competed for this sale.

11. The fourth lost sale was to Motorola in Austin, Texas. It is described
as a lease in an attachment to Mr. Bhandari's August 7, 1998 letter to Mr.
LaPorte (Exhibit 15, p. 1) which indicates that the value of the lease was
$158,466. No information has been presented as to whether this equipment was
returned to Mentor at the end of the three months (although it does not appear
to be included in Mentor's inventory report -MGDC 002691, Exhibit 11) or whether
the lease was extended. Further, no mention is made of the purchase by Motorola
of two months of service for $105,000. (Motorola purchase order, issued on the
same day as the order for the

- ----------------------------------------
(5) It is my understanding that, as a part of the deal, Bull agreed to be a
reference account for Mentor in the United States.

(6) Mentor made two additional sales to UB Networks. The first was for spare
parts, 9/18/96, in the amount of $8,900 (MGDC 002359) and the second on the
same date was for a design memory card in the amount of $17,900

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 6

<PAGE>

equipment, attached hereto at Exhibit 4, pp. 6-9.) Aside from that, Mentor
appears to be playing with the numbers. At $52,500 per month for service, the
charge for one year of service would be $630,000. At 13.5% of the equipment
price for annual service, the implied selling price of the equipment would be
$4,667,000. (See Mentor offers in MGDC 002328 - MGDC 002329, Exhibit 17.) Mentor
and Quickturn competed vigorously for this sale.

12. The fifth lost sale was to National Semiconductor in the first quarter
of 1997. (See National Semiconductor purchase order, attached hereto at Exhibit
4, pp. 4-5.) Quickturn actively competed for this sale.

13. By his letter of August 7, 1998 (Exhibit 2, pp. 1-3), Mr. Bhandari
furnished additional information relative to the marketing and sales activities
of Mentor in the emulation area. He also provided a summary table (attached at
Exhibit 15, pp. 1-2) indicating when quotes had been made and whether a sale had
occurred. Among those quotes was one to Lucent Technologies on 8/23/96 and an
indication that no sale was made. However, MDGC 002680 (attached at Exhibit 5)
is a letter from Sanjay Kasturia, Director, GWPG, Core Technology Group, Lucent
Technologies to Bob Mareiniss of Mentor Graphics Corporation which states:

Please use Lucent Purchase Order # xxx in reference to the
Mentor Corporate Agreement #1214 (Lucent # G17959DE). Mentor
Graphics SimExpress emulation product (Base system without
options A or B) referenced by Quotation # 60908 which totals
$265,413.00 is requested to be shipped immediately to Lucent
Technologies.

Further evidence that this sale occurred is found in a letter from Mr. Mareiniss
to Lucent Technologies (Exhibit 6), Attention: Sanjay Kasturia, October 10,
1996, which states in part:

- --------------------------------------------------------------------------------
(MGDC 002360), both invoices attached at Exhibit 18. No information was found on
maintenance sales to UB Network..

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 7

<PAGE>

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.
(Emphasis added.) (MGDC 002683)

This sale, which was never mentioned by Mentor, was discovered on October 2,
1998 as drafting of this Interim Supplemental Expert Report was being completed.
Accordingly, I am not convinced that Quickturn has been provided with the full
picture of Mentor's sales taken away from Quickturn. I reserve the right to
supplement, alter or change this Interim Supplemental Expert Report should
further information come to light.

1. Capacity and Substitutability

14. The party who claims lost profits because an infringer has taken sales
away should be able to demonstrate that it had the capacity to produce and sell
the product and that, but for the infringer, it would have gotten the sale.
Since Quickturn was already trying to sell the customers that Mentor won, there
does not appear to any question that Quickturn had the capacity to sell the
product. Further, because of quarter to quarter variations in demand, Quickturn
has the capacity to expand production substantially without having to expand its
production facility. It is also my understanding that Quickturn would not have
any problem in obtaining the additional inputs which would be required if
production were increased.

15. Since Quickturn had the capacity to produce and sell the product, the
relevant question becomes whether Quickturn could have been expected to get the
sale if Mentor had not been in the market with an infringing product. It is my
conclusion that Quickturn would have gotten each of these sales in the absence
of Mentor. First, Quickturn and Mentor were the only two firms which were
offering for sale equipment which was allegedly comparable in both price

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 8

<PAGE>

and quality. VMW was offering equipment at prices substantially below those of
Quickturn and Mentor and had never made a sale. Zycad, which in the past had
sold emulation equipment, was in the process of withdrawing from selling
emulation equipment. IKOS, it is my understanding, also had not sold any product
when the infringement began. Aptix was just beginning to attempt to sell
emulation equipment and the capacity of the equipment which it was offering to
sell was less than 100,000 gates at the time the infringement began. Aptix could
not be considered as a serious competitor of either Quickturn or Mentor, both of
which were offering equipment that had capacities of a million or more gates or
as offering a reasonable substitute for any of the five equipment sales that
Mentor admits to making since all of those were for equipment with a capacity
substantially in excess of 100,000 gates. This all means that we have
essentially a two-supplier market insofar as the sale of emulation equipment
capable of verifying large chip designs is concerned. This conclusion is also
supported by the testimony of Moore and Cibulski at the ITC hearings.

16. I now turn to the information with respect to the customers and
Mentor's perception of its competition. The extent of the competition in the UB
Network's situation is summarized in a memorandum from Matthew Fisch to Steve
Duffett (both of Mentor) (4/l/96 - MGDC 002465 - MGDC 002466, attached at
Exhibit 7). "We took UB to Paris for a corporate visit to help overcome and
address all of the outstanding questions and concerns which Quickturn has
raised." Although Mentor has recently procured biased third-party statements to
the effect that Quickturn was not the most likely supplier other than Mentor in
some of the above lost sales, Mentor's own documents indicate the contrary -
Quickturn was the only other candidate in these lost sales (and these are the
lost sales that Mentor has disclosed thus far). In

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 9

<PAGE>

fact, the only instance that I found where another emulator producer is
mentioned as competing with Mentor for a specific sale is one involving Ericsson
where Mentor did not make the sale. Quickturn was not perceived as involved in
that sale. The competitors mentioned are IKOS and Aptix. (MGDC 002882, attached
at Exhibit 8.) On the other hand, there are a large number of references to
Quickturn as a competitor, including comments about Quickturn's pricing (See,
for example, MGDC 002503, attached at Exhibit 9) and comments like "Quickturn is
going to fight us to the death on these three sales campaigns" (3Com-Chipcom,
Cabletron and Digital). (MGDC 002466, attached as Exhibit 10.)

17. It is axiomatic in the emulation industry that once a firm purchases
equipment from a supplier, it goes to that same supplier for
service/maintenance. Therefore, there is no question that Quickturn would have
been the firm to provide the service if it sold the equipment. It also follows
that if Quickturn made the original sale, it would generally be the supplier of
choice for future equipment sales, provided its equipment performed properly. It
is my opinion that this information all supports the conclusions reached in this
report about the sale of equipment and service which Quickturn would have
enjoyed, absent the presence of Mentor selling an infringing product.

2. Lost Profit on Equipment

18. The next step in calculating the damages to Quickturn from losing the
particular sales to Mentor was to determine the prices at which Quickturn would
have made these sales. I relied upon information provided by Mr. Ostby
(Quickturn's CFO and Vice-President of Finance) and Mr. Jordan (Quickturn's
Vice-President of U.S. Sales) in that respect. The price information that I have
been furnished was for the equipment and one year of service. I

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 10

<PAGE>

separated the items using Quickturn's typical rule that service charges for a
year equal to 10% of the price of the equipment. The results for the five lost
sales that Mentor took away from Quickturn are:

- -------------------------------- --------------------------- ---------------------------- ---------------------------

Customer Total Price Equipment Annual Service
- -------------------------------- --------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
Bull REDACTED REDACTED REDACTED
UB Networks REDACTED REDACTED REDACTED
Radix REDACTED REDACTED REDACTED
Motorola REDACTED REDACTED REDACTED
National Semiconductor REDACTED REDACTED REDACTED
- -------------------------------- --------------------------- ---------------------------- ---------------------------

</TABLE>

With the prices for the equipment and the 70% profit rate calculated earlier, I
have calculated Quickturn's lost profit on the sale of the equipment and report
it at Table 2 attached at Exhibit 12. Table 2 contains the details of the
calculation. Quickturn's lost profit on the sales of $4,954,000 of equipment was
$3,468,000. (If the $275,000 sale to Lucent is included, Quickturn's lost profit
would increase to $3,660,000.)

3. Lost Profit on Service/Maintenance

19. I then calculated Quickturn's losses from the sale of services that
would normally have been associated with the above equipment sales.(7) Based
on my discussions with Mr. Ostby and Mr. Jordan regarding Quickturn's actual
experience with their customers, Quickturn would have expected large
customers like those above to purchase service for three years. The typical
situation is that a customer purchases and pays for the service in annual
increments of one year, payable at the beginning of the year. Accordingly, in
preparing the data on lost service sales, I assumed that Quickturn would have
been paid for the service in three annual payments beginning

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 11

<PAGE>

in the quarter after the equipment was purchased. I, therefore, discounted to
net present value any sales after September, 1998 using a discount rate of 20%
(which discount rate is consistent with industry estimates). Tables 3 - 7
attached at Exhibit 12 contain the details of the lost sales of service and
Table 2 shows the lost profit on the sales to be $1,032,400 (again based on a
70% profit margin).

B. Lost Future Sales (Repeat Sales)

20. Having calculated the lost profits on equipment and service, based on
the sales which Mentor actually took away from Quickturn, I then examined the
question of lost future sales caused by the sales which Mentor actually made.
Within the emulation industry, it is generally recognized that once a firm has
purchased a particular company's emulator, it will be reluctant to "switch"
brands. Switching means retraining personnel and learning to operate the new
system. Thus, it follows that once a sale is made, the customer is likely to
come back to the same emulator manufacturer to purchase additional equipment and
service. The importance of this is reflected in the facts mentioned in my
earlier report (Exhibit 14, paragraph 9d) finding that approximately
three-fourths of Quickturn's sales are repeat purchases.

1. Equipment

21. I first estimated what the dollar volume of sales to the particular
lost customer(s) would have been anticipated after the initial lost sales. I
relied upon Mr. Ostby and Mr. Jordan for these estimates. Because Quickturn is
optimistic that it will get these customers back

- --------------------------------------------------------------------------------
(7) The discount rate for the median firm in the industry in which Quickturn
operates is shown by Ibbotson as being slightly less than 20%.

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 12

<PAGE>

eventually, no repeat sales losses on equipment are claimed beyond the
present time.(8) The sales for the individual customers were individually
estimated and reported to me by Mr. Ostby and Mr. Jordan. I am advised that
the estimates were based upon factors including the size and emulation needs
of the particular customer, the volumes of sales made to that particular
customer as well as Quickturn's experience with other customers. In my view,
these estimates were appropriate in light of the facts available.

22. For Radix, Quickturn did not believe that it had a reasonable
expectation of additional sales and claimed none. For UB Network (including its
parent Tandem), Quickturn estimated that it would have sold the company
$REDACTED in equipment in the first quarter of 1997 and $REDACTED in the first
quarter of 1998. (See Table 10 attached at Exhibit 12.) For Motorola, Quickturn
estimated that the repeat sales would have been $REDACTED per quarter after
Motorola had a quarter to become accustomed to the Quickturn equipment. The
estimate for Motorola is appropriate because Motorola is, I was informed, one of
the larger designers of application specific integrated circuits ("ASICs") and
customers like Fujitsu and Intel which are not as large have purchased more than
Motorola's estimate on emulation on an annual basis. (See Table 12 attached at
Exhibit 12.) For National Semiconductor, Quickturn estimated that, after the one
quarter lag, National Semiconductor would have purchased $REDACTED per quarter.
This would have put Quickturn's sales to National Semiconductor on par with its
sales to Fujitsu which Quickturn believes is substantially smaller than National
Semiconductor in designing ASICs. (See Table 14 at Exhibit 12.) Quickturn would
also have made an additional

- --------------------------
(8) This is based on the assumption that there will be a quick resolution of
this matter. If that does not occur, I reserve the right to modify my Interim
Supplemental Expert Report.

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 13

<PAGE>

sale to Bull in the first quarter of 1997. Once again, the estimate is
conservative in that it takes into account Quickturn's expectation that the
price would be lower because of the general downward trends in price per gate.
(See Table 16 attached at Exhibit 12.) The lost profits on the lost repeat sales
to the above-mentioned individual customers are shown in Tables 10, 12, 14 and
16 (attached at Exhibit 12). Table 9 (attached at Exhibit 12) contains the
summary which shows that Quickturn's lost profit on additional (repeat) sales
that it would have expected to make to the customers which purchased infringing
product from Mentor totaled $20,965,000 through September, 1998.

2. Service/Maintenance

23. As for services associated with the equipment which Quickturn estimated
it would have sold but for Mentor's infringement which allowed Mentor to sell
the only emulation product that was a realistic competitor of Quickturn's
product, Mr. Ostby's and Mr. Jordan's experience was that repeat customers of
this size continue to purchase three annual service contracts with repeat
equipment sales. Tables 11, 13, 15 and 17 of Exhibit 12 contain the details of
the calculation of lost service sales. Once again, sales made after the third
quarter of 1998 are discounted back to their present value at a discount rate of
20%. Table 9 presents a summary of the information on lost service associated
with repeat sales and shows that Quickturn's lost profits on these services were
approximately $5,508,000.

C. Price Erosion

24. The final elements of damages that I address in this report are past
and future price erosion caused by Mentor's infringement. By past price erosion,
I mean the reduction in sales prices (and profits) of Quickturn on sales
Quickturn made prior to July 1, 1998. In contrast,

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 14

<PAGE>

future price erosion constitutes the reduction in sales prices (and profits) of
Quickturn for a limited (five-year) time period after June 30, 1998.

25. Quickturn's collected data regarding its average price per gate are
presented in Table 8. They show that Quickturn's average price per gate has
been falling over time. (See Table 8, attached at Exhibit 12.) In the year
before Mentor began its infringement (Q3'94 through Q2'95), the average price
per gate was REDACTED(cent). In the next year the average price fell slightly
to REDACTED(cent). This was the year that Mentor began to market its
emulation products, not only in the United States, but world wide. As
revealed in the ITC hearings, Quickturn's initial strategy in selling its
emulation system was to offer a price which was close to list and then
discount an additional amount, as necessary, to close the sale. However, once
the customer saw the price offered by Mentor, they were not responsive to
additional Quickturn price offers, even those lower than Mentor's.(9) (UB
Networks is an example and SGS Thompson is another example.) Large offered
discounts have no impact on average prices of sales actually made if the
large discounts are not accepted.(10) Thus, when one compares the price drop
from the year before Mentor to the year that Mentor began to sell actively,
there was little impact on Quickturn's average price because Mentor won most
of the competitive situations. The price per gate fell by REDACTED cents.

26. As a result of the lack of success of its pre-Mentor pricing era,
Quickturn revised its pricing policy. It realized that it had to respond to the
potential of Mentor as a competitor and had to assume that Mentor would show up
in the competitive battle for most if not all of its

- -----------------------------------
(9) Quickturn sales principals were told (or otherwise were led to believe)
that the customers thought Quickturn was trying to gouge them on price after
the customers had seen Mentor's low competing prices.

(10) Quickturn indeed offered SGS a greater than REDACTED% discount off list
but still lost the sale.

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 15

<PAGE>

customers. Since Quickturn could not know the specific customers that Mentor
would target, it chose a policy of offering lower prices to most of its
customers. As a result of this pricing change, the average prices per gate in
the year, Q3'96 to Q2'97, fell to REDACTED cents, a drop of REDACTED cents per
gate from the previous year. In the next year, prices stabilized at this low
level and assumed their more normal rate of decrease, dropping by REDACTED cents
per gate. (See Table 8.) Attached at Exhibit 13 is a chart that clearly
demonstrates the evolution of Quickturn's price per gate over time. This chart
clearly shows that Mentor's infringement has irreversibly depressed the price
per gate of Quickturn.

1. Past Price Erosion

27. In calculating the losses from price erosion, I have assumed that
prices would have dropped from REDACTED cents per gate to 85 cents for the year
beginning with Q3'96. I assume that the "normal" price would have declined to 83
cents per gate in the next year. My assumption regarding the average price per
gate in the absence of Mentor is conservative because it allows for a reduction
consistent with (and even larger than) pre-Mentor pricing patterns (due for
example to economies of scale). Table 18 shows the details of the calculations.

28. In order to calculate the price erosion (past and future), I then
multiplied the difference between the expected per-gate price and the actual
per-gate price by the total volume of gates sold by Quickturn (reduced to their
domestic U.S. share). The results are tabulated in Table 18 (post price erosion)
and Table 19 (future price erosion) (attached at Exhibit 12). The erosion in
prices was then allocated to the United States on the basis of the domestic
share of

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 16

<PAGE>

gates sold.(11) The calculation in Table 18 shows that the impact of past
price erosion has been $19,298,400.

2. Future Price Erosion

29. With respect to the future, it is well understood that businesses are
generally aware that it is difficult to increase the price to customers once you
have sold to them at lower prices -- lest you be viewed as a gouger. Table 18
precisely reflects this fact. Thus, even after Mentor was preliminarily enjoined
by this Court, the gate prices never recovered. That is classic price erosion.
Even though Mentor was no longer selling in the United States in the second
quarter of 1998, the average price per gate remained and stabilized at this low
point. For that reason, I have calculated the price erosion impact for a limited
five-year period after June 30, 1998 on Quickturn. Table 19 shows the
calculations. In making this calculation, I noted that the impact of price
erosion shown in Table 18 was that the amount of the price erosion declined
REDACTED% from the first year (Q3'96 - Q2'97) to the second year (Q3'97 -
Q2'98). In terms of the limited five-year period into the future, I continued
that same rate of decline. Further, since this impact on profits is in the
future, I discounted the losses by 20% per year to take into account that
Quickturn will be getting the money early. Table 19 shows that the expected loss
from price erosion for the next five years is $28,440,000.

- ----------------------------
(11) I believe that this methodology, if it has any effect, understates the
price erosion in the United States. The reason is that the price per gate
outside the United States is higher than the price per gate in the United
States. For example, in Table 18, we see that when the share in the U.S. fell
from REDACTED% to REDACTED%, the price per gate rose from REDACTED cents to
REDACTED cents and when the share in the U.S. increased from REDACTED% to
REDACTED%, the price per gate fell from REDACTED cents to REDACTED cents. The
pattern is repeated in the next quarter. The domestic share fell from
REDACTED% to REDACTED% and the price per gate rose from REDACTED cents to
REDACTED cents.

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 17

<PAGE>

III. SUMMARY

30. Table 1 (attached at Exhibit 12) provides a summary of the losses that
I have estimated in this report. The damages from lost sales of product, both
past and future, were $24,433,000. The damages from lost sales of service, both
past and future, were $6,541,000. The damages from past price erosion were
$19,298,000 and the damages from future price erosion for the next five years
will be $28,444,000. Total damages to Quickturn from these factors are
approximately $78,716,000.

31. The analysis and calculation provided here are based on information
made available to me thus far and I reserve the right to supplement, amend or
revise this report as discovery proceeds further in this case.

-----------------------------------
James Mack Folsom

INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM
Civil No. C96-00342-RE
Page 18

<PAGE>

UNITED STATES DISTRICT COURT
DISTRICT OF OREGON

Mentor Graphics Corporation
and
Meta Systems
v.
Quickturn Design Systems, Inc.

SUPPLEMENTAL REPORT OF BLAINE F. NYE, Ph.D

[Responding To "Interim Supplemental Report" Of John Mack Folsom]

Pursuant to FRCP 26(a)
10/22/98

Confidential-Outside Counsel Only
Pursuant to the Protective Order entered in this action.
Case No. C96-00342-RE

<PAGE>

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY

A. Mr. Folsom's Report Has Four Fundamental Problems That Impeach The
Credibility Of His Entire Analysis.

B. The Appropriate Damages Amount Is In The Range of $ 550,000.

II. QUALIFICATIONS AND TASKS ASSIGNED

A. Qualifications.

B. Tasks Relating To The Folsom Reports.

C. My Own Opinion Regarding Quickturn's Damages.

D. Materials Relied Upon.

E. Assumptions.

III. PRELIMINARY OBSERVATIONS

A. Inherent Incredibility.

B. The Recent Analysis Is At Odds With the ITC Proceeding.

1. Quickturn Apparently Has Agreed To Damages With Respect To
Mentor's Sales To Motorola And National Semiconductor.

2. The Methodology Used To Calculate The Damages For The
Motorola And National Semiconductor Sales Would Seem
Applicable To The Other Three Mentor Sales.

C. The Recent Analysis Is Apparently At Odds With Positions On
Remedies Taken By Quickturn Throughout The Case.

IV. SPECIFIC CRITICISMS OF FOLSOM'S REPORT

A. Deficiencies In The "Past Lost Sales" Analysis.

1. The "Past Lost Sales" Analysis Ignores The Testimony Of The
Customers Who Said They Would Not Have Bought.

<PAGE>

2. There Is No Analysis Of, Or Backup To, The Hypothetical
Quickturn Sales With Respect To Price Or Profit.

B. Deficiencies In The "Lost Future Sales (Repeat Sales)" Analysis.

1. The "Lost Future Sales (Repeat Sales)" Ignores The Testimony
Of The Customers Who Said They Would Not Have Bought.

2. There Is No Analysis Of What The "Lost" Customers Actually
Did With Respect To Emulation During The So-Called "Future"
Period.

3. There Is No Analysis Of, Or Backup To, The Hypothetical
Quickturn Sales With Respect To Price Or Profit.

C. Deficiencies In The "Price Erosion" Analysis.

1. No Analysis Of Legitimacy Of Price Per Gate As Proxy For
Product Pricing.

2. No Analysis Of Appropriateness Of Baseline Price.

3. No Support For Assumptions of Number of Gates Sold In the
Future.

4. No Analysis Of Potential Causes of Price Per Gate Decline.

5. No Analysis Of Relationship Between Decline In Price Per Gate
And Loss Of Profit.

6. Complete Failure To Analyze Future Price Erosion.

D. Deficiencies In The Reasonable Royalty Analysis.

V. A REALISTIC ASSESSMENT OF DAMAGES TOTALS NO MORE THAN $ 550,000.

A. Reasonable Royalty Is the Appropriate Measure For Four Of The Five
Emulator Sales.

B. Lost Profits May Be An Appropriate Measure For The Lost Sale To
National Semiconductor.

C. There Is No Evidence To Support Any Other Form Of Damages.

<PAGE>

I. EXECUTIVE SUMMARY

After reviewing the October 5, 1998 Interim Supplemental Expert Report
of James Mack Folsom, and a variety of other materials discussed below, I have
come to the following conclusions.

A. Mr. Folsom's Report Has Four Fundamental Problems That Impeach The
Credibility Of His Entire Analysis.

First, it is simply inherently incredible to claim, as Mr. Folsom does,
that Quickturn has and will lose $93,000,000 in profits in the period 1996 -
2003 because Mentor sold five items of equipment having a gross value of $3.5
million during the period 1995 -1997. No credible analysis can reach those
damage numbers based on Mentor's limited sales.

Second, Mr. Folsom's "lost profits" damages with respect to projected
sales of equipment and maintenance to Bull, UB Networks, Radix, Motorola, and
National Semiconductor, which he states are $30,973,700 (even after discounting
to present value), completely ignores sworn third party testimony from the
purchasing authorities of four of the five companies that they would not have
purchased Quickturn's products. One simply cannot base a rational lost profits
claim on sales of equipment that the purchaser states it would not have bought.

Third, Mr. Folsom's "price erosion" claim (which yields additional lost
profits of $62,208,300 before discounting) is based on a theory that (a)
Quickturn would have been able to keep its prices substantially the same as it
charged in 1996 (in spite of the common observation that electronics and
computer equipment prices fell dramatically over the same period), and (b)
Mentor's limited presence in the market in 1995 - 1997 caused and will cause
Quickturn to dramatically reduce its prices over a seven year period --
including a six year period after Mentor disappeared from the United States
market.

<PAGE>

Fourth, Mr. Folsom ignores some basic data points concerning the
behavior of the parties during this litigation that cast his numbers into great
doubt, including the facts that (a) Quickturn stipulated, and the ITC agreed,
that its damages with respect to Mentor's late 1996 and 1997 imports (which
include the Motorola and National Semiconductor sales) were only $425,000, and
(b) Quickturn was apparently willing to stipulate in August-September 1998 that
its damages in the Portland case were $3.5 million. There is no way to reconcile
a number in the tens of millions with this conduct.

B. The Appropriate Damages Amount Is In The Range of $ 500,000.

I believe that the appropriate amount of potential damages in this case
is in the range of $550,000 (or at most, approximately $1,000,000), consisting
of approximately $350,000 in reasonable royalties and $200,000 in lost profits.

II. QUALIFICATIONS AND TASKS ASSIGNED

A. Qualifications.

I am President of Stanford Consulting Group, Inc., which provides
research and consulting services in financial economics and related areas to
clients, including government agencies, corporations, and law firms. I have a
B.A. degree in physics from Stanford University, an M.S. degree in physics from
the University of Washington, an M.B.A. degree from Stanford, and a Ph.D. in
finance from Stanford. I have served as a consultant or expert witness on the
subjects of lost profits, and general damages in a number of actions. My
curriculum vitae is attached as Exhibit A. During the past four years I have
provided expert testimony in trial or by deposition in the matters listed in
Exhibit B. My publications during the past ten years are listed in my curriculum
vitae, Exhibit A.

<PAGE>

B. Tasks Relating To The Folsom Reports.

I was asked by Mentor to review Mr. Folsom's recent report and to
provide general and specific comments with respect to the following issues:

(1) "Actual" lost profits to Quickturn for equipment and service sales
to Bull, UB Networks (Tandem), National Semiconductor, Motorola, and Radix
relating to the equipment Meta actually sold to these companies.

(2) Predicted lost "repeat business" equipment and service sales to
Bull, UB Networks, National Semiconductor, and Motorola supposedly resulting
from Mentor's actual sales to these companies;

(3) Generalized price erosion of emulation equipment sold by Quickturn
from mid-1996 to July 1, 1998 as expressed by a supposedly measured decline in
"price per gate" of Quickturn emulation products;

(4) Generalized price erosion of emulation equipment beginning in July
1, 1998 and continuing for the next five years as expressed by a predicted
decline in "price per gate" of Quickturn emulation products.

(5) The reasonable royalty rate Quickturn would have received from
Mentor for infringing emulation products sold by Mentor from 1996 to July 1,
1998.

C. My Own Opinion Regarding Quickturn's Damages.

I was also asked to express my own opinions with respect to
the appropriate measure and amount of damage that could have been caused
Quickturn by Mentor's alleged infringing activities in the United States during
the period 1995 to August 1997.

<PAGE>

D. Materials Relied Upon.

In preparing this report and my previous report, I have reviewed all
the material that I reviewed in connection with my previous report and the
materials referenced in this report, including the declarations of Dan
Schumacher, Chuong H. Nguyen, Tim Parker, and Russell W. Guenthner.

E. Assumptions.

I assumed that the five emulation products sold by Mentor during the
period of June 1995 to July 1997 were, in fact, sales and infringed patents held
by Quickturn, (although I understand that the magistrate in the federal court
action in Portland, Oregon has recommended that the Court deny Quickturn's
motions for summary judgment of infringement).

III. PRELIMINARY OBSERVATIONS

A. Inherent Incredibility.

Quickturn has been a monopolist in the hardware emulation market since
before 1990, selling over $80,000,000 of such equipment per year in the
mid-1990s and over $100,000,000 per year in the past few years. Approximately
70-80% of these sales were in the United States. We also know that Mentor sold
or leased only five emulation systems in the United States over the period 1995
to 1Q 1997 with a total value of approximately $3.5 million. Mentor's sales of
more machines, and the support of the five existing machines, was enjoined in
the United States in the beginning of 3Q 1997. Clearly, Quickturn's sales and
marketing efforts with respect to hardware emulation equipment dwarfed Mentor's
during the short period Mentor was able to sell the few machines that it did.

In spite of these facts, Quickturn, with its complete market dominance,
asserts that Mentor's five sales caused Quickturn to lose over $50,000,000 in
profits -- not sales, but profits -

<PAGE>

- - in the United States during the period 1996 - September 1, 1998. After
claiming these astounding losses, Mr. Folsom predicts that even though Mentor
disappeared from the United States market in August 1997, and Quickturn will
maintain its monopoly position, Quickturn will lose another $43,000,000 in
profits by the end of 2Q 2003 (which Mr. Folsom reduces to a present value of
$28,400,000). Knowing not one other fact, any rational business person or
economist must conclude that a claim that a company with the market dominance
of Quickturn has lost and will lose $93,000,000 over a period of seven years
because a minor competitor sold $3.5 million worth of equipment over a two
year period is absurd. Knowing more facts, makes Mr. Folsom's analysis even
more incredible.

As just one example, over $30,000,000 of the claimed losses during the
period 1996 to 1998 are attributable to just five customers -- UB Networks,
Radix, National Semiconductor, Motorola, and Bull -- and are all based on the
explicit, but completely unsupported, assumption that if these companies had not
purchased a machine from Mentor (each purchased or leased one) they would have
purchased from Quickturn then and in the future. Four of the five purchasing
authorities from these companies, however, have submitted sworn declarations
saying the companies would not have purchased from Quickturn (and the fifth will
soon be deposed). Mr. Folsom dismisses these declarations as "biased third party
statements" and performs no further analysis as to why Quickturn would have made
the sales.

<PAGE>

B. The Recent Analysis Is At Odds With the ITC Proceeding.

1. Quickturn Apparently Has Agreed To Damages With Respect To
Mentor's Sales To Motorola And National Semiconductor.

I have had an opportunity to review (a) deposition and trial testimony
in the ITC proceeding, (b) some rulings by the ITC judge and the Commission on
the issue of Mentor's need to post a bond to cover any Quickturn injury
resulting from Mentor's importation of infringing equipment, along with
statements by the ITC staff on the same topic, (c) a damages/bond forfeiture
stipulation between Mentor and Quickturn, and (d) materials that show the Mentor
emulation equipment sold to National Semiconductor and Motorola was imported
under bond (a portion of which Mentor later agreed to forfeit to cover
Quickturn's damages). I also reviewed what Mr. Folsom had to say concerning the
ITC bond in his earlier report. I looked at these materials primarily as a form
of "sanity check" on the analyses Mr. Folsom and I are performing. I have
attached as Exhibits C-G the ITC materials I reviewed.

It appeared from the materials I reviewed that after Mentor was
preliminarily enjoined by the ITC in mid-1996 from importing the supposedly
infringing emulators, the law allowed Mentor to continue to import the emulators
but only if Mentor posted a bond in the amount to cover any damage caused to
Quickturn by the machines imported. During the hearings on the temporary
exclusion order, and later as well, the parties and their experts put on proof
as to what the damage to Quickturn -- including lost profits, reasonable
royalty, and price erosion -- would be if Mentor was allowed to import
infringing emulators. Mr. Folsom, in fact, testified in those proceedings.
Mentor initially was required to post a bond in the amount of 43% of the
"entered value" (the value of the goods as imported as opposed to when they were
sold to customers) of the emulators and associated equipment that Mentor would
import. This was supposed to cover

<PAGE>

all of Quickturn's injury from the imported goods. See August 12, 1996
Commission Opinion on Remedy, The Public Interest, and Bonding (Exhibit C).

Later, in July 1997, the ITC judge recommended to the ITC Commission
that the bond amount be increased to 180% of the entered value of Mentor's
emulators in order to make sure that the bond covered all of Quickturn's injury
resulting from the importation of infringing goods. See July 31, 1997 Final
Initial and Recommended Determinations at 181-183, 363-367 (Exhibit D). I found
it interesting that the judge's opinion determined that entered value was 22% to
34% of actual sales price of the equipment. What this means is that a bond of
180% of entered value is actually a bond equal to 39.6% to 61.2% of the sales
price of the imported Mentor equipment and that, under the ITC's rulings, this
would be sufficient to cover all of Quickturn's damage, including price erosion.

I understand that Mentor did import equipment and did post a bond as
required by the ITC's orders. At the conclusion of the ITC proceedings, it
appears that Quickturn moved for a forfeiture of the bond to cover its damages
caused by the imports and Mentor moved for a return of the bonds on the theory
that the imports had not harmed Quickturn. In July of this year, Mentor and
Quickturn stipulated to a bond forfeiture amount of $425,000. See Joint Motion,
Etc. (Exhibit E). I found the ITC Staff's response to the stipulation very
informative. In recommending that the ITC approve the stipulation, the Staff
said:

The statutory purpose of requiring such bonds is to protect Complainant
from any injury due to importations and sales of infringing goods
during the pendency of the investigation. 19 U.S.C. Section1337(e)(1).
Complainant's agreement to the stipulated bond forfeiture amount is a
compelling basis to concluding that Complainant is adequately protected
from injury by Respondent's transactions.

See Commission Investigative Staff's Response to Joint Motion, Etc. at 6-7
(Exhibit F). Finally, the ITC judge approved the stipulation, stating:

<PAGE>

With respect to the dollar value of respondents' bond forfeiture,
complainant's agreement to the stipulated bond forfeiture amount of
$425,000 shows that complainant believes that amount is sufficient to
protect it from any injury by any transactions of respondents Mentor
Graphics Corporation and Meta Systems.

July 22, 1998 Order No. 106 at 8 (Exhibit G).

In order to put the $425,000 stipulated figure in perspective, I looked
at what Mentor equipment was covered by the stipulation and orders. Attached as
Exhibit H is a list of all the equipment that was imported under bond and I have
been able to determine that the Motorola emulator, the National Semiconductor
emulator, and some components sent to UB Networks were all covered by the
$425,000 forfeited bond that the ITC determined was "sufficient to protect
[Quickturn] from any injury by any transactions of respondents Mentor Graphics
Corporation and Meta Systems." While I believe the $425,000 figure is a bit high
as a measure of Quickturn's damages for these particular items of equipment, the
figure is certainly within the ballpark of my analysis. Mr. Folsom's most recent
analysis, however, pegs the damages attributable to just the Motorola and
National Semiconductor sales in the tens of millions of dollars. Nowhere does he
explain why his current figures are so radically different from the case
presented to the ITC and what Quickturn stipulated to.

Finally, it seems readily apparent that before an expert opines with
respect to damages attributable to equipment that apparently has been the
subject of a stipulated settlement, there ought to be some explanation as to why
any recovery should be allowed and, if so, a thorough explanation as to why the
requested recovery is so much larger than that presented at trial, the rulings
at trial, and what the parties agreed to. My point here is not to opine one way
or the other as to whether the stipulation and order is a bar to Quickturn's
claim on the Motorola and National Semiconductor emulators, but I do believe
that the ITC materials are a very good

<PAGE>

indicator of the level of damages we should be talking about in this case --
hundreds of thousands of dollars and not tens of millions.

2. The Methodology Used To Calculate The Damages For The
Motorola And National Semiconductor Sales Would Seem
Applicable To The Other Three Mentor Sales.

I understand that it is not in dispute that some of the Mentor
emulation equipment was imported before it was subject to a bonding requirement
- -- specifically the emulators sold to Bull, Radix, and UB Networks. It seems to
me, however, that the methodology Quickturn used to prove the harm that would
result from importation is just as applicable to the equipment that already had
been imported. Indeed, I can see no reason why the appropriate methodology and
analysis would be different -- price erosion, lost profits, etc. are the same no
matter when a bonding order goes into affect. The bond, as I understand it, is
to compensate for all injury, so the method used to determine the bond should be
just as applicable to damages in general.

When one applies the ITC-approved damages approach to the Bull, Radix,
and UB Networks equipment --including the price erosion proof Quickturn advanced
in the ITC -- the damages figures fall in the range of hundreds of thousands
rather than tens of millions of dollars. This result provides solid confirmation
that my approach to damages is much closer to the mark than Mr. Folsom's tens of
millions.

C. The Recent Analysis Is Apparently At Odds With Positions On
Remedies Taken By Quickturn Throughout The Case.

In addition to what happened in the ITC proceedings, I cross-checked
Mr. Folsom's numbers, and mine, against positions the parties have taken earlier
in the case. First, I read with great interest the correspondence between the
lawyers for the parties in July - August 1998 as they appeared to attempt to
reach a stipulated damage figure. See Exhibits I-N. Although the

<PAGE>

numbers that were being exchanged, particularly those advanced by Quickturn,
were much higher than I believe are appropriate for this case, they provide yet
another reference point as to what the reasonable damages in this case might be.
Quickturn was trying to obtain a stipulation in the low seven figures and Mentor
was apparently willing to stipulate in the high hundreds of thousands or very
low seven figures. These discussions provide confirmation that my estimate of
damages is of the right order of magnitude, while Mr. Folsom's is truly
excessive.

I also found interesting in a pleading that was filed by Quickturn in
September 1996. Quickturn was opposing a motion made by Mentor to have the
damages issues tried separately from the patent liability issues and in the
course of that opposition made it very clear that it thought that the damages
case would be simple, short, and duplicative of the ITC damages case ("because
virtually the same discovery is presently being taken in the ITC, and because
the discovery is relatively straightforward and relates to a finite number of
sales and offers to sell by Mentor, there are no real efficiencies to be gained
by bifurcating the damages issues in this case"). August 30, 1996 Quickturn
Opposition to Plaintiff's Motion to Bifurcate, Etc. (Exhibit O). The interesting
aspect of this brief is that it is entirely consistent with a damages case that
would consist of the application of a royalty percentage or a profit percentage
to a small number of machines. The statements in the brief, however, are
completely inconsistent with the notion of conducting discovery and trial for a
case that would analyze (a) what potential emulation buyers would and would not
have done in the absence of Mentor in the past and in the future, (b) price per
gate as an adequate proxy for price and profit, (c) causes for movement in price
per gate, and (d) numerous other issues raised by Mr. Folsom's claims. I am not
stating that the brief was wrong, I am simply using the statements made in it as
additional consideration that leads me to conclude that Mr. Folsom's damages
report is at odds with reality.

<PAGE>

IV. SPECIFIC CRITICISMS OF FOLSOM'S REPORT

A. Deficiencies In The "Past Lost Sales" Analysis.

I reviewed that portion of Mr. Folsom's report in which he opines that
Quickturn lost $4,500,400 in profits it would have made on what he calls "past"
equipment sales (and maintenance fees for such equipment) made by Mentor to
Bull, UB Networks, Radix, Motorola, and National Semiconductor during the period
1995 through 2Q 1997. His analysis has at least the following deficiencies:

1. The "Past Lost Sales" Analysis Ignores The Testimony
Of The Customers Who Said They Would Not Have Bought.

A central point of Mr. Folsom's report is that if Mentor had not made
the five sales to Bull, UB Networks, Radix, Motorola, and National
Semiconductor, Quickturn would have. Mr. Folsom, however, provides no support
for his central point and simple ignores the following testimony of four of the
five purchasing authorities for those companies:

I was the decision-maker at Motorola as to which vendor -- Mentor or
Quickturn -- would be selected in this particular contract.

The primary reason Quickturn was not selected was because I did not
feel that their product would satisfy our project's needs. Therefore,
if Mentor's SimExpress was not an option for Motorola, I would not have
purchased any emulation system.

July 9, 1998 Declaration of Chuong H. Nguyen (Exhibit P hereto).

Ultimately, as a team, we decided that Quickturn's emulation system did
not satisfy our project needs and would not likely be enhanced to meet
our project needs within our timeframe. The deficiencies were mainly in
terms of 1) compile time and 2) the cycle time that was achievable on
the Quickturn system. We had absolute requirements on a lower limit for
cycle time based on the lowest speed that the rest of our system would
run.

Our team based our conclusion that Quickturn's system could not satisfy
our project needs based mostly upon 1) our own internal evaluation of
the system, and 2) considerations from presentations by Quickturn
personnel.

Quickturn's system was rejected by our Bull even after Quickturn
offered to reduce its price to approximately one-half the price of the
Meta system.

If importation of Meta's system had not been an option, our team would
have not

<PAGE>

recommended purchase of the Quickturn system. Rather, we would have
chosen one of several other options. Two of those options were: 1) to
keep the emulation aspects of our project in Bull's French facility
(Les Clayes, France), or 2) to continue our design process using the
ZyCad machines we already had in place in both Phoenix, Arizona and
France.

June 19, 1998 Declaration of Russell W. Guenthner (Exhibit Q hereto).

I lead the technical committee that was given the responsibility at
Radix of deciding which vendor -- IKOS, Quickturn, or Mentor -- would
be selected. Overall, Quickturn placed third in our rankings, behind
both Mentor and IKOS.

Quickturn's third place ranking resulted primarily from the following
factors. First, I had worked with Quickturn's emulation products before
at Kaiser Electronics, and found the product to be unreliable also,
Quickturn product support was poor at best. Second, Quickturn's team
was unwilling and apparently unable to demonstrate that the product
could successfully map our design. That is, they did not perform our
benchmark mapping of a completed portion of our design into their
emulation system. Hence, they did not run our benchmark verification
vectors against the mapped design. Mentor was the only company that
successfully mapped and verified our design benchmark. Third, they did
not meet the final deadlines for quote and proposal.

Our technical committee unanimously selected Mentor as the lead
contender around the middle of 1996. IKOS was the second contender in
my mind and the minds of the other committee members.

June 24, 1998 Declaration of Tim Parker (Exhibit R hereto).

I was the main purchasing decision maker at UB Networks as to
verification technology. It was primarily my decision to purchase an
emulation system from Mentor Graphics Corporation in April 1996.

Had purchasing a Mentor systems not been an option for UB Networks, I
would most likely have subcontracted our verification work out to a
third party. I definitely would not have purchased an emulation systems
from Quickturn Design Systems, Inc.

In my judgment at the time, purchasing a Quickturn emulation system
would have involved hidden costs and risks that UB Networks was too
small to support. In my judgment, UB Networks would have had to
purchase several additional workstations and budget substantial
personnel time to support Quickturn's emulation system. Also, it is my
view that the Quickturn emulation systems offered us at that time had
technical flaws resulting in substantial problems to the user, such as
hold-time violations.

September 10, 1998 Declaration of Dan Schumacher (Exhibit S hereto).

What these declarations demonstrate is that the assumption that
Quickturn would have made any sales to these four companies is not supportable.
Therefore, he has no basis to

<PAGE>

conclude that Quickturn lost the "past" equipment and maintenance sales to these
four customers (which total approximately $4,000,000).

It is not clear from his report exactly how Mr. Folsom has chosen to
deal with this evidence directly undercutting his major assumption. On the one
hand, it would appear that Mr. Folsom was not given access to these statements,
since he does not list this evidence as information he considered when arriving
at his new opinion. On the other hand, Mr. Folsom makes a statement that appears
to indicate that he has discounted these statements. At paragraph 18, he refers
to unspecified third party statements offhandedly as "biased."

There are two primary failings with his statement that third party
customers are somehow biased. First, neither he nor I have been retained to
opine on the credibility of third-party sworn testimony. It seems to me to be
unreasonable for an expert witness to discount third party sworn testimony as
"biased" while relying wholeheartedly on "data" and "information" from the party
who has hired him. Second, it does not matter what Quickturn or Mentor thought
with respect to who the competitors were or what the customer might or might not
do. What matters is what the customers themselves say they would have done if
Mentor did not get their business. Mr. Folsom apparently ignores these facts,
which is per se unreasonable.

Mr. Folsom's conclusion that Quickturn had the capacity to produce and
to sell each of these five products is undercut by data which he apparently did
not review, namely the testimony of Radix's representative Tim Parker. Mr.
Parker stated that Mentor was unable to meet the bidding and product
specifications on time, apparently because Quickturn was capacity restrained and
could not bid these projects successfully. It would not be reasonable to
conclude that Quickturn had the capacity to make these sales in light of the
above information which directly indicates to the contrary.

<PAGE>

In the context of lost service revenue on "lost" sales, Mr. Folsom errs
by not considering the fact that Mentor was enjoined from making any service
sales to these customers beginning in August 1997. Thus, Quickturn did not lose
any service sales to Mentor after August 1997, since Mentor did not make any
itself. If Quickturn sold maintenance services to these companies related to
Mentor's products, then Quickturn clearly has no damages in this area. On the
other hand, if the customers bought services from suppliers other than
Quickturn, it shows that Mr. Folsom's assumption that all follow-up service
sales would go to Quickturn is incorrect.

2. There Is No Analysis Of, Or Backup To, The Hypothetical
Quickturn Sales With Respect To Price Or Profit.

In addition to the assumption that Quickturn would have made the
equipment and maintenance sales to begin with, Mr. Folsom's "past" lost profits
numbers are based on (a) projected equipment prices Quickturn would have
received, (b) projected 70% profits it would have received from sales at those
prices, (c) projected three year maintenance agreements, (d) projected revenues
from the maintenance agreements (10% of equipment sales), and (e) projected 70%
profits it would have received from those revenues. My major concern about these
numbers is that Mr. Folsom offers no analysis, support, or backup for any of
these assumptions and figures -- he simply appears to adopt what Mr. Ostby told
him. When I looked at Mr. Ostby's declaration, I did not see any verification or
analysis there either.

However, now that we are in October 1998 there is no need to assume,
opine, or speculate about what Bull, UB Networks, Radix, Motorola, and National
Semiconductor needed or did with respect to purchasing emulation machines or
servicing them in 1996 - June 1998, or the profits Quickturn would have made if
it had made these sales. One needs only to gather the existing data.

<PAGE>

B. Deficiencies In The "Lost Future Sales (Repeat Sales)" Analysis.

Under the category of lost "future" profits, Mr. Folsom opines that
during the period 1Q 1997 to 3Q 1998, Quickturn lost $20,965,000 in profits with
respect to equipment sales it would have made to just Bull, UB Networks,
National Semiconductor, and Motorola if only Mentor had not made the four sales
it did in 1995 - 1997. In addition to these losses, even after discounting his
figures to present value, Mr. Folsom adds another $5,508,000 in lost profits
Quickturn should make on servicing the machines it should have sold in 1Q 1997
to 3Q 1998. The "future" analysis is subject to the following deficiencies:

1. The "Lost Future Sales (Repeat Sales)" Ignores The Testimony
Of The Customers Who Said They Would Not Have Bought.

The two predicates to Mr. Folsom's lost "future" sales to Bull, UB
Networks, National Semiconductor, and Motorola is that Quickturn would have made
the sales Mentor did in 1995 - 1997, and then it would have obtained the repeat
business Mr. Folsom now predicts. As I stated above, Mr. Folsom's conclusion is
fundamentally undercut by the declarations of the purchasing authorities of
Bull, UB Networks, and Motorola.

<PAGE>

2. There Is No Analysis Of What The "Lost" Customers Actually
Did With Respect To Emulation During The So-Called "Future"
Period.

There are two significant omissions from Mr. Folsom's analysis of
"future" sales. The first is that Mr. Folsom is not talking about the "future"
at all -- the years have passed and we do not need to speculate on what
emulation equipment Bull, UB Networks, National Semiconductor, and Motorola
would have purchased during 1Q 1997 - 3Q 1998. That time period is history, not
future. Second, there is no recognition that Mentor was enjoined from selling
any additional equipment or service since June 1997. Therefore, no customer has
returned to Mentor for follow-up service or equipment sales.

Since Quickturn asserts that it did not make any sales to these
customers, we can assume that these customers did not buy millions of dollars
worth of emulation equipment and services from either Quickturn or Mentor. These
companies either got along with what they had previously purchased, bought from
other suppliers, or stopped using emulation. Each of these three possibilities
shows that Quickturn is very unlikely to have suffered damages for lost future
sales. The hypothesis of "future" equipment and service sales has been
effectively impeached by the history of no sales. The most reasonable assumption
- -- and the one borne out by experience -- is that Quickturn has no damages for
lost sales in future years.

By the same token, Mr. Folsom points to absolutely no evidence
supporting the claim that if these four companies had just tried one of
Quickturn's machines, they would have purchased millions of dollars of
Quickturn's product. There is also no proof that Quickturn even tried to make
sales to these customers and was rejected after Meta was enjoined. Furthermore,
there is no evidence at all that, after the temporary exclusion order, Quickturn
tried to make any sales to these people and were rebuffed because of loyalty
toward Meta. Finally, any sale eventually

<PAGE>

made by Quickturn could just as easily be explained by Quickturn's finally
having a product that the companies are interested in purchasing. My
understanding is that it is Quickturn's burden to prove all of these issues and
it has produced no evidence at all.

3. There Is No Analysis Of, Or Backup To, The Hypothetical
Quickturn Sales With Respect To Price Or Profit.

The comments that I made earlier in the "past" lost profits discussion
with respect to the complete lack of support and analysis of the prices that
would have been charged and profits that could have been made apply here as well
because as of October 1998 we are speaking of the past when we refer to 1Q 1997
to 3Q 1998. There is simply no analysis provided by Mr. Folsom that supports any
of his assertions with respect to prices or profits.

C. Deficiencies In The "Price Erosion" Analysis.

Another new category of damages in the "Interim Supplemental Report" is
price erosion. Mr. Folsom hypothesizes that Mentor caused a price decline in
every emulator sold between July 1996 and July 1, 1998, and another price
decline for every emulator that will be sold for the next five years. He opines
that the loss to Quickturn will be $42,909,900 (which he discounts to
$28,440,000). This opinion is unreasonable and without factual support.

Mr. Folsom's approach to the notion of seeking damages from Mentor for
a decrease in emulator prices has changed drastically since his 1997 report,
even though he points to no information or data supporting such a change. In
1997, he opined that Quickturn lowered its price to a few specific customers in
response to competition from Mentor by approximately 25% more than it otherwise
would have. He never pointed to specific customers. The lack of data and
analysis supporting this turnabout, and Mr. Folsom's total inconsistency are
sufficient reasons to view his new conclusions as insupportable.

<PAGE>

1. No Analysis Of Legitimacy Of Price Per Gate As Proxy For
Product Pricing.

Mr. Folsom bases his assessment of price declines on a dubious
calculation of "price per gate." Mr. Folsom gives no analysis or justification
for why "price per gate" is an appropriate measure of emulator costs. Since he
bases his entire theory on this yardstick, there should be some presentation as
to why it is the appropriate yardstick.

To the contrary, Mr. Ostby has testified that Quickturn does not use
"price per gate" pricing:

Q: Does Quickturn calculate the price of its hardware emulation
systems on a per gate basis?

A: We are aware of pricing on a per gate basis. We don't set our
pricing on the per gate basis. It is metric that we have used, but
it is not our pricing model.

Ostby Testimony, p. 45.

Indeed, it appears that price per gate is a particularly inappropriate
way to measure emulator costs. Customers, for example, do not purchase emulators
on a per gate basis, as if they were a fungible commodity. Rather, customers
purchase entire emulation systems based on design specifications for a
particular project. Quickturn itself does not price its emulation systems on a
price per gate basis; "price per gate" is not quoted in the sales and marketing
materials that I have reviewed of either Quickturn or Mentor. "Price per gate"
is not a measure of any economic fact, including customer needs, cost of
production, or marketing realities. Mr. Folsom's selection of "price per gate"
has no justifiable basis.

If Mr. Folsom had somehow justified the use of "price per gate," his
conclusions nonetheless would suffer from the additional failing of identifying
to what "gates" he is referring. Emulated gates are an ASIC design that a
machine can emulate; physical gates could be simply

<PAGE>

the number of transistor gates in the machine. Mr. Folsom does not identify
which "gates" he is talking about or why he chose one type of gate over another.

2. No Analysis Of Appropriateness Of Baseline Price.

Mr. Folsom assumes that a "normal" price per gate was $REDACTED in 1995
and $0.85 in 1996 and that price per gate would normally drop $REDACTED per
year. These assumptions are wholly without support or analysis. For example, he
does not indicate any price per gate figures before 1994. If he were to use a
different year, his conclusions might be far different. He has not explained the
basis, if any, for his selection of benchmark prices or of the time span he has
selected.

In fact, Mr. Ostby has admitted that per gate prices declined
precipitously before Mentor ever entered the market. He testified that
Quickturn's price per gate declined from $8 per gate in 1991, to $6, to $4, and
then to $2 by late 1994, then to $REDACTED by 1996. Ostby testimony, p. 1605.
This decline, of course, cannot be attributed to Mentor. It also reveals that
the rate of decline apparently slowed when Mentor entered the market, a fact
directly contrary to Mr. Folsom's numbers.

Mr. Folsom also does not explain the volatility of price per gate
except to attribute it to differences between domestic and foreign market share.
He does not attempt to separate domestic prices from foreign price per gate,
although this data surely must be available to him from Quickturn. His analysis
also uses a price per gate figure that appears to blend domestic and foreign
prices, even though Meta competes in foreign markets but not in domestic
markets.

3. No Support For Assumptions of Number of Gates Sold In the
Future.

Mr. Folsom appears simply to assume a number of gates sold in the
future at various assumed prices. He provides no support, analysis, or
explanation for why it is reasonable to

<PAGE>

make these assumptions. There is no discussion of changes in Quickturn's
products that have occurred or that will occur. There is no discussion of how
a change in the market or market prices could affect the number of gates
sold. Indeed, there is so little explanation or analysis, there is no way to
assess the reasonableness of his analysis or assumptions. He does not provide
any reason to believe that his conclusions are reasonable.

4. No Analysis Of Potential Causes of Price Per Gate Decline.

Without any substantial analysis, Mr. Folsom assumes that 100% of the
decline in his benchmark pricing is attributable to competition from Mentor.
This simplistic assumption is not reasonable. It is elementary economics that
any decline in prices can be caused by a multitude of factors in our economy,
including the demand for the products, the income and resources of clients, the
capabilities of the products, marketing approaches, the availability and pricing
of substitute products, changes in the national and global economies, individual
negotiations, the collapse of demand for ASICs (which has crippled semiconductor
equipment manufacturers such as Applied Materials), the rapid and continual
decline in component prices (see, for example, the Form 10-K's of Quickturn's
supplier Xilinx), currency fluctuations, increased component performance, and
any other number of factors that dramatically affect the price of computer
equipment. Assuming that Mentor's entering and exiting the hardware emulation
market is the only factor affecting pricing is completely unreasonable and
insupportable.

Mr. Folsom completely misunderstands the notion of monopoly pricing.
Monopolists do not charge any price (e.g. $.83 per gate) -- by definition, they
charge a profit- maximizing price. A monopolist's inability to charge any price
while holding the quantity demanded steady is not a reflection of past players
in the market, it is the inevitable result of the downward sloping demand curve
facing a monopolist. For example, if there was only one multinational oil

<PAGE>

company, that monopolist would rationally charge a profit-maximizing price,
which would imply a profit-maximizing quantity sold. If it charged a higher or
lower price, there would be shifts in quantity demanded as more or fewer people
walked, road bicycles, or gave up driving altogether and, of course, profit
would be reduced because the new price would not be the profit-maximizing price.

There is no support or analysis for Mr. Folsom's assumption that
Quickturn, as the monopolist Mr. Folsom apparently claims it is, is unable to
raise prices to a profit-maximizing level now that Mentor is out of the market.
A monopolist can charge a profit-maximizing price. When a monopolist raises
prices to a profit maximizing level, some customers will forego the product,
i.e., the quantity sold may decline, but profits will increase to the maximum
level. Once Mentor was out of the market, it could have had no causal affect on
Quickturn's pricing or profits.

5. No Analysis Of Relationship Between Decline In Price Per Gate
And Loss Of Profit.

Mr. Folsom's price erosion theory does not address at all the critical
item of inquiry: profit. He appears to confuse price per gate with profit by
assuming that any difference in charges on a price per gate basis is 100% profit
to Quickturn. He presents no justification for this assumption which, on its
face, is implausible, since it assumes that Quickturn is now irrationally
charging a nonprofit-maximizing price. Assuming Quickturn's prices are
profit-maximizing, however, if Quickturn were to raise prices to the level
suggested by Mr. Folsom, economic theory would predict reduced quantity sold and
lower profits because the percentage increase in profit per unit would be more
than offset by the percentage decrease in quantity sold.

6. Complete Failure To Analyze Future Price Erosion.

<PAGE>

Mr. Folsom presents a single paragraph positing $42,909,900 (discounted
to $28,440,000) in future price erosion. Without any real analysis, he takes his
insupportable past price erosion theory (discussed above) and extrapolates it
out for five years. This is apparently based on two assumptions: (a) that
Quickturn cannot charge a profit-maximizing price in any future years because
Mentor was once in the market; and (b) that the "benchmark" price of emulation
systems will continue to decline after Mentor has left the market, and somehow
will be attributable to Mentor. He does not attempt to justify these assumptions
and indeed, they appear wholly unjustifiable.

Mr. Folsom's report does not represent a serious attempt to examine the
future emulation market. He does not project demand, costs of sales, product
substitution, other sources of competition, product changes, market saturation,
or any of the multitude of effects on the market for the next five years.

D. Deficiencies In The Reasonable Royalty Analysis.

Mr. Folsom's analysis here suffers from many flaws. The single biggest
flaw is that he does not use the "willing licensor/willing licensee" standard.
Instead, he specifically posits that Quickturn would be an unwilling licensor.
He provides no analysis at all of what Mentor might be willing to pay, or could
pay. This is not reasonable and is contrary to accepted reasonable royalty
analyses.

For example, a license fee that is more than the gross margin that the
licensee could achieve selling the product would surely be one that a licensor
would be willing to receive, but if the licensee could not pay it, the royalty,
by definition would not be reasonable (because there would be no willing
licensee). The reasonable royalty figure must contemplate that the licensee will
have a realistic potential of making a profit after paying the license fee. Mr.
Folsom never

<PAGE>

addresses this. Instead, he looks at all the reasons Quickturn
would not want to license the patents and then arrives at a license rate that
would discourage or prohibit a licensee from licensing the patents.

V. A REALISTIC ASSESSMENT OF DAMAGES TOTALS
NO MORE THAN $ 550,000.

A. Reasonable Royalty Is the Appropriate Measure
For Four Of The Five Emulator Sales.

As discussed earlier in this report, four of the five customers who
purchased Mentor emulator equipment have declared that they would not have
purchased Quickturn systems had Mentor's product not been available. (The
evidence is not yet in regarding the fifth customer, National Semiconductor.)
Because Quickturn would not have made the sales, Mr. Folsom cannot measure
alleged damages by lost profits. Rather, the appropriate measure to employ is to
determine what reasonable royalty a willing licensee would have paid a willing
licensor to obtain the right to sell that product. My analysis leads me to
conclude that a reasonable royalty rate would be 7.8% of the sales price of the
design verification equipment.

In determining what royalty would be reasonable, on sales that are
defined as sales the licensor would not make, the most important factor is the
operating margin of the licensee for design verification products. A licensee
will not pay a royalty rate that is so high that it prevents the licensee from
making a profit on the product. On the other hand, a hypothetical willing
licensor would like to obtain a royalty as high as possible, but recognizes that
without a license agreement, it would get nothing. The reasonable royalty
arising from negotiations between the two parties lies somewhere between 0% and
the licensee's operating margin, depending on the relative strengths of the
parties positions. ("Operating margin" is the profit earned by the company after
manufacturing and operating costs are subtracted from total revenue.)

<PAGE>

It is my understanding that Mentor did not make a profit on its few
sales of emulation equipment in the United States. Because Mentor's profit
margin was so low, Mentor would have been unable and unwilling to pay a
substantial royalty payment for its use of the technology. The portion of my
analysis below uses this state of affairs as a working assumption. I also
performed an analysis based on Quickturn's operating margin as a proxy for what
Mentor's profits might have been had they been in the U.S. market.

The sale of emulation equipment was not profitable to Quickturn from
1988 through 1993. Its first year of earning any profits from emulation
equipment was 1994 and in that year, its operating margin was only approximately
6.2%. In 1995, Quickturn's operating margin was only 14.3%. In 1996, Quickturn's
operating margin was only 15.6%. Any licensing negotiations between Quickturn
and Mentor would have to have occurred in approximately 1995, near the
commencement of infringement.

In my opinion, based on the facts of this case, it is reasonable to
conclude that the appropriate royalty in this case is 7.8%, the midpoint between
0% and Mentor's margin (approximated by Quickturn's margin).

Applying a 7.8% reasonable royalty rate to the amounts of the four
sales (using Quickturn's project sales numbers), lead to a total royalties as
follows:

- ----------------------------------------------------------------------------------------------------------------
Customer Sale Amount Royalty Rate Total Royalty
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Radix $REDACTED 7.8% $REDACTED
- ----------------------------------------------------------------------------------------------------------------
Motorola $REDACTED 7.8% $REDACTED

- ----------------------------------------------------------------------------------------------------------------
UB Networks $REDACTED 7.8% $REDACTED

- ----------------------------------------------------------------------------------------------------------------
Bull HN $REDACTED 7.8% $REDACTED

- ----------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

<TABLE>

- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL $4,454,000 7.8% $347,412

- ----------------------------------------------------------------------------------------------------------------

</TABLE>

At this point, I should note that I could change the assumptions with
respect to Mentor's profits and still obtain a total damages figure that is
relatively low. For example, if I assumed that Mentor's operating margin was
40%, one could assume a reasonable royalty rate of 20%. Under these assumptions,
the total damages for these four equipment sales would be only $890,800.

As I have discussed, Quickturn should have data available indicating
whether or not service and maintenance sales to the four customers above were
made by Quickturn. They certainly were not made by Mentor, since Mentor was
enjoined. In that situation, Quickturn would be entitled to no damages from
Mentor. Of course, if those service and maintenance sales were made by
Quickturn, it again would have no damages. It is possible that these customers
performed their own service and maintenance, or that none was required. Mr.
Folsom presents no data or reasonable assumptions to support any more detailed
analysis of these alleged damages.

B. Lost Profits May Be An Appropriate Measure
For The Lost Sale To National Semiconductor.

The only design verification product sale by Mentor that is potentially
suitable for a lost profits analysis is Mentor's $590,952 sale to National
Semiconductor, since on all other sales, the customers have declared that they
would not have purchased a Quickturn system in any event. In calculating
Quickturn's potential lost profits on that sale, one would apply Quickturn's
incremental margin to the gross value of that sale.

<PAGE>

I have reviewed the 10-K and annual reports of Quickturn during the
relevant time period to assess its incremental profit rate, had it -- rather
than Mentor -- made the sales to National Semiconductor. The proper
incremental profit rate includes all costs that vary with the sales and
production on an additional unit. In accounting terms, the incremental profit
rate includes all manufacturing costs(1) that vary with the production of an
additional unit and all operating costs(2) that vary with sale of an
additional unit. Mr. Folsom uses gross margin(3) which only considers the
manufacturing costs of producing an additional unit for his lost profits
calculation. He does not consider increases in operating costs as the result
of additional sales. Hence, Mr. Folsom does not use an incremental profit
rate for his lost profits calculation. Mr. Folsom assumes that Quickturn's
operating costs are fixed. A quick review of Quickturn's 10-K shows that this
is not the case, operating costs clearly change as Quickturn's sales change,
making some portion of Quickturn's operating expenses variable. I have
performed a regression analysis on Quickturn's variable and fixed costs
during the time period of 1989 through 1996. (I chose this time period
because that was the data available at the time.) The results of my analysis
are summarized in Exhibit T.

I conclude that the appropriate incremental profit that Quickturn would
have earned on a sale to National Semiconductor in 1996 is 34%. Therefore, any
lost profits to Quickturn with respect to the National Semiconductor device
would be 34% of $590,952, or approximately $200,924.

- --------
(1) Manufacturing costs include raw material costs, direct labor costs,
depreciation, and direct overhead. These costs are commonly referred to as
Cost of Goods Sold.
(2) Operating costs include marketing costs, selling costs, commissions,
administrative costs, engineering costs, and research and development
costs.
(3) Gross Margin is defined as Total Revenue less Costs of Goods Sold (COGS)

<PAGE>

Please note that the deposition of National Semiconductor has not yet
occurred, and so, no conclusion can be drawn concerning whether or not lost
profits or reasonable royalty is the appropriate measure of damages.

C. There Is No Evidence To Support Any Other Form Of Damages.

In this report and my previous report, I have discussed the various
types of damages potentially available for an infringement of Quickturn's
patents. For the Mentor sales where the evidence indicates that Quickturn would
not have made the sale, a reasonable royalty is the appropriate damages measure.
As discussed above, I have concluded that applying a reasonable royalty to the
appropriate sales yields potential damages of approximately $347,416 (or at the
outside, $890,800). For the Mentor sale where Quickturn might have made the
sale, I have conservatively assumed that Quickturn would be entitled to its lost
profits, which yields potential damages of approximately $200,000.

No other categories of damages are appropriate in this case. I conclude
that the damages to which Quickturn could be entitled to as a result of
infringement of its patents by Mentor is not more than $548,336, and at the very
most, $1,091,724.

Dated: October 22, 1998

---------------------------
Blaine F. Nye, Ph.D