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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
(AMENDMENT NO. 1)
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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)
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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"), relates to an offer by MGZ
Corp., a Delaware corporation ("MGZ") and a wholly owned subsidiary of Mentor
Graphics Corporation, a Delaware 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 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
The response to Item 7 is hereby amended by adding the following after the
final paragraph of section (b)(i) of Item 7:
On August 25, 1998, pursuant to the terms of the Rights Agreement, the
Rights Agreement was amended in accordance with the Board resolution described
in the preceeding paragraph. The press release announcing the amendment to the
Rights Agreement is filed as Exhibit 11 hereto, and is incorporated herein by
reference.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The response to Item 8 is hereby amended by adding the following after the
final paragraph of Item 8:
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, seeking
injunctive relief and alleging violation of the federal securities laws.
Quickturn's answer and counterclaims are filed as Exhibit 12 hereto, and are
incorporated herein by reference. The press release announcing the filing of
the answer and the counterclaims is filed as Exhibit 11 hereto, and is
incorporated herein by reference.
ITEM 9. MATERIALS 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 11 Press Release of the Company dated August 25, 1998.
Exhibit 12 Quickturn Answer and Counterclaims for Injunctive and other
Relief dated August 25, 1998.
</TABLE>
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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.
Dated: August 25, 1998
QUICKTURN DESIGN SYSTEMS, INC.
By:/s/ Keith R. Lobo
----------------------------------
Keith R. Lobo
President and Chief Executive
Officer
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EXHIBIT 11
QUICKTURN DESIGN SYSTEMS FILES LAWSUIT IN DELAWARE
AGAINST MENTOR GRAPHICS
SAN JOSE, CALIF. - August 25, 1998 - Quickturn Design Systems, Inc.
(Nasdaq:QKTN) today announced that it has filed counterclaims against Mentor
Graphics Corporation (Nasdaq:MENT) and its wholly owned subsidiary, MGZ
Corporation, (collectively "Mentor") in the United States District Court for
the District of Delaware. Among other things, Quickturn alleges that Mentor's
Schedule 14D-1 and solicitation of agent designations filed with the
Securities and Exchange Commission are false and misleading. In these filings,
Mentor fails to disclose the full impact on Mentor of the adverse rulings in
its various patent litigations with Quickturn.
Quickturn is seeking, among other things, injunctive relief to prevent
Mentor from the continued execution of its unlawful tender offer and to
protect Quickturn and its stockholders from Mentor's attempt to acquire
Quickturn in a manner that violates the federal securities laws.
Quickturn has also filed an answer denying all material allegations
made in a complaint filed by Mentor.
In addition, Quickturn made certain amendments, as previously
announced, to its Preferred Shares Rights Agreement.
Quickturn Design Systems, Inc. is the leading provider of verification
products and time-to-market engineering (TtME/TM/) services for the design of
complex integrated circuits and electronic systems. The company's products are
used worldwide by developers of high-performance computing, multimedia,
graphics and communications systems. Quickturn is headquartered at 55 W.
Trimble Road, San Jose, CA 95131-1013; Telephone: 408/914-6000. For more
information, visit the Quickturn Web site at www.quickturn.com or send e-mail
to [email protected].
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EXHIBIT 12
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MENTOR GRAPHICS CORPORATION )
and MGZ CORP., )
)
Plaintiffs, )
)
v. )
)
QUICKTURN DESIGN SYSTEMS, INC., ) CIV. A. NO.: 98-473-RRM
)
Defendant. )
- ------------------------------- )
QUICKTURN DESIGN SYSTEMS, INC., )
)
Counterclaimant, )
)
v. )
)
MENTOR GRAPHICS CORPORATION )
and MGZ CORP., )
)
Counterdefendants. )
- ------------------------------- )
ANSWER AND COUNTERCLAIMS FOR INJUNCTIVE AND
OTHER RELIEF FOR VIOLATION OF FEDERAL SECURITIES LAWS
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ANSWER
------
Quickturn Design Systems, Inc. ("Quickturn") answers the allegations of the
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 further
admits that the Quickturn stockholders did not vote on the Rights Plan. Except
as expressly admitted, Quickturn denies each and every allegation of paragraph
9.
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.
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11. Quickturn denies each and every allegation of paragraph 11.
12. Quickturn avers that the allegations contained in paragraph 12 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.
13. 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."
14. Answering paragraph 14, Quickturn avers that the Offer to Purchase
speaks for itself. Except as so averred, Quickturn denies each and every
allegation of paragraph 14 and its subparts.
15. Quickturn denies each and every allegation of paragraph 15.
16. 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 16.
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17. Quickturn admits that it did not accept Mentor's acquisition proposal.
Quickturn is without sufficient knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 17 regarding
the actions of Mentor; and on that basis denies those allegations.
18. 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 18 regarding Mentor's purpose in soliciting agent designations or
Mentor's actions, and on that basis denies those allegations.
19. 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.
20. 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 20 regarding the actions of Mentor, and on
that basis denies those allegations.
20.a. Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 20a regarding
the actions of Mentor, and on that basis denies those allegations.
20.b. Quickturn denies each and every allegation of paragraph 20.b.
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20.c. Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 20.c. regarding
the intent of Mentor, and on that basis denies those allegations.
20.d. Quickturn denies each and every allegation of paragraph 20.d.
20.e. Quickturn is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in paragraph 20.e. regarding
the intent of Mentor, and on that basis denies the allegations.
21. Quickturn admits that Mentor has demanded that Quickturn produce a
list of its stockholders. Except so admitted, Quickturn is without knowledge or
information sufficient to form a belief as to the truth of the allegations
contained in paragraph 21 and on that basis denies those allegations.
22. Quickturn avers that the Declaratory Judgment Act speaks for itself.
Except as so averred, Quickturn denies each and every allegation of paragraph
22.
23. Quickturn denies each and every allegation of paragraph 23.
24. Quickturn denies each and every allegation of paragraph 24.
25. Quickturn denies the allegations contained in paragraph 25 and denies
that the public disclosures and documents filed with the SEC by Mentor comply
fully with all applicable provisions of law.
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.
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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").
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.
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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
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
------------
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
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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 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
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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 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.
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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
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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 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
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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.
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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
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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
------------------------------------------------------------------------
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 granted Quickturn's
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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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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. Rhines informed Mr. Antle
that Mentor had already determined to proceed with its hostile tender offer.
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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 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
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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 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
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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 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
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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] litgation 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.
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.
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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.
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
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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 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
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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 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
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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;
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
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applicablility 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.
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
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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 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.
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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 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
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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:
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
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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 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
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H. Such other and further relief as the Court may deem just and proper.
Dated: August 25, 1998
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ Kenneth J. Nachbar
________________________________
Kenneth J. Nachbar (#2067)
William M. Lafferty (#2755)
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
28
