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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 31
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)
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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
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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. 31. 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 December 15, 1998, Parent and Purchaser filed a Verified Complaint for
Declaratory and Injunctive Relief in the Court of Chancery of the State of
Delaware, a copy of which is attached hereto as Exhibit (g)(5) and is
incorporated herein by reference.
2. On December 15, 1998, Parent delivered a letter to Mr. Keith R. Lobo,
President and Chief Executive Officer of the Company, a copy of which is
attached hereto as Exhibit (a)(55) and is incorporated herein by reference.
3. On December 15, 1998, Parent issued a press release, a copy of which is
attached hereto as Exhibit (a)(56) and is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(55) Letter to Mr. Keith R. Lobo dated December 15, 1998.
(a)(56) Press Release dated December 15, 1998.
(g)(5) Verified Complaint for Declaratory and Injunctive Relief.
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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: December 15, 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>
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December 15, 1998
Mr. Keith R. Lobo
President and Chief Executive Officer
Quickturn Design Systems, Inc.
55 West Trimble Road
San Jose, California 96131
Dear Keith:
You and your fellow Quickturn directors have once again seriously breached
your fiduciary duties to Quickturn's stockholders.
Less than two weeks ago, the Delaware Court of Chancery found that you and
the other Quickturn directors violated your fiduciary duties to the Quickturn
stockholders in your attempt to defeat Mentor's all-cash offer by amending your
poison pill. The Court found that you and the other Quickturn directors were
"unable to articulate a cogent reason" for your poison pill amendment.
That ruling should have caused you and the other Quickturn directors to act
responsibly and to maximize value for your stockholders.
After we received the Chancery Court's ruling, I called your Chairman Glen
Antle to assure him that Mentor remained willing to discuss a combination of our
companies and to consider an increased offer if due diligence showed greater
value. Our advisers also called Quickturn representatives who invited us on
December 8 to consider presenting a higher offer, even as they denied Mentor the
opportunity to conduct any due diligence. Our investment banker and lawyer each
separately informed Quickturn on December 8 that Mentor would respond to
Quickturn's invitation the very next day. Your investment banker confirmed that
responding on December 9 would be acceptable. The last of these conversations
between the representatives occurred on the evening of December 8. Instead of
waiting to see Mentor's higher offer so as to maximize stockholder value, you
went ahead and signed a merger agreement with Cadence the same night, closing
the door on the response we promised by 5:00 p.m. the next day.
The actions of the Quickturn Board show that you and your fellow directors
learned nothing from the Court's recent finding that you breached your fiduciary
duty. When you learned that Mentor was likely to respond to your invitation to
submit a higher bid, you rushed to sign a deal with Cadence, instead of waiting
less than 24 hours for Mentor's higher offer. To make matters worse, you signed
up for a transaction at a price representing only a small increase above our
initial offer at a cost to Quickturn stockholders of an excessive break-up fee
of 6.9% of the Cadence merger
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consideration, a lock-up option for Cadence to purchase 19.9% of Quickturn
common stock, employment agreements for you and other members of management, and
a peculiar provision that gives you the potential power to cause termination of
the entire deal if you're not personally happy. To put it simply, you appear to
have been willing to sign any deal - no matter how bad it might be for your
stockholders -- as long as you got the autonomy and perquisites you wanted.
We are prepared to pay more for Quickturn in a negotiated merger
transaction than the $14 per share price being proposed by Cadence. The size of
our merger proposal will be influenced by Mentor's due diligence demonstrating
greater value for Quickturn and the invalidation of the $10.6 million
termination fee, the $3.5 million expense reimbursement fee and the lock-up
option for Cadence to purchase 19.9% of Quickturn's common stock contained in
the Cadence merger agreement that was entered into in breach of your fiduciary
duties. Furthermore, we are continuing to evaluate our alternatives with
respect to our existing tender offer.
We are also filing suit against you and the other Quickturn directors as
well as Cadence in connection with your new breach of your fiduciary duty to
your stockholders.
Very truly yours,
/s/ Walden C. Rhines
Walden C. Rhines
President and
Chief Executive Officer
<PAGE>
MENTOR SEEKS MERGER AGREEMENT TO ACQUIRE
QUICKTURN AT A PRICE GREATER THAN $14 PER SHARE
--MENTOR FILES SUIT IN DELAWARE TO BLOCK QUICKTURN'S MERGER WITH CADENCE--
WILSONVILLE, OREGON, DECEMBER 15, 1998 -- Mentor Graphics Corporation (Nasdaq:
MENT) announced today that it has sent a letter to Quickturn Design Systems,
Inc. (Nasdaq: QKTN) stating that it is prepared to pay more for Quickturn in
a negotiated merger transaction than the $14 per share price being proposed
by Cadence. The size of Mentor's merger proposal will be influenced by
Mentor's due diligence demonstrating greater value for Quickturn and the
invalidation of the $10.6 million termination fee, the $3.5 million expense
reimbursement fee and the lock-up option for Cadence to purchase 19.9% of
Quickturn's common stock contained in the Cadence merger agreement. Mentor
is continuing to evaluate its alternatives with respect to its existing
tender offer for all of Quickturn's outstanding stock for $12.125 cash per
share, which tender offer has not been withdrawn and is scheduled to expire
at midnight, New York City time, on January 11, 1999, unless extended.
Mentor also announced that it will file today a new lawsuit against Quickturn,
the Quickturn directors and Cadence in the Delaware Court of Chancery. The suit
alleges that the Quickturn directors have again breached their fiduciary duties
to Quickturn's stockholders and seeks to enjoin consummation of the proposed
Cadence merger and to invalidate the termination fees and stock option
provisions in the Cadence merger agreement. This latest breach of fiduciary
duties by the Quickturn Board members came less than a week after the Delaware
Court of Chancery ruled that the Quickturn directors breached their fiduciary
duties in adopting a poison pill amendment.
Mentor's complaint challenges the Quickturn Board's failure to maximize
stockholder value by deliberately excluding Mentor from the process of selling
the company: Quickturn invited Mentor on December 8 to submit a higher proposal
to acquire Quickturn, and Mentor advised Quickturn on that date that it would
respond to the invitation on December 9; nevertheless, before they received
Mentor's proposal, the Quickturn directors approved the Cadence merger agreement
on December 8. Prior to announcing the Cadence merger agreement on December 9,
Quickturn never told Mentor that responding on
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2
December 9 would be too late, that Quickturn had decided to sell the company, or
that Quickturn was negotiating with a third party.
The letter sent today by Dr. Walden C. Rhines, Mentor President and CEO, to
Keith R. Lobo of Quickturn Design Systems, Inc. reads as follows:
December 15, 1998
Mr. Keith R. Lobo
President and Chief Executive Officer
Quickturn Design Systems, Inc.
55 West Trimble Road
San Jose, California 96131
Dear Keith:
You and your fellow Quickturn directors have once again seriously breached
your fiduciary duties to Quickturn's stockholders.
Less than two weeks ago, the Delaware Court of Chancery found that you and
the other Quickturn directors violated your fiduciary duties to the Quickturn
stockholders in your attempt to defeat Mentor's all-cash offer by amending your
poison pill. The Court found that you and the other Quickturn directors were
"unable to articulate a cogent reason" for your poison pill amendment.
That ruling should have caused you and the other Quickturn directors to act
responsibly and to maximize value for your stockholders.
After we received the Chancery Court's ruling, I called your Chairman Glen
Antle to assure him that Mentor remained willing to discuss a combination of our
companies and to consider an increased offer if due diligence showed greater
value. Our advisers also called Quickturn representatives who invited us on
December 8 to consider presenting a higher offer, even as they denied Mentor the
opportunity to conduct any due diligence. Our investment banker and lawyer each
separately informed Quickturn on December 8 that Mentor would respond to
Quickturn's invitation the very next day. Your investment banker confirmed that
responding on December 9 would be acceptable. The last of these conversations
between the representatives occurred on the evening of December 8. Instead of
waiting to see Mentor's higher offer so as to maximize stockholder value, you
went ahead and signed a merger agreement with Cadence the same night, closing
the door on the response we promised by 5:00 p.m. the next day.
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3
The actions of the Quickturn Board show that you and your fellow directors
learned nothing from the Court's recent finding that you breached your fiduciary
duty. When you learned that Mentor was likely to respond to your invitation to
submit a higher bid, you rushed to sign a deal with Cadence, instead of waiting
less than 24 hours for Mentor's higher offer. To make matters worse, you signed
up for a transaction at a price representing only a small increase above our
initial offer at a cost to Quickturn stockholders of an excessive break-up fee
of 6.9% of the Cadence merger consideration, a lock-up option for Cadence to
purchase 19.9% of Quickturn common stock, employment agreements for you and
other members of management, and a peculiar provision that gives you the
potential power to cause termination of the entire deal if you're not personally
happy. To put it simply, you appear to have been willing to sign any deal - no
matter how bad it might be for your stockholders -- as long as you got the
autonomy and perquisites you wanted.
We are prepared to pay more for Quickturn in a negotiated merger
transaction than the $14 per share price being proposed by Cadence. The size of
our merger proposal will be influenced by Mentor's due diligence demonstrating
greater value for Quickturn and the invalidation of the $10.6 million
termination fee, the $3.5 million expense reimbursement fee and the lock-up
option for Cadence to purchase 19.9% of Quickturn's common stock contained in
the Cadence merger agreement that was entered into in breach of your fiduciary
duties. Furthermore, we are continuing to evaluate our alternatives with
respect to our existing tender offer.
We are also filing suit against you and the other Quickturn directors as
well as Cadence in connection with your new breach of your fiduciary duty to
your stockholders.
Very truly yours,
Walden C. Rhines
President and
Chief Executive Officer
Mentor also said the special meeting of Quickturn's stockholders will be held on
Friday, January 8, 1999 to consider Mentor's proposals relating to the removal
of the current Quickturn Board and to replace the Quickturn directors with five
new directors nominated by Mentor. The record date for stockholders to vote at
the special meeting is November 10, 1998.
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4
The complaint filed in Delaware today and related documents are available on a
Mentor World Wide Web site at http://www.mentorg.com/file.
The Dealer Manager for the offer is Salomon Smith Barney. The Information
Agent for the Offer is MacKenzie Partners, Inc., which can be reached toll-free
at 800-322-2885 or by collect call at 212-929-5500.
Contacts: Anne M. Wagner/Ry Schwark Todd Fogarty/Roy Winnick
Mentor Graphics Corporation Kekst and Company
503/685-1462 212/521-4800
# # #
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MENTOR GRAPHICS CORPORATION, )
an Oregon corporation, and MGZ CORP., a )
Delaware corporation, )
)
)
Plaintiffs, )
)
v. ) Civil Action No._______
)
KEITH R. LOBO, GLEN M. ANTLE, )
RICHARD C. ALBERDING, MICHAEL R. )
D'AMOUR, YEN-SON (PAUL) HUANG, )
DR. DAVID K. LAM, WILLIAM A. )
HASLER, CHARLES D. KISSNER, )
QUICKTURN DESIGN SYSTEMS, INC., )
a Delaware corporation, CADENCE )
DESIGN SYSTEMS, INC., a Delaware )
corporation, and CDSI ACQUISITION, )
INC., a Delaware corporation, )
)
Defendants. )
VERIFIED COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
Plaintiffs Mentor Graphics Corporation ("Mentor Graphics") and MGZ Corp.
("MGZ," jointly with Mentor Graphics, "Mentor") allege for their complaint
against defendants Keith R. Lobo, Glen M. Antle, Richard C. Alberding, Michael
R. D'Amour, Yen-Son (Paul) Huang, Dr. David K. Lam, William A. Hasler, Charles
D. Kissner (the "Director Defendants"), Quickturn Design Systems, Inc.
("Quickturn" or the "Company"), Cadence Design Systems, Inc. ("Cadence"), and
CDSI Acquisition, Inc. ("CDSI"), upon knowledge as to themselves and their own
acts and upon information and belief as to all other matters, as follows:
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Summary Of This Action
1. Mentor has filed this action to obtain injunctive relief to halt the
latest breaches of fiduciary duty by Quickturn's Board. For months, Quickturn
has assured this Court that this was a bad time to sell the Company and that
stockholder value would be maximized by remaining independent and pursuing
Quickturn's business plan. Nevertheless, only six days after the Court found
that Quickturn's Board breached its fiduciary duties in adopting measures
designed to defeat Mentor's tender offer - and exactly one month before a
stockholder vote on Mentor's proposal to replace the Quickturn board with
independent nominees - Quickturn abruptly abandoned its "stand alone" strategy
and decided to sell the Company. Instead of conducting a proper auction,
however, Quickturn accepted a Cadence proposal to pay a slight increase over
Mentor's bid, and then gave Cadence break up fees, lock up stock options and "no
shop" assurances that transfer a huge proportion of any topping bid to Cadence,
rather than Quickturn's stockholders. Most incredible of all, even though
Quickturn has repeatedly stated that Mentor would have no choice but to top any
competing bid, Quickturn deliberately excluded Mentor from the process of
selling the Company: after Mentor promised on December 8 to respond to
Quickturn's invitation to improve its bid before 5:00 p.m. on December 9,
Quickturn accepted Cadence's proposal, including the unconscionable lockups, on
the evening of December 8. Quickturn's precipitous decision to accept the
oppressive merger transaction with Cadence threatens to put a premature end to
the bidding to acquire Quickturn, and to cost Quickturn's stockholders millions
of dollars. These breaches of fiduciary duty by Quickturn and its Board, aided
and abetted by Cadence, can only be remedied through the issuance of immediate
equitable relief.
2. On December 8, 1998, Quickturn and Cadence approved a merger agreement
pursuant to which Quickturn would become a wholly-owned subsidiary of Cadence
and Quickturn's
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stockholders would receive $14 per share in Cadence stock (the "Cadence
Merger"). Quickturn and Cadence agreed to a variety of devices aimed at ensuring
the completion of their transaction and deterring any higher offer to acquire
Quickturn. The merger agreement between Quickturn and Cadence dated December 8,
1998 (the "Cadence Merger Agreement") grants Cadence a stock option lockup to
purchase shares representing 19.9% of Quickturn's common stock on a
fully-diluted basis at $14.00 per share, capped at a total benefit to Cadence of
$14,075,000 (the "Lockup Option"). The Cadence Merger Agreement also grants
Cadence a termination fee of $10,557,000 (the "Termination Fee") and an expense
reimbursement fee of $3,500,000 (the "Expense Reimbursement Fee," together with
the Termination Fee and Lockup Option, the "Breakup Fees"). The Cadence Merger
Agreement also subjects Quickturn to a highly-restrictive no-shop provision that
purports to prevent Quickturn and its representatives from making any effort to
obtain a superior transaction (the "No-Shop Clause"). The Cadence Merger
Agreement constitutes another violation by the members of the Quickturn board of
directors (the "Board") of their fiduciary responsibilities to act in the best
interests of Quickturn's stockholders.
3. The Quickturn Board consistently has opposed Mentor's fully financed,
non-coercive, non-discriminatory all cash, all-shares premium tender offer and
second-step merger proposal to acquire all of Quickturn's outstanding common
stock (the "Mentor Offer"). Mentor, Quickturn and Quickturn's stockholders have
been litigating on an expedited basis for more than four months the validity of
the Quickturn Board's actions in opposing the Mentor Offer (the "First Action").
Throughout this period, Quickturn and its directors repeatedly confirmed the
Board's belief in four fundamental premises to justify their actions: (i) the
Board believed that Mentor's $12-1/8 Offer was at the extreme low end of the
range of fair value and therefore was inadequate, (ii) the Board believed that
Quickturn's business plan would maximize stockholder value and deliver returns
far
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in excess of the Mentor Offer, (iii) the Board believed that to pursue
Quickturn's business plan Quickturn should remain independent, and (iv) the
Board believed that Mentor would pay more than Quickturn is worth as an
operating business because, without control over certain patents held by
Quickturn (the "Quickturn Patents"), Mentor supposedly could not continue as a
viable entity in the emulation business. Quickturn and its directors also
asserted repeatedly that Mentor could not afford not to acquire Quickturn.
Notwithstanding their sworn statements that Mentor would have to pay the highest
price to acquire Quickturn, the Board rushed to approve the Cadence Merger
Agreement with the knowledge that Mentor was less than one day away from
responding to Quickturn's tardy solicitation of a higher offer from Mentor.
4. On December 2, 1998, this Court issued a post-trial opinion in the First
Action finding that the Quickturn directors breached their fiduciary duties to
Quickturn's stockholders in responding to the Mentor Offer (the "Opinion"). By
adopting the Cadence Merger Agreement on December 8, 1998 -- only six days after
this Court issued the Opinion -- the Quickturn Board proved beyond any doubt
that its sole reason for enacting the defensive measures litigated in the First
Action was to defeat the Mentor Offer and not because the Board believed the
Mentor Offer was inadequate. If the Board truly believed the ranges of fair
value it relied on in rejecting the Mentor Offer, then the Cadence Merger also
is inadequate.
5. Once the Quickturn Board decided to abandon its business plan of
operating independently for the benefit of the Quickturn stockholders and to
sell the Company, the Board had an obligation to obtain the highest value
reasonably available for Quickturn's stockholders. The Board wholly failed in
this mission. Quickturn's directors asserted repeatedly in the First Action that
Mentor has to acquire the Quickturn patents. Assuming the Quickturn directors
truly believed that Mentor had to acquire Quickturn, then the Board committed an
inexcusable error by failing to take
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advantage of Mentor's situation. Any competent director, lawyer or financial
advisor truly interested in maximizing stockholder value and acting in good
faith would have used Mentor's firmly declared intention to ensure that Mentor
was given maximum opportunity to present its highest offer without unnecessary
barriers and undue benefits to third parties. Even if a third party ultimately
bid higher than Mentor was able to bid, the result would be the best transaction
available to Quickturn's stockholders.
6. The Quickturn Board made no effort to start a bidding contest or even
give Mentor an opportunity to present a higher proposal without the overhang of
the Board's defenses to the Mentor Offer and its "anybody but Mentor" approach.
Although Mentor continually requested Quickturn to negotiate since announcing
the Offer on August 12, 1998, Quickturn only invited Mentor to consider
submitting a higher proposal on December 8, 1998. Mentor informed Quickturn on
December 8, 1998 that it would respond before 5:00 p.m. on December 9, 1998.
Quickturn's representative stated that a response at that time would be
acceptable. Quickturn never told Mentor that responding on December 9 would be
too late, that Quickturn had decided to sell the Company, or that Quickturn was
negotiating with a third party. Instead, in an obvious effort to preclude Mentor
from acquiring the Company, the Quickturn Board deliberately frustrated Mentor's
efforts to present a higher proposal on December 9 by approving the Cadence
Merger Agreement on December 8 and shutting the door to Mentor's higher proposal
before it could even be submitted to Quickturn.
7. The terms of the Cadence Merger Agreement demonstrate that the Quickturn
Board intentionally attempted to lock-up the deal to avoid allowing market
forces to operate after the Cadence Merger was announced. By agreeing to the
No-Shop Clause, Quickturn shackled itself and its advisors from taking any steps
that might develop a more favorable offer. Unbelievably,
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Quickturn agreed to an extremely broad No-Shop Clause which contains no
fiduciary out provision. The Board further curtailed its ability to receive and
to accept a superior proposal by obligating Quickturn to provide written notice
to Cadence setting forth the material terms of the superior proposal and the
identity of the bidder. Cadence has no incentive to "top" any superior offer
because it then has an exclusive window of five business days to make an offer
which need only be "at least as favorable to the Company's stockholders." Given
the practical effect of the No-Shop Clause, which simultaneously deters a
competing proposal and removes any need for Cadence to do more than match any
higher offer, the Quickturn Board effectively has no fiduciary-out at all.
8. The Breakup Fees create dramatic disincentives for any competing bidder.
The Lockup Option prevents any competing bidder from offering a stock deal that
could take advantage of pooling of interests accounting treatment. More
importantly, the Lockup Option increases the cost of any competing bid by 19.9%
of the topping amount (to a ceiling of $14.075 million), because Cadence can
exercise its stock option and force Quickturn (and therefore the topping bidder)
to pay in cash the difference between $14.00 and the higher price for the
3,619,100 shares which are subject to the Lockup Option. The Termination Fee and
Lockup Option generate a penalty of $14,075,000 for any bidder bidding $14.97 or
higher. The Expense Reimbursement adds another $3,500,000 to the price of any
topping bid. The combined penalty is an additional $0.97 per Quickturn share. As
Cadence's President and CEO explained, "they [Mentor] have to buy our shares at
a premium in addition to paying a premium to Quickturn shareholders, which means
every buck in the counteroffer over ours costs them two." The maximum Breakup
Fee represents 6.9% of the aggregate Cadence Merger price of $253 million and 9%
of the net transaction price once the $58.6 million in cash on Quickturn's
balance sheet as of June 30, 1998 is deducted.
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9. Leaving aside that the excessive amount of the Breakup Fees alone
requires their invalidation, the Quickturn Board breached its fiduciary duties
by agreeing to these excessively generous provisions without achieving an
auction-ending bid that would maximize value for Quickturn's stockholders.
Lockup options, breakup fees and highly restrictive no-shop provisions of the
scope in the Cadence Merger Agreement can only be justified if they are adopted
in return for the conferral of a substantial benefit to the target's
stockholders. Quickturn agreed to the Cadence Merger Agreement despite knowing
that Mentor, the most likely bidder, had not submitted its highest, best bid and
was within hours of submitting a higher proposal. Instead of waiting less than
one day for Mentor's improved bid, the Quickturn Board gave away control of the
sale process to Cadence in return for a paltry 15% increase in the bid price.
The excessive Termination Fee, Expense Reimbursement Fee, Lockup Option and
No-Shop Clause in the Cadence Merger Agreement were granted by the Quickturn
directors at an absurdly premature stage of the sale process and without
obtaining an adequate increase in the consideration to be received by
Quickturn's stockholders.
10. The Cadence Merger also shows that the Quickturn Board is merely trying
to protect Quickturn's management, who will receive substantial benefits from
the Cadence Merger, including freedom from direct supervision by public
stockholders. Cadence has stated publicly that "we will have Quickturn operate
autonomously," with no changes made in its business plan or employees. Mr. Lobo
and other members of Quickturn's management already have entered into employment
and non-competition agreements approved by Cadence. Furthermore, Mr. Lobo's
desire to maintain control over Quickturn resulted in an extraordinary provision
in the Cadence Merger Agreement which allows Cadence to avoid closing the merger
if Mr. Lobo merely expresses concern about his
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status with Quickturn, giving Mr. Lobo ultimate authority over whether the
Cadence Merger goes forward.
11. Quickturn's directors gain an equally important benefit from the
Cadence Merger: extremely broad contractual indemnification rights from Cadence.
Given this Court's finding in the First Action that the Quickturn Board breached
its fiduciary duties to Quickturn's stockholders, Quickturn's directors face a
significant threat of personal liability for substantial money damages. The
Board no doubt was particularly concerned that Mentor would acquire Quickturn
and critically examine the conduct of the former Quickturn officers, directors
and their advisors. Under the Cadence Merger Agreement, this problem is solved
because Cadence will indemnify and hold harmless each officer and director of
Quickturn for all their pre-merger conduct.
12. This Court already has found that the Quickturn Board breached its
fiduciary duties in the First Action. In agreeing to the Cadence Merger, the
Quickturn Board has breached its fiduciary duties again. The Cadence Merger
represents a disproportionate response to any threat supposedly posed by the
Mentor Offer. The Cadence Merger also fails to fulfill Quickturn Board's
fiduciary duty to maximize stockholder value by obtaining the best transaction
reasonably available. By agreeing to the Cadence Merger under these
circumstances, Cadence aided and abetted the Quickturn Board's breach. This
Court should enjoin the Cadence Merger and invalidate the Termination Fee,
Expense Reimbursement Fee and Lockup Option to allow market forces to penetrate
the best available transaction for Quickturn's stockholders.
The Parties
13. Plaintiff Mentor is a Oregon corporation with its principal executive
offices in Wilsonville, Oregon. Mentor manufactures, markets and supports
software and hardware electronic design automation ("EDA") products and provides
related services which enable engineers to design,
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analyze, simulate, model, implement and verify the components of electronic
systems. Mentor is the beneficial owner of approximately three percent of the
outstanding shares of Quickturn common stock.
14. Plaintiff MGZ is a newly incorporated Delaware corporation and a
wholly-owned subsidiary of Mentor with its principal executive offices in
Wilsonville, Oregon. MGZ is the record owner of 100 shares of Quickturn common
stock.
15. Defendant Quickturn is a Delaware corporation with its principal
executive offices in San Jose, California. Quickturn designs, manufactures,
sells and supports products that verify the design of integrated circuits and
electronic systems. As of November 30, 1998, Quickturn had 18,095,580 shares of
common stock issued and outstanding. As of December 5, 1998, an additional
3,597,768 shares of Quickturn common stock were issuable or otherwise
deliverable in connection with various stock option grants.
16. Defendant Glen M. Antle is the Chairman of Quickturn's Board. Mr. Antle
has held that position since 1988, when Quickturn merged with PiE, a company Mr.
Antle had co-founded in 1990. Mr. Antle also founded Cadence, then known as
ECAD, in 1982 and served as its President, Chief Executive Officer, and Chairman
until his retirement in 1989. Mr. Antle took Cadence public in June 1989.
17. Dr. David K. Lam is a director of Quickturn. Dr. Lam co-founded PiE
with Mr. Antle.
18. Defendant Keith R. Lobo has been President, Chief Executive Officer and
a director of Quickturn since November 1992. Prior to joining Quickturn, Mr.
Lobo worked for 13 years in the semiconductor industry, including stints at
Advanced Micro Devices, LSI Logic, and Chips & Technologies. K.C. Murphy,
Cadence's Executive Vice President -- Strategic Business Group and
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Corporate Strategic Planning, worked for 17 years at Advanced Micro Devices
prior to joining Cadence in April 1996. George M. Scalise, a Cadence director,
previously served as President of the Semiconductor Industry Association and
worked for five years as a Senior Vice President of National Semiconductor
Corporation.
19. Richard C. Alberding is a director of Quickturn. Mr. Alberding also
serves as a director of Sybase, Inc. Michael W. Bealmear, Cadence's Executive
Vice President, Worldwide Services, worked for five years as Sybase's Senior
Vice President for Worldwide Services.
20. William A. Hasler is a director of Quickturn. He also is a shareholder
of Cadence and testified that he relied in part on his knowledge of Cadence in
rejecting the Mentor Offer. Prior to becoming a director of Quickturn, Mr.
Hasler was a partner with KPMG Peat Marwick for 19 years. John F. Olsen,
Cadence's Executive Vice President, Worldwide Sales & Marketing, was a partner
with KPMG Peat Marwick for 5 years prior to joining Cadence.
21. Michael R. D'Amour, Yen-Son (Paul) Huang, and Charles D. Kissner are
directors of Quickturn.
22. Defendant Cadence is a Delaware corporation with its principal
executive offices located at 2655 Seely Avenue, San Jose, California. Cadence
provides comprehensive services and technology to the electronics product
development industry, including licensing EDA software technology and providing
professional consulting services. Cadence was formed as a result of the merger
of SDA and ECAD. Cadence's current Chairman, Mr. Lucas, was the Chairman of SDA
at the time of the SDA-ECAD merger. As of December 7, 1998, Cadence had
218,140,000 shares of common stock issued and outstanding, as well as 39,311,061
shares issuable or otherwise deliverable in connection with various outstanding
options and warrants. Cadence has a market capitalization of approximately $7.5
billion and will issue approximately 6,500,000 shares to acquire
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Quickturn, representing only 3% of its total outstanding shares on a fully
diluted basis. Defendant CDSI, a Delaware corporation, is a wholly-owned
subsidiary of Cadence.
23. John R. Harding is Cadence's President and CEO. H. Raymond Bingham is
Cadence's Executive Vice President and Chief Financial Officer. On information
and belief, Messrs. Harding and Bingham were the principal Cadence
representatives involved in the negotiation and execution of the Cadence Merger
Agreement. Messrs. Harding and Bingham were the Cadence representatives who
participated in the analysts' call on December 10, 1998 to announce the Cadence
Merger.
FACTUAL BACKGROUND
A. Mentor Formulates A Strategy To Jump-Start The EDA Market.
24. Beginning in the fall of 1997, Mentor's top management began to
formulate a proposal to acquire Quickturn. Mentor believed that the combination
of Mentor and Quickturn, two of the leading players in the EDA industry, offered
compelling strategic synergies. Mentor also believed that the combination would
benefit both companies' customers, as well as the EDA market generally.
B. Mentor Announces The Offer.
25. Mentor prepared in early August to announce the Mentor Offer both to
Quickturn's management and to its stockholders. On August 11, 1998, Dr. Rhines,
Mentor's CEO and Chairman, had dinner with Mr. Antle, Quickturn's Chairman. At
the end of dinner, Dr. Rhines informed Mr. Antle that Mentor was interested in
acquiring Quickturn for $12.125 per share and gave Mr. Antle a letter to the
Quickturn Board. Mr. Antle stated immediately that the Mentor Offer "would be a
disaster" and told Dr. Rhines "not to do it."
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26. On August 12, 1998, Mentor announced the Mentor Offer at $12.125 per
share, representing a 51.6% premium over Quickturn's unaffected market price.
Rather than considering the Mentor Offer in good faith, the Quickturn Board
immediately declared that it was "stupid."
27. At the same time Mentor commenced the Offer, Mentor publicly disclosed
its intent to solicit agent designations to call a special stockholders' meeting
approximately 45 days after Mentor received agent designations from the
requisite 10% of Quickturn's stockholders. Mentor further disclosed its
intention to solicit proxies for the special meeting to (i) remove all of the
current Quickturn directors, (ii) reduce the authorized number of directors from
eight to five, (iii) elect five independent directors, and (iv) repeal any
Quickturn bylaw amendments adopted by the Board after March 30, 1998 (the "Proxy
Contest" and the "Mentor Proposals").
C. Quickturn Reacts To The Offer And Determines To Remain Independent.
28. Immediately upon hearing of the Offer and the Mentor Proposals,
Quickturn's management embarked on a plan to defeat the Offer and keep Quickturn
independent. The first thing Mr. Lobo did upon learning of the Offer was to call
Larry Sonsini of Wilson Sonsini Goodrich & Rosati ("Wilson Sonsini") at home
that evening. Quickturn's Chief Financial Officer, Ray Ostby, contacted Paul
Cleveland of Hambrecht & Quist ("H&Q"), Quickturn's regular investment banker,
and informed him that H&Q was "needed to urgently undertake an evaluation of the
situation." Mr. Cleveland immediately cut short his North Carolina vacation on
August 12 and returned to San Francisco to "standby" for the August 13 Board
meeting. Notes of the H&Q retention show that H&Q was hired to be defensive and
not to sell the company.
29. Having assembled its defensive team, management convened a special
Board meeting on August 13, 1998, at Wilson Sonsini's offices. The Quickturn
Board quickly rubber-stamped management's chosen advisors. Consistent with
management's desire to remain independent at all
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costs, the Board did not even consider the possibility of negotiating with
Mentor. The Board also determined that no discussions should be undertaken with
any other company about any alternative transaction. The Board specifically
instructed H&Q "that it should not enter into any discussions regarding any such
transactions." Instead, the Board "directed the Company's management, in
consultation with Hambrecht & Quist LLC, to prepare an analysis of the Company's
long-term business strategy and prospects for review by the Board at its next
meeting."
D. The Quickturn Board Determines A Range Of Fair Value For An
Independent Quickturn.
30. The Board met again on August 17, 1998. As requested, management
presented a Medium Term Strategic Plan for the Company, and H&Q supplied its
valuation of Quickturn.
31. Quickturn's Medium Term Plan set out Quickturn's growth strategy
through the year 2000. The Medium Term Plan identified Quickturn's strategy to
expand its market share dramatically by providing emulation services to "upper
mainstream" users. The Medium Term Plan never mentioned a sale of the Company.
The only reference to other entities is to "[p]artner with Cadence, Synopsis,
etc. . . " so as to "[d]eliver 'best-in-class' tool flow." The Medium Term Plan
also contains aggressive projections of 30% revenue growth per year for
Quickturn as a stand-alone company. After reviewing the Medium Term Plan, the
Board concluded that "if the Plan's objectives were met, the Company's
shareholders would obtain benefits far in excess of the Offer without selling
control of the Company." (Emphasis added).
32. The valuation H&Q presented on August 17, 1998 assumed a "base case"
scenario that accepted management's 30% annual revenue growth estimate. H&Q's
discounted cash flow ("DCF") analysis of Quickturn under the base case scenario
produced a range of fair value at $18.60 to $38.43 per share. H&Q did not
consider a potential sale of the Company, except to calculate terminal value in
its DCF analysis based on an assumed sale in 2004.
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33. On August 21, 1998, the Board met again. H&Q presented an update of its
August 17 analysis. As with the August 17, 1998 analysis, H&Q's August 21, 1998
analysis never considered a sale of the Company, except to calculate terminal
value for the DCF analysis in 2004. The centerpiece of the August 21, 1998
analysis was a chart labeled "Summary of Implied Valuation," which depicted the
value of the Company using five methodologies. H&Q valued Quickturn on a per
share basis: using an historical trading price analysis at $6.13 to $21.63;
using a comparable public company analysis at $2.55 to $15.61; using a
comparable merger and acquisition analysis at $6.00 to $31.36; using an analysis
of comparable premiums paid at $9.54 to $10.72; and using a DCF analysis at
$11.88 to $57.87. In the First Action, the Director Defendants contended that
when these valuation ranges were discussed at the critical August 21, 1998
meeting, "it became apparent that Quickturn's value was somewhere at or above
the high ends of these ranges . . . ."
34. Importantly, in preparing its valuation of Quickturn, H&Q never
considered a potentially substantial damages recovery in patent litigation
pending between Mentor and Quickturn (the "Patent Litigation"). Quickturn's
Medium Term Plan, which goes out to 2000, also did not ascribe any value to a
potentially significant damages recovery in the Patent Litigation. Assuming the
Board believes, as the directors have testified and as Quickturn has publicly
proclaimed, that Quickturn can recover $225 million in the Patent Litigation,
then that asset alone represents additional value to Quickturn of $12.43 per
share.
E. The Quickturn Directors Adopt Defensive Measures To Preserve Their Control.
35. At the August 21, 1998 meeting, the Quickturn Board determined that
the [Mentor] Offer is inadequate and not in the best interests of the
Company's stockholders, that the Offer does not fully reflect the long term
value of the Company, and that the stockholders' interests would be better
served by the Company continuing to pursue its business plan.
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In discussing the recommendation it would give to Quickturn's stockholders, "the
Board reaffirmed its determination that the best means for providing value to
its stockholders is for the Company to continue to pursue its business plan."
Again, Quickturn's business plan did not envision a sale of the Company.
36. To keep Quickturn independent at all costs, the Quickturn Board adopted
two defensive measures on August 21, 1998. First, the Board amended Quickturn's
bylaws to provide that any special meeting called by the requisite 10% of
Quickturn's stockholders only could be held 90-100 days after the Board's
determination of the validity of the request for a special meeting (the "Bylaw
Amendment"). Second, the Board amended Quickturn's shareholder rights plan (the
"Rights Plan") to prohibit any newly elected board from redeeming the rights or
otherwise altering or amending the plan for six months if the redemption,
alteration or amendment were reasonably likely to facilitate a transaction with
a party that had supported in any way the election of new directors (the
"Deferred Redemption Provision" or "DRP," jointly with the Bylaw Amendment, the
"Defensive Measures"). The Defensive Measures were created by Quickturn's legal
and financial advisors to prevent Quickturn's stockholders from accepting the
Mentor Offer.
F. Quickturn Litigates The Validity Of The Defensive Measures While Refusing
To Negotiate With Mentor.
37. Mentor, Quickturn's stockholders, and Quickturn have been litigating
the validity of the Defensive Measures on an expedited basis since August 12,
1998. During this time, Quickturn's actions, disclosures and the testimony of
its witnesses repeatedly confirmed the Board's continuing belief in the four
fundamental premises for its decisions on August 21, 1998: (i) the intrinsic
value of Quickturn "far exceeded" the $12-1/8 Mentor Offer, (ii) Quickturn's
stockholders would receive the maximum benefit if Quickturn continued to pursue
its business plan, (iii) Quickturn's business plan did not contemplate a sale of
the company, and (iv) Mentor needed to acquire Quickturn.
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38. Quickturn's directors testified repeatedly that they accepted
management's projections and believed that Quickturn's fair value far exceeded
the Mentor Offer. Mr. Hasler, Quickturn's lead witness at trial, concluded that
the Mentor Offer "did not fairly reflect the full value of the company." He
relied primarily on "the expert opinion of [H&Q]" and "felt that the [Mentor
Offer] was well below the fair value that [H&Q's analyses] indicated." Mr.
Hasler also focused on the recent "cratering ... of the value of small cap
technology stocks," Quickturn's forthcoming products, and the Patent Litigation.
Mr. Lobo "absolutely believe[d] the [Mentor Offer] was inadequate" and cited
Quickturn's recent stock price of $16 to $22 per share. Mr. D'Amour believed
Quickturn's stock was seriously undervalued because Quickturn's new products
were still in a "transition period," and the Asia crisis had depressed the
stock. He testified that Quickturn was at an "inflection point" and soon would
see "higher than [its] historical growth" rate of more than 50% annually.
39. Quickturn's public disclosures have told the same story. In letters to
Quickturn's stockholders on August 24, September 11 and September 22, as well as
in October 11 and November 2 press releases, Quickturn stated the Board's belief
that Quickturn's independent value dramatically exceeded the $12-1/8 Mentor
Offer. As recently as December 1, 1998, Quickturn stated in a press release that
the Mentor Offer was inadequate because it was "more than 25% below the stock's
highest closing price over the last year." The Cadence Merger price also is
significantly below Quickturn's highest closing price over the last year.
Quickturn never identified anything either during the First Action or since the
Opinion that would have changed the Board's purported belief about Quickturn's
intrinsic value. Indeed, the only material development during the DRP litigation
was Quickturn's discovery on October 5, 1998 that it possessed what the Board
believed was a $225 million claim in the Patent Litigation, ostensibly
increasing the Board's view of Quickturn's intrinsic value by $12.43 per share.
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40. In view of the Board's determination that the $12-1/8 Mentor Offer was
inadequate even without valuing Quickturn's $225 million patent damages claims
as worth an additional $12.43 per share, the Board's acceptance of a $14 per
share offer from Cadence confirms that the Board now has adopted an "anybody at
any price other than Mentor" strategy.
41. Quickturn's trial witnesses confirmed Quickturn's beliefs in even
greater detail. Quickturn's valuation witness, William H. Purcell, testified at
trial about Quickturn's intrinsic value and quantified a present fair value for
Quickturn based on management's projections and the H&Q analyses. Using a DCF
analysis based on H&Q's base case scenario, Mr. Purcell opined that "Quickturn
could be worth up to $34.75 in two to three years, and this would be without any
assumption of an acquisition premium." Assuming a three year target, Mr. Purcell
placed Quickturn's present fair value at $20.11 to $26.11 per share. Using
transaction multiples to capitalize revenues, Mr. Purcell placed Quickturn's
present fair value under the base case scenario at $23.66 to $27.21 per share.
Like H&Q, Mr. Purcell did not incorporate any value to Quickturn for the Patent
Litigation. Assuming the Board believes that Quickturn can recover $225 million
in the Patent Litigation, then Mr. Purcell's valuation ranges must be increased
by $12.43 per share.
42. Mr. Purcell also opined that Quickturn's stockholders would receive the
maximum benefit if Quickturn continued to pursue its business plan, Consistent
with these views, Mr. Purcell noted that "Quickturn's stock price traded as high
as $15.75 as recently as the first quarter of 1998 -- and this price level was
no aberration." He also opined that
Quickturn's current stock price doesn't reflect the long term potential of
the company. Quickturn faces future earnings opportunities with its
products which the market hasn't been able to value as yet. . . . In
addition, Quickturn has begun an intensive internal analysis, and has
identified an outside strategy consulting firm, to help create a more
cohesive and expansive business strategy to develop markets for all of
their products.
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Mr. Purcell also (i) "perceive[d] the recent decline in [Quickturn's] revenue
growth as a period of deferred growth for Quickturn," (ii) predicted that
"Quickturn will return to substantial revenue growth in 1999 and 2000," (iii)
opined that Quickturn was in an excellent position in terms of its future
products, intellectual property, and ability to benefit from a rebound in Asia.
43. Based on his analysis, Mr. Purcell gave his strong opinion that the
Quickturn Board should not sell the Company at the present time:
For Quickturn to achieve the highest valuation for its shareholders through
a sale of the company, if that decision were to be made by management and
the board of directors, it should do so in the future when the company is
in a position of strength. This would mean when the profitability from its
new products has been realized, when the Asian recession has ended, and
when the stock market is in a healthy state. At such time, Quickturn would
probably be an attractive acquisition candidate for a number of companies.
44. Quickturn also presented the testimony at trial of Professor Bernard S.
Black, a professor at Stanford Law School. Mr. Black similarly opined that now
was a bad time to sell Quickturn. Mr. Black instead suggested that any sale
should be delayed "until full information about the Oregon Patent Litigation is
available" and to "allow the uncertainty [in Asia] to resolve itself."
45. Quickturn's directors also confirmed that Quickturn's business plan did
not envision a sale of the Company and that Quickturn was not for sale at any
point during the First Action. Mr. Lobo testified specifically that Quickturn
"was not for sale". Mr. D'Amour testified that "there's no plan" to sell
Quickturn. Mr. Kissner testified that Quickturn's business plan does not
"involve a sale of the company" or a "merger or acquisition of Quickturn." Mr.
Cleveland testified that comments were made during the August Board meetings
that "it was a bad time to sell Quickturn."
46. The Quickturn Board's decision to sell the Company to Cadence for $14
per share demonstrates the falsity of the statements by Quickturn, its directors
and its supposedly expert
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witnesses that the Company is worth substantially in excess of Mentor's intial
offering price of $12-1/8 per share.
G. The Court Of Chancery Finds That The Quickturn Board Breached Its
Fiduciary Duties.
47. On December 2, 1998, this Court issued its Opinion in the First Action,
in which it held that the Quickturn Board breached its fiduciary duties to the
Quickturn stockholders by adopting an unreasonable defensive measure in response
to the Mentor Offer. On December 3, 1998, this Court entered a final order
invalidating the Board's primary barrier to the Quickturn stockholders' ability
to accept the Mentor Offer based on a finding that the Quickturn Board had
breached its fiduciary duties in adopting the DRP.
H. Quickturn Rushes To Approve The Cadence Agreement Before Receiving Mentor's
Higher Bid.
48. After recognizing that the invalidation of the DRP would lead to the
removal of the Quickturn directors in the Proxy Contest. On December 6, 1998,
Quickturn's Chairman, Mr. Antle, spoke with Mentor's Chairman, Dr. Rhines. Mr.
Antle never informed Dr. Rhines that the Quickturn Board was considering a sale
of the Company, that Quickturn was negotiating with another bidder, that
Quickturn had granted due diligence to another bidder, that another bidder was
prepared to top Mentor's bid, that Mentor should put forward its best bid or
that there was a deadline for Mentor to submit a higher offer, or that the
Quickturn Board was meeting shortly to approve a merger agreement with a third
party.
49. During the evening of December 8, 1998, Christopher Kaufman, Mentor's
primary outside counsel, called Larry Sonsini, Quickturn's primary outside
counsel. Mr. Sonsini told Mr. Kaufman that, if Mentor wished to raise its bid,
it should begin consideration of a higher proposal. Instead of encouraging
Mentor to present immediately a higher bid because the Board was about to
approve a third party's acquisition proposal, Mr. Sonsini attempted to
discourage a higher bid by
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making the incredible statement that Mentor would not be allowed to conduct due
diligence because Mentor's ability to conduct a proxy contest shows that Mentor
needs no additional information to raise its offering price. Mr. Kaufman
informed Mr. Sonsini that Mentor would respond on December 9, 1998 to
Quickturn's invitation to consider submitting a higher proposal. Mr. Sonsini
never informed Mr. Kaufman that the Quickturn Board was considering a sale of
the Company, that Quickturn was negotiating with another bidder, that Quickturn
had granted due diligence to another bidder, that another bidder was prepared to
top Mentor's bid, that Mentor should put forward its best bid, that there was a
deadline for Mentor to submit a higher offer, or that the Quickturn Board was
meeting on December 8, 1998 to approve a merger agreement with a third party.
50. On December 8, 1998, H&Q contacted Salomon Smith Barney ("Salomon"),
Mentor's investment banker. H&Q told Salomon that if Mentor wished to raise its
bid, it should begin consideration of a higher proposal. H&Q never told Salomon
that the Quickturn Board was considering a sale of the Company, that Quickturn
was negotiating with another bidder, that Quickturn had granted due diligence to
another bidder, that another bidder was prepared to top Mentor's bid, that
Mentor should put forward its best bid, that there was a deadline for Mentor to
submit a higher offer or that the Quickturn Board was meeting on December 8,
1998 to approve a merger agreement with a third party. Salomon told H&Q that
Mentor would respond to Quickturn by 5:00 p.m. on December 9, 1998, and H&Q
confirmed that responding in that time frame would be acceptable.
I. Quickturn Approves A Lockup Merger Agreement With Quickturn.
51. Following the issuance of the Opinion on December 2, 1998, Quickturn
issued three separate press releases (i) proclaiming its victory on the Bylaw
Amendment, (ii) noting that Mentor had extended its tender offer until after the
January 8, 1999 special meeting, and (iii) announcing
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the expedited schedule for the appeal. Quickturn never mentioned in its press
releases or disclosed in its SEC filings that it was negotiating with a third
party about a potential merger. Nevertheless, immediately before Quickturn would
have received Mentor's response to Quickturn's invitation to present a higher
proposal, the Quickturn Board sold the Company to Cadence on December 8, 1998.
According to Quickturn's Schedule 14D-9, the Board met only once -- on December
8, 1998 -- to consider the Cadence Merger Agreement.
52. Section 4.4 of the Cadence Merger Agreement contains a highly
restrictive No Shop Clause, pursuant to which:
(a) The Company, its affiliates . . . and their respective officers
and other employees with managerial responsibilities, directors,
representatives and agents shall immediately cease any discussions or
negotiations with any parties with respect to any Third Party
Acquisition (as defined below). Neither the Company nor any of its
affiliates . . . shall, nor shall the Company authorize or permit any
of its or their respective officers, directors, employees,
representatives or agents to, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with
or provide any nonpublic information to any person or group [other
than Cadence] concerning any Third Party Acquisition....
(b) Except as set forth in this Section 4.4(b), the Company Board
shall not withdraw its recommendation of the transactions contemplated
hereby or approve or recommend, or cause the Company to enter into any
agreement with respect to, any Third Party Acquisition.
Notwithstanding the foregoing, if the Company Board by a majority vote
determines in its good faith judgment, after consultation with and
based upon advice of legal counsel, that it is required to do so in
order to comply with its fiduciary duties, the Company Board may
withdraw its recommendation of the transactions contemplated hereby or
approve or recommend a Superior Proposal . . ., but in each case (i)
after providing written notice to
the Company Board has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal and (ii) if
receipt of the Notice of Superior Proposal, make an offer that the
Company Board by a majority vote determines in its good faith judgment
(based on the written advice of a financial advise (of nationally
recognized reputation) to be at least as favorable to the Company's
stockholders as such Superior Proposal....
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Under the No Shop Clause, the Quickturn Board is prohibited from accepting a
Superior Proposal unless, after receiving an unsolicited Superior Proposal, the
Quickturn Board (i) provides Cadence with written notice and (ii) gives Cadence
an exclusive window of five business days simply to match the bid. Even then,
the Quickturn Board only may pursue the third party offer if it determines in
good faith that it is "required to do so" in order to comply with its fiduciary
duties.
53. The Cadence Merger Agreement also provides for the payment to Cadence
of the excessive Breakup Fees. In the event the Cadence Merger Agreement is
terminated because Quickturn accepts a Superior Proposal, the Cadence Merger
Agreement provides:
cannot be determined with reasonable certainty. To compensate
amount of $10,557,000 as liquidated damages immediately upon the
occurrence of the [Termination] event. It is specifically agreed that
the amount to be paid . . . represents liquidated damages and not a
penalty.
(Cadence Merger Agreement ss. 6.3(a)). The Cadence Merger Agreement further
provides that upon termination,
in addition to any other remedies that
of such termination, the Company shall pay to
$3,500,000 as reimbursement for the costs, fees and expenses incurred
. . . in connection with this Agreement....
(Id. ss. 6.3(b)).
54. In addition to the No-Shop Clause, the Termination Fee and the Expense
Reimbursement Fee, Quickturn granted Cadence an option to acquire 19.9% of
Quickturn's outstanding stock in an attempt to prevent Mentor from making a
Superior Proposal. Pursuant to a separate stock option agreement, also dated
December 8, 1998, Quickturn granted to Cadence an irrevocable option to purchase
3,619,100 shares of Quickturn common stock at an exercise price of $14 per share
already defined. In lieu of exercising the option, Cadence can require Quickturn
to
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pay in cash the difference between $14 and the price in a Superior Proposal.
Pursuant to Section 2(c) of the Lockup Option, "in no event shall
Total Payment . . . exceed $14,075,000, and
such amount to [Quickturn]." (Id.). Because Total Payment is defined to include
the Termination Fee but not the Expense Reimbursement Fee, the maximum Breakup
Fee is $17,575,000, which amount becomes payable in the event Quickturn accepts
a Superior Proposal at a price as low as $14.97 per share. The Breakup Fee
represents 6.9% of the aggregate Cadence Merger price of $253 million and 9% of
the net transaction price once the $58.6 million in cash on Quickturn's balance
sheet is netted out.
J. Quickturn Fails To Maximize Stockholder Value.
55. In approving the Cadence Merger Agreement, the Quickturn Board failed
to secure the transaction offering the best value reasonably available for the
stockholders. The Quickturn Board made no effort to conduct a fair auction
process that would maximize value for Quickturn's shareholders. In fact,
Quickturn grossly and unfairly tilted the playing field to Cadence, its favored
bidder. Quickturn allowed Cadence to conduct due diligence, yet never even
provided Mentor with the most basic information about the Company. In view of
Quickturn's failure after the issuance of the Opinion on December 2 to amend its
SEC filings to disclose its merger negotiations with a third party, Quickturn
must have engaged in only minimal negotiation with Cadence prior to the Board's
approval of the Cadence Merger Agreement on December 8, 1998. In approving the
Cadence Merger Agreement on such short notice, the Quickturn Board failed to
take adequate time to ensure it was obtaining the best value reasonably
available to Quickturn's stockholders.
56. In the current circumstances, the Quickturn Board's failure to allow
Mentor to continue to bid is inexcusable. Based on the directors' testimony in
the First Action, the Quickturn Board firmly believed that it was "absolutely
critical" for Mentor to acquire Quickturn. The
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Quickturn Board further that it was "vital to [Mentor] to have the [Quickturn]
patents." Most importantly, the Quickturn Board believed that Mentor would not
drop its Offer, but rather would keep bidding for Quickturn because, if Mentor
did not acquire Quickturn, Mentor ultimately would lose in the Patent Litigation
and be excluded from the United States market, effectively destroying its
business.
57. Based on these beliefs, any reasonable board of directors would have
used Mentor's plight to obtain a superior transaction for Quickturn's
stockholders. Any reasonable board would have returned to Mentor time and time
again to force Mentor to top Cadence's bid, fully expecting that Mentor would
have to raise its offer because of its need to obtain the Quickturn patents. The
Quickturn Board, however, made no effort to use Mentor's situation to benefit
its stockholders. Instead, Quickturn attempted on December 8, 1998 to obtain a
statement from Mentor that it would not increase its $12-1/8 Offer. Prior to
December 9, 1998, Quickturn never gave any indication to Mentor that there was
another bidder in the picture. Even though Mentor had every reason to believe it
was bidding against itself, Mentor undertook on December 8, 1998 to consider
raising its price. Mentor asked only that Quickturn wait until close of business
on December 9, 1998 to give Mentor time to hold a board meeting and respond.
Instead, Quickturn entered into the Cadence Merger Agreement on December 8,
1998, and announced the locked-up Cadence Merger as a fait accompli on the
morning of December 9, 1998.
58. The Quickturn Board's approval of the Cadence Merger Agreement also
results in a breach of the directors' fiduciary duties because, in agreeing to
the No-Shop Clause, Lockup Option and Breakup Fees, the Quickturn Board failed
to obtain a substantial benefit for its stockholders. The excessively generous
provisions of this type in the Cadence Merger Agreement are meant to be used to
obtain a final, best and highest bid after a full auction. The Quickturn Board
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agreed to them without even soliciting Mentor's best bid and in exchange for
only a minimal increase in the merger consideration from Cadence.
59. Quickturn's failure to take any steps to auction the Company makes it
highly unlikely that the Quickturn Board in fact obtained the maximum value
reasonably obtainable. The Quickturn Board's failures are all the more egregious
because Mr. Black testified in detail at trial about his view of what was
required for a Board to fulfill its "fiduciary duty to maximize the value
received by the Quickturn shareholders." In Mr. Black's view, the Board
would need to negotiate with Mentor Graphics and satisfy itself that no
other bidder was willing to pay more than Mentor Graphics. That would
require preparing financial information about Quickturn, providing that
information to interested bidders, and giving them a reasonable opportunity
to bid. Once that process was complete, Quickturn could be acquired by the
winning bidder, but the acquisition would still take at least a month to
close. Total elapsed time [to shop the company] between shareholder meeting
and closing: probably 3 months.
60. Quickturn never took any of these steps. Quickturn never attempted to
negotiate with Mentor, never announced to the public markets that the Board was
considering strategic transactions to maximize stockholder value, never
solicited bids in a public auction, never provided information to Mentor, and
never gave Mentor a reasonable time to bid. Quickturn also did not obtain any
protections that would permit it to seek a superior offer after announcing the
Cadence Merger Agreement, such as the right to solicit competing proposals, a
window-shop provision, a more lenient No-Shop Clause, or a pre- or
post-agreement market check.
K. The Cadence Merger Is An Entrenchment Device.
61. There is a simple reason why the Quickturn Board eagerly agreed to the
highly restrictive Cadence Merger Agreement, at a price the Board should have
found inadequate if it truly believed its statements regarding the Mentor Offer,
and without making any reasonable efforts to obtain a higher valued transaction
for Quickturn's stockholders. The Cadence Merger Agreement
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is a naked entrenchment device designed to protect Mr. Lobo and the rest of
Quickturn's directors and management.
62. As a threshold matter, the purpose underlying the Cadence Merger is
revealed in Cadence's plans for Quickturn. Put simply, Cadence will do nothing
with its new acquisition. According to Mr. Harding's public statements, Cadence
"will have Quickturn operate autonomously." "Quickturn will run as an
independent operation, with its own R&D and sales forces for hardware." Not
surprisingly, analysts are "unimpressed by the deal," and "do not believe that
[the Cadence-Quickturn merger] is a fundamentally solid or strategic fit."
63. The extensive ties between Quickturn and Cadence are further evidence
of the sweetheart deal designed to preserve the positions of Quickturn's
management at the expense of its stockholders. Quickturn's chairman, Mr. Antle,
founded Cadence, then known as ECAD, in 1982 and served as its President, Chief
Executive Officer and Chairman until his retirement in 1989. Mr. Antle and
Quickturn's current chairman, Mr. Lucas, presided over the merger of ECAD and
SDA in 1988, from which Cadence emerged. Faced with Quickturn's offer to give
Cadence more than $17 million for signing a merger agreement which the Quickturn
directors believed would be topped by Mentor, Mr. Lucas presumably had no
trouble approving the Cadence Merger Agreement to help his old friend Mr. Antle.
Accordingly, it is not surprising that Mr. Lobo immediately characterized the
Cadence Merger "as a very friendly deal." Indeed, what other bidder would, as
Mr. Harding has stated, "just . . . let [Quickturn] operate for the foreseeable
future as they have been."
64. Mr. Lobo doubtless also appreciates the significant benefits that the
Cadence Merger Agreement gives to Quickturn's management. The recitals of the
Cadence Merger Agreement state that "certain officers and employees of the
Company have entered into employment and non-competition agreements, effective
upon consummation of the Merger." These agreements have not
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been publicly disclosed. Section 1.11 of the Cadence Merger Agreement provides
that "each outstanding option or warrant to purchase [Quickturn shares], whether
vested on unvested, shall be conferred as of the Effective Time into options or
warrants, as applicable" to purchase "an number of
[in value] to the number of shares of [Quickturn stock] that the holder ...
would have been entitled to receive." (Cadence Merger Agreement ss. 1.11(b)).
This permits Quickturn's officers and directors to retain their lucrative stock
options.
65. Finally, Section 4.11 of the Cadence Merger Agreement contains perhaps
the most important provision for the Quickturn Board, in light of this Court's
finding that the Board breached its fiduciary duties in adopting the DRP. This
provision states that Cadence shall indemnify and hold harmless Quickturn's
officers and directors for all losses, claims, damages, costs, expenses
(including counsel fees and expenses), settlement, payments or liabilities
arising out of or in connection with any claim, demand, action, suit or
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was an officer or director [of
Quickturn] ..., whether or not pertaining to any matter existing or occurring at
or prior to the Effective Time and whether or not asserted or claimed prior to
or at or after the Effective Time....
66. Cadence and Mr. Lucas can afford to be generous to their old friend Mr.
Antle and their new friend Mr. Lobo. Cadence only needs to issue common stock
worth 3% of Cadence's total market capitalization. As Cadence representative
stressed, "relative to the size of Cadence, this is a relatively small
transaction." Unfortunately, Quickturn's stockholders once again have been
abandoned by their fiduciary representatives on the Quickturn Board.
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L. Mentor Offers To Top The Cadence Merger.
67. On December 14, 1998, Mentor proposed to acquire all outstanding shares
at a price higher than $14 per share in a negotiated merger agreement with
Quickturn in which the price would be based on due diligence by Mentor and the
invalidation of the Termination Fee, the Expense Reimbursement Fee and the
Lockup Option. Mentor's topping proposal reaffirms that Mentor has been willing
to offer a higher price if Quickturn only would come to the table. Mentor's
topping bid also proves that the Quickturn Board failed entirely in obtaining
the best value available for Quickturn's stockholders.
IRREPARABLE INJURY
68. Quickturn's unlawful actions in entering into the Cadence Merger
Agreement, failing to deal fairly with Mentor, giving Cadence the Lock-Up
Option, Termination Fee and Expense Reimbursement Fee, and agreeing to the
highly-restrictive No-Shop Clause prevent Quickturn's stockholders from
receiving the best value reasonably available for their shares and are thereby
causing Quickturn's stockholders irreparable harm.
69. Even if Cadence were to agree to increase the consideration under the
Cadence Merger Agreement in excess of the current Mentor Offer, the irreparable
harm still exists. Even aside from the $.97 per share bidding advantage
Quickturn has given Cadence, Mentor cannot bid effectively against Cadence in
the face of the No-Shop and Breakup Fees and without the information Cadence has
received. Furthermore, absent the invalidation of the Cadence Merger Agreement,
there is no way to know what other bidders might emerge in a full and fair
auction.
70. Unless the Cadence Merger is enjoined by this Court, the substantial
benefits of the Mentor Offer and the potentially additional benefits that could
be obtained through a full and fair auction of Quickturn will be forever lost.
The injury to Mentor and Quickturn's stockholders will
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not be compensable in money damages and plaintiffs have no adequate remedy
at law. The only remedy is to enjoin the Cadence Merger, permit the January 8,
1998 special meeting to go forward, and then permit the directors chosen by the
stockholders to conduct a full and fair auction for the Company, consistent with
their fiduciary duties.
COUNT I
(Breach of Fiduciary Duty: The Failure To Maximize Stockholder Value)
71. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 70 as if fully set forth herein.
72. The Director Defendants owe Quickturn's stockholders the highest duties
of care, loyalty and good faith.
73. The obligation to obtain the best transaction available to Quickturn's
stockholders devolved upon the Defendant Directors as soon as they determined
that a sale of Quickturn was inevitable. By agreeing to the Cadence Merger, the
Quickturn Board abandoned its avowed long-term plan of remaining independent and
pursuing its business plan to pursue instead a sale of the Company.
74. The obligation to obtain the best transaction available to Quickturn's
stockholders was triggered when the Board decided to sell the Company.
Quickturn's contacts with Mentor on December 8, 1998, were part of an effort to
sell the Company, triggering the duty to obtain the best value reasonably
available to Quickturn's stockholders.
75. The Cadence Merger Agreement constitutes a sale of control which
required the Director Defendants to obtain the best value reasonably available
for Quickturn's stockholders. Although structured as a stock transaction,
Cadence is paying a fixed price of $14.00 per Quickturn
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share. After the merger, Quickturn will be a wholly-owned subsidiary of Cadence,
and Quickturn's current stockholders will hold barely 3% of Cadence's common
stock.
76. In approving the Cadence Merger Agreement, the Quickturn Board failed
to secure the transaction offering the best value reasonably available for the
stockholders. The Cadence Merger Agreement therefore constitutes a breach of
fiduciary duty.
77. Mentor has no adequate remedy at law.
COUNT II
(Breach of Fiduciary Duty: The Failure To Deal Fairly With Mentor)
78. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 77 as if fully set forth herein.
79. The Director Defendants owe Quickturn's stockholders the highest duties
of care, loyalty and good faith.
80. A correlative duty of the Director Defendants' fiduciary duties to
Quickturn's stockholders is that once the duty devolves upon the Board to obtain
the best value reasonably available for Quickturn's stockholders, the Board has
a duty to deal fairly and equally with all third party bidders. Fairness forbids
directors from using defensive mechanisms to thwart an auction or to favor one
bidder over the other. Market forces must be allowed to operate freely to bring
the target's shareholders the best price available.
81. The Quickturn Board skewed the sale process in favor of Cadence. Quickturn
granted Cadence due diligence and provided Cadence with other information that
never was given to Mentor. By executing the Cadence Merger Agreement with its
highly restrictive No-Shop Clause and precluding itself from furnishing Mentor
with the same due diligence opportunity afforded Cadence, the Quickturn Board
prematurely ended the auction. Through the Breakup Fee provisions
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of the Cadence Merger Agreement, Quickturn gave Cadence an inappropriate and
unreasonable advantage. The result was to end the sale process and prevent
Mentor from having a fair opportunity to bid, to the detriment of all of
Quickturn's stockholders.
82. Mentor has no adequate remedy at law.
COUNT III
(Breach of Fiduciary Duty: The Cadence Merger Violates Unocal)
83. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 82 as if fully set forth herein.
84. The Director Defendants owe Quickturn's stockholders the highest duties
of care, loyalty and good faith.
85. In adopting the Cadence Merger Agreement, the Quickturn Board took
defensive action to prevent the election of the Mentor Nominees at the Special
Meeting and defeat the Mentor Offer.
86. The Cadence Merger Agreement is a coercive and preclusive defensive
response that is disproportionate to the minimal threat posed by the Mentor
Offer and Proxy Contest. As such, the Cadence Merger Agreement constitutes a
breach of the fiduciary duties the Director Defendants owe to Quickturn's
stockholders under applicable law.
87. Mentor has no adequate remedy at law.
COUNT IV
(Breach of Fiduciary Duty: The Lockup Option)
88. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through __ as if fully set forth herein.
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89. The Director Defendants owe Quickturn's stockholders the highest duties
of care, loyalty and good faith.
90. The Lockup Option forecloses further bidding to the detriment of
Quickturn's shareholders and ends the Quickturn sale process prematurely without
conferring a substantial benefit upon Quickturn's stockholders. The Lockup
Option did not assist the Quickturn Board in obtaining the best value reasonably
available for Quickturn's stockholders.
91. Combined with the other provisions of the Cadence Merger Agreement and
the circumstances of the case, the Lockup Option constitutes a breach of the
Director Defendants' fiduciary duties.
92. Mentor has no adequate remedy at law.
COUNT V
(Breach of Fiduciary Duty: The Break-Up Fees)
93. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 92 as if fully set forth herein.
94. The Director Defendants owe Quickturn's stockholders the highest duties
of care, loyalty and good faith.
95. The Break-Up Fees are unreasonable and excessive in light of (i) the
minimal costs associated with the loss of the transaction, (ii) the expenses
incurred in negotiating the transaction, (iii) the likelihood of a competing
bid, and (iv) the size of termination and expense reimbursement fees in other
comparable transactions.
96. The Break-Up Fees are coercive because of their egregiously large
amount relative to the size of the transaction and the terms on which they may
be triggered.
97. Mentor has no adequate remedy at law.
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COUNT VI
(Aiding And Abetting A Breach of Fiduciary Duty)
98. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through __ as if fully set forth herein.
99. The Director Defendants owe Quickturn's stockholders the highest duties
of care, loyalty and good faith.
100. In entering into the Merger Agreement, the Defendant Directors
breached their fiduciary duties.
101. By entering into the Cadence Merger, Cadence knowingly participated in
the Director Defendants' breach of their fiduciary duties.
102. Under the circumstances, Cadence knew or should have know that the
Quickturn Board was attempting to sell the Company to avoid permitting
Quickturn's stockholders to exercise their franchise rights. Cadence also knew
or should have known that Quickturn's management hoped to entrench itself and
avoid being held accountable by Quickturn's stockholders. Among other things,
the Quickturn Board's previous efforts to entrench themselves through the
Defensive Measures put Cadence on notice that the Quickturn Board's motives and
actions were suspect. Cadence's agreement to indemnify the Quickturn Board for
breaches of fiduciary duty predating the Merger Agreement is further evidence of
Cadence's knowing participation in the Quickturn Board's breach of fiduciary
duty. The numerous ties between Quickturn and Cadence's board and management,
including Mr. Antle's long-standing relationship with Cadence, also indicates
that Cadence knew or should have known of the Quickturn Board's intent to breach
its fiduciary duties and entrench itself. The timing and terms of the Cadence
Merger also indicate that Cadence knowingly aided and abetted the Quickturn
Board's breach of its fiduciary duty.
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103. Mentor has been damaged by the action of the conspiring parties
because it has been prevented from bidding freely for Quickturn and from having
the opportunity to have the Quickturn stockholders vote in favor of the Mentor
Nominees at the Special Meeting.
104. Mentor has no adequate remedy at law.
WHEREFORE, plaintiffs respectfully request that this Court:
a. declare that the Director Defendants have breached their fiduciary
obligations to Quickturn stockholders under Delaware law by entering into the
Cadence Merger Agreement;
b. declare that Cadence has aided and abetted the Director Defendants'
breach of their fiduciary duties;
c. preliminarily and permanently enjoin Quickturn, the Director
Defendants, Cadence, and their agents, employees, and anyone acting on their
behalf, from facilitating, effectuating, enforcing or taking any steps to
facilitate, effectuate, enforce or consummate the Cadence Merger Agreement and
declaring the Cadence Merger Agreement void;
d. preliminarily and permanently enjoin Quickturn, the Director
Defendants, Cadence, and their agents, employees, and anyone acting on their
behalf from facilitating, effectuating, enforcing, or taking steps to
effectuate, enforce or consummate the No-Shop Clause, the Lockup Option, the
Termination Fee and the Expense Reimbursement Fee, and declaring these
provisions unreasonable and void;
e. require that appropriate corrective disclosures be made to cure all
of the materially false and misleading statements and omissions made by
Quickturn in connection with the Cadence Merger Agreement;
f. compel the Quickturn Board to conduct a fair and even-handed
auction and not to tilt the process in favor of any particular bidder;
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g. award plaintiffs their costs and expenses, including attorneys'
fees and experts' fees, incurred in this action; and
h. grant plaintiff such other and further relief as the Court deems
just and proper.
OF COUNSEL: /s/ Kevin G. Abrams
---------------------------------
Kevin G. Abrams
Fredric J. Zepp Thomas A. Beck
Latham & Watkins Lisa A. Schmidt
505 Montgomery Street Leanne J. Reese
San Francisco, CA 94111 J. Travis Laster
(415) 391-0600 Dominick K. Gattuso
Michael K. Reilly
Marc Rappel Richards, Layton & Finger
Latham & Watkins One Rodney Square
633 West 5th - Suite 4000 P. O. Box 551
Los Angeles, CA 90071 Wilmington, DE 19899
(213) 891-8156 (302) 658-6541
Attorneys for Plaintiffs
Dated: December 14, 1998
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MENTOR GRAPHICS CORPORATION, )
an Oregon corporation, and ) MGZ CORP., )
a Delaware corporation, )
)
)
Plaintiffs, )
)
v. ) Civil Action No._______
)
KEITH R. LOBO, GLEN M. ANTLE, )
RICHARD C. ALBERDING, MICHAEL R. )
D'AMOUR, YEN-SON (PAUL) HUANG, )
DR. DAVID K. LAM, WILLIAM A. )
HASLER, CHARLES D. KISSNER, )
QUICKTURN DESIGN SYSTEMS, INC., )
a Delaware corporation, and CADENCE )
DESIGN SYSTEMS, INC., a Delaware )
corporation, )
)
Defendants. )
VERIFICATION
I, Gregory K. Hinckley, having been duly sworn according to law,
verifies as follows:
1. I am the Executive Vice President, Chief Operating Officer and
Chief Financial Officer of the plaintiff Mentor Graphics Corporation, an Oregon
corporation, with specific authority to make this verification on behalf of
Mentor Graphics Corporation.
2. I am also the Chief Financial Officer and Secretary and a director
of plaintiff MGZ Corp. (collectively with Mentor Graphics Corporation, the
"Plaintiffs"), a Delaware corporation, with specific authority to make this
verification on behalf of MGZ Corp.
3. I have personally reviewed the attached Verified Complaint For
Declaratory And Injunctive Relief (the "Complaint"), filed by the Plaintiffs in
the Court of Chancery of the State of Delaware.
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4. Insofar as the matters contained in the Complaint concern the acts
and deeds of the Plaintiffs, I know the allegations to be true and correct.
5. Insofar as the matters contained in the Complaint concern the acts
and deeds of persons or entities other than the Plaintiffs, I believe the
allegations to be true and correct.
Mentor Graphics Corporation
By: /s/ Gregory K. Hinckley
---------------------------------
Name: Gregory K. Hinckley
Title: Executive Vice President,
Sworn to and subscribed before me Chief Operating Officer and
this 14th day of December, 1998 Chief Financial Officer
/s/ Monte C. Koller
- ------------------------------------ MGZ Corp.
Notary Public
By: /s/ Gregory K. Hinckley
---------------------------------
My Commission expires January 31, 1999. Name: Gregory K. Hinckley
Title: Chief Financial Officer and
Secretary
37
