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QUICKTURN DESIGN SYSTEMS, INC.
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MENTOR GRAPHICS CORPORATION
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MEMORANDUM
To: Institutional Shareholder Services
From: Mentor Graphics Corporation
Date: January 4, 1999
Subject: January 8, 1999 Special Meeting of Quickturn Stockholders
This memorandum summarizes certain relevant factors that we believe you
should consider in determining your recommendation to your clients as to how
they should vote their shares at the Quickturn Special Meeting of Stockholders.
1. The current Quickturn directors breached their fiduciary
duty and illegally adopted a deferred redemption provision in the Quickturn
poison pill.
2. The purpose of the illegal poison pill provision was to
prevent a newly elected board from selling to Mentor -- even if Mentor was
willing to pay more than anyone else.
3. Immediately following the Delaware court decision striking
down the illegal anti-takeover device, Mentor called Quickturn to seek to see if
Quickturn would finally sit down and negotiate a transaction.
4. On December 8, 1998, Quickturn said that we should make a
new proposal if we so desired but said that we would not be allowed any due
diligence.
5. We said that we would reply on December 9 -- only one week
from the Delaware court decision -- and were told by Quickturn that the timing
of our reply would be acceptable.
6. Instead of waiting for our higher bid, Quickturn's Board
rushed ahead and signed a stock merger agreement with Cadence at $14 per share
on the night of December 8.
7. The merger agreement with Cadence contains excessive
break-up fees and a stock option lock-up.
8. The merger agreement feathers the nests of the Quickturn
executives and provides that if Keith Lobo, Quickturn's CEO, is unhappy, Cadence
can walk away from the merger agreement. This means that Keith Lobo can
potentially blow up the deal any time he
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feels like it. Moreover, Cadence has stated that it will allow Quickturn to
operate autonomously under Keith Lobo and its current management -- thus
fulfilling a goal of Quickturn's management rather than its stockholders.
9. Having breached their fiduciary duties, adopted an illegal
poison pill and rushed to a premature merger with Cadence with excessive
break-up provisions, the current Quickturn directors have forfeited their right
to be trusted to maximize stockholder value.
10. Mentor's independent nominees are highly qualified
businesspersons and professionals who are leaders in their respective fields.
11. These nominees are not controlled by, nor affiliated with,
Mentor. The nominees have not agreed with Mentor to take any action and Mentor
has simply paid them customary fees and given customary indemnification for
agreeing to stand for election.
12. The nominees' duties as directors of Quickturn will be to
do what is in the best interests of the Quickturn stockholders -- not to do what
might be best for Mentor.
13. Mentor has always understood that these nominees will have
the obligation to act independently for the sole benefit of Quickturn
stockholders.
14. In striking down Quickturn's illegal poison pill
amendment, the Delaware Supreme Court recognized Mentor's position on this issue
in its opinion issued just last week which stated:
"In that regard, we note Mentor has properly
acknowledged that in the event its slate of directors
are elected, those newly elected directors will be
required to discharge their unremitting fiduciary
duty to manage the corporation for the benefit of
Quickturn and its stockholders."
15. If the independent nominees are elected at the January 8,
1999 Special Meeting, we encourage them as directors to auction Quickturn to the
highest bidder, subject to their fiduciary duties as directors under applicable
law and in accordance with Quickturn's rights and obligations under the merger
agreement with Cadence.
16. We believe that the Quickturn stockholders have everything
to gain and nothing to lose by electing the independent nominees. Their election
will NOT terminate the Cadence merger agreement -- which will remain the floor
for what the stockholders will receive.
17. We have proposed to pay more than $14 per share in a
negotiated merger if we can successfully challenge the excessive break-up fees
and lock-up option in the Cadence merger agreement.
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18. We have said we are willing to consider paying more than
$14 per share if negotiation and due diligence demonstrate greater value to
Mentor. Cadence has said that it will run Quickturn separately and will enjoy no
significant synergies. We see significant synergies and therefore should,
following due diligence be in a position be to pay more than Cadence.
