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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
(AMENDMENT NO. 6)
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Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
QUICKTURN DESIGN SYSTEMS, INC.
(Name of Subject Company)
QUICKTURN DESIGN SYSTEMS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(including the associated preferred stock purchase rights)
(Title of Class of Securities)
----------------
74838E102
(CUSIP Number of Class of Securities)
----------------
KEITH R. LOBO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
QUICKTURN DESIGN SYSTEMS, INC.
55 W. TRIMBLE ROAD
SAN JOSE, CALIFORNIA 95131
(408) 914-6000
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of person(s) filing statement)
----------------
COPY TO:
LARRY W. SONSINI, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
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INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") originally filed on August 24, 1998, by Quickturn Design Systems,
Inc., a Delaware corporation (the "Company" or "Quickturn"), relates to an
offer by MGZ Corp., a Delaware corporation ("MGZ") and a wholly owned
subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Mentor"),
to purchase all of the outstanding shares of the common stock, par value $.001
per share (including the associated preferred stock purchase rights), of the
Company. All capitalized terms used herein without definition have the
respective meanings set forth in the Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The response to Item 8 is hereby amended by adding the following to the end
of the last paragraph of the section entitled "Litigation Concerning the
Offer":
On September 11, 1998, Quickturn filed its Answer to First Amended
Complaint and Counterclaims for Injunctive and Other Relief for Violation
of Federal Securities Laws (the "Answer to First Amended Complaint") in the
United States District Court for the District of Delaware, denying all
material allegations of Mentor's First Amended Complaint. The Answer to
First Amended Complaint is filled as Exhibit 25 hereto and is incorporated
herein by reference.
On September 11, 1998, Mentor and MGZ filed a Motion for Leave to File
Second Verified Complaint in the Court of Chancery of the State of
Delaware.
On September 14, 1998, Quickturn filed a motion for a Temporary
Restraining Order (the "TRO") with the United States District Court for the
District of Delaware seeking (i) to enjoin Mentor from distributing any
proxy materials purporting to call a special meeting of Quickturn
stockholders on October 29, 1998, (ii) to require Mentor to correct
misstatements in its proxy materials, press releases and other statements
to Quickturn Stockholders and to enjoin Mentor from further claiming that a
Quickturn stockholders meeting will be held on October 29, 1998, (iii) to
enjoin Mentor from all proxy solicitation activities until 15 days after
amended proxy materials are filed with the SEC and Mentor has issued a
press release which corrects its earlier misstatements, and (iv) to enjoin
Mentor from making any further material misstatements of fact or omissions
of material facts in any communications with Quickturn's stockholders. The
TRO is filed as Exhibit 26 hereto and is incorporated herein by reference.
A hearing on Quickturn's Motion for a Temporary Restraining Order was held
on September 16, 1998. Quickturn's Motion was denied, and its Motion for
Preliminary Injunction is scheduled to be heard on October 6, 1998.
On September 14, 1998, Quickturn filed Amended and Supplemental
Counterclaims (the "Counterclaims"), alleging that Mentor made false and
misleading statements regarding the calling of a Special Meeting of the
stockholders of Quickturn. In addition to Mentor and MGZ Corp., Walder C.
Rhines, Gregory K. Hinckley, Dean M. Freed, Gideon Argov, Scott H. Bice,
Harry L. DeMorest, C. Scott Gibson and Michael J.K. Savage are named as
counterdefendants. The Counterclaims are filed as Exhibit 27 hereto and are
incorporated herein by reference.
On September 15, 1998, Quickturn filed its Answer to Verified Amended
Complaint for Declatory and Injunctive Relief in the Court of Chancery in
the State of Delaware denying all material allegations of the Amended
Verified Complaint, a copy of which is filed as Exhibit 28 hereto and is
incorporated herein by reference.
The response to Item 8 is hereby amended further by adding the following to
the end of the section entitled "Proxy Solicitation":
On September 17, 1998, the Company filed preliminary proxy revocation
materials with the SEC in connection with the Board of Directors'
solicitation of proxy revocations in opposition to the solicitation by
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Mentor and MGZ of proxies to be used at a special meeting of stockholders
of the Company and any adjournments and postponements thereof pursuant to a
proxy statement of Mentor dated September 11, 1998, as supplemented. A copy
of such preliminary proxy revocation materials is filed as Exhibit 29
hereto and is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The response to Item 9 is hereby amended by the addition of the following
new exhibits:
<TABLE>
<C> <S>
Exhibit 25 Answer to First Amended Complaint and Counterclaims for
Injunctive and Other Relief for Violation of Federal Securities
Laws
Exhibit 26 Motion for a Temporary Restraining Order
Exhibit 27 Amended and Supplemental Counterclaims
Exhibit 28 Answer to Verified Amended Complaint for Declatory and Injunctive
Relief
Exhibit 29 Preliminary Proxy Revocation Materials
</TABLE>
3
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
<TABLE>
<C> <S>
Dated: September 17, 1998 QUICKTURN DESIGN SYSTEMS, INC.
</TABLE>
By:/s/ Keith R. Lobo
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Keith R. Lobo
President and Chief Executive
Officer
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EXHIBIT 25
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MENTOR GRAPHICS CORPORATION, )
and MGZ CORP., )
)
Plaintiffs, )
)
v. ) Civil Action No. 98-473-RRM
)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Defendant. )
_________________________________)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Counterclaimant, )
)
v. )
)
MENTOR GRAPHICS CORPORATION )
and MGZ CORP., )
)
Counterdefendants. )
ANSWER TO FIRST AMENDED COMPLAINT AND
COUNTERCLAIMS FOR INJUNCTIVE AND OTHER RELIEF
FOR VIOLATION OF FEDERAL SECURITIES LAWS
-----------------------------------------
ANSWER TO FIRST AMENDED COMPLAINT
---------------------------------
Quickturn Design Systems, Inc. ("Quickturn") answers the allegations of the
first amended complaint of Mentor Graphics Corporation and MGZ Corporation
(collectively, "Mentor") as follows:
1. Quickturn admits that Mentor purports to bring an action and invoke the
jurisdiction of this Court pursuant to 28 U.S.C. (S) 1331(a), 1337(a) and 15
U.S.C. (S) 78aa, upon which Mentor purports to base federal question
jurisdiction as alleged in paragraph 1.
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2. Quickturn admits that Mentor asserts that venue is proper under 28
U.S.C. (S) 1391(b), and 15 U.S.C. (S) 78aa.
3. Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 3, and on that
basis denies each and every allegation contained therein.
4. Quickturn admits the allegations in paragraph 4.
5. Quickturn admits the allegations in paragraph 5.
6. Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 6, and on that
basis denies each and every allegation contained therein.
7. Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 7, and on that
basis denies each and every allegation contained therein.
8. Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 8, and on that
basis denies each and every allegation contained therein.
9. Quickturn admits that in January 1996, the Board of Directors of
Quickturn adopted a stockholder rights plan ("Rights Plan"). Quickturn admits
that the Board of Directors of Quickturn amended the Rights Plan after August
12, 1998. Quickturn further admits that the Quickturn stockholders did not vote
on the Rights Plan or on the Amended Rights Plan. Except as expressly admitted,
Quickturn denies each and every allegation of paragraph 9.
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10. Quickturn admits that it is subject to Section 203 of the Delaware
Business Combination Statute. Except as expressly admitted, Quickturn denies
each and every allegation of paragraph 10.
11. Quickturn denies each and every allegation of paragraph 11.
12. Quickturn admits Mentor filed amended Schedule 14D-1's on August 20,
1998 and August 25, 1998. Quickturn avers that the amended Schedule 14D-1's
speak for themselves. Except as expressly admitted or averred, Quckturn denies
each and every allegation of paragraph 12.
13. Quickturn avers that the allegations contained in paragraph 13 consist
of conclusions of law and seek to characterize Section 14(d) of the Securities
Exchange Act, which statute speaks for itself, and therefore no response is
required.
14. Quickturn denies that Mentor "has complied fully with the Exchange Act
and all rules and regulations promulgated thereunder." Quickturn admits that
Section 14(e) of the Exchange Act, 15 U.S.C. (S) 78n(e) states that it is
"unlawful for any person to make any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statement made, in
light of the circumstances under which they are made, not misleading, or to
engage in any fraudulent, deceptive, or manipulative acts or practice in
connection with any tender offer."
15. Answering paragraph 15, Quickturn avers that the Offer to Purchase
speaks for itself. Except as so averred, Quickturn denies each and every
allegation of paragraph 15 and its subparts.
16. Quickturn denies each and every allegation of paragraph 16.
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17. Quickturn admits that on August 11, 1998, Dr. Walden C. Rhines,
Mentor's Chief Executive Officer and President, met with Glen M. Antle,
Chairman of Quickturn's Board. Quickturn further admits that a letter from Dr.
Rhines was delivered to Quickturn outlining Mentor's proposal to acquire all
outstanding shares of Quickturn common stock. Quickturn further admits that Mr.
Antle stated that he would communicate the proposal to the Quickturn Board of
Directors. Except as expressly admitted, Quickturn denies each and every
allegation of paragraph 17.
18. Quickturn admits that on or about August 14, 1998, Rhines telephoned
Keith R. Lobo. Quickturn admits that Lobo indicated that he would communicate
Rhines' position to the Quickturn Board of Directors. Except as expressly
admitted, Quickturn denies each and every allegation of paragraph 18.
19. Quickturn avers that its August 24, 1998 announcement regarding
Mentor's tender offer speaks for itself. Except as so averred, Quickturn denies
each and every allegation of paragraph 19.
20. Quickturn admits that it did not accept Mentor's acquisition proposal.
Quickturn denies that Mentor's offer was not discussed. Quickturn is without
sufficient knowledge or information sufficient to form a belief as to the truth
of the allegations contained in paragraph 20 regarding the actions of Mentor;
and on that basis denies those allegations.
21. Quickturn avers that Section 2.3 of Quickturn's bylaws speaks for
itself. Except as so averred, Quickturn is without knowledge or information
sufficient to form a belief as to the truth of the allegations contained in
paragraph 21 regarding Mentor's
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purpose in soliciting agent designations or Mentor's actions, and on that basis
denies those allegations.
22. Quickturn avers that Section 14(a) of the Exchange Act, and the rules
and regulations promulgated thereunder, including Rule 14a-9, 17 C.F.R. (S)
240.14a-9, speak for themselves, and therefore no response is required. Except
as so averred, Quickturn denies each and every allegation of paragraph 22.
23. Quickturn denies the allegation that Mentor's "Agent Solicitation
Materials are in full compliance with Section 14(a) of the Exchange Act and the
rules and regulations promulgated thereunder by the SEC, including Rule 14a-9."
Quickturn further denies that the Agent Solicitation Materials contain all the
information required to be disclosed by applicable laws. Quickturn is without
knowledge or information sufficient to form a belief as to the truth of the
allegations contained in paragraph 23 regarding the actions of Mentor, and on
that basis denies those allegations.
23.a Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 23.a regarding
the actions of Mentor, and on that basis denies those allegations.
23.b Quickturn denies each and every allegation of paragraph 23.b.
23.c Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 23.c. regarding
the intent of Mentor, and on that basis denies those allegations.
23.d Quickturn denies each and every allegation of paragraph 23.d.
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23.e Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 23.e. regarding
the intent of Mentor, and on that basis denies the allegations.
24. Quickturn admits that Mentor has demanded that Quickturn produce a
list of its stockholders. Quickturn admits it responded to Mentor's request for
a list of stockholders and related materials on August 19, 1998, and stated that
the materials would be made available beginning at 12:00 noon on August 25,
1998. Except as expressly admitted, Quickturn is without knowledge or
information sufficient to form a belief as to the truth of the allegations
contained in paragraph 24 and on that basis denies those allegations.
25. Quickturn avers that section 14(d) of the Exchange Act and Rule 14d-9
and 17 C.F.R. (S) 240.14d-9 speak for themselves, and therefore no response is
required. Except as so averred, Quickturn denies each and every allegation of
paragraph 25.
26. Quickturn admits that on August 24, 1998, Quickturn filed a Schedule
14D-9 with the SEC. Quickturn avers that its Schedule 14D-9 speaks for itself,
and therefore no response is required. Except as specifically admitted,
Quickturn denies each and every allegation of paragraph 26.
27. Quickturn denies each and every allegation of paragraph 27.
27.a Quickturn avers that its Schedule 14D-9 speaks for itself, and
therefore no response is required. Except as so averred, Quickturn denies each
and every allegation of paragraph 27.a.
27.b Quickturn avers that its Schedule 14D-9 speaks for itself, and
therefore no response is required. Except as so averred, Quickturn denies each
and every allegation of paragraph 27.b.
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27.c Quickturn avers that its Schedule 14D-9 speaks for itself, and
therefore no response is required. Except as so averred, Quickturn denies each
and every allegation of paragraph 27.c.
27.d Quickturn avers that its Schedule 14D-9 speaks for itself, and
therefore no response is required. Except as so averred, Quickturn denies each
and every allegation of paragraph 27.d.
27.e Quickturn avers that its Schedule 14D-9 speaks for itself, and
therefore no response is required. Except as so averred, Quickturn denies each
and every allegation of paragraph 27.e.
27.f Quickturn avers that its Schedule 14D-9 speaks for itself, and
therefore no response is required. Except as so averred, Quickturn denies each
and every allegation of paragraph 27.f.
28. Quickturn admits that it issued a press release on August 24, 1998.
Quickturn avers that the press release speaks for itself, and therefore no
response is required. Except as specifically admitted, Quickturn denies each
and every allegation of paragraph 28.
28.a Quickturn admits that it issued a press release on August 24, 1998.
Quickturn avers that the press release speaks for itself, and therefore no
response is required. Except as specifically admitted, Quickturn denies each
and every allegation of paragraph 28.a.
28.b Quickturn admits that it issued a press release on August 24, 1998.
Quickturn avers that the press release speaks for itself, and therefore no
response is required. Except as specifically admitted, Quickturn denies each
and every allegation of paragraph 28.b.
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28.c Quickturn admits that it issued a press release on August 24, 1998.
Quickturn avers that the press release speaks for itself, and therefore no
response is required. Except as specifically admitted, Quickturn denies each
and every allegation of paragraph 28.c.
29. Quickturn incorporates by reference its responses to paragraphs 1-28
above as if fully set forth herein.
30. Quickturn avers that the Declaratory Judgment Act speaks for itself.
Except as so averred, Quickturn denies each and every allegation of paragraph
30.
31. Quickturn denies each and every allegation of paragraph 31.
32. Quickturn denies each and every allegation of paragraph 32.
33. Quickturn denies the allegations contained in paragraph 33 and denies
that the public disclosures and documents filed with the SEC by Mentor comply
fully with all applicable provisions of law.
34. Quickturn incorporates by reference its responses to paragraph 1
through 33 above as if fully set forth herein.
35. Quickturn avers that Rule 14d-9 and 17 C.F.R. (S) 240.14d-9 speak for
themselves, and therefore no response is required. Except as so averred,
Quickturn denies each and every allegation of paragraph 35.
36. Quickturn denies each and every allegation of paragraph 36.
37. Quickturn denies each and every allegation of paragraph 37.
38. Quickturn denies each and every allegation of paragraph 38.
39. Quickturn incorporates by reference its responses to paragraphs 1
through 38 above as if fully set forth herein.
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40. Quickturn avers that Section 14(e) of the Exchange Act speaks for
itself, and therefore no response is required. Except as so averred, Quickturn
denies each and every allegation of paragraph 35.
41. Quickturn denies each and every allegation of paragraph 41.
42. Quickturn denies each and every allegation of paragraph 42.
43. Quickturn denies each and every allegation of paragraph 43.
AFFIRMATIVE DEFENSES
--------------------
First Affirmative Defense
-------------------------
The complaint fails to state any claim upon which the relief requested can
be granted.
Second Affirmative Defense
--------------------------
This action is barred in whole or in part by the equitable doctrine of
unclean hands.
Third Affirmative Defense
-------------------------
The complaint fails to set forth or demonstrate the equitable prerequisites
to injunctive relief.
Fourth Affirmative Defense
--------------------------
The complaint is vague, uncertain, ambiguous and unintelligible.
COUNTERCLAIMS
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1. Pursuant to Rule 13(a) of the Federal Rules of Civil Procedure, and
without waiving any defenses set forth in its Answers and Defenses, Quickturn
Design Systems, Inc. ("Quickturn"), hereby makes and files the following
Counterclaims against counterdefendants Mentor Graphics and MGZ (collectively,
"Mentor").
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2. Quickturn makes these allegations upon knowledge as to its own acts,
and as to all other matters makes these allegations on information and belief
and investigation of counsel, including a review of documents filed with the
Securities and Exchange Commission, papers and proceedings filed with courts of
various jurisdictions, as well as articles and information available through the
media.
JURISDICTION AND VENUE
----------------------
3. This Court has jurisdiction over these Counterclaims under the
principle of ancillary jurisdiction because the claims herein arise out of the
same transaction or occurrence as the claims in Mentor's complaint. 28 U.S.C.
(S) 1367(a). Jurisdiction also exists under Section 27 of the Securities
Exchange Act of 1934 as amended, 15 U.S.C. (S) 78aa ("Exchange Act"), 28 U.S.C.
(S)(S) 1331 and 1337. The Counterclaims asserted herein arise under Section 14
of the 1934 Act, 15 U.S.C. (S)(S) 78n and the rules and regulations promulgated
thereunder.
4. Venue for these Counterclaims is proper in the United States District
Court for the District of Delaware, pursuant to 28 U.S.C. (S) 1391 and
principles of ancillary venue.
THE PARTIES
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5. Quickturn is a Delaware corporation, which designs, manufactures,
markets and supports products which verify the design of integrated circuits and
electronic systems. Quickturn has established a position as the leading
provider of emulation technology and a leader in cycle-based simulation, for the
integrated circuit design verification market, as well as a reputation in the
industry as a technological leader and innovator in this area. Quickturn's
proven technical expertise, reputation for high-quality worldwide customer
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service and support, and acknowledged quality manufacturing infrastructure have
all made the company a leader in its field.
6. Mentor Graphics is an Oregon corporation which manufactures,
markets and supports software and hardware Electronic Design Automation ("EDA")
products and provides related services which enable engineers to design,
analyze, simulate, model, implement and verify the components of electronic
systems. Mentor markets its products primarily to large companies in the
communications, computer, semiconductor, consumer electronics, aerospace and
transportation industries.
INTRODUCTION
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7. Mentor and Quickturn have been engaged in multiple patent infringement
lawsuits regarding their competing products over the last several years which
have resulted in findings that Mentor repeatedly has violated Quickturn's
intellectual property rights. Most recently on August 5, 1998, the Court of
Appeals for the Federal Circuit affirmed an order enjoining Mentor's U.S. sales
and marketing activities for several of its products which have been found to be
based upon Quickturn's intellectual property. Within a week of the Federal
Circuit's decision, in response to this (and other) rulings, Mentor commenced a
hostile tender offer for Quickturn. Mentor's offer is its latest attempt to
cover-up its infringement of Quickturn's intellectual property and also to
acquire the company without paying a fair price.
8. Mentor's offer is based upon a violation of the federal securities
laws. Specifically, Mentor conceals from Quickturn's shareholders, as well as
the market, the devastating impact on Mentor's business from rulings by at least
three different courts
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supporting Quickturn's claims that Mentor's products are based upon the theft of
Quickturn's intellectual property.
9. The result of these rulings, including decisions by (i) the
International Trade Commission, (ii) the United States Court of Appeals for the
Federal Circuit, and (iii) the United States District Court in Oregon, is that
Mentor's illegal and improper theft of Quickturn's intellectual property largely
has been halted. For Mentor, however, these rulings have been devastating; much
of Mentor's U.S. emulation activities, in particular its SimExpress product
line, have been predicated upon a plan to steal Quickturn's intellectual
property. Mentor cannot accomplish this goal as long as the legal rulings
remain in effect and Quickturn remains independent of Mentor.
10. Mentor's recently announced proposal to acquire Quickturn is nothing
more than an effort to buy on the cheap what it could not purloin. Mentor now
seeks to acquire Quickturn's intellectual property and the company as a whole
through a proposed two-step tender offer and cash-out merger. However, whether
recklessly or by design, Mentor's communication of its proposal to Quickturn
shareholders violates the federal securities laws. This is not surprising,
because the only possible way that Mentor can convince Quickturn's
shareholders -- and the market more generally -- to favorably consider Mentor's
inadequate offer is through material misstatements and/or omissions. These
misstatements and omissions, which appear throughout Mentor's required SEC
filings for its tender offer for Quickturn (the "Tender Offer"), as well as in
its purported "agency designation" and related proxy solicitation to replace
Quickturn's board of directors (the "Proxy Solicitation"), give Quickturn's
shareholders a false and misleading impression. Among the
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materially false and misleading statements and/or omissions made by Mentor in
connection with its Tender Offer and/or Proxy Solicitation are the following:
a. MENTOR FAILS TO DISCLOSE THE DEVASTATING IMPACT OF THE ADVERSE RULINGS
IN ITS VARIOUS PATENT LITIGATIONS WITH QUICKTURN.
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Mentor announced its offer just one week after the United States Court of
Appeals for the Federal Circuit affirmed the grant of a preliminary injunction
prohibiting sales and marketing of Mentor's SimExpress products in the United
States. Mentor's offer to acquire Quickturn resulted in large part from this
court ruling. Mentor recognizes that it may eventually be obligated to pay
enormous damages to Quickturn. In addition, Mentor recognizes that it cannot
achieve its projected substantial U.S. sales of its SimExpress products. Mentor
views this offer as its chance to: (i) avoid the damages it will owe Quickturn;
and (ii) to release its SimExpress products to the U.S. market. However, Mentor
has failed to disclose the value of each of these items, and thereby prevents
Quickturn's shareholders from becoming fully informed about the value of
Quickturn to Mentor, or the adequacy of Mentor's offer.
b. MENTOR FALSELY CLAIMS THAT ITS OFFER TO ACQUIRE QUICKTURN IS NOT
COERCIVE OR CONDITIONED ON MENTOR OBTAINING ADDITIONAL FINANCING.
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Mentor's proposed acquisition of Quickturn would require Mentor, as stated
in its SEC filings, to pay roughly $261 million. Mentor does not have $261
million in cash, and therefore claims to have obtained a $200 million unsecured
revolving credit facility to pay for the proposed acquisition of Quickturn's
shares. This facility is conditioned upon the nonexistence of any "Material
Adverse Effect" on Mentor's business. Yet while Mentor admits that the multiple
decisions against Mentor in the various intellectual property lawsuits between
Quickturn and Mentor "could have a material adverse effect" on Mentor's
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results of operations, Mentor falsely claims that its offer is not conditioned
on obtaining adequate financing. In fact, because Mentor may not be able to draw
down on its credit facility following an adverse judgment, or injunction,
Quickturn shareholders who do not tender into Mentor's so-called "all-cash"
offer may be stuck as minority shareholders in an entity controlled by Mentor,
while Mentor may be unable to complete the proposed "second-step" of its offer.
Thus, Mentor's representations that its offer is neither highly conditional nor
coercive are false.
c. MENTOR FAILS TO DISCLOSE ITS NOMINEES FOR THE QUICKTURN BOARD OF
DIRECTORS.
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Mentor's offer is conditioned upon Mentor obtaining control of Quickturn's
board, and Mentor's Proxy solicitation is a two-step process to accomplish this
objective. Specifically, Mentor proposes to (i) remove all eight of Quickturn's
current directors, (ii) reduce the size of Quickturn's board to five persons,
and (iii) place five new directors on Quickturn's board. Yet Mentor's proposed
nominees are not identified anywhere in Mentor's hundreds of pages of required
filings in connection with the Tender Offer and Proxy Solicitation. Rather, the
only information provided about these "stealth nominees" is that each (i)
allegedly is "not affiliated with Mentor;" and, (ii) despite the alleged
independence of these directors, Mentor will pay each nominee, just for being a
nominee, more than twice as much as what Quickturn pays board members to serve
as directors. Mentor's failure to identify its nominees, to explain the basis of
its representation that each will be independent, to explain why each director
needs to be paid twice as much as Quickturn's current directors just to stand
for election, deprives Quickturn shareholders of the most basic information
necessary to have available before they can consider Mentor's Proxy
Solicitation.
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d. MENTOR FALSELY CLAIMS THAT IT WAS WILLING TO NEGOTIATE A TRANSACTION.
--------------------------------------------------------------------
Mentor's statements in its Tender Offer and Proxy Solicitation are
affirmatively false in their assertions that Mentor was and is willing to
negotiate the proposed acquisition, when Mentor in fact had no intention of
doing so. Mentor has from the beginning planned to proceed with its Tender
Offer solely on its own terms, rather than through discussions to obtain a fair
price for Quickturn shareholders. For example, Mentor's August 11, 1998 letter
to Quickturn was not an attempt to negotiate, but a sham -- Mentor gave
Quickturn no opportunity to even consider the offer before it launched its
hostile takeover attempt.
11. These are just a few examples of the many false or misleading
statements and/or omissions contained in Mentor's Tender Offer and Proxy
Solicitation materials. The timing of Mentor's offer (on the heels of the
Federal Circuit ruling), the inadequate price, and the sheer number and extent
of Mentor's misrepresentations and omissions, demonstrate Mentor's intent to
mislead Quickturn's shareholders and to obtain Quickturn's intellectual property
at a bargain-basement price.
12. In fact, as detailed below, Mentor's offer is premised on its
violation of the federal securities laws, just as sales of Mentor's SimExpress
products are based on the violation of Quickturn's intellectual property rights.
Mentor's efforts to deceive Quickturn's shareholders are no more permissible or
appropriate than its attempt to misappropriate Quickturn's intellectual
property. Accordingly, and as described more fully below, Quickturn seeks to
enjoin Mentor's Tender Offer and Proxy Solicitation at least until such time as
Mentor complies with its disclosure obligations under the federal securities
laws, and after Quickturn's shareholders have the opportunity to consider the
true nature of Mentor's offer and assess Quickturn's value.
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BACKGROUND TO MENTOR'S OFFER
----------------------------
A. MENTOR'S UNSUCCESSFUL EFFORTS TO STEAL QUICKTURN'S INTELLECTUAL PROPERTY
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13. In January 1996, Quickturn filed a complaint with the International
Trade Commission ("ITC") in Washington, DC, seeking to stop the unfair
importation of logic emulation systems manufactured by Meta Systems ("Meta"), a
French subsidiary of Mentor Graphics. In the complaint, Quickturn alleges that
Mentor's hardware logic emulation systems infringe Quickturn's patents.
Quickturn sought and received in August 1996, temporary relief from the ITC in
the form of Temporary Exclusion and Temporary Cease and Desist Orders. The
Federal Circuit Court of Appeals affirmed the ITC's issuance of temporary relief
in August 1997. In December 1997, the ITC issued: (1) a Permanent Limited
Exclusion Order which permanently prohibits the importation of hardware logic
emulation system, subassemblies or components manufactured by Mentor Graphics
and/or Meta, and (2) a Permanent Cease and Desist Order permanently prohibiting
Mentor from, among other things, selling, offering for sale or advertising the
same hardware logic emulation devices, Mentor's SimExpress products. The ITC's
two orders remain in effect until April 28, 2009, the latest expiration date of
the Company's patents involved in the investigation.
14. Quickturn is also engaged in a federal district court case with Mentor
and Meta involving six of Quickturn's patents. Mentor and Meta are seeking a
declaratory judgment of noninfringement, invalidity and unenforceability of the
patents in dispute, and Quickturn has filed counteractions against Mentor and
Meta for infringement and threatened infringement of the six patents. On August
1, 1997, the U.S. District Court in Oregon
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<PAGE>
granted Quickturn's motion for a preliminary injunction against Mentor Graphics,
prohibiting its domestic emulation activities, namely, its SimExpress products.
15. The Federal Circuit Court of Appeals affirmed the Oregon District
Court's decision on August 5, 1998. The Oregon action is presently set for
trial in December 1998.
16. In August 1997, a preliminary injunction sought by Mentor's German
subsidiary, Mentor Graphics (Deutschland) GmbH, was issued by a regional court
in Munich, enjoining agents of Quickturn from making certain statements
concerning U.S. litigation matters between the companies. In May 1998, the
Munich district court set aside the preliminary injunction based on the failure
of Mentor's German subsidiary to advance its case within the six-month statutory
limitation.
17. In October 1997, Quickturn filed a complaint alleging infringement of
the German part of the Company's European Patent No. 0 437 491 B1 against Mentor
Graphics (Deutschland) GmbH, in the District Court of Dusseldorf. The main
court hearing for this matter is set for March 1999.
18. As a result of these patent lawsuits, Mentor may face substantial
liability to Quickturn, and in turn will be forced to pay Quickturn millions of
dollars in damages. Mentor also faces the potential loss of additional millions
as a result of its inability to sell its SimExpress product line in the United
States. Only Mentor knows the actual amounts it believes (i) it will owe
Quickturn in damages and (ii) the amount of lost profits it will lose as a
result of its inability to sell SimExpress products in the United States. Yet
nowhere in either its Tender Offer materials or Proxy Solicitation does Mentor
disclose either amount or indeed any analyses relating to these issues, despite
the fact that such information is clearly material to Quickturn shareholders as
they consider Mentor's offer and Proxy Solicitation.
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<PAGE>
B. MENTOR'S LATEST EFFORT TO STEAL QUICKTURN'S INTELLECTUAL PROPERTY -- THE
TENDER OFFER
----------------------------------------------------------------------------
19. As summarized above, Mentor has repeatedly sought to steal Quickturn's
intellectual property. Mentor's proposed takeover of Quickturn is yet another
such attempt.
20. On August 5, 1998, the Court of Appeals for the Federal Circuit
affirmed the Oregon District Court's Order enjoining the sales of SimExpress in
the United States. Less than a week later, Mentor's latest plan to acquire
Quickturn's intellectual property without properly compensating Quickturn and
its shareholders went into action.
21. On the evening of August 11, 1998, Quickturn's Chief Financial
Officer, Raymond Ostby received a call from a reporter with the Wall Street
Journal, who asked if Mr. Ostby would comment on a tender offer advertisement
that was scheduled to run in the next day's edition of the Wall Street Journal.
In the weeks and months prior to this call, Mentor had not stated any intention
to acquire Quickturn. In fact, Mentor's SEC filings indicate that the parties'
last discussion regarding a business combination was in 1995.
22. Later that evening, Walden C. Rhines, Mentor's President and Chief
Executive Officer, handed a letter to Glen Antle, Chairman of the Board of
Quickturn. The letter offered to purchase all outstanding shares of Quickturn
for the inadequate price of $12.125 per share.
23. Rhines immediately demanded to know whether Quickturn would accept the
offer. Mr. Antle responded that he did not have authority to do so, but would
communicate the offer to Quickturn's Board of Directors. Rhines refused to
allow any time to consider or review Mentor's proposal, or even to present it to
Quickturn's board, although Rhines knew that Mr. Antle could not make an
uninformed or hasty decision about Mentor's proposal.
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<PAGE>
Rhines informed Mr. Antle that Mentor had already determined to proceed with its
hostile tender offer.
24. Because Mentor knew that its offer was not in the best interests of
Quickturn's shareholders and suspected that Quickturn's board would reject the
inadequate offer, Mentor filed two lawsuits on August 12, 1998, designed at
least in part to force a hasty and uninformed decision by Quickturn's
shareholders. One of those lawsuits is the above-captioned lawsuit pending in
this court. The other is a complaint for declaratory and injunctive relief
filed in the Court of Chancery of the State of Delaware.
25. On that same day, August 12, Mentor publicly announced its cash tender
offer for all shares of Quickturn, and filed with the SEC a preliminary proxy
statement which, among other things, sought the solicitation of agent
designations for the purpose of calling a special meeting of Quickturn's
shareholders. Mentor filed its definitive Schedule 14A proxy solicitation on
August 20, 1998. The Proxy Solicitation and related Tender Offer filings are
the subject of Quickturn's counterclaims.
26. On August 21, 1998, Quickturn's Board of Directors met and considered
Mentor's tender offer. The Board of Directors voted to reject Mentor's offer.
Quickturn now brings these Counterclaims.
FIRST COUNTERCLAIM
------------------
(Violation of Section 14(a) Of The Exchange Act, 15 U.S.C. (S) 78n(a) and Rule
14a-9)
27. Quickturn realleges and incorporates herein by reference the
allegations of the Counterclaims contained in paragraphs 1 through 26 above,
inclusive, which are made on information and belief.
28. Quickturn is informed and believes, and on that basis alleges, that
Mentor knowingly, willfully, and intentionally engaged in a continuing scheme
and plan to defraud
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<PAGE>
Quickturn and its shareholders. Mentor conducted this scheme and plan through
the use of the mails and instrumentalities of interstate commerce in connection
with Mentor's hostile Tender Offer and Proxy Solicitation. In connection with
Mentor's Proxy Solicitation, Mentor has made false or misleading statements
and/or failed to disclose material facts required by the securities laws of the
United States, and the rules promulgated thereunder, rendering those statements
misleading.
29. In connection with Mentor's hostile Tender Offer and Proxy
Solicitation, Mentor filed with the SEC a proxy statement pursuant to Section
14(a) of the Exchange Act for transmittal to Quickturn's shareholders. The law
requires Mentor's statement to contain certain specific, detailed information
which Mentor has misstated or omitted.
30. In fact, Mentor admits in its proxy statement that it has failed to
furnish sufficient disclosures to Quickturn's shareholders, and explicitly
promises that Mentor will forward additional materials which "WILL CONTAIN
SIGNIFICANTLY MORE DETAILED INFORMATION CONCERNING THE PROPOSALS AND THE
PROPOSED ACQUISITION, INCLUDING RELEVANT PRO FORMA FINANCIAL INFORMATION."
31. Section 14(a) of the Exchange Act and Rule 14a-9 impose liability for
false and misleading statements and omissions in proxy solicitations. Mentor
has knowingly or recklessly violated these provisions in order to prevent
Quickturn's shareholders from discovering that Mentor's offering price is
inadequate, and to keep the shareholders from making a fully informed decision
about Mentor's offer.
32. For example, Mentor's Proxy Solicitation fails to disclose the cost to
Mentor of the various ongoing lawsuits between Mentor and Quickturn. Instead,
Mentor
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<PAGE>
misleadingly tries to downplay the extent of Mentor's exposure, implying that
Quickturn's damages would be limited to some small multiple of $3.5 million.
However, the true litigation exposure includes not only the damages Mentor may
owe Quickturn (which may be much larger than Mentor represents), but also
Mentor's loss of business resulting from the prohibition of U.S. sales of its
SimExpress products. Mentor's failure to disclose this material information
prevents Quickturn shareholders from understanding the value of Quickturn,
either as an independent company or as an acquisition target for Mentor. Until
this information is disclosed, Quickturn shareholders cannot meaningfully
evaluate Mentor's proxy solicitation. Mentor's failure to disclose the required
information renders the Proxy Solicitation false and misleading and violates
Rule 14a-9.
33. Mentor's failure to identify its proposed Nominees for the Quickturn
Board of Directors also renders the Proxy Solicitation false and misleading.
While Mentor states that a purpose of calling the special meeting is for Mentor
"to propose the election as directors of the Company of five Nominees," to
replace Quickturn's current board, Mentor fails to name those Nominees. This
omission violates the requirements of SEC Schedule 14A, which requires a proxy
statement to provide specific information, including the identity of nominees,
"[i]f action is to be taken with respect to the election of directors[.]"
Moreover, Mentor has failed to provide any of the required information
---
whatsoever regarding its "Nominees." Quickturn's shareholders have no way to
decide for themselves whether Mentor's Nominees would truly be independent,
qualified individuals who would observe their fiduciary duties to Quickturn and
its stockholders, or mere puppets under Mentor's domination and control.
Without this material information, Quickturn and
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its shareholders cannot make an informed decision regarding Mentor's
solicitation of designations for a special meeting and vote.
34. Mentor's proxy statement is also false and misleading with respect to
Mentor's proposed financing for the offer. Mentor, a company with reported
revenues of only $454.7 million during its last fiscal year, has indicated that
it plans to use a $200 million unsecured revolving credit facility to finance
its proposed "all-cash" $261 million acquisition of Quickturn. However, the
Proxy Solicitation is misleading as to this financing:
a. The Proxy Solicitation states that:
While an adverse judgment in this [Quickturn patent] litigation would
not affect Mentor Graphics' ability to borrow funds under the $200
million unsecured revolving credit facility obtained in connection
with the Offer, an adverse judgment could have a material adverse
effect on Mentor Graphics' results of operations in the applicable
period.
This statement simply is not true, given the conditions, covenants, and
representations of the credit facility, which appear to exclude costs of ongoing
litigation, but not adverse judgments or injunctions. Moreover, this blanket
assertion is misleading on its face. It is unlikely that a bank would permit
Mentor to draw against the credit facility if Mentor is required to pay damages
significant enough to have a "material adverse effect" on its business -- which
Mentor admits is a possibility. And despite its misleading attempt to downplay
its exposure, Mentor has no guarantee regarding the size of adverse judgment(s)
it might suffer in litigation with Quickturn.
b. Mentor's statement in its Proxy Solicitation that "[t]he Offer is
not conditioned on Purchaser obtaining financing" is also misleading, as Mentor
does not have the cash on hand to finance the proposed acquisition, and cannot
complete it without either meeting the conditions precedent to draw on the
credit facility or obtaining other financing.
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<PAGE>
35. The Proxy Solicitation's misleading statements and omissions about
Mentor's proposed financing are material, because they prevent Quickturn's
investors from making an informed decision about the adequacy of the offer. For
example, a reasonable investor would want to take into account that if Mentor
were to lose its ability to draw funds from the credit facility, it might not be
able to complete the "second step" of its offer, thus impairing the position of
Quickturn's non-tendering shareholders.
36. Other material omissions and misleading statements in Mentor's proxy
solicitation include, but are not limited to, the following:
a. Mentor's misrepresentations regarding its willingness to negotiate
a fair price for Quickturn shares. Contrary to statements in the Proxy
Solicitation, Mentor has pursued a hostile takeover route by refusing to allow
Quickturn's board to consider the offer before moving forward.
b. Mentor's misleading statement that the Quickturn board of
directors should be reduced in size from eight members to five because a
"smaller number of directors would be a more effective working group." Mentor
does not explain how five directors are a more effective working group than
eight. Mentor's unexplained choice of five directors is seemingly arbitrary:
if Mentor truly thinks that five directors is the proper number, why does the
Mentor board have six members? Quickturn is informed and believes and on that
basis alleges that Mentor desires a smaller number of directors in order to
facilitate Mentor's control over the proposed board, to the detriment of
Quickturn's other shareholders.
37. The foregoing material omissions and misstatements in the Proxy
Solicitation materials constitute an ongoing violation of Section 14(a) of the
Securities Exchange Act, 15 U.S.C. (S) 78n, and the rules and regulations
promulgated to enforce that section.
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<PAGE>
38. Unless Mentor is preliminarily and permanently enjoined from
continuing to violate Section 14(a), and the regulations promulgated thereunder,
Quickturn's current and potential shareholders will be unlawfully deprived of
critical information affecting decisions related to Mentor's agent designation
solicitation. In addition, Quickturn will suffer immense, irreparable injury in
the absence of injunctive relief in that, among other things, Quickturn and its
board of directors will be forced to expend scarce time and substantial
financial resources responding to Mentor's demand for a special shareholders'
meeting, demand for access to Quickturn shareholder information and its attempt
to remove Quickturn's board. Further, Mentor's continued dissemination of
materially misleading statements about Quickturn will cause irreparable harm to
Quickturn's relationships with its employees, customers and vendors by causing
uncertainty as to the financial stability and future economic viability of
Quickturn.
39. The injunctive relief requested would serve the public interest. It
will benefit Quickturn's public shareholders and the market as a whole by
requiring Mentor to conform its conduct to comply with federal securities laws,
rules, and regulations, and prevent Mentor from disseminating false and
misleading information to shareholders and the public.
SECOND COUNTERCLAIM
-------------------
(Violation of Section 14(d) Of The Securities Exchange Act, 15 U.S.C. (S)
78n(d))
40. Quickturn realleges and incorporates here by this reference each and
every allegation of the Counterclaims contained in Paragraphs 1 through 39,
inclusive, which are made on information and belief.
41. On August 12, 1998, Mentor filed with the SEC a Schedule 14D-1
relating to the Quickturn tender offer, which incorporated by reference, among
other things, Mentor's Offer to Purchase. The Schedule 14D-1 and the Offer to
Purchase were amended and
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<PAGE>
supplemented by Mentor on August 20, 1998. The Schedule 14D-1 and the Offer to
Purchase, as well as their amendments and supplements, are materially deficient
in violation of Section 14(d) of the Exchange Act and the rules and regulations
thereunder, by their failure to adequately disclose information required by
those provisions.
42. Mentor's response to Item 5(a) of the Schedule 14D-1 (including the
Introduction and Sections 11 and 13 of the Offer to Purchase to which its Item
5(a) response refers) fails to disclose adequately Mentor's attempt to
circumvent court orders prohibiting Mentor's U.S. sales of SimExpress products.
Instead, Mentor incorporates misleading statements implying that its only
concern is the ongoing costs associated with conducting the intellectual
property litigation between Mentor and Quickturn.
43. As explained above, Mentor's repeated losses in the intellectual
property litigation have crippled Mentor's ability to compete in emulation
technology in the United States. On information and belief, Mentor decided to
seek to acquire Quickturn only after Mentor lost its appeal of the Oregon
District Court's preliminary finding of likely infringement upon Quickturn's
patents. On information and belief, Mentor's analyses showed that an
acquisition of Quickturn would allow Mentor to re-enter the U.S. emulation
market, and thus Quickturn is worth a high price to Mentor -- certainly higher
than the current offer. Mentor's response to Item 5(a) violates Section 14(d)
and the rules and regulations thereunder because it omits these important,
material facts that Quickturn shareholders should consider in making a decision
regarding the Tender Offer.
44. Mentor's response to Item 10(b)-(c) of the Schedule 14D-1 (including
Section 15 of the Offer to Purchase to which its Item 10(b)-(c) response refers)
is rendered false and misleading by its statement that Mentor will not delay its
purchase of shares
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<PAGE>
tendered by Quickturn stockholders in connection with the Offer pending the
outcome of any action by a governmental authority. Mentor's statement creates a
dangerous false sense of security that its offer will not be coercive.
a. Mentor purports to make a non-coercive Offer by stating its intent
to offer the same price in the second-step merger transaction as that offered in
the first-step tender offer. However, in Section 15 of the Offer to Purchase,
Mentor states it will go ahead with the first-step purchases even in the absence
of any governmental approval required for the second-step merger. Taken
together, these two assertions render the Offer materials false and misleading.
b. While on the one hand Mentor seeks to assure that non-tendering
stockholders will receive the same cash price in the second-step merger
transaction, on the other hand, Mentor intends to embark on the first-step
tender offer without certainty that its Proposed Merger will be permitted to
occur. In fact, non-tendering stockholders may not have the opportunity to
dispose of their shares at the same cash price as that realized by tendering
stockholders in the Offer. The misleading impression created by these
statements violates Section 14(d) and the rules and regulations thereunder.
45. Mentor's response to Item 9 of Schedule 14D-1 (including Section 8 of
the Offer to Purchase to which its Item 9 response refers) also fails to
disclose sufficient financial information concerning Mentor, in violation of
Section 14(d) and applicable rules and regulations. For example, Mentor's
financial disclosures do not include the following information required to be
disclosed to make the statements not misleading:
a. The cost to Mentor of not being able to sell an emulation product
in the U.S. market due to the current court rulings;
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<PAGE>
b. Mentor's costs, expenses, and its liabilities other than short-
term borrowings and long-term debt and deferrals. This omitted financial
information would be material to Quickturn stockholders' tender decision,
especially given the highly leveraged nature of the proposed takeover ($200
million credit for a $261 million acquisition).
46. Mentor's response to Item 10(b)-(c) of the Schedule 14D-1 (including
Section 15 of the Offer to Purchase to which its Item 10(b)-(c) response refers)
violates Section 14(d) and applicable rules and regulations in that it fails to
disclose sufficient information concerning the applicability of foreign law to
Mentor's Offer. Mentor states only that foreign law may apply to the proposed
acquisition, without any mention of specific foreign countries in which
Quickturn does business or any analysis as to what, if any, foreign laws or
requirements might apply to the Offer and/or to the Proposed Merger. This
information is clearly called for by the instructions to Item 10(b)-(c) of the
Schedule 14D-1.
47. As a result of the foregoing material omissions by Mentor in its
Schedule 14D-1, Quickturn's stockholders are deprived of information that they
are entitled to receive in connection with Mentor's Offer under Section 14(d) of
the Exchange Act and the rules and regulations promulgated thereunder. As the
securities laws recognize, the unlawfully omitted information would be important
to stockholders in making the decision whether or not to tender their shares to
Mentor. The injunctive relief sought by Quickturn is therefore necessary (1) to
prevent Mentor from the continued execution of its unlawful tender offer; (2) to
preserve the integrity of the market for Quickturn's stock; and (3) to protect
Quickturn and its stockholders from Mentor's attempt to acquire Quickturn in a
manner which is violates the federal securities laws.
-27-
<PAGE>
THIRD COUNTERCLAIM
------------------
(Violation of Section 14(e) Of The Securities Exchange Act, 15 U.S.C. (S)
78n(e))
48. Quickturn realleges and incorporates here by this reference each and
every allegation of the Counterclaims, contained in Paragraphs 1 through 47,
inclusive, which are made on information and belief.
49. Quickturn is informed and believes, and on such basis alleges, that
Mentor knowingly and intentionally has engaged in a continuing plan and scheme
and conspiracy to defraud the investing public through the use of the mails and
other means and instrumentalities of interstate commerce in connection with its
Offer; has employed devices, schemes and artifices to defraud Quickturn and its
stockholders; and has omitted to state material facts necessary in order to make
the statements made, in light of the circumstances under which such statements
were made, not misleading. As detailed above, Mentor has failed to disclose,
and/or has inadequately disclosed, material information required to be disclosed
in the Schedule 14D-1 in connection with its Offer, as mandated by Section 14(d)
of the Exchange Act and the rules and regulations promulgated thereunder. These
material omissions were purposefully designed to mislead the investing public.
As such, Mentor has violated Section 14(e) of the Exchange Act and the rules and
regulations promulgated thereunder.
50. In addition to the material omissions detailed above, Mentor's
Schedule 14D-1 is false and misleading as follows:
a. Mentor's response to Item 10(e) of the Schedule 14D-1 (including
the Introduction and Sections 10 and 17 of the Offer to Purchase to which its
Item 10(e) response refers) is rendered false and misleading by its
understatement of the value and
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<PAGE>
benefits to Quickturn, as an independent company, of the patent litigation
currently pending between Mentor Graphics and Quickturn, as described above.
b. Mentor's response to Item 5(c) of the Schedule 14D-1 (including
the Introduction and Sections 11 and 13 of the Offer to Purchase to which its
Item 5(c) response refers) is false and misleading by its failure to disclose
sufficient information concerning its plans to change the size and composition
of the Quickturn board of directors. As explained above, the omission of this
material information creates a misleading impression as to Mentor's purposes,
and prevents Quickturn's shareholders from making an informed decision regarding
the adequacy of the offer.
c. The stockholders have no way of determining whether Mentor's
proposed slate of directors would contain qualified individuals who would
observe their fiduciary duties to Quickturn and its stockholders and not be mere
puppets under Mentor's domination and control.
d. Mentor's response to Item 10(b)-(c) of the Schedule 14D-1
(including Section 15 of the Offer to Purchase to which its Item 10(b)-(c)
response refers) is rendered false and misleading by its statement that Mentor
will not delay its purchase of shares tendered by Quickturn stockholders in
connection with the Offer pending the outcome of any action by a governmental
authority. As explained above, this creates the dangerous false impression that
Mentor's offer will not be coercive.
e. Mentor's Press Release dated August 12, 1998 (attached to the
Schedule 14D-1 as Exhibit (a)(7)) is misleading as to Mentor's financing for the
proposed acquisition, because it states that the Offer is "not subject to any
financing condition," when in fact Mentor's $200 million revolving credit
facility is subject to numerous financing
-29-
<PAGE>
covenants, conditions and representations to which Mentor's financing for its
Offer is subject.
f. Mentor's Introduction to the Offer to Purchase falsely implies
that Mentor attempted to negotiate the Offer with Quickturn, and Quickturn
immediately rejected the offer, even before Quickturn's board had considered the
proposal.
51. As a result of the foregoing material false and misleading statements
and omissions by Mentor in its Schedule 14D-1, Mentor's Offer materials are
unlawful under Section 14(e) of the Exchange Act and the rules and regulations
promulgated thereunder. As the securities laws recognize, the unlawfully false
and misleading and omitted information would be important to stockholders in
making the decision whether or not to tender their shares to Mentor. The
injunctive relief sought by Quickturn, is therefore necessary: (1) to prevent
Mentor from the continued execution of its unlawful tender offer; (2) to
preserve the integrity of the market for Quickturn's stock; and (3) to protect
Quickturn and its stockholders from Mentor's attempt to acquire Quickturn in a
manner which is violates the federal securities laws.
PRAYER FOR RELIEF
-----------------
WHEREFORE, Quickturn prays for relief as follows:
A. For judgment dismissing the complaint with prejudice;
B. For costs of suit and reasonable attorneys' fees, as allowed by law;
C. For such other and further relief as this Court deems just and proper.
WHEREFORE, Quickturn further requests:
A preliminary and permanent injunction that:
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<PAGE>
1. Requires Mentor to correct its filings under the Exchange Act to
conform to all applicable requirements of the law;
2. Bars Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from violating Sections 14(a), 14(d) or 14(e) of the Exchange Act and
the rules and regulations promulgated thereunder, including by making or
disseminating any further public statements relating to its proposed special
shareholders' meeting, proxy solicitation or Offer, or any of the other matters
mentioned in its Sections 14(a) and 14(d) filings or public statements related
thereto, and from purchasing any additional shares of Quickturn common stock and
from voting any Quickturn stock that it purports to own currently until at least
thirty (30) days after Mentor makes the required corrective disclosures;
3. Forbids Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from soliciting any agency designations or proxies related to
Quickturn, and voids any agency designations or proxies thus far delivered to
Mentor, until at least thirty (30) days after Mentor makes the required
corrective disclosures;
4. Enjoins Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from proceeding with the Offer, or acquiring or attempting to acquire
any further Quickturn stock, or taking or attempting to take any other steps to
acquire control of Quickturn, until at least thirty (30) days after Mentor has
made the required corrective disclosures;
5. Enjoins Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from
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<PAGE>
exercising or attempting to exercise influence or control over the business or
management of Quickturn until at least thirty (30) days after Mentor has made
the required corrective disclosures; and
6. Enjoins Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from making any false or misleading statements regarding Quickturn or
Quickturn shares;
E. A declaration that Mentor's demands, as stated in its Proxy
Solicitation and Tender Offer materials, violate the federal securities laws and
do not comport with Quickturn's Bylaws and that Quickturn is not required to
comply with such demands;
F. A declaration that Mentor's purported proxy solicitation of agency
designations is invalid and that any agency designations Mentor may receive as a
result of such solicitation are null and void;
G. An award of Quickturn's costs and disbursements, including reasonable
attorneys' fees in this action; and
H. Such other and further relief as the Court may deem just and proper.
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ William M. Lafferty
_____________________________________
Kenneth J. Nachbar (#2067)
William M. Lafferty (#2755)
Donna L. Culver (#2983)
1201 N. Market Street
P.O. Box 1347
Wilmington, DE 19899
(302) 658-9200
Attorneys for Counterclaimant
Quickturn Design Systems, Inc.
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<PAGE>
OF COUNSEL:
James A. DiBoise
David J. Berger
Wilson Sonsini Goodrich & Rosati, PC
650 Page Mill Road
Palo Alto, CA 94304-1050
(650) 493-9300
September 10, 1998
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<PAGE>
Exhibit 26
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MENTOR GRAPHICS CORPORATION, )
and MGZ CORP., )
)
Plaintiffs, )
)
v. ) Civil Action No. 98-473-RRM
)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Defendant. )
____________________________________)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Counterclaimant, )
)
v. )
)
MENTOR GRAPHICS CORPORATION )
and MGZ CORP., )
)
Counterclaim-defendants. )
MOTION FOR A TEMPORARY RESTRAINING ORDER
----------------------------------------
Pursuant to Fed. Rule Civ. Proc. 65, counterclaimant Quickturn Design
Systems, Inc. ("Quickturn"), hereby moves for a temporary restraining order
against counterclaim-defendants, Mentor Graphics Corporation and MGZ Corp.
(collectively, "Mentor"), as follows: (i) enjoining Mentor from distributing
any proxy materials purporting to call a special meeting of Quickturn
shareholders on October 29, 1998; (ii) requiring Mentor to correct the various
misstatements in its proxy materials, press releases and other statements to
Quickturn shareholders, and from further claiming that a Quickturn shareholders
meeting will be held on October 29, 1998; (iii) enjoining Mentor from all proxy
solicitation activities until 15 days after amended proxy materials are filed
with the SEC and Mentor has issued a press release which
<PAGE>
corrects its earlier misstatements; and (iv) enjoining Mentor from making any
further material misstatements of fact or omissions of material facts in any
communications with Quickturn's shareholders. The grounds for this motion are
set forth in Quickturn's memorandum of law in support of its motion for a
temporary restraining order which was served and filed contemporaneously with
this motion.
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ William M. Lafferty
_____________________________________
Kenneth J. Nachbar (#2067)
William M. Lafferty (#2755)
Donna L. Culver (#2983)
1201 N. Market Street
P.O. Box 1347
Wilmington, DE 19899
(302) 658-9200
Attorneys for Counterclaimant
Quickturn Design Systems, Inc.
OF COUNSEL:
James A. DiBoise
David J. Berger
Wilson Sonsini Goodrich & Rosati, PC
650 Page Mill Road
Palo Alto, CA 94304-1050
(650) 493-9300
September 14, 1998
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<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MENTOR GRAPHICS CORPORATION, )
and MGZ CORP., )
)
Plaintiffs, )
)
v. ) Civil Action No. 98-473-RRM
)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Defendant. )
____________________________________)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Counterclaimant, )
)
v. )
)
MENTOR GRAPHICS CORPORATION )
and MGZ CORP., )
)
Counterclaim-defendants. )
TEMPORARY RESTRAINING ORDER
---------------------------
The Court having considered counterclaimant Quickturn Design Systems, Inc.
("Quickturn")'s motion for a temporary restraining order and memorandum of law
in support thereof, and the amended counterclaim filed by Quickturn; and the
Court having heard counsel for the parties;
IT IS HEREBY ORDERED this __ day of September, 1998 that:
1. Counterclaim-defendants, Mentor Graphics Corporation and MGZ Corp.
(collectively, "Mentor") are enjoined, as follows:
(a) Mentor is prohibited from distributing any proxy materials
purporting to call a special meeting of Quickturn shareholders on October 29,
1998;
<PAGE>
(b) Mentor shall correct the various misstatements in its proxy
materials, press releases and other statements to Quickturn shareholders, and is
prohibited from further claiming that a Quickturn shareholders meeting will be
held on October 29, 1998;
(c) Mentor is enjoined from all proxy solicitation activities until 15
days after amended proxy materials are filed with the SEC and Mentor has issued
a press release which corrects its earlier misstatements; and
(d) Mentor is prohibited from making any further material
misstatements of fact or omissions of material facts in any communications with
Quickturn's shareholders.
2. The effectiveness of this Order is conditioned upon Quickturn filing a
bond in the amount of $_________, in a form satisfactory to the Court, in cash
or with surety, on or before September __, 1998 for payment of such costs or
expenses as may be incurred by Mentor should it later be determined that Mentor
has been wrongfully restrained.
_________________________________________
The Honorable Roderick R. McKelvie
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<PAGE>
EXHIBIT 27
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MENTOR GRAPHICS CORPORATION, )
and MGZ CORP., )
)
Plaintiffs, )
)
v. ) Civil Action No. 98-473-RRM
)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Defendant. )
__________________________________)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Counterclaimant, )
)
v. )
)
MENTOR GRAPHICS CORPORATION, )
MGZ CORP., WALDEN C. RHINES, )
GREGORY K. HINCKLEY, DEAN M. )
FREED, GIDEON ARGOV, SCOTT H. )
BICE, HARRY L. DEMOREST, )
C. SCOTT GIBSON and MICHAEL J.K. )
SAVAGE, )
)
Counterdefendants. )
AMENDED AND SUPPLEMENTAL COUNTERCLAIMS
--------------------------------------
Pursuant to Rule 13(a) of the Federal Rules of Civil Procedure, and without
waiving any defenses set forth in its Answers and Defenses, Quickturn Design
Systems, Inc. ("Quickturn"), hereby makes and files the following Counterclaims
against counterdefendants Mentor Graphics and MGZ (collectively, "Mentor").
1. Quickturn makes these allegations upon knowledge as to its own acts,
and as to all other matters makes these allegations on information and belief
and investigation of
<PAGE>
counsel, including a review of documents filed with the Securities and Exchange
Commission, papers and proceedings filed with courts of various jurisdictions,
as well as articles and information available through the media.
JURISDICTION AND VENUE
----------------------
2. This Court has jurisdiction over these Counterclaims under the
principle of ancillary jurisdiction because the claims herein arise out of the
same transaction or occurrence as the claims in Mentor's complaint. 28 U.S.C.
(S) 1367(a). Jurisdiction also exists under Section 27 of the Securities
Exchange Act of 1934 as amended, 15 U.S.C. (S) 78aa ("Exchange Act"), 28 U.S.C.
(S)(S) 1331 and 1337. The Counterclaims asserted herein arise under Section 14
of the 1934 Act, 15 U.S.C. (S)(S) 78n and the rules and regulations promulgated
thereunder.
3. Venue for these Counterclaims is proper in the United States District
Court for the District of Delaware, pursuant to 28 U.S.C. (S) 1391 and
principles of ancillary venue.
THE PARTIES
-----------
4. Quickturn is a Delaware corporation, which designs, manufactures,
markets and supports products which verify the design of integrated circuits and
electronic systems. Quickturn has established a position as the leading
provider of emulation technology and a leader in cycle-based simulation, for the
integrated circuit design verification market, as well as a reputation in the
industry as a technological leader and innovator in this area. Quickturn's
proven technical expertise, reputation for high-quality worldwide customer
service and support, and acknowledged quality manufacturing infrastructure have
all made the company a leader in its field.
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<PAGE>
5. Mentor Graphics is an Oregon corporation which manufactures, markets
and supports software and hardware Electronic Design Automation ("EDA") products
and provides related services which enable engineers to design, analyze,
simulate, model, implement and verify the components of electronic systems.
Mentor markets its products primarily to large companies in the communications,
computer, semiconductor, consumer electronics, aerospace and transportation
industries.
6. Walden C. Rhines, Gregory K. Hinckley and Dean M. Freed are executive
officers of Mentor who have participated in Mentor's solicitation of agent
designations and of proxies, including the wrongful acts alleged herein.
7. Gideon Argov, Scott H. Bice, Harry L. Demorest, C. Scott Gibson and
Michael J.K. Savage (the "Nominee Defendants") are each persons whom Mentor has
nominated to serve as its designees on the Board of Directors of Quickturn.
Each of the Nominee Defendants has participated in Mentor's solicitation of
proxies, including the wrongful acts alleged herein.
INTRODUCTION
------------
8. Mentor and Quickturn have been engaged in multiple patent infringement
lawsuits regarding their competing products over the last several years which
have resulted in findings that Mentor repeatedly has violated Quickturn's
intellectual property rights. Most recently on August 5, 1998, the Court of
Appeals for the Federal Circuit affirmed an order enjoining Mentor's U.S. sales
and marketing activities for several of its products which have been found to be
based upon Quickturn's intellectual property. Within a week of the Federal
Circuit's decision, in response to this (and other) rulings, Mentor commenced a
hostile tender offer for Quickturn. Mentor's offer is its latest attempt to
cover-up its
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<PAGE>
infringement of Quickturn's intellectual property and also to acquire the
company without paying a fair price.
9. Mentor's offer is based upon a violation of the federal securities
laws. Specifically, Mentor conceals from Quickturn's shareholders, as well as
the market, the devastating impact on Mentor's business from rulings by at least
three different courts supporting Quickturn's claims that Mentor's products are
based upon the theft of Quickturn's intellectual property.
10. The result of these rulings, including decisions by (i) the
International Trade Commission, (ii) the United States Court of Appeals for the
Federal Circuit, and (iii) the United States District Court in Oregon, is that
Mentor's illegal and improper theft of Quickturn's intellectual property largely
has been halted. For Mentor, however, these rulings have been devastating; much
of Mentor's U.S. emulation activities, in particular its SimExpress product
line, have been predicated upon a plan to steal Quickturn's intellectual
property. Mentor cannot accomplish this goal as long as the legal rulings
remain in effect and Quickturn remains independent of Mentor.
11. Mentor's recently announced proposal to acquire Quickturn is nothing
more than an effort to buy on the cheap what it could not purloin. Mentor now
seeks to acquire Quickturn's intellectual property and the company as a whole
through a proposed two-step tender offer and cash-out merger. However, whether
recklessly or by design, Mentor's communication of its proposal to Quickturn
shareholders violates the federal securities laws. This is not surprising,
because the only possible way that Mentor can convince Quickturn's shareholders
- --and the market more generally --to favorably consider Mentor's inadequate
offer is through material misstatements and/or omissions. These misstatements
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<PAGE>
and omissions, which appear throughout Mentor's required SEC filings for its
tender offer for Quickturn (the "Tender Offer"), as well as in its purported
"agency designation" and related proxy solicitation to replace Quickturn's board
of directors (the "Proxy Solicitation"), give Quickturn's shareholders a false
and misleading impression. Among the materially false and misleading statements
and/or omissions made by Mentor in connection with its Tender Offer and/or Proxy
Solicitation are the following:
a. MENTOR FAILS TO DISCLOSE THE DEVASTATING IMPACT OF THE ADVERSE RULINGS
IN ITS VARIOUS PATENT LITIGATIONS WITH QUICKTURN.
-------------------------------------------------
Mentor announced its offer just one week after the United States Court of
Appeals for the Federal Circuit affirmed the grant of a preliminary injunction
prohibiting sales and marketing of Mentor's SimExpress products in the United
States. Mentor's offer to acquire Quickturn resulted in large part from this
court ruling. Mentor recognizes that it may eventually be obligated to pay
enormous damages to Quickturn. In addition, Mentor recognizes that it cannot
achieve its projected substantial U.S. sales of its SimExpress products. Mentor
views this offer as its chance to: (i) avoid the damages it will owe Quickturn;
and (ii) to release its SimExpress products to the U.S. market. However, Mentor
has failed to disclose the value of each of these items, and thereby prevents
Quickturn's shareholders from becoming fully informed about the value of
Quickturn to Mentor, or the adequacy of Mentor's offer.
b. MENTOR FALSELY CLAIMS THAT ITS OFFER TO ACQUIRE QUICKTURN IS NOT
COERCIVE OR CONDITIONED ON MENTOR OBTAINING ADDITIONAL FINANCING.
-----------------------------------------------------------------
Mentor's proposed acquisition of Quickturn would require Mentor, as stated
in its SEC filings, to pay roughly $261 million. Mentor does not have $261
million in cash, and therefore claims to have obtained a $200 million unsecured
revolving credit facility to pay
-5-
<PAGE>
for the proposed acquisition of Quickturn's shares. This facility is conditioned
upon the nonexistence of any "Material Adverse Effect" on Mentor's business. Yet
while Mentor admits that the multiple decisions against Mentor in the various
intellectual property lawsuits between Quickturn and Mentor "could have a
material adverse effect" on Mentor's results of operations, Mentor falsely
claims that its offer is not conditioned on obtaining adequate financing. In
fact, because Mentor may not be able to draw down on its credit facility
following an adverse judgment, or injunction, Quickturn shareholders who do not
tender into Mentor's so-called "all-cash" offer may be stuck as minority
shareholders in an entity controlled by Mentor, while Mentor may be unable to
complete the proposed "second-step" of its offer. Thus, Mentor's representations
that its offer is neither highly conditional nor coercive are false.
c. MENTOR FAILS TO DISCLOSE ITS NOMINEES FOR THE QUICKTURN BOARD OF
DIRECTORS.
----------
Mentor's offer is conditioned upon Mentor obtaining control of Quickturn's
board, and Mentor's Proxy solicitation is a two-step process to accomplish this
objective. Specifically, Mentor proposes to (i) remove all eight of Quickturn's
current directors, (ii) reduce the size of Quickturn's board to five persons,
and (iii) place five new directors on Quickturn's board. Yet Mentor's proposed
nominees were not identified anywhere in Mentor's hundreds of pages of required
filings in connection with the Tender Offer and Proxy Solicitation. Rather, the
only information provided about these "stealth nominees" at the time of Mentor's
offer was that each (i) allegedly is "not affiliated with Mentor;" and, (ii)
despite the alleged independence of these directors, Mentor will pay each
nominee, just for being a nominee, more than twice as much as what Quickturn
pays board members to serve as directors. Mentor's failure to identify its
nominees in a timely manner, to explain the
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<PAGE>
basis of its representation that each will be independent, to explain why each
director needs to be paid twice as much as Quickturn's current directors just to
stand for election, deprives Quickturn shareholders of the most basic
information necessary to have available before they can consider Mentor's Proxy
Solicitation.
d. MENTOR FALSELY CLAIMS THAT IT WAS WILLING TO NEGOTIATE A TRANSACTION.
--------------------------------------------------------------------
Mentor's statements in its Tender Offer and Proxy Solicitation are
affirmatively false in their assertions that Mentor was and is willing to
negotiate the proposed acquisition, when Mentor in fact had no intention of
doing so. Mentor has from the beginning planned to proceed with its Tender
Offer solely on its own terms, rather than through discussions to obtain a fair
price for Quickturn shareholders. For example, Mentor's August 11, 1998 letter
to Quickturn was not an attempt to negotiate, but a sham -- Mentor gave
Quickturn no opportunity to even consider the offer before it launched its
hostile takeover attempt.
12. These are just a few examples of the many false or misleading
statements and/or omissions contained in Mentor's Tender Offer and Proxy
Solicitation materials. The timing of Mentor's offer (on the heels of the
Federal Circuit ruling), the inadequate price, and the sheer number and extent
of Mentor's misrepresentations and omissions, demonstrate Mentor's intent to
mislead Quickturn's shareholders and to obtain Quickturn's intellectual property
at a bargain-basement price.
13. In fact, as detailed below, Mentor's offer is premised on its
violation of the federal securities laws, just as sales of Mentor's SimExpress
products are based on the violation of Quickturn's intellectual property rights.
Mentor's efforts to deceive Quickturn's shareholders are no more permissible or
appropriate than its attempt to misappropriate Quickturn's intellectual
property. Accordingly, and as described more fully below,
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<PAGE>
Quickturn seeks to enjoin Mentor's Tender Offer and Proxy Solicitation at least
until such time as Mentor complies with its disclosure obligations under the
federal securities laws, and after Quickturn's shareholders have the opportunity
to consider the true nature of Mentor's offer and assess Quickturn's value.
BACKGROUND TO MENTOR'S OFFER
----------------------------
A. MENTOR'S UNSUCCESSFUL EFFORTS TO STEAL QUICKTURN'S INTELLECTUAL PROPERTY
------------------------------------------------------------------------
14. In January 1996, Quickturn filed a complaint with the International
Trade Commission ("ITC") in Washington, DC, seeking to stop the unfair
importation of logic emulation systems manufactured by Meta Systems ("Meta"), a
French subsidiary of Mentor Graphics. In the complaint, Quickturn alleges that
Mentor's hardware logic emulation systems infringe Quickturn's patents.
Quickturn sought and received in August 1996, temporary relief from the ITC in
the form of Temporary Exclusion and Temporary Cease and Desist Orders. The
Federal Circuit Court of Appeals affirmed the ITC's issuance of temporary relief
in August 1997. In December 1997, the ITC issued: (1) a Permanent Limited
Exclusion Order which permanently prohibits the importation of hardware logic
emulation system, subassemblies or components manufactured by Mentor Graphics
and/or Meta, and (2) a Permanent Cease and Desist Order permanently prohibiting
Mentor from, among other things, selling, offering for sale or advertising the
same hardware logic emulation devices, Mentor's SimExpress products. The ITC's
two orders remain in effect until April 28, 2009, the latest expiration date of
the Company's patents involved in the investigation.
15. Quickturn is also engaged in a federal district court case with Mentor
and Meta involving six of Quickturn's patents. Mentor and Meta are seeking a
declaratory
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<PAGE>
judgment of noninfringement, invalidity and unenforceability of the patents in
dispute, and Quickturn has filed counteractions against Mentor and Meta for
infringement and threatened infringement of the six patents. On August 1, 1997,
the U.S. District Court in Oregon granted Quickturn's motion for a preliminary
injunction against Mentor Graphics, prohibiting its domestic emulation
activities, namely, its SimExpress products.
16. The Federal Circuit Court of Appeals affirmed the Oregon District
Court's decision on August 5, 1998. The Oregon action is presently set for
trial in December 1998.
17. In August 1997, a preliminary injunction sought by Mentor's German
subsidiary, Mentor Graphics (Deutschland) GmbH, was issued by a regional court
in Munich, enjoining agents of Quickturn from making certain statements
concerning U.S. litigation matters between the companies. In May 1998, the
Munich district court set aside the preliminary injunction based on the failure
of Mentor's German subsidiary to advance its case within the six-month statutory
limitation.
18. In October 1997, Quickturn filed a complaint alleging infringement of
the German part of the Company's European Patent No. 0 437 491 B1 against Mentor
Graphics (Deutschland) GmbH, in the District Court of Dusseldorf. The main
court hearing for this matter is set for March 1999.
19. As a result of these patent lawsuits, Mentor may face substantial
liability to Quickturn, and in turn will be forced to pay Quickturn millions of
dollars in damages. Mentor also faces the potential loss of additional millions
as a result of its inability to sell its SimExpress product line in the United
States. Only Mentor knows the actual amounts it believes (i) it will owe
Quickturn in damages and (ii) the amount of lost profits it will lose as a
result of its inability to sell SimExpress products in the United States. Yet
nowhere in
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<PAGE>
either its Tender Offer materials or Proxy Solicitation does Mentor disclose
either amount or indeed any analyses relating to these issues, despite the fact
that such information is clearly material to Quickturn shareholders as they
consider Mentor's offer and Proxy Solicitation.
B. MENTOR'S LATEST EFFORT TO STEAL QUICKTURN'S INTELLECTUAL PROPERTY -- THE
TENDER OFFER
------------
20. As summarized above, Mentor has repeatedly sought to steal Quickturn's
intellectual property. Mentor's proposed takeover of Quickturn is yet another
such attempt.
21. On August 5, 1998, the Court of Appeals for the Federal Circuit
affirmed the Oregon District Court's Order enjoining the sales of SimExpress in
the United States. Less than a week later, Mentor's latest plan to acquire
Quickturn's intellectual property without properly compensating Quickturn and
its shareholders went into action.
22. On the evening of August 11, 1998, Quickturn's Chief Financial
Officer, Raymond Ostby received a call from a reporter with the Wall Street
Journal, who asked if Mr. Ostby would comment on a tender offer advertisement
that was scheduled to run in the next day's edition of the Wall Street Journal.
In the weeks and months prior to this call, Mentor had not stated any intention
to acquire Quickturn. In fact, Mentor's SEC filings indicate that the parties'
last discussion regarding a business combination was in 1995.
23. Later that evening, Walden C. Rhines, Mentor's President and Chief
Executive Officer, handed a letter to Glen Antle, Chairman of the Board of
Quickturn. The letter offered to purchase all outstanding shares of Quickturn
for the inadequate price of $12.125 per share.
24. Rhines immediately demanded to know whether Quickturn would accept the
offer. Mr. Antle responded that he did not have authority to do so, but would
communicate the offer to Quickturn's Board of Directors. Rhines refused to
allow any time to consider or
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<PAGE>
review Mentor's proposal, or even to present it to Quickturn's board, although
Rhines knew that Mr. Antle could not make an uninformed or hasty decision about
Mentor's proposal. Rhines informed Mr. Antle that Mentor had already determined
to proceed with its hostile tender offer.
25. Because Mentor knew that its offer was not in the best interests of
Quickturn's shareholders and suspected that Quickturn's board would reject the
inadequate offer, Mentor filed two lawsuits on August 12, 1998, designed at
least in part to force a hasty and uninformed decision by Quickturn's
shareholders. One of those lawsuits is the above-captioned lawsuit pending in
this court. The other is a complaint for declaratory and injunctive relief
filed in the Court of Chancery of the State of Delaware.
26. On that same day, August 12, Mentor publicly announced its cash tender
offer for all shares of Quickturn, and filed with the SEC a preliminary proxy
statement which, among other things, sought the solicitation of agent
designations for the purpose of calling a special meeting of Quickturn's
shareholders. Mentor filed its definitive Schedule 14A proxy solicitation on
August 20, 1998. The Proxy Solicitation and related Tender Offer filings are
the subject of Quickturn's counterclaims.
27. On August 21, 1998, Quickturn's Board of Directors met and considered
Mentor's tender offer. The Board of Directors voted to reject Mentor's offer.
Quickturn now brings these Counterclaims.
FIRST COUNTERCLAIM
------------------
(VIOLATION OF SECTION 14(a) OF THE EXCHANGE ACT, 15 U.S.C. (S) 78N(a) AND RULE
14a-9)
28. Quickturn realleges and incorporates herein by reference the
allegations of the Counterclaims contained in paragraphs 1 through 27 above,
inclusive, which are made on information and belief.
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<PAGE>
29. Quickturn is informed and believes, and on that basis alleges, that
Mentor knowingly, willfully, and intentionally engaged in a continuing scheme
and plan to defraud Quickturn and its shareholders. Mentor conducted this
scheme and plan through the use of the mails and instrumentalities of interstate
commerce in connection with Mentor's hostile Tender Offer and Proxy
Solicitation. In connection with Mentor's Proxy Solicitation, Mentor has made
false or misleading statements and/or failed to disclose material facts required
by the securities laws of the United States, and the rules promulgated
thereunder, rendering those statements misleading.
30. In connection with Mentor's hostile Tender Offer and Proxy
Solicitation, Mentor filed with the SEC a proxy statement pursuant to Section
14(a) of the Exchange Act for transmittal to Quickturn's shareholders. The law
requires Mentor's statement to contain certain specific, detailed information
which Mentor has misstated or omitted.
31. In fact, Mentor admits in its proxy statement that it has failed to
furnish sufficient disclosures to Quickturn's shareholders, and explicitly
promises that Mentor will forward additional materials which "WILL CONTAIN
SIGNIFICANTLY MORE DETAILED INFORMATION CONCERNING THE PROPOSALS AND THE
PROPOSED ACQUISITION, INCLUDING RELEVANT PRO FORMA FINANCIAL INFORMATION."
32. Section 14(a) of the Exchange Act and Rule 14a-9 impose liability for
false and misleading statements and omissions in proxy solicitations. Mentor
has knowingly or recklessly violated these provisions in order to prevent
Quickturn's shareholders from discovering that Mentor's offering price is
inadequate, and to keep the shareholders from making a fully informed decision
about Mentor's offer.
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<PAGE>
33. For example, Mentor's Proxy Solicitation fails to disclose the cost to
Mentor of the various ongoing lawsuits between Mentor and Quickturn. Instead,
Mentor misleadingly tries to downplay the extent of Mentor's exposure, implying
that Quickturn's damages would be limited to some small multiple of $3.5
million. However, the true litigation exposure includes not only the damages
Mentor may owe Quickturn (which may be much larger than Mentor represents), but
also Mentor's loss of business resulting from the prohibition of U.S. sales of
its SimExpress products. Mentor's failure to disclose this material information
prevents Quickturn shareholders from understanding the value of Quickturn,
either as an independent company or as an acquisition target for Mentor. Until
this information is disclosed, Quickturn shareholders cannot meaningfully
evaluate Mentor's proxy solicitation. Mentor's failure to disclose the required
information renders the Proxy Solicitation false and misleading and violates
Rule 14a-9.
34. Mentor's failure to identify its proposed Nominees for the Quickturn
Board of Directors also renders the Proxy Solicitation false and misleading.
While Mentor states that a purpose of calling the special meeting is for Mentor
"to propose the election as directors of the Company of five Nominees," to
replace Quickturn's current board, Mentor fails to name those Nominees. This
omission violates the requirements of SEC Schedule 14A, which requires a proxy
statement to provide specific information, including the identity of nominees,
"[i]f action is to be taken with respect to the election of directors[.]"
Moreover, Mentor has failed to provide any of the required information
---
whatsoever regarding its "Nominees." Quickturn's shareholders have no way to
decide for themselves whether Mentor's Nominees would truly be independent,
qualified individuals who would observe their fiduciary duties to Quickturn and
its stockholders, or mere puppets
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<PAGE>
under Mentor's domination and control. Without this material information,
Quickturn and its shareholders cannot make an informed decision regarding
Mentor's solicitation of designations for a special meeting and vote.
35. Mentor's proxy statement is also false and misleading with respect to
Mentor's proposed financing for the offer. Mentor, a company with reported
revenues of only $454.7 million during its last fiscal year, has indicated that
it plans to use a $200 million unsecured revolving credit facility to finance
its proposed "all-cash" $261 million acquisition of Quickturn. However, the
Proxy Solicitation is misleading as to this financing:
a. The Proxy Solicitation states that:
While an adverse judgment in this [Quickturn patent] litigation would
not affect Mentor Graphics' ability to borrow funds under the $200
million unsecured revolving credit facility obtained in connection
with the Offer, an adverse judgment could have a material adverse
effect on Mentor Graphics' results of operations in the applicable
period.
This statement simply is not true, given the conditions, covenants, and
representations of the credit facility, which appear to exclude costs of ongoing
litigation, but not adverse judgments or injunctions. Moreover, this blanket
assertion is misleading on its face. It is unlikely that a bank would permit
Mentor to draw against the credit facility if Mentor is required to pay damages
significant enough to have a "material adverse effect" on its business -- which
Mentor admits is a possibility. And despite its misleading attempt to downplay
its exposure, Mentor has no guarantee regarding the size of adverse judgment(s)
it might suffer in litigation with Quickturn.
b. Mentor's statement in its Proxy Solicitation that "[t]he Offer is
not conditioned on Purchaser obtaining financing" is also misleading, as Mentor
does not have
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<PAGE>
the cash on hand to finance the proposed acquisition, and cannot complete it
without either meeting the conditions precedent to draw on the credit facility
or obtaining other financing.
36. The Proxy Solicitation's misleading statements and omissions about
Mentor's proposed financing are material, because they prevent Quickturn's
investors from making an informed decision about the adequacy of the offer. For
example, a reasonable investor would want to take into account that if Mentor
were to lose its ability to draw funds from the credit facility, it might not be
able to complete the "second step" of its offer, thus impairing the position of
Quickturn's non-tendering shareholders.
37. Other material omissions and misleading statements in Mentor's proxy
solicitation include, but are not limited to, the following:
a. Mentor's misrepresentations regarding its willingness to negotiate
a fair price for Quickturn shares. Contrary to statements in the Proxy
Solicitation, Mentor has pursued a hostile takeover route by refusing to allow
Quickturn's board to consider the offer before moving forward.
b. Mentor's misleading statement that the Quickturn board of
directors should be reduced in size from eight members to five because a
"smaller number of directors would be a more effective working group." Mentor
does not explain how five directors are a more effective working group than
eight. Mentor's unexplained choice of five directors is seemingly arbitrary:
if Mentor truly thinks that five directors is the proper number, why does the
Mentor board have six members? Quickturn is informed and believes and on that
basis alleges that Mentor desires a smaller number of directors in order to
facilitate Mentor's control over the proposed board, to the detriment of
Quickturn's other shareholders.
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<PAGE>
38. On September 11, 1998, Mentor issued a press release stating that it
"has called a Special Meeting of the stockholders [of Quickturn] for October 29,
1998 . . . . The record date for Quickturn stockholders to be able to vote at
the Special Meeting is September 10, 1998."
39. The statements made in the press release described in paragraph 38
were blatantly false and misleading, and were deliberately intended to mislead
Quickturn's stockholders.
40. In fact, as Mentor well knows, but deliberately did not disclose,
under Quickturn's Bylaws, the Special Meeting of stockholders which it purported
to call could be held only at a time and date set by the directors of Quickturn,
which under the Bylaws would have to be between December 10, 1998 and December
20, 1998 (i.e., 90 to 100 days after holders purportedly requested such a
----
meeting). While Mentor's press release makes passing reference to Quickturn's
Bylaw, it makes no reference whatsoever upon the effect of the Bylaw on Mentor's
ability to call its Special Meeting for October 29 rather than the December 10
through 20, 1998 time period.
41. Similarly, Mentor's press release nowhere mentions that it has filed
suit in the Delaware Court of Chancery seeking to invalidate Quickturn's Special
Meeting Bylaw, and that its ability to hold any stockholders meeting prior to
December 10, 1998 is wholly contingent upon its success in that lawsuit. Nor
does Mentor mention the material fact that the Court has reserved October 7,
1998 as a date to hear a motion by Quickturn for summary judgment in Mentor's
Delaware Court of Chancery action, and that the Court has scheduled trial in
that action to be held during the October 19 through 23 time period.
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42. Finally, Mentor does not disclose that, even if it were to prevail in
its Court of Chancery litigation, it still would not be possible to hold a
meeting by the end of October, as the process for holding a meeting for a public
corporation listed on NASDAQ takes at least 40 days and thus, under the most
optimistic scenario for Mentor -- i.e., assuming an order on October 23
----
enjoining Quickturn's Bylaw amendment, which order is not appealed --Mentor
cannot hold the meeting before early December.
43. The foregoing material omissions and misstatements in the Proxy
Solicitation materials constitute an ongoing violation of Section 14(a) of the
Securities Exchange Act, 15 U.S.C. (S) 78n, and the rules and regulations
promulgated to enforce that section.
44. Unless Mentor is preliminarily and permanently enjoined from
continuing to violate Section 14(a), and the regulations promulgated thereunder,
Quickturn's current and potential shareholders will be unlawfully deprived of
critical information affecting decisions related to Mentor's agent designation
solicitation. In addition, Quickturn will suffer immense, irreparable injury in
the absence of injunctive relief in that, among other things, Quickturn and its
board of directors will be forced to expend scarce time and substantial
financial resources responding to Mentor's demand for a special shareholders'
meeting, demand for access to Quickturn shareholder information and its attempt
to remove Quickturn's board. Further, Mentor's continued dissemination of
materially misleading statements about Quickturn will cause irreparable harm to
Quickturn's relationships with its employees, customers and vendors by causing
uncertainty as to the financial stability and future economic viability of
Quickturn.
45. The injunctive relief requested would serve the public interest. It
will benefit Quickturn's public shareholders and the market as a whole by
requiring Mentor to conform
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<PAGE>
its conduct to comply with federal securities laws, rules, and regulations, and
prevent Mentor from disseminating false and misleading information to
shareholders and the public.
SECOND COUNTERCLAIM
-------------------
(VIOLATION OF SECTION 14(d) OF THE SECURITIES EXCHANGE ACT, 15 U.S.C. (S)
78N(d))
46. Quickturn realleges and incorporates here by this reference each and
every allegation of the Counterclaims contained in Paragraphs 1 through 45,
inclusive, which are made on information and belief.
47. August 12, 1998, Mentor filed with the SEC a Schedule 14D-1 relating
to the Quickturn tender offer, which incorporated by reference, among other
things, Mentor's Offer to Purchase. The Schedule 14D-1 and the Offer to
Purchase were amended and supplemented by Mentor on August 20, 1998. The
Schedule 14D-1 and the Offer to Purchase, as well as their amendments and
supplements, are materially deficient in violation of Section 14(d) of the
Exchange Act and the rules and regulations thereunder, by their failure to
adequately disclose information required by those provisions.
48. Mentor's response to Item 5(a) of the Schedule 14D-1 (including the
Introduction and Sections 11 and 13 of the Offer to Purchase to which its Item
5(a) response refers) fails to disclose adequately Mentor's attempt to
circumvent court orders prohibiting Mentor's U.S. sales of SimExpress products.
Instead, Mentor incorporates misleading statements implying that its only
concern is the ongoing costs associated with conducting the intellectual
property litigation between Mentor and Quickturn.
49. As explained above, Mentor's repeated losses in the intellectual
property litigation have crippled Mentor's ability to compete in emulation
technology in the United States. On information and belief, Mentor decided to
seek to acquire Quickturn only after Mentor lost its appeal of the Oregon
District Court's preliminary finding of likely
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<PAGE>
infringement upon Quickturn's patents. On information and belief, Mentor's
analyses showed that an acquisition of Quickturn would allow Mentor to re-enter
the U.S. emulation market, and thus Quickturn is worth a high price to Mentor --
certainly higher than the current offer. Mentor's response to Item 5(a) violates
Section 14(d) and the rules and regulations thereunder because it omits these
important, material facts that Quickturn shareholders should consider in making
a decision regarding the Tender Offer.
50. Mentor's response to Item 10(b)-(c) of the Schedule 14D-1 (including
Section 15 of the Offer to Purchase to which its Item 10(b)-(c) response refers)
is rendered false and misleading by its statement that Mentor will not delay its
purchase of shares tendered by Quickturn stockholders in connection with the
Offer pending the outcome of any action by a governmental authority. Mentor's
statement creates a dangerous false sense of security that its offer will not be
coercive.
a. Mentor purports to make a non-coercive Offer by stating its intent
to offer the same price in the second-step merger transaction as that offered in
the first-step tender offer. However, in Section 15 of the Offer to Purchase,
Mentor states it will go ahead with the first-step purchases even in the absence
of any governmental approval required for the second-step merger. Taken
together, these two assertions render the Offer materials false and misleading.
b. While on the one hand Mentor seeks to assure that non-tendering
stockholders will receive the same cash price in the second-step merger
transaction, on the other hand, Mentor intends to embark on the first-step
tender offer without certainty that its Proposed Merger will be permitted to
occur. In fact, non-tendering stockholders may not have the opportunity to
dispose of their shares at the same cash price as that realized by
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<PAGE>
tendering stockholders in the Offer. The misleading impression created by these
statements violates Section 14(d) and the rules and regulations thereunder.
51. Mentor's response to Item 9 of Schedule 14D-1 (including Section 8 of
the Offer to Purchase to which its Item 9 response refers) also fails to
disclose sufficient financial information concerning Mentor, in violation of
Section 14(d) and applicable rules and regulations. For example, Mentor's
financial disclosures do not include the following information required to be
disclosed to make the statements not misleading:
a. The cost to Mentor of not being able to sell an emulation product
in the U.S. market due to the current court rulings;
b. Mentor's costs, expenses, and its liabilities other than short-
term borrowings and long-term debt and deferrals. This omitted financial
information would be material to Quickturn stockholders' tender decision,
especially given the highly leveraged nature of the proposed takeover ($200
million credit for a $261 million acquisition).
52. Mentor's response to Item 10(b)-(c) of the Schedule 14D-1 (including
Section 15 of the Offer to Purchase to which its Item 10(b)-(c) response refers)
violates Section 14(d) and applicable rules and regulations in that it fails to
disclose sufficient information concerning the applicability of foreign law to
Mentor's Offer. Mentor states only that foreign law may apply to the proposed
acquisition, without any mention of specific foreign countries in which
Quickturn does business or any analysis as to what, if any, foreign laws or
requirements might apply to the Offer and/or to the Proposed Merger. This
information is clearly called for by the instructions to Item 10(b)-(c) of the
Schedule 14D-1.
53. As a result of the foregoing material omissions by Mentor in its
Schedule 14D-1, Quickturn's stockholders are deprived of information that they
are entitled to receive
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<PAGE>
in connection with Mentor's Offer under Section 14(d) of the Exchange Act and
the rules and regulations promulgated thereunder. As the securities laws
recognize, the unlawfully omitted information would be important to stockholders
in making the decision whether or not to tender their shares to Mentor. The
injunctive relief sought by Quickturn is therefore necessary (1) to prevent
Mentor from the continued execution of its unlawful tender offer; (2) to
preserve the integrity of the market for Quickturn's stock; and (3) to protect
Quickturn and its stockholders from Mentor's attempt to acquire Quickturn in a
manner which is violates the federal securities laws.
THIRD COUNTERCLAIM
------------------
(Violation of Section 14(e) Of The Securities Exchange Act, 15 U.S.C. (S)
78n(e))
54. Quickturn realleges and incorporates here by this reference each and
every allegation of the Counterclaims, contained in Paragraphs 1 through 53,
inclusive, which are made on information and belief.
55. Quickturn is informed and believes, and on such basis alleges, that
Mentor knowingly and intentionally has engaged in a continuing plan and scheme
and conspiracy to defraud the investing public through the use of the mails and
other means and instrumentalities of interstate commerce in connection with its
Offer; has employed devices, schemes and artifices to defraud Quickturn and its
stockholders; and has omitted to state material facts necessary in order to make
the statements made, in light of the circumstances under which such statements
were made, not misleading. As detailed above, Mentor has failed to disclose,
and/or has inadequately disclosed, material information required to be
disclosed in the Schedule 14D-1 in connection with its Offer, as mandated by
Section 14(d) of the Exchange Act and the rules and regulations promulgated
thereunder. These material omissions were purposefully designed to mislead the
investing public. As such, Mentor has
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<PAGE>
violated Section 14(e) of the Exchange Act and the rules and regulations
promulgated thereunder.
56. In addition to the material omissions detailed above, Mentor's
Schedule 14D-1 is false and misleading as follows:
a. Mentor's response to Item 10(e) of the Schedule 14D-1 (including
the Introduction and Sections 10 and 17 of the Offer to Purchase to which its
Item 10(e) response refers) is rendered false and misleading by its
understatement of the value and benefits to Quickturn, as an independent
company, of the patent litigation currently pending between Mentor Graphics and
Quickturn, as described above.
b. Mentor's response to Item 5(c) of the Schedule 14D-1 (including
the Introduction and Sections 11 and 13 of the Offer to Purchase to which its
Item 5(c) response refers) is false and misleading by its failure to disclose
sufficient information concerning its plans to change the size and composition
of the Quickturn board of directors. As explained above, the omission of this
material information creates a misleading impression as to Mentor's purposes,
and prevents Quickturn's shareholders from making an informed decision regarding
the adequacy of the offer.
c. The stockholders have no way of determining whether Mentor's
proposed slate of directors would contain qualified individuals who would
observe their fiduciary duties to Quickturn and its stockholders and not be mere
puppets under Mentor's domination and control.
d. Mentor's response to Item 10(b)-(c) of the Schedule 14D-1
(including Section 15 of the Offer to Purchase to which its Item 10(b)-(c)
response refers) is rendered false and misleading by its statement that Mentor
will not delay its purchase of shares
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<PAGE>
tendered by Quickturn stockholders in connection with the Offer pending the
outcome of any action by a governmental authority. As explained above, this
creates the dangerous false impression that Mentor's offer will not be coercive.
e. Mentor's Press Release dated August 12, 1998 (attached to the
Schedule 14D-1 as Exhibit (a)(7)) is misleading as to Mentor's financing for the
proposed acquisition, because it states that the Offer is "not subject to any
financing condition," when in fact Mentor's $200 million revolving credit
facility is subject to numerous financing covenants, conditions and
representations to which Mentor's financing for its Offer is subject.
f. Mentor's Introduction to the Offer to Purchase falsely implies
that Mentor attempted to negotiate the Offer with Quickturn, and Quickturn
immediately rejected the offer, even before Quickturn's board had considered the
proposal.
57. As a result of the foregoing material false and misleading statements
and omissions by Mentor in its Schedule 14D-1, Mentor's Offer materials are
unlawful under Section 14(e) of the Exchange Act and the rules and regulations
promulgated thereunder. As the securities laws recognize, the unlawfully false
and misleading and omitted information would be important to stockholders in
making the decision whether or not to tender their shares to Mentor. The
injunctive relief sought by Quickturn, is therefore necessary: (1) to prevent
Mentor from the continued execution of its unlawful tender offer; (2) to
preserve the integrity of the market for Quickturn's stock; and (3) to protect
Quickturn and its stockholders from Mentor's attempt to acquire Quickturn in a
manner which is violates the federal securities laws.
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<PAGE>
PRAYER FOR RELIEF
-----------------
WHEREFORE, Quickturn prays for relief as follows:
A. A temporary restraining order and a preliminary and permanent
injunction that:
1. Requires Mentor to correct its filings under the Exchange Act to
conform to all applicable requirements of the law;
2. Bars Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from violating Sections 14(a), 14(d) or 14(e) of the Exchange Act and
the rules and regulations promulgated thereunder, including by making or
disseminating any further public statements relating to its proposed special
shareholders' meeting, proxy solicitation or Offer, or any of the other matters
mentioned in its Sections 14(a) and 14(d) filings or public statements related
thereto, and from purchasing any additional shares of Quickturn common stock and
from voting any Quickturn stock that it purports to own currently until at least
thirty (30) days after Mentor makes the required corrective disclosures;
3. Forbids Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from soliciting any agency designations or proxies related to
Quickturn, and voids any agency designations or proxies thus far delivered to
Mentor, until at least thirty (30) days after Mentor makes the required
corrective disclosures;
4. Enjoins Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from proceeding with the Offer, or acquiring or attempting to acquire
any further Quickturn stock,
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<PAGE>
or taking or attempting to take any other steps to acquire control of Quickturn,
until at least thirty (30) days after Mentor has made the required corrective
disclosures;
5. Enjoins Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from exercising or attempting to exercise influence or control over the
business or management of Quickturn until at least thirty (30) days after Mentor
has made the required corrective disclosures; and
6. Enjoins Mentor and its officers, agents, servants, employees, and
attorneys, and those persons and entities in active concert of participation
with it, from making any false or misleading statements regarding Quickturn or
Quickturn shares;
B. A declaration that Mentor's demands, as stated in its Proxy
Solicitation and Tender Offer materials, violate the federal securities laws and
do not comport with Quickturn's Bylaws and that Quickturn is not required to
comply with such demands;
C. A declaration that Mentor's purported proxy solicitation of agency
designations is invalid and that any agency designations Mentor may receive as a
result of such solicitation are null and void;
D. An award of Quickturn's costs and disbursements, including reasonable
attorneys' fees in this action; and
E. Such other and further relief as the Court may deem just and proper.
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<PAGE>
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ Kenneth J. Nachbar
_____________________________________
Kenneth J. Nachbar (#2067)
William M. Lafferty (#2755)
Donna L. Culver (#2983)
1201 N. Market Street
P.O. Box 1347
Wilmington, DE 19899
(302) 658-9200
Attorneys for Counterclaimant
Quickturn Design Systems, Inc.
OF COUNSEL:
James A. DiBoise
David J. Berger
Wilson Sonsini Goodrich & Rosati, PC
650 Page Mill Road
Palo Alto, CA 94304-1050
(650) 493-9300
September 14, 1998
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<PAGE>
EXHIBIT 28
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, ) Civil Action No. 16584-NC
)
v. )
)
QUICKTURN DESIGN SYSTEMS, INC. )
GLEN M. ANTLE, KEITH R. LOBO, RICHARD )
C. ALBERDING, MICHAEL R. D'AMOUR, )
YEN-SON (PAUL) HUANG; DAVID K. LAM and )
CHARLES D. KISSNER, )
)
Defendants. )
ANSWER TO VERIFIED AMENDED COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
----------------------------------------
Quickturn Design Systems, Inc. ("Quickturn"), Keith R. Lobo, Glen M.
Antle, Richard C. Alberding, Michael R. D'Amour, Yen-Son (Paul) Huang, Dr. David
K. Lam, William A. Hasler, and Charles D. Kissner (collectively "Defendants")
answer the Verified Amended Complaint for Declaratory and Injunctive Relief of
Plaintiffs Mentor Graphics Corporation and MGZ Corp (collectively "Mentor
Graphics" or "Plaintiffs") as follows:
1. Defendants admit that on August 12, 1998, Mentor Graphics
announced a tender offer for outstanding shares of Quickturn common stock.
Defendants further admit that on August 12, 1998, Mentor Graphics filed with the
Securities and Exchange Commission ("SEC") preliminary proxy solicitation
materials. Except as expressly admitted, Defendants deny each and every
allegation in Paragraph 1.
<PAGE>
2. Defendants are without knowledge or information sufficient to form
a belief as to the truth of the allegations contained in Paragraph 2, and on
that basis deny each and every allegation contained therein.
3. Defendants admit that on August 24, 1998, the Quickturn Board
announced its rejection of Mentor Graphics' tender offer. Defendants aver that
Quickturn's August 24, 1998 press release and its Schedule 14D-9 filed with the
SEC on that same day speak for themselves. Except as expressly admitted or
averred, Defendants deny each and every allegation in Paragraph 3.
4. Defendants admit that in January 1996 the Quickturn Board adopted
a stockholders Rights Plan ("Rights Plan"). Defendants admit that after August
12, 1998, the Quickturn Board amended the Rights Plan. Defendants admit that
the original Rights Plan and the amendment thereto were not voted upon by
Quickturn's stockholders. Defendants aver that the Rights Plan and the amended
Rights Plan speak for themselves. Except as expressly admitted or averred,
Defendants deny each and every allegation in Paragraph 4.
5. Defendants aver that the tender offer speaks for itself. Except
as so averred, Defendants deny each and every allegation in Paragraph 5.
6. Defendants are without knowledge or information sufficient to form
a belief as to the truth of the allegations contained in Paragraph 6, and on
that basis deny each and every allegation contained therein.
7. Defendants are without knowledge or information sufficient to form
a belief as to the truth of the allegations contained in Paragraph 7, and on
that basis deny each and every allegation contained therein.
8. Defendants admit the allegations in Paragraph 8.
9. Defendants admit the allegations in Paragraph 9.
-2-
<PAGE>
10. Defendants admit the allegations in Paragraph 10.
11. Defendants aver that the Rights Plan speaks for itself. Except
as so averred, Defendants deny each and every allegation in Paragraph 11.
12. Defendants aver that the Rights Plan speaks for itself. Except
as so averred, Defendants deny each and every allegation in Paragraph 12.
13. Defendants aver that the Rights Plan speaks for itself. Except
as so averred, Defendants deny each and every allegation in Paragraph 13.
14. Defendants aver that the Rights Plan speaks for itself. Except
as so averred, Defendants deny each and every allegation in Paragraph 14.
15. Defendants aver that Quickturn's August 24, 1998 Schedule 14-D-9
speaks for itself. Except as so averred, Defendants deny each and every
allegation in Paragraph 15.
16. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the allegations contained in Paragraph 16, and
on that basis deny each and every allegation contained therein.
17. Defendants admit that Quickturn has not opted out of Section 203
of the Delaware General Corporation Law. Defendants aver that Section 203
speaks for itself. Except as expressly admitted or averred, Defendants deny
each and every allegation in Paragraph 17.
18. Defendants aver that Section 203 speaks for itself. Except as so
averred, Defendants deny each and every allegation in Paragraph 18.
19. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the allegations contained in Paragraph 19, and
on that basis deny each and every allegation contained therein.
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<PAGE>
20. Defendants aver that Section 2115 of the California General
Corporation Law speaks for itself. Except as so averred, Defendants deny each
and every allegation in Paragraph 20.
21. Defendants aver that Section 2115 speaks for itself. Defendants
admit that Quickturn has at least 800 stockholders. Except as so admitted or
averred, Defendants deny each and every allegation in Paragraph 21.
22. Defendants aver that Section 2115 and Section 1101(e) speak for
themselves. Except as so averred, defendants deny each and every allegation in
Paragraph 22.
23. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the allegations in Paragraph 23 regarding
Plaintiffs' beliefs, and on that basis deny each and every allegation in
Paragraph 23.
24. Defendants deny each and every allegation in Paragraph 24.
25. Defendants admit that on August 11, 1998, Walden Rhines presented
Mentor Graphics' tender offer to Defendant Antle. Defendants admit that
Defendant Antle stated to Rhines that Antle would communicate the offer to the
Quickturn Board. Except as expressly admitted, Defendants deny each and every
allegation in Paragraph 25.
26. Defendants admit that on or about August 14, 1998, Rhines
telephoned Defendant Lobo. Defendants admit that Defendant Lobo indicated that
he would communicate Rhines' position to the Quickturn Board. Except as
expressly admitted, Defendants deny each and every allegation in Paragraph 26.
27. Defendants admit that on August 24, 1998, Quickturn announced
that the Quickturn Board had rejected the tender offer. Defendants aver that
Quickturn's Schedule 14D-9 submitted to the SEC on August 24, 1998, speaks for
itself. Except as expressly admitted or averred, Defendants deny each and every
allegation in Paragraph 27.
-4-
<PAGE>
28. Defendants deny each and every allegation in Paragraph 28.
29. Defendants aver that Quickturn's August 24, 1998 Schedule 14D-9
and the Quickturn bylaws speak for themselves. Except as so averred, Defendants
deny each and every allegation in Paragraph 29.
30. Defendants aver that the amendment to the Rights Plan speaks for
itself. Except as so averred, Defendants deny each and every allegation in
Paragraph 30.
31. Defendants deny each and every allegation in Paragraph 31.
32. Defendants aver that Quickturn's August 24, 1998 Schedule 14D-9
speaks for itself. Except as so averred, Defendants deny each and every
allegation in Paragraph 32.
33. Defendants deny each and every allegation in Paragraph 33.
34. Defendants admit that Mentor Graphics filed with the SEC on
August 12, 1998 preliminary proxy solicitation materials. Defendants further
admit that Mentor Graphics filed definitive proxy solicitation materials with
the SEC on August 20, 1998. Defendants are without knowledge or information
sufficient to form a belief as to the truth of the allegations concerning Mentor
Graphics intentions, and on that basis deny each and every allegation in
Paragraph 34, except as expressly admitted.
35. Defendants aver that Section 2.3 of Quickturn's bylaws speaks for
itself. Defendants are without knowledge or information sufficient to form a
belief as to the truth of the allegations in Paragraph 35 regarding Mentor
Graphics' knowledge or expectations, and on that basis deny each and every
allegation contained therein.
36. Defendants deny each and every allegation in Paragraph 36.
37. Defendants admit that Mentor Graphics demanded Quickturn produce
a list of stockholders and related stock list materials on August 12, 1998.
Defendants admitted that Quickturn responded to the demand on August 19, 1998,
and stated that the stock list materials
-5-
<PAGE>
would be made available at noon on August 25, 1998. Except as expressly
admitted, Defendants deny each and every allegation in Paragraph 37.
38. Defendants deny each and every allegation in Paragraph 38.
39. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the allegations contained in Paragraph 39
regarding Mentor Graphics' beliefs and intentions, and on that basis deny each
and every allegation contained therein.
40. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the allegations contained in Paragraph 40
regarding Mentor Graphics' intentions, and on that basis deny each and every
allegation contained therein.
41. Defendants are without knowledge or information sufficient to
form a belief as to the truth of the allegations contained in Paragraph 41
regarding Mentor Graphics' beliefs, and on that basis deny each and every
allegation contained therein.
42. Defendants deny each and every allegation in Paragraph 42.
43. Defendants deny each and every allegation in Paragraph 43.
44. Defendants incorporate by reference their answers to Paragraph 1
through 43 above as if fully set forth herein.
45. To the extent that the allegations in paragraph 45 assert legal
conclusions, no responsive pleading is required. To the extent a responsive
pleading is deemed required, the Individual Defendants admit they owe
Quickturn's stockholders fiduciary duties. However, except as expressly
admitted, Defendants deny each and every allegation in Paragraph 45.
46. Defendants deny each and every allegation in Paragraph 46.
47. Defendants deny each and every allegation in Paragraph 47.
48. Defendants deny each and every allegation in Paragraph 48.
49. Defendants deny each and every allegation in Paragraph 49.
-6-
<PAGE>
50. Defendants deny each and every allegation in Paragraph 50.
51. Defendants incorporate by reference their answers to Paragraphs 1
through 50 above as if fully set forth herein.
52. To the extent that the allegations in paragraph 52 assert legal
conclusions, no responsive pleading is required. To the extent a responsive
pleading is deemed required, the Individual Defendants admit they owe
Quickturn's stockholders fiduciary duties. However, except as expressly
admitted, Defendants deny each and every allegation in Paragraph 52.
53. Defendants aver that Section 203 speaks for itself. Except as so
averred, Defendants deny each and every allegation in Paragraph 53.
54. Defendants deny each and every allegation in Paragraph 54.
55. Defendants deny each and every allegation in Paragraph 55.
56. Defendants deny each and every allegation in Paragraph 56.
57. Defendants incorporate by reference their answers to Paragraph 1
through 56 above as if fully set forth herein.
58. To the extent that the allegations in paragraph 58 assert legal
conclusions, no responsive pleading is required. To the extent a responsive
pleading is deemed required, the Individual Defendants admit they owe
Quickturn's stockholders fiduciary duties. However, except as expressly
admitted, Defendants deny each and every allegation in Paragraph 58.
59. Defendants deny each and every allegation in Paragraph 59.
60. Defendants deny each and every allegation in Paragraph 60.
61. Defendants deny each and every allegation in Paragraph 61.
62. Defendants incorporate by reference their answers to Paragraphs 1
through 61 above as if fully set forth herein.
-7-
<PAGE>
63. To the extent that the allegations in paragraph 63 assert legal
conclusions, no responsive pleading is required. To the extent a responsive
pleading is deemed required, the Individual Defendants admit they owe
Quickturn's stockholders fiduciary duties. However, except as expressly
admitted, Defendants deny each and every allegation in Paragraph 63.
64. Defendants deny each and every allegation in Paragraph 64.
65. Defendants deny each and every allegation in Paragraph 65.
66. Defendants deny each and every allegation in Paragraph 66.
67. Defendants deny each and every allegation in Paragraph 67.
68. Defendants deny each and every allegation in Paragraph 68.
69. Defendants incorporate by reference their answers to Paragraphs 1
through 68 above as if fully set forth herein.
70. To the extent that the allegations in paragraph 70 assert legal
conclusions, no responsive pleading is required. To the extent a responsive
pleading is deemed required, the Individual Defendants admit they owe
Quickturn's stockholders fiduciary duties. However, except as expressly
admitted, Defendants deny each and every allegation in Paragraph 70.
71. Defendants deny each and every allegation in Paragraph 71.
72. Defendants deny each and every allegation in Paragraph 72.
73. Defendants deny each and every allegation in Paragraph 73.
74. Defendants incorporate by reference their answers to Paragraphs 1
through 73 above as if fully set forth herein.
75. To the extent that the allegations in paragraph 75 assert legal
conclusions, no responsive pleading is required. To the extent a responsive
pleading is deemed required, the Individual Defendants admit they owe
Quickturn's stockholders fiduciary duties. However, except as expressly
admitted, Defendants deny each and every allegation in Paragraph 75.
-8-
<PAGE>
76. Defendants deny each and every allegation in Paragraph 76.
77. Defendants deny each and every allegation in Paragraph 77.
AFFIRMATIVE DEFENSES
--------------------
First Affirmative Defense
-------------------------
The amended complaint fails to state any claim upon which the relief
requested can be granted.
Second Affirmative Defense
--------------------------
This action is barred in whole or in part by the equitable doctrine of
unclean hands.
Third Affirmative Defense
-------------------------
The amended complaint fails to set forth or demonstrate the equitable
prerequisites to injunctive relief.
Fourth Affirmative Defense
--------------------------
The amended complaint is vague, uncertain, ambiguous and
unintelligible.
-9-
<PAGE>
MORRIS NICHOLS ARSHT & TUNNELL
/s/ William M. Lafferty
------------------------------
Kenneth J. Nachbar
William M. Lafferty
1201 N. Market Street
P.O. Box 1347
Wilmington, DE 19899
(302) 658-9200
Attorneys for Defendants
Quickturn Design Systems, Inc., Keith R.
Lobo, Glen M. Antle, Richard C.
Alberding, Michael R. D'Amour, Yen-Son
(Paul) Huang, Dr. David K. Lam,
William A. Hasler, and Charles D. Kissner
OF COUNSEL:
James A. DiBoise
David J. Berger
Wilson Sonsini Goodrich & Rosati, PC
650 Page Mill Road
Palo Alto, CA 94304-1050
(650) 493-9300
September 14, 1998
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<PAGE>
CERTIFICATE OF SERVICE
----------------------
I hereby certify that on this 14th day of September, 1998, a copy of
the foregoing Answer to the Verified Amended Complaint for Declaratory and
Injunctive Relief was served upon the following counsel of record:
VIA HAND DELIVERY
-----------------
Kevin G. Abrams, Esquire
Richards, Layton & Finger
One Rodney Square
Wilmington, DE 19899
Norman M. Monhait, Esquire
Rosenthal, Monhait, Gross & Goddess, P.A.
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19899
VIA OVERNIGHT MAIL
------------------
Christopher L. Kaufman
Latham & Watkins
75 Willow Road
Menlo Park, CA 94025
______________________________
William M. Lafferty
-11-
<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[X] Preliminary proxy statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
QUICKTURN DESIGN SYSTEMS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
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PRELIMINARY PROXY REVOCATION MATERIALS
SUBJECT TO COMPLETION DATED SEPTEMBER , 1998
QUICKTURN DESIGN SYSTEMS, INC.
55 WEST TRIMBLE ROAD
SAN JOSE, CALIFORNIA 95131
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SPECIAL MEETING OF STOCKHOLDERS
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PROXY REVOCATION STATEMENT
BY
THE BOARD OF DIRECTORS OF QUICKTURN DESIGN SYSTEMS, INC.
SOLICITING PROXY REVOCATIONS IN OPPOSITION TO THE
SOLICITATION OF PROXIES BY MENTOR GRAPHICS CORPORATION AND MGZ CORP.
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This Proxy Revocation Statement (the "Statement") is furnished by the Board
of Directors (herein referred to as the "Board" or the "Board of Directors")
of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), to
the holders of outstanding shares of the Company's Common Stock, $0.001 par
value (the "Shares"), in connection with the Board's solicitation of proxy
revocations in opposition to the solicitation (the "Mentor Solicitation") by
Mentor Graphics Corporation, an Oregon corporation ("Mentor"), and MGZ Corp.,
a Delaware corporation and a wholly owned subsidiary of Mentor ("MGZ"),
pursuant to a Proxy Statement of Mentor and MGZ (the "Mentor Proxy Statement")
dated September 11, 1998, of proxies to be used at a special meeting of
stockholders of the Company called by Mentor and any adjournments and
postponements thereof (the "Special Meeting").
Although Mentor purports to have called a special meeting for October 29,
1998, the validity and legality of Mentor's attempt to call the Special
Meeting and Mentor's ability to set the record date, place and time of the
Special Meeting are currently the subject of litigation between the Company
and Mentor. Hearings on these matters are currently scheduled for October
1998. See "Certain Legal Proceedings." Subject to the resolution of certain of
these matters in this litigation, the Board shall schedule the date for the
Special Meeting pursuant to the Company's bylaws (the "Bylaws"), which provide
that the Board shall determine a time for the Special Meeting which is not
less than 90 nor more than 100 days after the receipt and determination of the
validity of a request for such Special Meeting.
YOUR BOARD OF DIRECTORS OPPOSES THE MENTOR SOLICITATION AND URGES YOU NOT TO
SIGN OR RETURN ANY GOLD PROXY CARDS SENT TO YOU BY MENTOR OR MGZ.
Proxy revocations are being solicited by your Board in order to prevent
Mentor and MGZ from taking control of the Company. At the Special Meeting,
stockholders will be asked to consider and vote upon four proposals by Mentor
and MGZ (the "Mentor Proposals"). We urge you to join us in opposing (i) the
proposed removal of all of the current members of the Board (the "Removal
Proposal"); (ii) the proposed amendment of the Company's Bylaws to reduce the
number of directors of the Company to five (the "Bylaw Amendment Proposal");
(iii) the election of five Mentor nominees to the Board (the "Election
Proposal"); and (iv) the proposed repeal of certain amendments to the
Company's Bylaws (the "Bylaw Repeal Proposal"), each as described in the
Mentor Proxy Statement.
This Statement and the enclosed form of Proxy Revocation are first being
sent or given to stockholders on or about September , 1998.
The Board of Directors believes that the Mentor Proposals are in furtherance
of Mentor's attempt to acquire the Company by means of an unsolicited tender
offer to acquire all outstanding Shares at a purchase price of $12.125 per
Share (the "Mentor Offer") followed by a proposed second-step merger (the
"Mentor Proposed Transaction"). See "Background of the Special Meeting."
THE BOARD HAS DETERMINED THAT THE MENTOR OFFER IS INADEQUATE AND NOT IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS. THE BOARD OF DIRECTORS
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OPPOSES THE MENTOR PROPOSALS AND URGES YOU TO (A) SIGN, DATE AND RETURN THE
ENCLOSED BLUE PROXY REVOCATION CARD TO VOTE AGAINST THE MENTOR PROPOSALS AND
(B) DISCARD ANY GOLD PROXY CARD SENT TO YOU BY MENTOR AND MGZ.
WHETHER OR NOT YOU HAVE PREVIOUSLY EXECUTED A GOLD PROXY CARD, THE BOARD OF
DIRECTORS URGES YOU TO SIGN, DATE, AND DELIVER THE ENCLOSED BLUE PROXY
REVOCATION CARD AS PROMPTLY AS POSSIBLE, BY FAX OR BY MAIL (USING THE ENCLOSED
ENVELOPE), TO MORROW & CO., INC., 909 THIRD AVENUE, 20TH FLOOR, NEW YORK, NEW
YORK, 10022, FAX: (212) 754-8362.
IF YOU HAVE PREVIOUSLY SIGNED AND RETURNED A GOLD PROXY CARD TO MENTOR AND
MGZ, YOU HAVE EVERY RIGHT TO CHANGE YOUR MIND. WHETHER OR NOT YOU SIGNED THE
GOLD PROXY CARD SENT TO YOU BY MENTOR AND MGZ, THIS BOARD OF DIRECTORS URGES
YOU TO REJECT THE MENTOR PROPOSALS BY SIGNING, DATING AND RETURNING THE
ENCLOSED BLUE PROXY REVOCATION CARD BY FAX OR IN THE POSTAGE-PAID ENVELOPE
PROVIDED. REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR REVOCATION OF PROXY
IS IMPORTANT. PLEASE ACT TODAY.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE, WE
URGE YOU TO CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND DIRECT HIM OR
HER TO REVOKE ANY GOLD PROXY CARDS THAT MAY HAVE BEEN CAST AND TO EXECUTE AND
RETURN A BLUE PROXY REVOCATION CARD ON YOUR BEHALF.
If you have any questions concerning the Company's solicitation of BLUE
Proxy Revocation cards, or Mentor and MGZ's solicitation of gold proxy cards,
please contact our information agent:
MORROW & CO., INC.
445 PARK AVENUE
NEW YORK, NEW YORK 10022
OR
CALL TOLL-FREE: (800) 566-9061
FAX: (212) 754-8300
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BACKGROUND OF THE SPECIAL MEETING
Prior to August 11, 1998, there had been no discussions between the Company
and Mentor regarding a potential business combination for more than two years.
At approximately 7:00 pm P.D.T. on August 11, 1998, Mr. Raymond Ostby, Chief
Financial Officer of the Company, received a telephone call from a Wall Street
Journal reporter requesting comment on an advertisement which was scheduled to
appear the next morning, commencing the Mentor Offer. Mr. Ostby declined to
comment. Later that evening, Mr. Glen Antle, Chairman of the Board was given a
letter by Mr. Walden Rhines, Chief Executive Officer and President of Mentor,
stating the principal terms of the Mentor Offer. Mr. Rhines asked Mr. Antle to
accept the Mentor Offer. Mr. Antle said that he was not authorized by the
Board to accept such an offer, but that he would communicate it to the
Company's Board.
On August 12, 1998, Mentor and MGZ commenced the Mentor Offer. In response,
the Company announced that the Board would study the Mentor Offer and make its
recommendation to stockholders in due course. The Company urged all its
stockholders to take no action with respect to the Mentor Offer and any
related activities until the Company's Board made its recommendation. The
Board held a meeting on each of August 13, 1998 and August 17, 1998. At such
meetings, the Board met with senior management of the Company and its
financial and legal advisors and considered the Mentor Offer and various
matters related thereto, including presentations by the Company's senior
management and financial advisers, Hambrecht & Quist LLC ("Hambrecht &
Quist"), on the terms of the Mentor Offer, the Company's financial
performance, business strategy and business plan, and certain analyses
regarding the foregoing.
On August 14, 1998, Mr. Lobo received a telephone call from Mr. Rhines. Mr.
Rhines offered to discuss the Mentor Offer with Mr. Lobo, including future
prospects for key management and employees of the Company. Mr. Lobo stated
that he would convey Mr. Rhines' comments to the Company's Board. No further
discussions between Mr. Lobo and Mr. Rhines have occurred since that time.
On or about August 20, 1998, Mentor began soliciting purported agent
designations to call the Special Meeting.
On August 21, 1998, the Board held a further meeting, at which the Board
again reviewed and considered the Mentor Offer and related matters in
consultation with its financial and legal advisors. Additional presentations
were made by the Company's senior management concerning the Company's business
plan, and by Hambrecht & Quist concerning analyses of the Mentor Offer. At the
conclusion of its presentations, Hambrecht & Quist provided to the Board its
opinion, as of August 21, 1998, that the Mentor Offer was inadequate, from a
financial point of view, to the holders of the Shares. After further review by
the Board and consideration of the interests of the Company's stockholders,
the Board determined that the Mentor Offer was inadequate and not in the best
interests of the Company's stockholders, that the Mentor Offer did not fully
reflect the long-term value of the Company, and that stockholder interests
would be better served by the Company continuing to pursue its business plan.
In particular, the Board determined that the Company's business plan offered
the potential for obtaining higher long-term benefits for the Company's
stockholders than the Mentor Offer. This determination was based on, among
other things, the opportunities for business expansion and revenue and
earnings growth resulting from recently introduced products and from products
under development for use in the electronic design automation market and in
other related parts of the market. See "Why You Should Vote Against The Mentor
Proposals and Revoke any Proxies."
On August 21, 1998 and August 25, 1998, the Board amended certain provisions
of the Company's Bylaws (the "Special Meeting Amendment") and the Company's
Preferred Shares Rights Agreement dated as of January 10, 1996 (the "Rights
Agreement Amendment"). The Special Meeting Amendment provides that, upon the
request by any stockholder entitled to call a special meeting of stockholders,
the Board shall determine a place and time for such a meeting (the time to be
not less than 90 nor more than 100 days after receipt and determination of the
validity of such request) and a record date for the determination of
stockholders entitled to vote at such a meeting. The purpose of the Special
Meeting Amendment is to add appropriate procedures and notice provisions to
ensure that the Company and its stockholders would have adequate time to
consider any proposals, including the Mentor Proposals, which may be brought
before a special meeting.
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On August 25, 1998, Quickturn filed a motion for preliminary injunction in
Delaware federal district court, challenging Mentor's solicitation of agent
designations.
On August 26, 1998, Mentor filed a motion for preliminary injunction in the
Court of Chancery of the State of Delaware, seeking to enjoin the Board from
enforcing either of the Special Meeting Amendment or the Rights Agreement
Amendment.
On September 11, 1998, Mentor purported to deliver to the Company agent
designations executed by the holders of greater than 10% of the Shares and
purported to set a date for the Special Meeting of October 29, 1998. Also on
September 11, 1998, Mentor disclosed in the Mentor Proxy Statement that it
intended to begin soliciting proxies in favor of the Mentor Proposals on or
about September 11, 1998.
Quickturn and Mentor are currently engaged in patent and other litigation
concerning matters including the Mentor Solicitation. See "Certain Legal
Proceedings" and "Certain Patent Litigation."
The purpose of the Mentor Proposals is to facilitate the consummation of the
Mentor Offer, which the current Board of Directors has determined to be
inadequate and not in the best interest of the Company and its stockholders,
and does not adequately reflect the long-term value or prospects of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS NOT RETURN THE GOLD
PROXY CARD REQUESTED BY MENTOR AND MGZ. TO STOP MENTOR AND MGZ FROM USING YOUR
SHARES TO FURTHER THEIR INADEQUATE OFFER, THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU (1) DISCARD ANY GOLD PROXY CARD AND (2) IF YOU HAVE ALREADY RETURNED
A GOLD PROXY CARD, SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY REVOCATION
CARD AS SOON AS POSSIBLE.
WHY YOU SHOULD VOTE AGAINST THE MENTOR PROPOSALS
AND REVOKE ANY PROXIES
After careful consideration of the Mentor Offer, your Board has determined
that the Mentor Offer is inadequate and not in the best interests of the
Company's stockholders, that the Mentor Offer does not fully reflect the long-
term value of the Company, and that stockholder interests would be better
served by the Company continuing to pursue its business plan. Your Board has
recommended that stockholders reject the Mentor Offer and not tender any of
their Shares pursuant thereto.
The Mentor Offer and the Mentor Solicitation are merely attempts by Mentor
to compel stockholders to engage in a transaction with Mentor that your Board
has determined to be inadequate and not in the best interests of the Company's
stockholders. In reaching its conclusion to recommend rejection of the Mentor
Offer, the Board considered the following factors:
(i) The Board's familiarity with the business, financial condition,
prospects and business plan of the Company, the nature of the business and
markets in which the Company operates and the Board's belief that the
Mentor Offer does not adequately reflect the long-term opportunities
available to the Company in its business and the electronic design
automation market. In this regard, the Board particularly considered the
following:
. The Company's established position as the leading provider of emulation
technology and a leader in cycle-based simulation, for the integrated
circuit design verification market, as well as its reputation in the
industry as a technological leader and innovator in this area. In this
regard, the Board noted that the Company has supplied more than 80% of
the installed base of emulation systems worldwide.
. The Company's prospects for future growth based upon its current and
future product plans, including the recently introduced Mercury(TM)
Design Verification System, which offers substantially improved
performance and ease of use, as well as the Company's additional products
and enhancements planned for introduction at appropriate intervals over
the next few years.
. The Company's proven technical expertise, reflected in an estimated 4,000
completed customer design projects and developed over years of activity
in the design verification market.
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. The Company's expenditures of over $60 million on research and
development in the past three years, leading to current and future
planned products.
. The Company's strong intellectual property position, including 25 issued
United States patents, 25 pending United States patent applications and
numerous international patents and patent application filings.
. The Company's reputation for high-quality worldwide customer service and
support resulting in the completion of an estimated 4,000 customer design
projects.
. The Company's acknowledged strength in the sale and implementation of
emulation products.
. The Company's acknowledged high-quality manufacturing infrastructure.
. Anticipated growth in demand for emulation and cycle-based simulation
resulting from continuing substantial increases in semiconductor design
complexity.
. Current conditions in the Company's business and markets, including the
current adverse economic conditions in Asia, which have had a substantial
effect upon the Company's recent quarterly financial performance and
recent stock price.
. The risks and assumptions inherent in achieving the Company's business
plan.
(ii) The historical trading prices of the Company's Common Stock, including
the Board's belief, based in part on the factors referred to above, that
the trading price for the Company's Common Stock immediately prior to
commencement of the Mentor Offer did not fully reflect the long-term value
inherent in the Company. In this regard, the Board noted that, as of the
Mentor Offer, the Mentor Offer represented a more than 25% discount from
the highest closing price of the Common Stock during the year preceding the
Mentor Offer and a less than 4% premium over the average of the closing
prices of the Common Stock during the same period.
(iii) The analyses performed by Hambrecht & Quist concerning, among other
things, the Company's historical and projected financial performance and
consequent implied valuations of the Company; Mentor's historical financial
performance; projected pro forma financial results for Mentor were the
Mentor Offer to be successful; comparisons of the terms of the Mentor
Offer, premium and the implied valuation of the Company to those in other
comparable transactions; and the trading histories of Mentor and the
Company.
(iv) The written opinion, dated August 21, 1998, of Hambrecht & Quist that,
the Mentor Offer was inadequate, from a financial point of view, to the
holders of the shares. In rendering such opinion, Hambrecht & Quist
reviewed and performed various analyses including those set forth in (iii)
above.
(v) The history of extensive patent litigation between the Company and
Mentor, which has to date affirmed the validity of the Company's key
patents and has resulted, among other things, in the issuance by the United
States International Trade Commission (the "ITC") of a permanent limited
exclusion order against Mentor prohibiting Mentor from importing into the
United States certain integrated circuit emulation systems, subassemblies
and components manufactured by Mentor and its affiliate which infringe the
Company's patents; the issuance by the ITC of a permanent cease and desist
order permanently prohibiting Mentor from, among other things, selling,
offering for sale or advertising such emulation systems, subassemblies and
components in the United States; and the granting by the Federal District
Court for the District of Oregon of the Company's motion for a preliminary
injunction against Mentor's United States emulation activities. In this
regard, the Board noted that the grant of the foregoing motion for a
preliminary injunction had been affirmed by the United States Court of
Appeals for the Federal Circuit on August 5, 1998 -- seven days prior to
Mentor's commencement of the Mentor Offer.
(vi) The disruptive effect of the Mentor Offer on the Company's sales
efforts with its customers, as well as on the Company's relationships with
its suppliers and employees.
(vii) The Board's commitment to acting in the best interests of and
protecting the Company's stockholders.
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In view of the wide variety of factors considered in connection with its
evaluation of the Mentor Offer, the Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its respective determinations.
IN LIGHT OF THE BOARD OF DIRECTORS' CONCLUSIONS THAT THE MENTOR OFFER IS
INADEQUATE, IS NOT IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS,
AND DOES NOT ADEQUATELY REFLECT THE LONG-TERM VALUE OR PROSPECTS OF THE
COMPANY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS NOT RETURN THE
GOLD PROXY CARD REQUESTED BY MENTOR AND MGZ.
IN ORDER TO STOP MENTOR AND MGZ FROM USING YOUR SHARES TO FURTHER THEIR
INADEQUATE OFFER, PLEASE MARK, SIGN AND DATE THE ENCLOSED BLUE PROXY
REVOCATION CARD AND RETURN IT TO QUICKTURN DESIGN SYSTEMS, INC., c/o MORROW &
CO., 909 THIRD AVENUE, 20TH FLOOR, NEW YORK, NEW YORK 10022, FAX (212) 754-
8362. EXECUTION AND RETURN OF THE BLUE PROXY REVOCATION CARD IS INDEPENDENT OF
ANY DECISION BY YOU TO TENDER YOUR SHARES PURSUANT TO THE INADEQUATE MENTOR
OFFER AND WILL NOT PRECLUDE YOU FROM ATTENDING ANY SPECIAL MEETING, IF HELD,
AND TO VOTE IN PERSON.
THE SPECIAL MEETING
RECORD DATE AND OUTSTANDING SHARES; QUORUM
Only holders of record as of the close of business on the record date of the
Special Meeting will be entitled to vote at the Special Meeting. Pursuant to
Section 2.3 of Article II of the Bylaws of the Company, a special meeting may
be called by written request of one or more stockholders holding shares in the
aggregate entitled to cast not less than ten percent of the votes at such
meeting. The Bylaws further provide that, upon receipt of a valid request, the
Board of Directors shall determine a place and time for such meeting and shall
set a record date to determine which stockholders are entitled to vote at such
a meeting. Pursuant to Section 2.12 of Article II of the Bylaws of the
Company, the record date may not be more than 60 nor less than 10 days before
the date of the special meeting (the "Record Date"). Pursuant to Section 2.3
of Article III of the Bylaws, the Board shall determine a time for the special
meeting that is not less than 90 nor more than 100 days after receipt and
determination of the validity of the request for such meeting.
Although Mentor purports to have called a special meeting for October 29,
1998, the validity and legality of Mentor's attempt to call the Special
Meeting and Mentor's ability to set the Record Date, place and time of the
Special Meeting are currently the subject of litigation between the Company
and Mentor. Hearings on these matters are currently scheduled for October
1998. See "Certain Legal Proceedings." Subject to the resolution of certain of
these matters in this litigation, the Board shall set the Record Date, time
and place for the Special Meeting pursuant to the Company's Bylaws.
The presence in person or by proxy of the holders of a majority of the
Shares issued and outstanding and entitled to vote thereat are necessary to
constitute a quorum at the Special Meeting. If a quorum is not present or
represented by proxy, then either the chairman of the meeting or the
stockholders entitled to vote thereat, present or represented by proxy, have
the power to adjourn the Special Meeting from time to time, without notice
other than an announcement at the Special Meeting, until a quorum is present
or represented. Shares represented by proxies that reflect abstentions or
"broker non-votes" (shares of stock held of record by a broker as to which no
discretionary authority or voting directions exist) will be counted as Shares
that are present and entitled to vote for purposes of determining the presence
of a quorum.
VOTES REQUIRED
Each stockholder is entitled to one vote for each Share held. Stockholders
do not have the right to cumulate votes in the election of directors. In
connection with the Removal Proposal, pursuant to Section 141(k) of the
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Delaware General Corporation Law (the "DGCL") and Section 3.16 of the Company
Bylaws, the removal of directors requires the affirmative vote of a majority
of all Shares outstanding and entitled to vote on the election of directors.
Accordingly, abstentions and broker non-votes will have the same effect as
votes cast against the Removal Proposal. In connection with the Election
Proposal, pursuant to Section 216 of the DGCL, directors will be elected by a
plurality of the votes cast by stockholders at the Special Meeting. Since
votes are cast in favor of or withheld from each nominee, abstentions and
broker non-votes will have no effect on the outcome of the Election Proposal.
The Bylaw Amendment Proposal and the Bylaw Repeal Proposal (collectively, the
"Bylaw Proposals") each require the affirmative vote of a majority of the
Shares present in person or represented by proxy and entitled to vote at the
Special Meeting. Accordingly, assuming a quorum is present at the Special
Meeting, abstentions have the same effect as votes cast against the Bylaw
Proposals, while broker non-votes are not included in the total number of
votes cast on a Bylaw Proposal and therefore will not be counted for
determining whether the Bylaw Proposal has been approved. All votes will be
tabulated by the inspector of election appointed for the meeting, who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes.
REVOCATION OF PROXIES
The BLUE Proxy Revocation Card accompanying this Statement is solicited on
behalf of the Board of Directors of the Company for use at the Special
Meeting. Any stockholder who has given a gold proxy to Mentor in connection
with the Mentor Solicitation may revoke it at any time before it is voted by
delivering to the Company, c/o Morrow & Co., Inc., a duly executed BLUE Proxy
Revocation Card bearing a date LATER than the proxy delivered to Mentor.
Proxies may also be revoked at any time prior to voting by (i) delivering to
the Company, c/o Morrow & Co., Inc., a written notice, bearing a later date
than the proxy, stating that the proxy is revoked (such revocation may be in
any form, but must be signed and dated and must clearly express your intention
to revoke your previously executed proxy), (ii) signing and delivering prior
to the vote at the Special Meeting a proxy with respect to the same shares and
bearing a date later than the date of the proxy being revoked, or (iii)
attending the Special Meeting and voting in person (although attendance at the
Special Meeting will not, by itself, constitute a revocation of your proxy).
Revocations of proxies and other instruments revoking proxies may be delivered
to the Company by fax or by mail (using the enclosed envelope), to Morrow &
Co., Inc., 909 Third Avenue, 20th Floor, New York, New York, 10022, Fax: (212)
754-8362.
IF YOU HAVE ALREADY SIGNED MENTOR'S GOLD PROXY CARD, AND YOU WISH TO CHANGE
YOUR VOTE, YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE AT THE
SPECIAL MEETING BY USING THE ENCLOSED BLUE PROXY REVOCATION CARD OR VOTING
AGAINST THE MENTOR PROPOSALS AT THE SPECIAL MEETING.
THE MENTOR PROPOSALS
The Mentor Solicitation relates to the following proposals to be considered
and voted upon at the Special Meeting:
THE REMOVAL PROPOSAL
Mentor proposes that all of the members of the Board be removed from office
in order to replace such Board members with nominees who support the Mentor
Proposed Transaction. The Company's current directors are Glen M. Antle,
Richard C. Alberding, Michael R. D'Amour, William A. Hasler, Dr. Yen-Son
(Paul) Huang, Charles D. Kissner, Dr. David K. Lam and Keith R. Lobo.
THE BYLAW AMENDMENT PROPOSAL
Mentor proposes to amend Section 3.2 of Article III of the Bylaws of the
Company to reduce the number of directors from eight to five.
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THE ELECTION PROPOSAL
Mentor is seeking the election of a slate of five directors (Gideon Argov,
Chairman of the Board of Kollmorgen Corporation; Scott Bice, Dean of the
University of Southern California Law Center; Harry L. Demorest, Chief
Executive Officer of Columbia Forest Products, Inc.; C. Scott Gibson,
President of Gibson Enterprises; and Michael Savage, the Managing Director of
the San Francisco Opera). As disclosed in the Mentor Proxy Statement, each of
Mentor's nominees, if elected, intends to take all actions, subject to his
fiduciary duties to the Company, to facilitate the Mentor Offer and the
related Mentor Proposed Transaction.
THE BYLAW REPEAL PROPOSAL
Mentor is seeking to repeal any amendment to the Company's Bylaws adopted
since March 30, 1998 and prior to adoption of the Mentor Proposals at the
Special Meeting. Such proposal will have the effect of repealing the Special
Meeting Amendment and any other amendment to the Company's Bylaws adopted
after the date of this Statement.
PROPOSAL REGARDING PROCEDURAL MATTERS
Mentor is seeking the right at the Special Meeting or any adjournment
thereof to vote your shares at their discretion on any procedural matter or
any substantive matter which is properly brought before the Special Meeting of
which there has not been "reasonable notice."
THE RECOMMENDATION OF THE BOARD OF DIRECTORS WITH RESPECT TO MENTOR PROPOSALs
The above listed proposals are designed to facilitate the consummation of
the Mentor Offer, which your Board of Directors has determined to be
inadequate and not in the best interest of the Company and its stockholders,
and not to adequately reflect the long-term value or prospects of the Company.
The Board of Directors therefore unanimously recommends that stockholders vote
against each of the Mentor Proposals described above and any other proposals
brought before the Special Meeting which are designed to, or have the effect
of, facilitating Mentor's inadequate offer.
SUPPORT YOUR BOARD OF DIRECTORS AND ENSURE THAT YOUR BEST INTERESTS, NOT
MENTOR'S, ARE SERVED. TO EXPRESS SUPPORT FOR YOUR BOARD OF DIRECTORS, DO NOT
VOTE FOR THE MENTOR PROPOSALS AND DO NOT RETURN MENTOR'S PROXY.
IF YOU HAVE ALREADY SIGNED MENTOR'S GOLD PROXY CARD, AND YOU WISH TO CHANGE
YOUR VOTE, YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE AT THE
SPECIAL MEETING. IF YOU HAVE RETURNED MENTOR'S PROXY, YOU MAY REVOKE IT BY
USING THE ENCLOSED BLUE PROXY REVOCATION CARD.
OTHER MATTERS
The Board is not aware of any other matters to be submitted at the Special
Meeting. Under the Company's Bylaws, only such business as is stated in the
Notice of Special Meeting may be brought before such meeting. Accordingly, no
other substantive business may be transacted at the Special Meeting.
CERTAIN LEGAL PROCEEDINGS
On August 12, 1998, Mentor and MGZ filed a complaint against the Company and
the Board in the Court of Chancery of the State of Delaware seeking, among
other things, an order (i) declaring that failure to redeem the preferred
stock purchase rights associated with the Company's Common Stock (the
"Rights") or to render the Rights inapplicable to the Mentor Offer and the
Proposed Mentor Transaction or failure to approve the Mentor Offer and the
Proposed Mentor Transaction would constitute a breach of the Board's fiduciary
duties under Delaware law, (ii) invalidating the Rights or compelling the
Board to redeem the Rights or render the
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Rights inapplicable to the Mentor Offer and the Proposed Mentor Transaction,
(iii) declaring that failure to approve the Mentor Offer and the Proposed
Mentor Transaction for purposes of Section 203 of Delaware Law would
constitute a breach of the Board's fiduciary duties under Delaware law, (iv)
compelling the Board to approve the Mentor Offer and the Proposed Mentor
Transaction, for purposes of Section 203 of Delaware Law, (v) enjoining the
Board from taking any actions designed to impede or which have the effect of
impeding the Mentor Offer, the solicitation of agent designations or the
proposed merger and declaring that any such actions would constitute a breach
of the Board's fiduciary duties under Delaware Law, (vi) enjoining the Board
from taking any actions to impede, or refuse to recognize the validity of,
Mentor's call of a special meeting, and (vii) enjoining the Board from taking
any action to cause the Company to become subject to Section 2115 of the
California General Corporation Law.
Also on August 12, 1998, Mentor and MGZ filed a complaint against the
Company in the United States District Court for the District of Delaware
seeking, among other things, a declaratory judgment that Mentor and MGZ have
disclosed all information required by, and are otherwise in full compliance
with, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
any other federal securities laws, rules and regulations deemed applicable to
the Mentor Offer and Mentor's solicitation of agent designations.
On August 13, 1998, Howard Shapiro filed a purported class action suit on
behalf of individual plaintiffs against the Company and the Board in the Court
of Chancery in the State of Delaware. The complaint alleges, among other
things, that the defendants have breached their fiduciary duties to the
Company's stockholders by failing to maximize stockholder value. The complaint
seeks, among other things, to compel the defendants to carry out their
fiduciary duties and to cooperate with any person or entity having a bona fide
interest in proposing any transaction which would maximize stockholder value.
On August 27, 1998, Howard Shapiro filed an Amended Class Action Complaint in
full substitution of the complaint filed on August 13, 1998.
On August 25, 1998, Quickturn filed an answer in Delaware federal district
court denying all material allegations of the Mentor Federal Complaint. In
addition, Quickturn filed counterclaims against Mentor and MGZ alleging
violation of the federal securities laws, seeking an injunction requiring
Mentor and MGZ to make certain corrections to their filings with the
Securities and Exchange Commission (the "SEC"), and prohibiting Mentor and MGZ
from taking various actions in connection with the Mentor Offer or Mentor's
solicitation of agent designations.
On August 25, 1998, MGZ and Mentor filed an Amended Verified Complaint in
the Court of Chancery of the State of Delaware in and for New Castle County,
challenging the Special Meeting Amendment and the Rights Agreement Amendment.
On August 25, 1998, Andrea Brown and Mohamed Yassin each filed a purported
class action suit on behalf of individual plaintiffs against the Company and
the Board in the Court of Chancery in the State of Delaware. The complaints
allege, among other things, that the defendants have breached their fiduciary
duties to the Company's stockholders by failing to maximize stockholder value.
The complaints seek, among other things, to compel the defendants to carry out
their fiduciary duties and to cooperate with any person or entity having a
bona fide interest in proposing any transaction which would maximize
stockholder value.
On August 26, 1998, MGZ and Mentor filed a First Amended Complaint in the U.
S. District Court for the District of Delaware, alleging that certain filings
by the Company with the SEC violate federal securities laws.
On August 26, 1998, Mentor and MGZ filed a Motion for Preliminary Injunction
in the Court of Chancery of the State of Delaware, seeking to enjoin the Board
from enforcing either of the Special Meeting Amendment or the Rights Agreement
Amendment.
On September 4, 1998, Mentor and MGZ filed a Motion for Preliminary
Injunction with United States District Court for the District of Delaware
seeking to compel the Company to make certain changes to its disclosures in
its filings with the SEC and to enjoin the Company or any of its agents from
(i) disseminating any
9
<PAGE>
further information or otherwise communicating with the Company's stockholders
with respect to the Mentor Offer, the Proposed Mentor Transaction, Mentor's
solicitation of agent designations and the Special Meeting or (ii) taking any
action in opposition to the Mentor Offer, the Proposed Mentor Transaction,
Mentor's solicitation of agent designations or the Special Meeting, until at
least thirty days after the Company makes certain changes to its disclosures
in its filings with the SEC. The motion also seeks to enjoin the Company and
its agents from making any false and misleading statements regarding the
Mentor Offer, the Proposed Mentor Transaction, Mentor's solicitation of agent
designations and the Special Meeting. The District Court has scheduled a
hearing for October 6, 1998 on both parties' cross-motions to require
corrective disclosures.
On September 4, 1998, the Court of Chancery of the State of Delaware
scheduled a trial to commence on October 19, 1998 regarding Mentor's and MGZ's
claims regarding the validity of the Special Meeting Amendment and the Rights
Agreement Amendment adopted by the Company on August 21, 1998. The Court of
Chancery of the State of Delaware also scheduled argument on the Company's
motion for summary judgment for October 7, 1998.
On September 8, 1998, Mentor and MGZ filed with the United States District
Court for the District of Delaware a Motion to Dismiss the Company's
counterclaims and an opening brief in support of such motion.
On September 11, 1998, Quickturn filed its Answer to First Amendment
Complaint and Counterclaims for Injunctive and Other Relief for Violation of
Federal Securities Laws in the United States District Court for the District
of Delaware, denying all material allegations of Mentor's First Amended
Complaint.
On September 11, 1998, Mentor and MGZ filed a Motion for Leave to File
Second Verified Complaint in the Court of Chancery of the State of Delaware.
On September 14, 1998, Quickturn filed a Motion for a Temporary Restraining
Order with the United States District Court for the District of Delaware
seeking (i) to enjoin Mentor from distributing any proxy materials purporting
to call a special meeting of Quickturn stockholders on October 29, 1998, (ii)
to require Mentor to correct misstatements in its proxy materials, press
releases and other statements to Quickturn stockholders and to enjoin Mentor
from further claiming that a Quickturn stockholders meeting will be held on
October 29, 1998, (iii) to enjoin Mentor from all proxy solicitation
activities until 15 days after amended proxy materials are filed with the SEC
and Mentor has issued a press release which corrects its earlier
misstatements, and (iv) to enjoin Mentor from making any further material
misstatements of fact or omissions of material facts in any communications
with Quickturn's stockholders. A hearing on Quickturn's Motion for a Temporary
Restraining Order was held on September 16, 1998. Quickturn's Motion was
denied, and its Motion for Preliminary Injunction is scheduled to be heard on
October 6, 1998.
On September 14, 1998, Quickturn filed Amended and Supplemental
Counterclaims, alleging that Mentor made false and misleading statements
regarding the calling of a Special Meeting of the stockholders of Quickturn.
In addition to Mentor and MGZ Corp., Walden C. Rhines, Gregory K. Hinckley,
Dean M. Freed, Gideon Argov, Scott H. Bice, Harry L. DeMorest, C. Scott Gibson
and Michael J. K. Savage are named as counterdefendants.
On September 15, 1998, Quickturn filed its Answer to Verified Amended
Complaint for Declatory and Injunctive Relief in the Court of Chancery in the
State of Delaware denying all material allegations of the Amended Verified
Complaint.
10
<PAGE>
CERTAIN PATENT LITIGATION
In January 1996, the Company filed a complaint with the ITC in Washington,
DC, seeking to stop unfair importation of logic emulation systems manufactured
by Meta Systems ("Meta"), a French subsidiary of Mentor. In the complaint, the
Company alleged that Mentor's hardware logic emulation systems infringe
several of the Company's patents. Some of these patents were purchased by the
Company from Mentor in 1992, and the Company successfully argued that Mentor
could not contest their validity by reason of assignor estoppel, a legal
doctrine which prevents the seller of a patent from later asserting that the
patent is invalid ("Assignor Estoppel"). The Company sought and received in
August 1996 temporary relief from the ITC in the form of Temporary Exclusion
and Temporary Cease and Desist Orders. The Federal Circuit Court of Appeals
affirmed the ITC's issuance of temporary relief in August 1997. In December
1997, the ITC issued: (1) a Permanent Limited Exclusion Order which
permanently prohibits the importation of hardware logic emulation system,
subassemblies or components manufactured by Mentor and/or Meta which infringe
the Company's patents and (2) a Permanent Cease and Desist Order permanently
prohibiting Mentor from, among other things, selling, offering for sale or
advertising the same hardware logic emulation devices. The ITC's two orders
remain in effect until April 28, 2009, the latest expiration date of the
Company's patents involved in the investigation.
The Company is also engaged in a Federal District Court case with Mentor and
Meta involving six of the Company's patents. Mentor and Meta are seeking a
declaratory judgment of noninfringement, invalidity and unenforceability of
the patents in dispute, and the Company has filed counteractions against
Mentor and Meta for infringement and threatened infringement of the six
patents. Mentor has also claimed in this Federal District Court case that
press releases issued by the Company were defamatory and interfered with
Mentor's prospective economic relations. In June 1997, Quickturn filed a
motion for preliminary injunction, asking the District Court to prohibit
Mentor from manufacturing, assembling, marketing, loaning or otherwise
distributing emulation products and components in the United States, which
products and components infringe certain claims in Quickturn's U. S. Patent
No. 5,036,473. The District Court granted the Company's motion for summary
judgment of Assignor Estoppel with regard to such patent. On December 20,
1996, the U. S. District Court in Oregon granted Quickturn's motion for a
preliminary injunction against Mentor's domestic emulation activities. The
Federal Circuit Court of Appeals affirmed the Oregon District Court's decision
on August 5, 1998, both with regard to the preliminary injunction and the
Assignor Estoppel. The Oregon action is currently set for trial in December
1998.
In November 1996, Aptix Corporation ("Aptix") filed a suit against the
Company in the U. S. District Court for the Northern District of California,
alleging, among other things, various antitrust violations based on
Quickturn's acquisition of patents and technology from Mentor, Quickturn's
acquisition of PiE Design Systems, Inc. ("PiE") in 1993 and purported threats
by Quickturn to sue Aptix for patent infringement. Quickturn moved for summary
judgment in its favor with regards to these allegations. A hearing on these
matters was held on August 4, 1998. On August 27, 1998, the U. S. District
Court for the Northern District of California granted Quickturn's motion for
summary judgment and dismissed Aptix's suit against Quickturn.
In August 1997, a preliminary injunction sought by Mentor's German
subsidiary, Mentor Graphics (Deutschland) GmbH, was issued by a regional court
in Munich, enjoining agents of the Company from making certain statements
concerning U. S. litigation matters between the Company and Mentor. In May
1998, the Munich District Court set aside the preliminary injunction based on
the failure of Mentor's German subsidiary to advance its case within the six-
month statutory limitation. In October 1997, the Company filed against Mentor
Graphics (Deutschland) GmbH, in the District Court of Dusseldorf a complaint
alleging infringement of the German part of the Company's European Patent No.
0 437 491 B1. The main court hearing for this matter is set for March 1999.
In February 1998, Aptix and Meta filed a lawsuit against the Company, in the
U. S. District Court for the Northern District of California, alleging
infringement of a U. S. patent owned by Aptix Corporation and licensed to
Meta.
11
<PAGE>
ANTITRUST MATTERS
On August 20, 1998, the Company received from MGZ written notice that Mentor
had filed a pre-merger notification form (the "Pre-merger Form") with the
Federal Trade Commission (the "FTC") and the Department of Justice (the "DOJ")
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
on or about August 20, 1998. The purpose of the Pre-merger Form is to give the
FTC and the DOJ notice of the merger Mentor proposes to effect with the
Company if the Mentor Offer is consummated.
On August 28, 1998, the Company filed its pre-merger notification form with
the FTC and the DOJ. The waiting period under the HSR Act expired at 11:59 p.
m. New York City time on September 4, 1998.
SOLICITATION OF REVOCATIONS OF PROXIES
All expenses of this proxy revocation solicitation, including the cost of
preparing and mailing this Statement, will be borne by the Company. In
addition to solicitation by use of the mails, proxy revocations may be
solicited by directors, certain officers, and employees of the Company in
person or by telephone, telegram, telex, telecopier, facsimile, advertisement,
courier service, or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for out-
of-pocket expenses in connection with such solicitation. Except as described
below, neither the Company nor any person acting on its behalf has retained
any other person to make solicitations or recommendations to security holders
on its behalf concerning the Mentor Offer, including the solicitation of proxy
revocations.
The Company has retained Morrow & Co. , Inc. to assist the Company in
connection with its solicitation of proxy revocations, at an estimated fee of
$ , plus reimbursements of out-of-pocket expenses.
The Company has engaged Hambrecht & Quist LLC to act as its financial
advisor in connection with the proposed Mentor Offer and related matters,
including this solicitation. Hambrecht & Quist may assist in the solicitation
of proxy revocations. Pursuant to a letter agreement dated August 14, 1998
(the "Letter Agreement"), the Company has retained Hambrecht & Quist as its
exclusive financial advisor with respect to the Mentor Offer and the
evaluation of strategic alternatives.
Pursuant to the Letter Agreement, the Company has agreed to pay Hambrecht &
Quist: (1) a non-refundable retainer of $100,000 payable on the date of the
Letter Agreement and creditable against any subsequent fees payable under the
Letter Agreement; (2) a fee of $750,000 payable on delivery of an initial
opinion regarding the fairness or adequacy of the Mentor Offer; (3) a fee of
$250,000 payable on delivery of each additional fairness opinion rendered in
connection with a transaction including the same party or an additional party;
(4) in the event the Company enters into an agreement for the sale of the
Company, or recommends that the stockholders of the Company tender their
shares in connection with a tender offer for 50% or more of the outstanding
shares of Common Stock of the Company or recommends that the stockholders of
the Company vote in favor of a proposed sale of the Company, or otherwise
approves or endorses the sale of the Company, and such sale (a "Consensual
Acquisition") of the Company is consummated, a fee, payable at closing, equal
to 1.0% of the aggregate consideration received, less any fees previously
paid; (5) in the event the Company determines it should remain independent and
does not consummate a Consensual Acquisition by May 14, 1999, a fee, payable
on May 14, 1999, of $1,000,000, less any fees previously paid; and (6) in the
event that the Company is acquired prior to May 14, 1999 in a transaction
other than a Consensual Acquisition, then upon consummation of such sale of
the Company, a fee, payable at closing, equal to 0. 75% of the aggregate
consideration received, less any fees previously paid. A "sale" of the Company
means any transaction or event or series or combination thereof, other than in
the ordinary course of trade or business, whereby directly or indirectly, a
majority interest in the Company or its businesses or assets is transferred;
such transactions or events to include without limitation a sale or exchange
of capital stock or assets (whether in a leveraged acquisition or otherwise),
a merger or consolidation, a tender or exchange offer, a recapitalization
(including without limitation one or more distributions to stockholders or
repurchases or redemptions of shares which in the aggregate constitute greater
than 50 percent of the market value of the Company's shares prior to such
actions), or any similar transaction or event.
12
<PAGE>
Pursuant to the Letter Agreement, the Company agreed to indemnify Hambrecht
& Quist against all liability resulting from the performance of Hambrecht &
Quist duties under such agreement, except for liability resulting from the
gross negligence or willful misconduct of Hambrecht & Quist. The Company has
also agreed to reimburse Hambrecht & Quist periodically for their reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
their attorneys arising in connection with any matter referred to in the
Letter Agreement. The Letter Agreement also provides that Hambrecht & Quist,
if requested by the Board, will, among other things, assist the Company as an
agent in contracting, qualifying and negotiating with potential acquirors
approved by the Company. The Letter Agreement may be terminated at any time by
either party thereto, in which event, Hambrecht & Quist will be entitled to
full compensation if any time prior to the expiration of one year after such
date of termination the Company consummates a sale of the Company and any
compensation earned by it up to the date of the termination, including the
reimbursement of all reasonable expenses incurred by Hambrecht & Quist.
Hambrecht & Quist will not receive any fee for, or in connection with, any
solicitation activities apart from the fees it is otherwise entitled to
receive under its engagement. Hambrecht & Quist does not admit or deny that
any of its directors, officers or employees is a "participant" as defined in
Schedule 14A promulgated by the Commission under the Securities Exchange Act
of 1934, as amended, or that such Schedule 14A requires the disclosure of
certain information concerning such persons. In the normal course of its
business, Hambrecht & Quist regularly buys and sells the Common Stock and
other securities for its own account and for the accounts of its customers,
which transactions may result from time to time in Hambrecht & Quist and its
associates having a net "long" or net "short" position in the Common Stock or
other securities or option contracts or derivatives in or relating to the
Company's securities. If Hambrecht & Quist assists the Company in connection
with the solicitation of proxy revocations, such activity will be carried out
by a team of individuals consisting of officers and employees of Hambrecht &
Quist identified in Schedule A.
The Company estimates that its total expenditures relating to this
solicitation (excluding costs representing salaries and wages of regular
employees and officers of the Company) will be approximately $ . The
Company to date has incurred estimated total expenses of approximately
$ . In addition to the members of the Board, the Company's executive
officers may solicit proxy revocations. For further information with respect
to participants in the solicitation, including the names of its executive
officers who may solicit proxy revocations, and certain transactions by those
participants in the shares, see Schedules A and B. The business address for
each of the members of the Board and the officers named in Schedule A is, and
the Company's executive offices are located at 55 W. Trimble Road, San Jose,
California 95131.
13
<PAGE>
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Common Stock as of
September 1, 1998 for the following: (i) each person or entity who is known by
the Company to own beneficially more than 5% of the outstanding shares of the
Common Stock; (ii) each of the Company's current directors; (iii) each of the
named Executive Officers (as defined in Item 402 (a) (3) of Regulation S-K of
the Exchange Act); and (iv) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
- ---- ------------ ------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS
Kopp Investment Advisors, Inc. (2)................... 2,597,975 14.4%
7701 France Avenue South, Suite 500
Edina, MN 55435
State of Wisconsin Investment Board (2).............. 2,101,500 11.6%
P.O. Box 7842
Madison, WI 53707
DIRECTORS
Glen M. Antle (3).................................... 325,782 1. 8%
Keith R. Lobo (4).................................... 438,750 2.4%
Richard C. Alberding (5)............................. 17,500 *
Michael R. D'Amour (6)............................... 40,970 *
Dr. Yen-Son (Paul) Huang (7)......................... 354,550 2. 0%
Dr. David K. Lam (5)................................. 10,417 *
William A. Hasler (8)................................ 3,667 *
Charles D. Kissner (5)............................... 1,667 *
NAMED OFFICERS
Jeffrey K. Jordan (9)................................ 1,134 *
Raymond K. Ostby (10)................................ 102,767 *
Dugald H. Stewart (11)............................... 7,390 *
Tung-sun Tung (12)................................... 34,655 *
All directors and executive officers as a group (16
persons) (13)....................................... 1,792,816 9.5%
</TABLE>
- --------
* Less than 1%.
(1) The number and percentage of shares beneficially owned is determined under
rules of the Securities and Exchange Commission ("SEC"), and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to acquire
within sixty days of September 1, 1998 through the exercise of any stock
option or other right. Unless otherwise indicated in the footnotes, each
person has sole voting and investment power (or shares such powers with
his or her spouse) with respect to the shares shown as beneficially owned.
(2) This information was obtained from filings made with the SEC pursuant to
Sections 13(d) or 13(g) of the Securities Exchange Act of 1934, as
amended.
(3) Includes 257,270 shares held by The Antle Family Trust, as to which Mr.
Antle shares voting and dispositive power, and 68,512 shares of Common
Stock subject to options exercisable within sixty days of September 1,
1998.
(4) Includes options to purchase 433,750 shares of Common Stock exercisable
within sixty days of September 1, 1998.
(5) All such shares are subject to options exercisable within sixty days of
September 1, 1998.
14
<PAGE>
(6) Includes 31,388 shares held by The D'Amour Family Trust, as to which Mr.
D'Amour shares voting and dispositive power, and 4,583 shares of Common
Stock subject to options exercisable within sixty days of September 1,
1998.
(7) Includes 37,548 shares held by The Huang Living Trust, as to which Mr.
Huang shares voting and dispositive power, and 31,250 shares of Common
Stock subject to options exercisable within sixty days of September 1,
1998.
(8) Includes options to purchase 1,667 shares of Common Stock exercisable
within sixty days of September 1, 1998.
(9) Includes options to purchase 333 shares of Common Stock exercisable
within sixty days of September 1, 1998.
(10) Includes options to purchase 94,667 shares of Common Stock exercisable
within sixty days of September 1, 1998.
(11) Includes options to purchase 7,000 shares of Common Stock exercisable
within sixty days of September 1, 1998.
(12) Includes options to purchase 20,568 shares of Common Stock exercisable
within sixty days of September 1, 1998.
(13) Includes options to purchase 747,164 shares of Common Stock exercisable
within sixty days of September 1, 1998.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for their services as directors of the Company. However,
nonemployee directors receive an annual cash retainer of $12,000 and an annual
committee membership stipend of $1,500 for each committee of the Board on
which such director serves.
In addition, nonemployee directors participate in the Company's 1994 Outside
Director Stock Option Plan (the "Director Plan"). The Director Plan was
adopted by the Board in January 1994 and was approved by the stockholders in
May 1994. The Director Plan provides for an automatic grant of a nonstatutory
stock option to purchase 20,000 shares of Common Stock to a nonemployee
director on the date of the first meeting on which such individual
participates as a director (an "Initial Option"). An Initial Option has a term
of ten years and vests monthly over four years. Beginning four years after the
grant of an Initial Option to a director, such director is granted an
automatic annual option to purchase 3,500 shares of Common Stock, which option
has a term of ten years and vests monthly over one year. The exercise price of
each option granted equals 100% of the fair market value of the Common Stock,
based on the closing sales price of the Common Stock as reported on the Nasdaq
National Market on the date of grant. Options granted under the Director Plan
must be exercised within three months following the end of the optionee's
tenure as a director of the Company or within twelve months after the
termination of a director's tenure due to death or disability. The Director
Plan is designed to work automatically, without administration; however, to
the extent administration is necessary, the Director Plan has been structured
so that options granted to nonemployee directors who administer the Company's
other employee benefit plans qualify as transactions exempt from Section 16(b)
of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
15
<PAGE>
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENT
The Company has an employment agreement dated November 4, 1992 with Keith R.
Lobo, the Company's President and Chief Executive Officer, which is terminable
by either the Company or Mr. Lobo at any time upon 30 days written notice.
Pursuant to such agreement, upon termination of Mr. Lobo's employment, except
for certain causes, the Company is obligated to pay Mr. Lobo severance
payments equal to six months of his then base salary. Also, upon Mr. Lobo's
involuntary termination, except for certain causes, or upon his constructive
termination (defined as a material decrease in responsibility or authority),
within 12 months after a change of control of the Company, Mr. Lobo's options
will be accelerated with respect to that number of shares which would have
vested after 24 months of additional employment.
RETENTION PLANS
At a Board meeting held on September 2, 1998 and pursuant to a
recommendation from the Board's Compensation Committee, the Board authorized
the Company to implement two separate plans (collectively, the "Plans") to
assist the Company in retaining its employees during times of uncertainty, and
to keep such persons focused on their jobs and the business of the Company
during such times so that the Company can continue to execute its business
plan. William M. Mercer, Incorporated, assisted and advised the Board and its
Compensation Committee in formulating the terms of each Plan. Each Plan is
summarized below.
Management Retention Plan. The Management Retention Plan (the "Management
Plan") provides retention and severance benefits for designated executive
officers, vice presidents and employees with comparable responsibility to
executive officers or vice presidents. There are three components to the
Management Plan: (i) severance payments, (ii) post-employment coverage under
the Company's group health, dental and life insurance plans, and (iii) pro-
rated bonus payments.
A participant's total potential severance payment is based on a multiple of
the participant's annual target bonus and/or annual base salary, with the
level of payment related to the participant's job level. The multiplier ranges
from 150% of annual base salary up to 250% of annual base salary and
commission or annual average bonus. The severance payment will be paid only if
the participant is involuntarily terminated without cause, or is
constructively terminated, within twelve months following a change of control.
The severance payment is offset by any cash severance payments required by law
or contract.
In the event of an involuntary termination without cause, or constructive
termination, within twelve months following a change of control, a participant
in the Management Plan (and, if covered prior to the change of control, his or
her dependents) will receive continued group health, dental and life insurance
coverage. The Company is required to pay the same percentage of the related
insurance premiums as were paid prior to the change of control. The Company
must continue to make these premium payments for a period ranging from one and
one-half years to two and one-half years (depending on the participants's job
level) or, if earlier, until the participant becomes covered under comparable
benefit plans of another employer.
Under the Management Plan, participants are also eligible to be paid their
pro-rated annual target bonus for the year in which a change of control
occurs. This payment is in lieu of any bonus otherwise payable under the
annual incentive plan. The proration is made by multiplying the annual target
bonus by a fraction, the numerator of which is the number of days in the
Company's fiscal year that have elapsed prior to the change of control and the
denominator of which is three hundred sixty-five. The pro-rated bonus is paid
to those executive officers and vice-presidents who remain employed until the
last day of the fiscal year in which the change of control occurs or who are
involuntarily terminated without cause or are constructively terminated prior
to the end of the fiscal year, but following a change of control.
Employee Retention Plan. The Employee Retention Plan (the "Employee Plan")
provides severance benefits for employees who are not participants in the
Management Plan. The Employee Plan provides for a
16
<PAGE>
severance payment of two week's base salary for each full year of employment
with the Company up to and including the date of a change of control. The
severance payment will be paid only if the participant is involuntarily
terminated without cause within twelve months following a change of control,
with a minimum payment of three months (or six months for director-level
employees and up to approximately 10% of the employee population designated as
key contributors by the chief executive officer). The severance payment is
offset by any cash severance payments required by law or contract.
Golden Parachute Excise Tax and Non-Deductibility. In general, benefits and
payments under the Management Plan and the Employee Plan are subject to
reduction, if, in the opinion of the Company's independent accountants, the
golden parachute excise tax and non-deductibility provisions of the Internal
Revenue Code would otherwise be triggered. In such event, a participant's
benefits may be reduced to the largest amount that would not trigger the
golden parachute excise tax and non-deductibility provisions. In the case of
the Company's chief executive officer and certain other participants under the
Management Plan, benefits under the Management Plan are reduced to avoid
triggering the golden parachute excise tax and non-deductibility provisions
only if so doing would maximize the after-tax economic benefit to such
persons, as determined by the Company's independent accountants.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)") requires the Company's officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership on Form 3 and amendments thereto and
changes in ownership on Form 4 or Form 5 and amendments to each with the SEC
and the National Association of Securities Dealers, Inc. Such officers,
directors and ten-percent stockholders are also required by SEC rules to
furnish the Company with copies of all such forms that they file.
Based solely on its review of the copies of such forms and amendments
thereto received by the Company, or written representations from certain
reporting persons that no Forms 5 were required for such persons, which
representations have been maintained for at least two years, the Company
believes that during fiscal 1997 all Section 16(a) filing requirements
applicable to its officers, directors and ten-percent stockholders were
complied with, except that Mr. Dugald Stewart did not file a Form 4 to report
a sale of Common Stock (although such sale was subsequently reported on an
amended Form 4), and Mr. Tung-sun Tung filed a Form 3 late following his
assumption of his responsibilities as an executive officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in October 1993 and is
currently composed of Messrs. Alberding, Antle and Lam. No interlocking
relationship exists between any member of the Company's Board of Directors or
Compensation Committee and any member of the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past. No member of the Compensation Committee is
or was formerly an officer or an employee of the Company or its subsidiaries,
except that Mr. Antle at certain times during the past five years has been an
employee or consultant of the Company.
17
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning total
compensation received by the person serving as Chief Executive Officer and
each of the four most highly compensated executive officers during fiscal 1997
(the "Named Officers"), for services rendered to the Company in all capacities
for fiscal years 1997, 1996 and 1995.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
--------------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS (1) OPTIONS COMPENSATION (2)
- ------------------ ---- -------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Keith R. Lobo........... 1997 $250,000 $ 144,000 0 $11,168
President and Chief 1996 $250,000 $ 200,000 100,000 $ 6,768
Executive Officer 1995 $227,369 $ 150,000 20,000 $ 3,978
Jeffrey K. Jordan....... 1997 $244,351(3) $ 0 0 $16,400
Vice President, North
American Sales 1996 $382,499 $ 30,000 25,000 $34,000
1995 $544,567 $ 30,000 10,000 $10,800
Raymond K. Ostby........ 1997 $205,000 $ 59,000 0 $ 6,968
Vice President, Finance
and Administration, 1996 $190,000 $ 70,000 40,000 $ 6,768
Chief Financial
Officer, and Secretary 1995 $156,667 $ 66,000 0 $ 5,863
Dugald H. Stewart....... 1997 $205,223 $ 57,000 0 $ 9,073
Vice President,
Manufacturing 1996 $184,333 $ 102,000 40,000 $ 8,873
1995 $151,667 $ 56,000 10,000 $ 6,000
Tung-sun Tung........... 1997 $188,666 $ 40,000 0 $ 9,073
Vice President, 1996 $174,584 $ 64,000 60,000 $ 8,873
Research & Development 1995 $140,000 $ 36,000 0 $ 6,000
</TABLE>
- --------
(1) Includes bonuses earned or accrued with respect to services rendered in
the fiscal year indicated, whether or not such bonus was actually paid
during such fiscal year.
(2) Includes health care premiums and 401(k) contributions.
(3) Includes $143,370 from commissions.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to the Named Officers during the fiscal year ended
December 31, 1997.
18
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Named Officers, certain
information concerning stock options exercised during fiscal 1997 and the
number of shares subject to both exercisable and unexercisable stock options
as of December 31, 1997. Also reported are values for "in-the-money" options
that represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of the Common Stock on the
last trading day of fiscal 1997, which was $11.75 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
SHARES END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith R. Lobo........... 0 $ 0 458,750 76,250 $4,015,519 $ 25,731
Jeffrey K. Jordan....... 7,000 68,377 15,354 22,646 22,237 12,138
Raymond K. Ostby........ 0 0 93,208 41,792 452,684 84,191
Dugald H. Stewart 5,000 21,875 24,896 32,104 55,090 23,035
Tung-sun Tung........... 5,000 48,050 49,744 43,966 161,857 441,711
</TABLE>
- --------
(1) Market value of underlying securities based on the closing price of the
Common Stock on the last trading day of fiscal 1997 on the Nasdaq National
Market of $11.75 minus the exercise price.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Generally, proposals of security holders to be presented at the 1999 Annual
Meeting of Stockholders of the Company must have been in proper form and
received by the Company by November 13, 1998. However, the Securities and
Exchange Commission has recently amended Rule 14a-4(c)(1) promulgated under
the Exchange Act. As amended, Rule 14a-4(c)(1) provides that where a
stockholder proponent chooses not to use the procedures set forth in Rule 14a-
8 under the Exchange Act for placing such stockholder's proposal in a
company's proxy materials, a proxy may confer discretionary authority to vote
on a matter presented at an annual meeting of stockholders if the proponent
fails to notify the company at least 45 days prior to the anniversary date of
mailing of the prior year's proxy statement. A statement conferring such
discretionary authority must be made in the proxy statement or proxy for such
annual meeting. The proxy statement for the Company's 1998 Annual Meeting of
Stockholders was mailed to stockholders on March 13, 1998. Accordingly, if a
proponent does not notify the Company on or before January 27, 1999 of a
proposal to be presented at the 1999 Annual Meeting of Stockholders, the
Company may use its discretionary voting authority to vote on such proposal
when and if presented at the 1999 Annual Meeting of Stockholders.
By Order of the Board of Directors,
By:
-----------------------------------
Name: Keith R. Lobo
Title: President and Chief Executive
Officer
San Jose, California
September , 1998
19
<PAGE>
SCHEDULE A
INFORMATION REGARDING PARTICIPANTS
IN THE REVOCATION SOLICITATION
Set forth in the tables below are the present principal occupation or
employment, and the name, principal business and address of any corporation or
organization in which such employment is carried on, for (1) each of the
directors and executive officers of the Company and (2) certain employees and
other representatives of the Company who may also solicit Revocations from the
stockholders of the Company. The principal business address of the Company is
55 W. Trimble Road, San Jose, California 95131. Unless otherwise indicated,
the principal business address for each individual listed below is the address
of the Company. Except as otherwise provided in this Statement (including the
Schedules hereto), none of the participants in this solicitation, (i) directly
or indirectly owns any Shares or any other securities of the Company, (ii) was
in the past ten years convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors), (iii) is, or was within the past year a
party to any contracts, arrangements or understandings with any person with
respect to any securities of the Company, including but not limited to joint
ventures, loan or option arrangements, puts or calls, guarantees against loss
or guarantees of profit, division of losses or profits, or the giving or
withholding or proxies.
DIRECTORS OF QUICKTURN
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A
NAME (AGE) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
---------------------- ------------------------------------------ ----------
<C> <S> <C>
Glen M. Antle Chairman of the Board of the Company. Mr. 1993
(60) Antle served as Chairman of PiE Design
Systems, Inc. ("PiE") from September 1990
to June 1993 and Chief Executive Officer
from September 1992 to June 1993. He was
Chairman, from August 1982 to May 1988,
Co-Chairman, from May 1988 to June 1989,
and Chief Executive Officer, from August
1982 to September 1988, of Cadence Design
Systems, Inc. , a company that develops
CAD software products.
Keith R. Lobo President, Chief Executive Officer and 1992
(46) Director. From March 1992 to October 1992,
Mr. Lobo served as a consultant in the
venture capital field and was a private
investor. From March 1988 to February
1992, he served as Executive Vice
President and Chief Operating Officer of
Chips & Technologies, Inc., a
semiconductor supplier of microcomputer
components to the personal computer
industry.
Richard C. Alberding Director of the Company. Mr. Alberding has 1995
(67) served as a management consultant since
June 1991. Mr. Alberding's principal
business address is 15 Ashdown Pl. , Half
Moon Bay, California 94019. From 1958 to
1991, he served in a variety of positions
for Hewlett-Packard Company, most recently
as Executive Vice President. Mr. Alberding
also serves as a director of Walker
Interactive Systems, Inc., Paging Network,
Inc., Sybase, Inc., Kennametal Inc.,
Digital Microwave Corp., Digital Link
Corp., Storm Technology, Inc. and JLK
Direct, Inc.
Michael R. D'Amour Director of the Company. Mr. D'Amour has 1987
(44) served as President of D'Amour and
Associates, a research and development
company, since December 1995. The
principal business address of D'Amour
Associates is 11839 Hilltop Drive, Los
Altos Hills, California 94024. From
January 1995 to April 1995, he served as
the Company's Executive Vice President. He
previously served as the Company's
Executive Vice
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A
NAME (AGE) PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
---------------------- ------------------------------------------ ----------
<C> <S> <C>
President, International Sales from June
1990 to December 1994, as the Company's
Executive Vice President, Research and
Development from September 1987 to June
1990, as the Company's President and Chief
Executive Officer from September 1987 to
July 1988, and as the Company's Chairman
of the Board from the Company's inception
until June 1993.
Dr. Yen-Son (Paul) Director of the Company. Dr. Huang is 1993
Huang self-employed, and his principal business
(52) address is 13870 Pike Road, Saratoga,
California, 95079. Dr. Huang served as
Executive Vice President of the Company
between January 1996 and September 1997.
He served as the Company's Executive Vice
President, Product Development, from June
1993 to January 1996. From January 1990 to
June 1993, Dr. Huang served as President
of PiE, a company he co-founded.
Dr. David K. Lam Director of the Company. Dr. Lam is a 1996
(55) technology and business advisor in the
semiconductor equipment industry and
Chairman of the David Lam Group. Dr. Lam's
principal business address is 2055 Gateway
Place, Suite 400, San Jose, California
95110. Between April 1989 and October
1996, Dr. Lam served as President and
Chief Executive Officer of ExpertEdge,
Inc. , a provider of integrated,
multimedia client-server software. From
1987 to 1989, he was Vice President at
Wyse Technology, Inc. , and he founded Lam
Research in 1980. Dr. Lam is currently a
director of Asante Technology, Inc.
William A. Hasler Director of the Company. Mr. Hasler is the 1998
(56) Co-Chief Executive Officer of Aphton
Corporation. Mr. Hasler's principal
business address is P. O. Box 194204, San
Francisco, California 94119. Mr. Hasler
has served as Vice Chairman of Aphton
Corporation since October 1996 and as a
director since October 1991. Mr. Hasler
served as the Dean of the Graduate School
of Business at the University of
California, Berkeley, from 1991 to June
1998. Mr. Hasler also serves as a director
for The Gap, Inc., Walker Interactive
Systems, Tenera Inc., and TCSI
Corporation.
Charles D. Kissner Director of the Company. Mr. Kissner has 1998
(51) served as Chairman of the Board of Digital
Microwave Corporation since August 1995
and Chief Executive Officer and a director
since July 1995. Mr. Kissner's principal
business address is 170 Rose Orchard Way,
San Jose, California 95134. From July 1993
to July 1995, Mr. Kissner served as Vice
President and General Manager of the
Microelectronics Division of M/A-COM, Inc.
Mr. Kissner served as President, Chief
Executive Officer and a Director of
Aristacom International, Inc. from
February 1990 to July 1993. Mr. Kissner is
currently a director of Spectrian, Inc.
</TABLE>
A-2
<PAGE>
EXECUTIVE OFFICERS OF QUICKTURN
The principal executive officers of the Company and their recent business
experiences are as follows:
<TABLE>
<CAPTION>
NAME OFFICE HELD AGE
- ---- ----------- ---
<S> <C> <C>
Keith R. Lobo........... President and Chief Executive Officer 46
Michael H. Ferguson..... Vice President, Asia Pacific Operations 46
Jeffrey K. Jordan....... Vice President, North American Sales 53
Donald J. McInnis....... Senior Vice President 52
Raymond K. Ostby........ Vice President, Finance and Administration; Chief Financial Officer 51
Dugald H. Stewart....... Vice President, Manufacturing 45
Christopher J. Tice..... Vice President, World-Wide Support Services 39
Tung-sun Tung........... Vice President, Research and Development 50
Naeem Zafar............. Vice President, Marketing 41
</TABLE>
HAMBRECHT & QUIST LLC
The business address for each of the persons named below is 1 Bush Street,
San Francisco, California 94104:
<TABLE>
<CAPTION>
NAME TITLE
- ---- -----
<S> <C>
Paul B. Cleveland............................................. Managing Director
Glover H. Lawrence............................................ Vice President
David M. Wehner............................................... Associate
Erik A. Jorgensen............................................. Financial Analyst
</TABLE>
A-3
<PAGE>
SCHEDULE B
TRANSACTIONS OF PARTICIPANTS IN THE COMPANY'S SHARES
SINCE SEPTEMBER 1, 1996
<TABLE>
<CAPTION>
NUMBER OF SHARES
TRANSACTION ACQUIRED
NAME DATE (A) OR SOLD (S) NOTES
---- ----------- --------------------------------- -----
<S> <C> <C> <C> <C>
Glen M. Antle 6/8/98 50,000 (A) (1)
Richard Alberding none
Michael R. D'Amour 5/28/98 3,000 (S)
3,000 (S)
2/24/98 7,000 (S)
1/28/98 13,000 (S)
11/17/97 3,000 (S)
11/14/97 7,000 (S)
7/29/97 5,958 (S)
391 (A) (1)
391 (S)
1,146 (A) (1)
1,146 (S)
7/28/97 10,000 (S)
7/20/97 3,775 (S)
10/23/96 10,000 (S)
10/21/96 5,000 (S)
10/18/96 5,000 (S)
David K. Lam none
Keith R. Lobo none
Yen-Son Huang (Paul) none
William A. Hasler 7/24/98 2,000 (A)
Charles D. Kissner none
Michael H. Ferguson none
Jeffrey Jordon 8/17/98 801 (A) (2)
2/19/98 556 (S)
2/18/98 534 (S)
2/17/98 1,090 (A) (2)
2/3/98 2,667 (A) (1)
2,667 (S)
10/16/97 4,000 (A) (1)
4,000 (S)
7/22/97 2,325 (S)
7/18/97 3,000 (A) (1)
3,000 (S)
2/18/97 2,325 (A) (2)
Raymond K. Ostby none
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
TRANSACTION ACQUIRED
NAME DATE (A) OR SOLD (S) NOTES
---- ----------- ---------------------------------- -----
<S> <C> <C> <C> <C>
Dugald H. Stewart 8/17/98 120 (A) (2)
2/17/98 91 (A) (2)
5/8/97 1,333 (A) (1)
1,333 (S)
3,667 (A) (1)
3,667 (S)
11/22/96 1,875 (A) (1)
1,875 (S)
234 (A) (1)
234 (S)
Tung-Sun Tung 8/17/98 1,174 (A) (2)
2/20/98 2,948 (S)
543 (S)
1,000 (S)
1,000 (S)
2/17/98 721 (A) (2)
8/15/97 841 (A) (2)
5/30/97 5,000 (A) (1)
2,000 (S)
2/18/97 806 (A) (2)
11/29/96 2,000 (A) (1)
11/29/96 2,000 (S)
11/27/96 1,328 (A) (1)
2,948 (A) (1)
Donald J. McInnis 2/6/98 5,000 (S)
2/5/98 15,000 (S)
5,000 (S)
5,000 (S)
10/20/97 5,000 (S)
7,500 (S)
2,500 (S)
9,000 (S)
5,000 (S)
1,000 (S)
10/16/97 25,000 (S)
5,000 (S)
10/15/97 14,000 (S)
11,000 (S)
5,000 (S)
7/23/97 20,000 (S)
7/22/97 15,000 (S)
5,000 (S)
7/21/97 20,000 (S)
5/7/97 2,000 (S)
5/6/97 20,000 (S)
5/5/97 5,000 (S)
2/7/97 603,051 (A) (3)
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
TRANSACTION ACQUIRED
NAME DATE (A) OR SOLD (S) NOTES
---- ----------- ------------------------------------ -----
<S> <C> <C> <C> <C>
Christopher Tice 8/17/98 578 (A) (2)
2/23/98 1,200 (S)
2/19/98 255 (S)
2/18/98 500 (A) (2)
8/2/97 3,500 (S)
5/7/97 4,000 (S)
2/20/97 2,922 (A) (1)
Naeem Zafar 8/17/98 1,104 (A) (2)
2/17/98 820 (A) (2)
2/2/98 1,531 (A) (1)
1,531 (S)
1/30/98 1,000 (A) (1)
1,000 (S)
469 (A) (1)
469 (S)
11/28/97 750 (A) (1)
750 (S)
11/26/97 750 (S)
750 (A) (1)
11/7/97 500 (A) (1)
500 (S)
11/5/97 400 (S)
1,000 (A) (1)
1,000 (S)
10/14/97 418 (S)
8/25/97 818 (S)
8/17/97 796 (A) (2)
2/18/97 690 (A) (2)
12/2/96 965 (S)
</TABLE>
- --------
(1) Shares purchased pursuant to an option exercise.
(2) Shares purchased pursuant to the Company's 1993 Employee Qualified Stock
Purchase Plan.
(3) Shares acquired in the Company's acquisition of SpeedSim, Inc., in 1997.
B-3
<PAGE>
PROXY REVOCATION CARD
QUICKTURN DESIGN SYSTEMS, INC.
SPECIAL MEETING OF STOCKHOLDERS
CALLED BY MENTOR
THIS PROXY REVOCATION IS SOLICITED BY
THE BOARD OF DIRECTORS OF QUICKTURN DESIGN SYSTEMS, INC.
The undersigned hereby appoints Keith R. Lobo and Raymond K. Ostby, each of
them, with full power of substitution, the proxies of the undersigned to vote
all of the outstanding Common Shares, par value $1.00 per share ("Common
Shares"), of Quickturn Design Systems, Inc. (the "Company") that the undersigned
is entitled to vote at the Special Meeting of Stockholders of the Company called
by Mentor (the "Special Meeting"), or at any adjournment or postponement of the
Special Meeting, on the following matters which are described in the Proxy
Revocation Statement (the "Proxy Revocation Statement"; all capitalized terms
used herein without definition having the meaning set forth therein) of the
Board of Directors of the Company, dated September __, 1998, as follows:
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMEND THAT YOU VOTE "AGAINST"
EACH OF ITEMS 1 THROUGH 4.
(Please mark each proposal with an "X" in the appropriate box)
ITEM 1: To remove all members of the Board of Directors of the Company, other
than the Nominees (as defined below), if then directors.
/ / FOR / / AGAINST / / ABSTAIN
ITEM 2: To adopt an amendment to Section 3.2 of the Bylaws of the Company to
reduce the number of Company Directors from eight to five.
/ / FOR / / AGAINST / / ABSTAIN
ITEM 3: To elect Mentor's nominees to the Board of Directors of the Company:
Gideon Argov, Scott H. Brice, Harry L. Demorest, C. Scott Gibson, and Michael
J.K. Savage (collectively, the "Nominees")
/ / FOR / / AGAINST / / ABSTAIN
(Instruction: To grant authority to vote for only one
or more nominees, mark "AGAINST" above and print the name(s)
of the person(s) with respect to whom you wish to grant
authority to vote for in the space provided below).
____________________________________________________________
ITEM 4: To adopt a stockholder resolution repealing each provision of the
Bylaws or any amendment thereto adopted by the Board of Directors of the Company
subsequent to March 30, 1998 and prior to the effective date of the Mentor
proposals.
/ / FOR / / AGAINST / / ABSTAIN
The proxies of the undersigned named above are authorized to vote, in their
discretion, upon such other matters, procedural or substantive, as may properly
come before the Special Meeting and any adjournment or postponement thereof.
[Proxy Revocation Continued on Reverse]
-1-
<PAGE>
THIS PROXY REVOCATION WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
MARKED HEREIN BY THE UNDERSIGNED. IF NO MARKING IS MADE AS TO ANY PROPOSAL OR
ALL PROPOSALS, THIS PROXY REVOCATION WILL BE VOTED "AGAINST" PROPOSALS 1 THROUGH
4 DESCRIBED ABOVE. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY
REVOCATION STATEMENT OF THE BOARD OF DIRECTORS OF THE COMPANY DATED SEPTEMBER
__, 1998, SOLICITING PROXY REVOCATIONS FOR THE SPECIAL MEETING.
All previous proxies given by the undersigned to vote at the Special
Meeting or at any adjournment or postponement thereof are hereby revoked.
Please sign exactly as name appears on this Proxy Revocation:
____________________________
(Signature)
____________________________
(Signature, if jointly held)
Title: ____________________
Dated: _________________, 1998
When shares are held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee or guardian, give full title as such.
If a corporation, sign in full corporate name by President or other authorized
officer. If a partnership, sign in partnership name by authorized person.
PLEASE COMPLETE, SIGN, DATE AND MAIL THIS PROXY REVOCATION CARD
PROMPTLY IN THE ENCLOSED ENVELOPE.
-2-
