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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
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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)
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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)
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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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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Quickturn Design Systems, Inc., a
Delaware corporation (the "Company" or "Quickturn"), and the address of the
principal executive offices of the Company is 55 W. Trimble Road, San Jose,
California 95131. The title and the class of equity securities to which this
statement relates is the Common Stock, par value $.001 per share (the "Common
Stock"), of the Company including the associated preferred stock purchase
rights (the "Rights" and, together with the Common Stock, the "Shares") issued
pursuant to the Preferred Shares Rights Agreement, dated as of January 10,
1996, as amended, between the Company and BankBoston, N.A. (formerly known as
the First National Bank of Boston), as Rights Agent (the "Rights Agreement").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1, dated August 12, 1998 (the "Mentor Schedule 14D-
1"), as amended on August 20, 1998, filed with the Securities and Exchange
Commission (the "SEC") by MGZ Corp. ("MGZ"), a Delaware corporation and wholly
owned subsidiary of Mentor Graphics Corporation, an Oregon corporation
("Mentor"), relating to an offer by MGZ to purchase all outstanding Shares at
a price of $12.125 per Share, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in MGZ's Offer
to Purchase and related Letter of Transmittal (which together constitute the
"Offer"). According to the Mentor Schedule 14D-1, the principal executive
offices of each of Mentor and MGZ are located at 8005 S. W. Boeckman Road,
Wilsonville, Oregon 97070.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the entity filing
this statement, are set forth in Item 1 above.
(b) General. Certain information regarding contracts, agreements,
arrangements or understandings between the Company and certain of its
executive officers, directors and affiliates is set forth in the Company's
Notice for Annual Meeting of Stockholders and Proxy Statement dated March 13,
1998, relating to its 1998 Annual Meeting of Stockholders (the "Proxy
Statement"), under the headings "Compensation of Directors," "Beneficial
Security Ownership of Management and Certain Beneficial Owners," "Executive
Officer Compensation" and "Report of the Compensation Committee of the Board
of Directors." Such sections of the Proxy Statement are filed as Exhibit 1
hereto and are incorporated herein by reference. To the knowledge of the
Company, as of the date hereof, there are no material contracts, agreements,
arrangements or understandings, or any actual or potential conflicts of
interest between the Company or its affiliates and (1) the Company, its
executive officers, directors or affiliates or (2) MGZ, Mentor or their
respective executive officers, directors or affiliates, except as described
herein or incorporated by reference.
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,
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.
Mentor Agreements. In connection with an asset purchase agreement between
the Company and Mentor dated February 28, 1992, pursuant to which the Company
acquired certain assets from Mentor, the Company granted to Mentor a warrant
to purchase shares of Common Stock that may be exercised at a per share price
of $30.00 and expires on February 27, 2000 (the "Mentor Warrant"). In addition
to the Mentor Warrant, the Company has outstanding a promissory note payable
to Mentor dated September 29, 1993 (the "Mentor Note"),
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pursuant to which the Company agreed to pay Mentor the principal sum of
$3,000,000, together with interest on the outstanding principal sum at the
rate of 4% in five equal installments of $600,000, the last of which is due
and payable on September 30, 1998. The Mentor Note was issued in connection
with the early termination of a distribution agreement between Mentor and PiE
Design Systems, Inc. ("PiE"), which merged with the Company in June 1993. The
Mentor Warrant and the Mentor Note are filed as Exhibits 2 and 3 hereto,
respectively, and are incorporated herein by reference. The foregoing
descriptions of the Mentor Warrant and the Mentor Note are qualified by
reference to such Exhibits.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Background and Recommendation.
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 Offer. Mr. Ostby declined to comment.
Later that evening, Mr. Glen Antle, Chairman of the board of directors of the
Company ("the Board"), was given a letter by Mr. Walden Rhines, Chief
Executive Officer and President of Mentor, stating the principal terms of the
Offer. Mr. Rhines asked Mr. Antle to accept the 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 Offer. Also on August 12,
1998, Mentor filed preliminary materials with the SEC to solicit agent
designations, final materials for which were filed by Mentor on August 20,
1998 (the "Solicitation").
On August 12, 1998, the Company announced, in response to the Offer, that
the Company's Board of Directors would study the Offer and make its
recommendation to stockholders in due course. The Company urged all its
stockholders to take no action with respect to the Offer and any related
activities until the Company's Board made its recommendation. The press
release announcing the response of the Board is attached hereto as Exhibit 4.
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 advisers and considered the Offer and various matters
related thereto, including presentations by the Company's senior management
and financial advisers, Hambrecht & Quist LLC ("H&Q"), on the terms of the
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 Offer with Mr. Lobo, including future prospects
for key management and employees of the Company. Mr. Lobo stated that he would
convey Mr. Rhine's comments to the Company's Board. No further discussions
between Mr. Lobo and Mr. Rhine have occurred since that time.
On August 21, 1998, the Board held a further meeting, at which the Board
again reviewed and considered the 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
H&Q concerning analyses of the Offer. At the conclusion of its presentations,
H&Q provided to the Board its opinion that the Offer was inadequate from a
financial point of view. After further review by the Board and consideration
of the interests of the Company's stockholders, the Board determined that the
Offer was inadequate and not in the best interests of the Company's
stockholders, that the 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 Offer. This
determination was based on, among other
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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.
ACCORDINGLY, THE BOARD RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS REJECT THE
OFFER AND NOT TENDER THEIR SHARES PURSUANT TO THE OFFER.
A copy of a letter to stockholders communicating the Board's recommendation
and a form of press release announcing such recommendation are filed as
Exhibits 5 and 6 hereto, respectively, and are incorporated herein by
reference.
(b) Reasons for the Recommendation.
In reaching the conclusions referred to in Item 4(a), the Board took into
account numerous factors, including but not limited to the following:
(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 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.
. 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.
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(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 Offer did not fully reflect the long-term
value inherent in the Company. In this regard, the Board noted that, as of
the Offer, the Offer represented a more than 25% discount from the highest
closing price of the Common Stock during the year preceding the 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 H&Q 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
Offer to be successful; comparisons of the terms of the 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 opinion of H&Q to the effect that the consideration to be
received by the stockholders in the Offer is inadequate, from a financial
point of view, to such holders as of the date of such opinion.
(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 Offer.
(vi) The disruptive effect of the 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.
(viii) The various circumstances of the Offer and conditions to which the
Offer is subject.
In view of the wide variety of factors considered in connection with its
evaluation of the 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.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Letter Agreement with H&Q. Pursuant to a letter agreement dated August 14,
1998 (the "Letter Agreement"), the Company has retained Hambrecht & Quist LLC
("H&Q") as its exclusive financial advisor with respect to the Offer and the
evaluation of strategic alternatives. Pursuant to the Letter Agreement, the
Company has agreed to pay H&Q:
(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 Offer;
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(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.
Pursuant to the Letter Agreement, the Company agreed to indemnify H&Q
against all liability resulting from the performance of H&Q's duties under
such agreement, except for liability resulting from the gross negligence or
willful misconduct of H&Q. The Company has also agreed to reimburse H&Q
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 H&Q, if requested by the Board, will, among other things, assist
the Company as an agent in contracting, qualifying and negotiating with
potential acquirers approved by the Company.
The Letter Agreement may be terminated at any time by either party thereto,
in which event, H&Q 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 H&Q.
Other Agreements. The Company also has retained Abernathy MacGregor Frank as
a public relations advisor in connection with the Offer and has retained
Morrow & Co., Inc. to assist the Company in connection with communications
with stockholders and to provide other services in connection with the Offer.
The Company will pay Abernathy MacGregor Frank and Morrow & Co., Inc.
reasonable and customary fees for their services, reimburse them for their
reasonable expenses and provide customary indemnities.
Except as described above, 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 Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) There have been no transactions in the Shares during the past 60 days by
the Company or, to the Company's knowledge, by any executive officer,
director, affiliate or subsidiary of the Company, except that Glen M. Antle,
Chairman of the Board, exercised an option to purchase 50,000 shares of Common
Stock on June 8, 1998, at a per share exercise price of $0.64; William A.
Hasler, Director, purchased 2,000 shares on the
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open market on July 24, 1998, at a per share price of approximately $7.84;
Tung-sun Tung, Vice President, Research & Development, purchased 1,174 shares
of Common Stock under the Company's 1993 Employee Qualified Stock Purchase
Plan (the "ESPP") on August 17, 1998, at a per share price of approximately
$8.82; Naeem Zafar, Vice President of Marketing, purchased 1,104 shares of
Common Stock under the ESPP on August 17, 1998, at a per share price of
approximately $8.82; Jeffrey K. Jordan, Vice President, North American Sales,
purchased 801 shares of Common Stock under the ESPP on August 17, 1998, at a
per share price of approximately $8.82; Christopher J. Tice, Vice President,
World-Wide Support Services and COBALT Technology, purchased 578 shares of
Common Stock under the ESPP on August 17, 1998, at a per share price of
approximately $8.82; and Dugald H. Stewart, Vice President, Manufacturing,
purchased 120 shares of Common Stock under the ESPP on August 17, 1998, at a
per share price of approximately $8.82.
(b) To the Company's knowledge, none of the Company's executive officers,
directors, subsidiaries currently intends to tender Shares which are held of
record or beneficially owned by them pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) No negotiation is underway or is being undertaken by the Company in
response to the Offer which relates to or would result in (1) an extraordinary
transaction, such as a merger or reorganization, involving the Company or any
of its subsidiaries; (2) a purchase, sale or transfer of a material amount of
assets by the Company or any of its subsidiaries; (3) a tender offer for or
other acquisition of securities by or of the Company; or (4) any material
change in the current capitalization or dividend policy of the Company.
Notwithstanding the foregoing, the Board may in the future engage in
negotiations in response to the Offer that could have one of the effects
specified in the preceding paragraph. The Company has determined that
disclosure with respect to the parties to, and the possible terms of, any
transactions or proposals of the type referred to in the preceding paragraph
might jeopardize any discussions or negotiations that the Company may conduct.
Accordingly, the Board has adopted a resolution instructing management not to
disclose the possible terms of any such transactions or proposals, or the
parties thereto, unless and until an agreement in principle relating thereto
has been reached or, upon the advice of counsel, as may otherwise be required
by law.
(b)(i) The Rights Agreement.
Effective as of January 10, 1996, the Board declared a dividend payable
January 22, 1996 of one Right for each outstanding share of Common Stock of
the Company held of record on January 22, 1996. The Rights were issued
pursuant to the Rights Agreement referred to in Item 1 above. Each Right
entitles its registered holder to purchase from the Company, after the
Distribution Date (as hereinafter defined), one one-thousandth of a share of
the Company's Series A Participating Preferred Stock at an exercise price of
$50.00.
Pursuant to the Rights Agreement as originally adopted, the Rights will not
become exercisable or transferable or be distributed apart from the Common
Stock until the earlier of (i) 10 days (or such later date as may be
determined by a majority of the Board of Directors, excluding directors
affiliated with the Acquiring Person, (the "Continuing Directors")), following
a public announcement that an Acquiring Person has become such, and (ii) 10
days (or such later date as may be determined by a majority of the Continuing
Directors) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of the
outstanding Shares. The earlier of such dates is referred to as the
"Distribution Date." An Acquiring Person is any person who or which, together
with all affiliates or associates of such person, is the beneficial owner of
15% or more of the Shares then outstanding, other than the Company, any
subsidiary of the Company, any employee benefit plan of the Company or any
subsidiary of the Company or any entity holding Shares for or pursuant to the
terms of any such plan.
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On August 21, 1998, pursuant to the terms of the Rights Agreement, the Board
adopted a resolution to defer the occurrence of a Distribution Date, as a
result of the Offer, to a date to be determined by the Board. Without such
action by the Board, the Distribution Date would have been August 22, 1998
(i.e., the tenth day following the public announcement of the Offer by Mentor
and MGZ).
In addition, on August 21, 1998, pursuant to the terms of the Rights
Agreement, the Board adopted a resolution to amend the Rights Agreement (x) to
delete all provisions requiring the concurrence of a majority of Continuing
Directors for (1) the redemption or exchange of the Rights at or after the
time a person becomes an Acquiring Person or (2) the amendment of the Rights
Agreement on or after the Distribution Date, (y) to add a requirement that if
a majority of the Company's Board is elected at an annual or special meeting
of stockholders, then for a period of 180 days following such election (1) the
Rights cannot be redeemed or exchanged and (2) the Rights Agreement cannot be
amended, if such redemption, exchange or amendment is reasonably likely to
have the purpose or effect of facilitating an acquisition of the Company by a
person or entity who proposed, nominated or supported a director of the
Company so elected at the annual or special meeting, and (z) to add a clause
to the definition of Distribution Date pursuant to which the Board may
determine the Distribution Date applicable to Mentor and MGZ in connection
with the Offer or any amendment to the Offer or any subsequent tender offer by
Mentor or its Affiliates or Associates (each as defined in the Rights
Agreement).
(b)(ii) Amendment to Bylaws.
On August 21, 1998, pursuant to the Company's Certificate and Bylaws, the
Board adopted a resolution to amend Section 2.3 of Article II of the Company's
Bylaws to read in its entirety as follows:
"A special meeting of the stockholders may be called at any time by (i) the
board of directors, (ii) the chairman of the board, (iii) the president,
(iv) the chief executive officer or (v) subject to the procedures set forth
in this Section 2.3, one or more stockholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at
that meeting.
Upon request in writing sent by registered mail to the president or chief
executive officer by any stockholder or stockholders entitled to call a
special meeting of stockholders pursuant to this Section 2.3, the board of
directors shall determine a place and time for such meeting, which time
shall be not less than ninety (90) nor more than one hundred (100) days
after the receipt and determination of the validity of such request, and a
record date for the determination of stockholders entitled to vote at such
meeting in the manner set forth in Section 2.12 hereof. Following such
receipt and determination, it shall be the duty of the secretary to cause
notice to be given to the stockholders entitled to vote at such meeting, in
the manner set forth in Section 2.4 hereof, that a meeting will be held at
the place and time so determined."
(b)(iii) General.
Other than as set forth above, there is no transaction, board resolution,
agreement in principle or signed contract in response to the tender offer,
which relates to or would result in (1) an extraordinary transaction, such as
a merger or reorganization, involving the Company or any of its subsidiaries;
(2) a purchase, sale or transfer of a material amount of assets by the Company
or any of its subsidiaries; (3) a tender offer for or other acquisition of
securities by or of the Company; or (4) any material change in the current
capitalization or dividend policy of the Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Patent Litigation with Mentor.
In January 1996, the Company filed a complaint with the International Trade
Commission (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 alleges that Mentor's
hardware logic emulation systems infringe several of the Company's patents.
Some of these patents were purchased by the
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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, 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 and purported threats by Quickturn to sue Aptix for patent
infringement. Quickturn has moved for summary judgment in its favor with
regards to these allegations. A hearing on these matters was held on August 4,
1998. Quickturn is awaiting a decision.
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 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.
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.
Litigation Concerning the Offer.
On August 12, 1998, Mentor and MGZ filed a complaint (the "Mentor Delaware
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 Rights or to render the Rights inapplicable to the Offer
and the proposed merger or failure to approve the Offer and the proposed
merger would constitute a breach of the Board's fiduciary
9
<PAGE>
duties under Delaware law, (ii) invalidating the Rights or compelling the
Board to redeem the Rights or render the Rights inapplicable to the Offer and
the proposed merger, (iii) declaring that failure to approve the Offer and the
proposed merger for purposes of Section 203 of Delaware Law would constitute a
breach of the Board's fiduciary duties under Delaware law, (iv) compelling the
Company Board to approve the Offer and the proposed merger 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 Offer, the
Solicitation 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, provided that Mentor has
obtained agent designations from Company stockholders holding not less than
10% of the outstanding Shares of the Company 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. The Mentor Delaware Complaint is
filed as Exhibit 7 hereto and is incorporated herein by reference. The
foregoing description is qualified by reference to such Exhibit.
Also on August 12, 1998, Mentor and MGZ filed a complaint (the "Mentor
Federal 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 Exchange Act and any other federal
securities laws, rules and regulations deemed applicable to the Offer and the
Solicitation. The Mentor Federal Complaint is filed as Exhibit 8 hereto and is
incorporated herein by reference. The foregoing description is qualified by
reference to such Exhibit.
On August 13, 1998, Howard Shapiro filed a purported class action suit on
behalf of individual plaintiffs (the "Shapiro Complaint") 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. A copy of the Shapiro Complaint is filed as Exhibit 9
hereto and is incorporated herein by reference. The foregoing description is
qualified by reference to such Exhibit.
Antitrust Matters.
On August 20, 1998, the Company received from MGZ written notice (the "MGZ
Letter") that Mentor filed a premerger notification form (the "Premerger
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 Premerger
Form is to give the FTC and the DOJ notice of the merger Mentor proposes to
effect with the Company if the Offer is consummated. The Company is required
to file its own Premerger Form no later than 10:00 a.m. E.S.T. on August 31,
1998. The applicable waiting period under the HSR Act will expire on September
4, 1998, unless terminated early or extended by the FTC or the DOJ. The MGZ
Letter is filed as Exhibit 10 hereto and is incorporated herein by reference.
The foregoing description is qualified by reference to such Exhibit.
10
<PAGE>
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS
<TABLE>
<C> <S>
Exhibit 1 The "Compensation of Directors," "Beneficial Security Ownership
of Management and Certain Beneficial Owners," "Executive
Officer Compensation" and "Report of the Compensation Committee
of the Board of Directors" sections of the Proxy Statement.
Exhibit 2 Warrant granted by the Company to Mentor dated February 28,
1992.
Exhibit 3 Company unsecured subordinated promissory note dated September
29, 1983.
Exhibit 4 Press Release of the Company dated August 12, 1998.
Exhibit 5* Letter to Stockholders regarding Board's recommendation dated
August 24, 1998.
Exhibit 6 Press Release of the Company announcing the Board's
recommendation dated August 24, 1998.
Exhibit 7 Complaint in MENTOR GRAPHICS CORPORATION AND MGZ CORP. V.
QUICKTURN DESIGN SYSTEMS, ET AL., C.A. No. 16584NC, filed in
the Court of Chancery of the State of Delaware on August 12,
1998.
Exhibit 8 Complaint in MENTOR GRAPHICS CORPORATION AND MGZ CORP. V.
QUICKTURN DESIGN SYSTEMS, No. 98-423, filed in the United
States District Court for the District of Delaware on August
12, 1998.
Exhibit 9 Complaint in HOWARD SHAPIRO V. GLEN M. ANTLE, ET AL., C.A. No.
16588NC, filed in the Court of Chancery of the State of
Delaware on August 13, 1998.
Exhibit 10 Letter from MGZ to the Company dated August 20, 1998 regarding
the Hart-Scott-Rodino Premerger Notification Form filed by
Mentor on or about August 20, 1998.
</TABLE>
- --------
* Included in materials mailed to stockholders of the Company.
11
<PAGE>
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 24, 1998
QUICKTURN DESIGN SYSTEMS, INC.
By:/s/ Keith R. Lobo
----------------------------------
Keith R. Lobo
President and Chief Executive
Officer
12
<PAGE>
EXHIBIT 1
---------
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 members of the Board of Directors receive an annual cash retainer of
$12,000 and an annual committee membership stipend of $1,500 for each committee
of the Board of Directors 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 of Directors 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
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), pursuant
to Rule 16b-3 promulgated thereunder.
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Common Stock as
of February 25, 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
officers named in the Summary Compensation Table 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 14.6%
7701 France Avenue South, Suite 500
Edina, MN 55435
State of Wisconsin Investment Board(2)........................................... 1,149,500 6.5%
121 East Wilson Street
Madison, WI 53707
DIRECTORS
Glen M. Antle(3)................................................................. 323,282 1.8%
Keith R. Lobo(4)................................................................. 473,750 2.6%
Richard C. Alberding(5).......................................................... 15,000 *
Michael R. D'Amour(6)............................................................ 44,471 *
Dr. Yen-Son (Paul) Huang(7)...................................................... 351,425 2.0%
Dr. David K. Lam(5).............................................................. 7,917 *
NAMED OFFICERS
Jeffrey K. Jordan(5)............................................................. 16,271 *
Raymond K. Ostby(8).............................................................. 111,142 *
Dugald H. Stewart(9)............................................................. 30,166 *
Tung-sun Tung(10)................................................................ 69,673 *
All directors and executive officers as a group (20 persons)(11)................. 2,710,805 14.4%
</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 February 25, 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 207,270 shares held by The Antle Family Trust, as to which Mr.
Antle shares voting and dispositive power, and 116,012 shares of Common
Stock exercisable within sixty days of February 25, 1998.
(4) Includes options to purchase 468,750 shares of Common Stock exercisable
within sixty days of February 25, 1998.
(5) All such shares are subject to options exercisable within sixty days of
February 25, 1998.
(6) Includes 37,388 shares held by The D'Amour Family Trust, as to which Mr.
D'Amour shares voting and dispositive power, and 7,083 shares of Common
Stock subject to options exercisable within sixty days of February 25,
1998.
(7) Includes 37,548 shares held by The Huang Living Trust, as to which Mr.
Huang shares voting and dispositive power, and 28,125 shares of Common
Stock subject to options exercisable within sixty days of February 25,
1998.
(8) Includes options to purchase 103,042 shares of Common Stock exercisable
within sixty days of February 25, 1998.
(9) Includes options to purchase 29,896 shares of Common Stock exercisable
within sixty days of February 25, 1998.
(10) Includes options to purchase 56,760 shares of Common Stock exercisable
within sixty days of February 25, 1998.
(11) Includes options to purchase 1,117,064 shares of Common Stock exercisable
within sixty days of February 25, 1998.
<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 the last fiscal
year (the "Named Officers"), for services rendered to the Company in all
capacities during the last three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Keith R. Lobo................................. 1997 $250,000 $144,000 0 $11,168
PRESIDENT AND CHIEF EXECUTIVE OFFICER 1996 $250,000 $200,000 100,000 $ 6,768
1995 $227,369 $150,000 20,000 $ 3,978
Jeffrey K. Jordan............................. 1997 $227,351(3) $ 17,000 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, RESEARCH & DEVELOPMENT 1996 $174,584 $ 64,000 60,000 $ 8,873
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 $126,370 from commissions.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") is responsible for establishing
policies and programs which determine the compensation of the Company's
executive officers, as well as supervising and making recommendations to the
Board on compensation matters generally. The Committee also has exclusive
authority to grant stock options to executive officers of the Company under the
1988 Stock Option Plan (the "1988 Plan"), the 1996 Supplemental Stock Plan (the
"1996 Plan") and the 1997 Stock Option Plan (the "1997 Plan").
COMPENSATION PHILOSOPHY AND POLICIES
The Committee's compensation philosophy is to provide cash and equity
incentives to the Company's officers and other employees through programs
designed to attract and retain personnel of the highest caliber in order to
maintain the Company's competitive position in its market. The Company seeks to
motivate its key employees by rewarding superior performance and by joining the
interests of employees to those of the stockholders through equity incentives.
The Committee seeks to foster teamwork and to motivate high performance
through a bonus program which depends upon achievement of corporate performance
objectives and, increasingly, individual performance objectives.
The Committee's policy is to establish a total compensation program at the
beginning of each year which is designed to enhance the Company's ability to
meet its financial, technical and other strategic goals for the year, while
creating an environment which will attract, retain and motivate highly skilled
officers and key employees to promote the success of the Company's business.
ELEMENTS OF COMPENSATION
Compensation for officers and key employees includes both cash and equity
elements.
Cash compensation consists of base salary, which is determined on the basis
of the level of responsibility, expertise and experience of the employee, taking
into account competitive conditions in the industry. In addition, cash
performance awards are paid to officers and other key employees up to an
established percentage of base salary, subject to meeting all or a portion of
targeted objectives. Performance awards are based on achievement of corporate
financial goals and discretionary individual performance reviews. Compensation
of sales personnel includes two additional components, sales commissions and
sales bonuses tied to quarterly and annual targets.
Ownership of Common Stock is a key element of executive compensation.
Officers and other employees of the Company are eligible to participate in the
1988 Plan, the 1996 Plan, the 1997 Plan and the 1993 Employee Qualified Stock
Purchase Plan (the "Purchase Plan"). The 1988 Plan, the 1996 Plan and the 1997
Plan permit the Board of Directors or any committee delegated by the Board to
grant stock options to employees on such terms as the Board or its committee may
determine. The Committee has sole authority to grant stock options to executive
officers of the Company and is currently administering stock option grants to
all employees. In determining the size of a stock option grant to a new officer
or other key employee, the Committee takes into account equity participation by
comparable employees within the Company, external competitive circumstances and
other relevant factors. Additional options may be granted to current employees
to reward exceptional performance or to provide additional unvested equity
incentives. These options typically vest over a four-year period and thus
require the employee's continuing efforts on behalf of the Company. The Purchase
Plan permits employees to acquire Common Stock through payroll deductions and
promotes broad-based equity participation throughout the Company. The Committee
believes that it is in the stockholders' interests to link employees'
compensation as closely as possible to equity appreciation and thus to share
with the employees the benefits of their efforts on behalf of the Company's
success.
The Company also maintains a 401(k) Plan to provide retirement benefits
through tax deferred salary deductions for all its employees. The Company may
also make discretionary contributions towards the 401(k) Plan. The Company made
contributions of $497,000 to the 401(k) Plan for fiscal 1997.
<PAGE>
1997 EXECUTIVE COMPENSATION
Executive compensation for fiscal 1997 included base salary and cash
performance awards, plus, in the case of sales executives, sales commissions and
sales bonuses. Executive officers, like other employees, were eligible for
option grants under the 1988 Plan, the 1996 Plan and the 1997 Plan, and to
participate in the Purchase Plan. Performance awards for the 1997 fiscal year
were based upon achievement by the Company of corporate revenue and profit goals
which had been established at the beginning of the year (as to which no payments
were made in fiscal 1997) and individual performance goals. Performance awards
were paid after the 1997 fiscal year end.
CHIEF EXECUTIVE OFFICER COMPENSATION FOR 1997
Keith R. Lobo joined the Company in November 1992. His annual base
compensation is set by the Committee in January of each year, after review of
salaries paid to chief executives of comparable companies and in light of Mr.
Lobo's performance during the prior year. Like all officers, he is eligible to
receive options under the 1988 Plan, the 1996 Plan and the 1997 Plan, and to
participate in the Purchase Plan. Mr. Lobo received a performance award for
fiscal 1997 in the amount of $144,000. Mr. Lobo declined an increase in base
compensation for fiscal 1997 over fiscal 1996.
SUMMARY
The Committee sets policy and administers the Company's cash and equity
incentive programs to attract and retain highly skilled executives who will
promote the Company's business goals and to incentivize them to achieve goals
which will build long-term stockholder value.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Richard C. Alberding
Glen M. Antle
<PAGE>
EXHIBIT 2
---------
THESE WARRANTS AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THESE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE
STATE LAW, AND NO INTEREST IN SUCH WARRANTS MAY BE SOLD, DISTRIBUTED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION INVOLVING THE SECURITIES OR (B) THE COMPANY
RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES STATING
THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION AND SUCH OPINION IS IN FORM
AND SUBSTANCE SATISFACTORY TO THE COMPANY AND FROM COUNSEL SATISFACTORY TO THE
COMPANY.
No. W-2
STOCK PURCHASE WARRANTS
TO PURCHASE SHARES OF COMMON STOCK
QUICKTURN SYSTEMS, INC.
400,000 WARRANTS
THIS IS TO CERTIFY that, for value received, MENTOR GRAPHICS CORPORATION, or its
assigns (Holder), is entitled, at any time after February 28, 1992 and not later
than 5:00 p.m., Pacific Time on February 27, 2000 (Expiration Date), subject to
the provisions of these Warrants, to purchase 400,000 shares of fully paid and
nonassessable shares of the Common Stock of QUICKTURN SYSTEMS, INC., a
California corporation (Company), at a price of $15.00 per share (the Purchase
Price Per Share) (such number of shares and the Purchase Price Per Share being
subject to adjustment as provided in these Warrants), upon the surrender of this
certificate (with the attached form of Election to Purchase completed and
executed by the Holder) and delivery of a check payable to the Company, in the
amount of the Purchase Price Per Share multiplied by the number of shares for
which these Warrants are being exercised, to the Company at its principal
office. Such surrender and payment are referred to as the exercise of these
Warrants.
All or part of these Warrants may be assigned at any time prior to the
Expiration Date. In the case of any assignment, upon request and upon surrender
of this certificate to the Company at its principal office with the attached
form of Assignment duly completed and executed, the Company will cause to be
executed and delivered one or more certificates of like tenor evidencing in the
aggregate the number of Warrants to which this certificate relates registered in
the name of the person or persons entitled to such certificate upon assignment.
At any time prior to the Expiration Date, upon surrender of this certificate to
the Company, this certificate may be exchanged, alone or with other certificates
of like tenor, for a new certificate or certificates of like tenor evidencing in
the aggregate the number of Warrants, to which this Certificate and such other
certificates relate, registered in the name of the Holder.
<PAGE>
The Warrants evidenced by this certificate shall be void and of no effect and
the Holder's rights shall cease after 5:00 p.m. Pacific Time on the Expiration
Date.
For the purpose of these Warrants, the term "Common Stock" shall mean, subject
to the provisions of subdivision 2 below, shares of the class designated as
Common Stock of the Company at February 28, 1992 or shares of any class or
classes resulting from any reclassification or reclassifications of such Common
Stock; provided, that if at any time there shall be more than one such resulting
class, the shares of each such class then so issuable shall be substantially in
the proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
The Warrants evidenced by this certificate are subject to the following
additional terms and conditions:
1. In case the Company shall issue any shares of its Common Stock as a stock
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares, then, in either of such cases, the Purchase Price Per
Share in effect at the time of such action shall be proportionately reduced and
the number of shares of Common Stock at that time purchasable pursuant to these
Warrants shall be proportionately increased; and, conversely, in the event the
Company shall contract the number of outstanding shares of Common Stock by
combining such shares into a smaller number of shares, then, in such case, the
Purchase Price Per Share in effect at the time of such action shall be
proportionately increased and the number of shares of Common Stock at that time
purchasable pursuant to these Warrants shall be proportionately decreased. Any
dividend paid or distributed on the Common Stock in stock of any other class of
securities convertible into shares of Common Stock shall be treated as a
dividend paid in Common Stock to the extent that shares of Common Stock are
issuable upon the conversion.
2. In case the Company shall be recapitalized by reclassifying its outstanding
Common Stock, then as a condition of such recapitalization lawful and adequate
provision shall be made under which the Holder shall have the right to purchase,
upon the terms and conditions specified in these Warrants, in lieu of the shares
of Common Stock previously purchasable upon the exercise of these Warrants, the
kind and amount of shares of stock and other securities and property receivable
upon such recapitalization by the owner of the number of shares of Common Stock
which the Holder might have purchased immediately prior to such
recapitalization.
3. In case the Company shall consolidate or merge with or convey all or
substantially all its property and assets to any other corporation or
corporations, then as a condition of such consolidation, merger or conveyance,
lawful and adequate provision shall be made in which the Holder shall have the
right to purchase, upon the terms and conditions specified in these Warrants, in
lieu of the shares of Common Stock previously purchasable upon the exercise of
these Warrants, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger or conveyance by a holder of
the number of shares of Common Stock which the Holder might have purchased
immediately prior to such consolidation, merger or conveyance.
-2-
<PAGE>
4. Whenever the Purchase Price Per Share or the kind or amount of securities
purchasable under these Warrants shall be adjusted pursuant to any of the
provisions of this certificate, the Company shall cause to be sent to the Holder
by first-class mail at his address as it appears upon the records of the
Company, a certificate setting forth the adjustments in the Purchase Price Per
Share and/or in said number of shares, and also setting forth in detail the
facts requiring such adjustments including, without limitation, a statement of
the consideration received or deemed to have been received by the Company for
any additional shares of stock issued by it.
5. The holder of these Warrants shall be entitled to those registration rights
set forth in Exhibit G to that certain Asset Purchase Agreement dated February
28, 1992.
6. No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of these Warrants. If the exercise of these Warrants
would, but for the provisions of this subdivision 6, result in the right to
receive a fraction of a share of Common Stock, the Company shall, in lieu
thereof, make payment in cash for such fractional interest (computed to the
nearest 1/100th of a share) calculated on the basis of the last reported sales
price (or bid price if there be no sale) of the Common Stock as reported (i) on
any stock exchange designated by the Company on which the Common Stock may be
traded, or (ii) by any reputable quotation reporting service, if the Common
Stock be not traded on any stock exchange, or (iii) by any dealer in securities
dealing in the Common Stock, if such quotations be not reported by any such
reporting service, on the day on which the Warrants shall be exercised, or, if
none is reported on such date, on the date of the last such reported sale or
bid, or (iv) if there is no dealer in securities who is dealing in the Common
Stock, at the last sale price of any shares of Common Stock sold by the Company.
7. These Warrants shall not entitle the Holder to any voting rights or any
other rights as a shareholder of the Company, or to any other rights except the
rights stated in this certificate; and no dividend or interest shall be payable
or shall accrue in respect of these Warrants or the shares purchasable hereunder
unless, and until, and except to the extent that, these Warrants shall be
exercised.
WITNESS, the seal of the Company and the signatures of its duly authorized
officers.
February 28, 1992
QUICKTURN SYSTEMS, INC.
/s/ Phil Kaufman
By ________________________
Its President
/s/ Dennis Favero
___________________________
Its Secretary
-3-
<PAGE>
TO QUICKTURN SYSTEMS, INC.:
ELECTION TO PURCHASE
The undersigned irrevocably elects to purchase shares of Common Stock issuable
upon the exercise of the attached Warrants, and requests that certificates for
such shares shall be issued in the name of and delivered to the address of the
undersigned, at the address stated below and, if the number of shares shall not
be all the shares which may be purchased pursuant to the attached Warrants, that
new Warrants evidencing the right to purchase the balance of such shares be
registered in the name of, and delivered to, the undersigned at the address set
forth below. The undersigned agrees with and represents to the Company that the
shares of the Common Stock are acquired for investment and not with a view to,
or for sale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act of 1933, as amended.
Payment enclosed in the amount of $_________.
Dated:_________
Name of holder of Warrants:__________________________
(please print)
Address:_______________________________
_______________________________
Signature:_____________________________
Its_____________________________
<PAGE>
ASSIGNMENT
For value received ____________________ sells, assigns and transfers unto
____________________ the attached Warrants, together with all right, title and
interest in such Warrants, and irrevocably constitutes and appoints
____________________ attorney, to transfer the Warrants on the books of the
Company, with full power of substitution in the premises.
Dated:________, 199___.
Signature:_____________________________
Its:______________________________
<PAGE>
EXHIBIT E
QUICKTURN SYSTEMS, INC.
AUTHORIZED AND ISSUED CAPITAL STOCK
As of March ___, 1992
Authorized Capital Stock
------------------------
Common Stock 20,000,000
Series A Preferred Stock 3,500,000
Series B Preferred Stock 1,276,666
Series C Preferred Stock 641,000
Series D Preferred Stock 3,750,000
Outstanding Capital Stock
--------------------------
Common Stock 1,515,844
Series A Preferred Stock 3,500,000
Series B Preferred Stock 1,276,666 (1)
Series C Preferred Stock 610,000 (2)
Series D Preferred Stock 3,560,000
- ---------------------
(1) 2,159,864 shares Common Stock on an as-converted basis
(2) 1,240,984 shares Common Stock on an as-converted basis
Outstanding Warrants
--------------------
Underlying Security No. of Shares Exercise Price
-------------------------- -------------- --------------
Series C Preferred Stock 31,000 (1) $5.00
- ---------------------
(1) 63,066 shares Common Stock on an as-converted basis
<PAGE>
EXHIBIT F
---------
FINANCIAL REPORTS
1. Delivery of Financial Statements. Quickturn shall deliver to Mentor
--------------------------------
Graphics as soon as practicable, but in any event within ninety (90) days after
the end of each fiscal year of Quickturn, an income statement for such fiscal
year, a balance sheet of Quickturn as of the end of such year, and a schedule as
to the sources and applications of funds for such year, such year-end financial
reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles, and audited and certified by independent public
accountants of nationally recognized standing selected by Quickturn.
2. Annual Budget, Inspection Rights and Observer Rights. Quickturn
----------------------------------------------------
shall:
(a) deliver to Mentor Graphics, within fifteen (15) days of the end of
each month, an unaudited income statement for the month and a balance sheet for
and as of the end of such month in the form provided to the Board of Directors
of Quickturn, together with a letter from Quickturn's management describing in
narrative form, operations and material events during the period;
(b) deliver to Mentor Graphics, upon request and within forty-five
(45) days of the end of each fiscal quarter, a copy of a list of shareholders as
of the end of such fiscal quarter, setting forth the name of each shareholder
and the number and type of shares held by such shareholder;
(c) permit Mentor Graphics, at its expense, to visit and inspect
Quickturn's properties, to examine its books of account and records and to
discuss Quickturn's affairs, finances and accounts with its officers, all at
such reasonable times as may be requested by Mentor Graphics; provided, however,
that Quickturn shall not be obligated pursuant to this paragraph to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information;
(d) provide such other information concerning Quickturn, its business,
prospects, finances, employees, officers and directors, upon reasonable request.
<PAGE>
EXHIBIT 3
---------
QUICKTURN DESIGN SYSTEMS, INC.
UNSECURED SUBORDINATED PROMISSORY
---------------------------------
$3,000,000 Wilsonville, Oregon
September 29, 1993
FOR VALUE RECEIVED, Quickturn Design Systems, Inc. a California corporation,
whose principal address is 440 Clyde Avenue, Mountain View, California 94043
(the "Company"), promises to pay to Mentor Graphics Corporation, an Oregon
corporation, whose principal address is 8005 S.W. Boeckman Road, Wilsonville,
Oregon 97007 ("MENTOR GRAPHICS"), the principal sum of Three Million Dollars
($3,000,000), together with interest on the outstanding principal sum at the
rate of four percent (4%) per annum. Principal shall be due and payable
annually in five equal installments of $600,000 on the 30th day of each
September commencing on September 30, 1994. Interest accrued hereon shall be
due and payable quarterly in arrears on the last day of each calendar quarter
for the calendar quarter then ending, commencing with the calendar quarter
ending December 31, 1993.
Payment of principal and interest shall be made in lawful money of the United
States at Mentor Graphic's principal office or at such other place as Mentor
Graphics may from time to time designate in writing. Interest shall be
calculated on the basis of a 360-day year and the actual number of days elapsed.
The following is a statement of the terms and conditions to which this Note
is subject and with respect to which, by acceptance of this Note, the holder
hereof agrees:
1. PREPAYMENT
----------
The Company shall have the right to prepay without premium or penalty, at any
time, in whole or in part, the unpaid principal and interest due on this Note.
2. SUBORDINATION
-------------
The indebtedness evidenced by this Note is hereby expressly subordinated, to
the extent and in the manner hereinafter set forth, in right of payment to the
prior payment in full of all the Company's Senior Indebtedness.
"Senior Indebtedness" shall mean the principal of (and premium, if any) and
unpaid interest on (i) all indebtedness of the Company or with respect to which
the Company is a guarantor, whether outstanding on the date hereof or hereafter
created, to banks, insurance companies, lease financing institutions or other
-1-
<PAGE>
lending institutions, regularly engaged in the business of lending money, which
is for money borrowed (or purchase of equipment in the case of lease funding) by
the Company or a subsidiary of the Company, whether or not secured, and (ii) and
amendments, R.R. Donnelley FinancialR.R. Donnelley Financial lending
institutions, regularly engaged in the business of lending money, which is for
money borrowed (or purchase of equipment in the case of lease funding) by the
Company or a subsidiary of the Company, whether or not secured, and (ii) and
amendments, modifications, deferrals, increases, renewals or extensions of any
such indebtedness or any debentures, notes or other evidence of indebtedness
issued in exchange for such Senior Indebtedness.
Upon any receivership, insolvency, assignment for the benefit of creditors,
bankruptcy, reorganization, or arrangements with creditors (whether or not
pursuant to bankruptcy or other insolvency laws), sale of all or substantially
all of the assets, dissolution, liquidation, or any other marshalling of the
assets and liabilities of the Company or in the event this Note shall be
declared due and payable upon the occurrence of an event of default (as
specified herein), (i) no amount shall be paid by the Company in respect of the
principal of or interest on this Note at the time outstanding, unless and until
the principal of and interest on the Senior Indebtedness then outstanding shall
be paid in full, and (ii) no claim or proof of claim shall be filed with the
Company by or on behalf of the holder of this Note which shall assert any right
to receive any payments in respect of the principal of and interest on this Note
except subject to the payment in full of the principal of and interest on all of
the Senior Indebtedness then outstanding.
In the instance of an event of default which has been declared in writing
with respect to any Senior Indebtedness, or in the instrument under which it is
outstanding, permitting the holder to accelerate the maturity thereof, then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist, or all Senior Indebtedness shall have been paid in full,
(i) the Company shall promptly notify Mentor Graphics in writing of such default
and (ii) no payment shall be made in respect of the principal of or interest on
this Note, unless within twelve (12) months after the happening of such event of
default, the maturity of such Senior Indebtedness shall not have been
accelerated.
In case cash, securities or other property otherwise payable or deliverable
to the holder of this Note shall have been applied to the payment of Senior
Indebtedness, then and in each such case, upon the payment in full of all Senior
Indebtedness, the holder of this Note shall be subrogated to the rights of the
holders of Senior Indebtedness to receive all further payments and distributions
made on Senior Indebtedness until all principal of and interest on this Note
shall have been paid in full; and no such payments or distributions to the
holders of this Note by reason of such subrogation of cash, securities or other
property which otherwise would be payable or distributable to the holders of
Senior Indebtedness shall, as between the Company and its creditors
-2-
<PAGE>
(other than the holders of Senior Indebtedness), on the one hand, and the holder
of this Note, on the other, be deemed to be a payment by the company on account
of this NoteR.R. Donnelley FinancialR.R. Donnelley Financial(other than the
holders of Senior Indebtedness), on the one hand, and the holder of this Note,
on the other, be deemed to be a payment by the Company on account of this Note.
Nothing contained in this Section 2 shall impair, as between the Company and
the holder of this Note, the obligation of the Company, which is absolute and
unconditional, to pay to the holder hereof the principal hereof and interest
hereon as and when the same become due and payable, or shall prevent the holder
of this Note, upon default under this Note, from exercising all rights, powers
and remedies otherwise provided herein or by applicable law, all subject to the
rights, if any, of the holders of Senior Indebtedness under this Section 2 to
receive cash, securities or other properties otherwise payable or deliverable to
the holder of this Note.
3. EVENTS OF DEFAULT
-----------------
If one or more of the following events (herein called "EVENTS OF DEFAULT")
shall have occurred and be continuing, that is to say:
(a) If the Company (i) shall commence any proceeding or other action relating
to it in bankruptcy or seek reorganization, dissolution, liquidation, winding-
up, or any other relief under the Bankruptcy Code, as amended, or (ii) shall
make a general assignment for the benefit of creditors; or
(b) If any proceedings are commenced or any other action is taken against the
Company in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up, or for any other relief under the Bankruptcy Code, as amended; and
any such event continues for ninety (90) days undismissed or undischarged; or
(c) If the Company shall default in the performance of any of its obligations
under this Note, such default shall have continued unremedied for a period of
thirty (30) days and the obligation is not being contested in good faith by
appropriate legal proceedings;
then the holder of this Note may at any time at such holder's option by written
notice to the Company declare the principal amount of and the accrued interest
on this Note to be immediately due and payable, and thereupon the same shall
become so due and payable; and the Company will reimburse the holder of this
Note for its reasonable costs and expenses, including attorneys' fees, incurred
in connection with the enforcement of its rights under this Note.
Notwithstanding the foregoing, upon the failure of the Company to pay any amount
of principal or interest hereunder when due as set forth in the first paragraph
of this Note, the holder of
-3-
<PAGE>
this Note shall be entitled to exercise all rights and remedies available to
itR.R. Donnelley FinancialR.R. Donnelley Financial this Note shall be entitled
to exercise all rights and remedies available to it.
4. WAIVER
------
The waiver by the holder hereof of any breach of or default under any
term, covenant or condition contained herein shall not be deemed to be a waiver
of such term, covenant or condition or any subsequent breach of or default under
the same or any other such term, covenant or condition.
5. GENERAL PROVISIONS
------------------
(a) Governing Law: This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Oregon.
(b) Successors and Assigns: The terms of this Note shall be binding upon
----------------------
and inure to the benefit of and be enforceable by the parties hereto and their
respective distributees, legal representatives, successors and assigns.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name this 29th day of September 1993.
QUICKTURN DESIGN SYSTEMS, INC.
By: /s/ Raymond K. Ostby
----------------------
Title: Vice President
----------------------
AGREED TO AND ACCPETED:
MENTOR GRAPHICS CORPORATION
By: /s/ Frank S. Delia
---------------------
Title: Vice President
------------------
-4-
<PAGE>
EXHIBIT 4
---------
PRESS RELEASE
QUICKTURN BOARD TO REVIEW MENTOR GRAPHICS' UNSOLICITED TENDER OFFER
Advises Shareholders to Take No Action at Present Time
SAN JOSE, CA -- August 12, 1998 -- Quickturn Design Systems, Inc.
(NASDAQ:QKTN) announced today, in response to Mentor Graphics Corporation's
(NASDAQ:MENT) unsolicited tender offer for all outstanding shares of Quickturn,
that the Company's board of directors will study the offer and make its
recommendation to shareholders in due course. In the meantime, Quickturn urges
all its shareholders to take no action with respect to the Mentor Graphics offer
and any related activities until Quickturn's board of directors has made its
recommendation.
Quickturn Design Systems, Inc. is the leading provider of verification products
and time-to-market engineering TtME/TM/ services for the design of complex ICs
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].
For more information contact:
Ray Ostby
Quickturn Design Systems, Inc.
(408) 914-6633
Abernathy MacGregor Frank
Jim MacGregor/Matt Sherman
(212) 371-5999
<PAGE>
EXHIBIT 5
---------
QUICKTURN DESIGN SYSTEMS, INC.
55 W. TRIMBLE ROAD
SAN JOSE, CALIFORNIA 95131
August 24, 1998
TO THE STOCKHOLDERS OF
QUICKTURN DESIGN SYSTEMS, INC.
Dear Stockholder:
As you may be aware, Mentor Graphics Corporation ("Mentor") and its wholly-
owned subsidiary, MGZ Corp, commenced on August 12, 1998 an unsolicited tender
offer (the "Mentor Offer") for all of the Common Stock of Quickturn Design
Systems, Inc. ("Quickturn" or the "Company") at $12.125 per share. After
careful consideration, Quickturn's Board of Directors has voted to recommend
that stockholders reject as inadequate the unsolicited $12.125 per share
tender offer by Mentor.
YOUR BOARD RECOMMENDS THAT THE STOCKHOLDERS
REJECT THE MENTOR OFFER.
After careful consideration of the Mentor Offer, your 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 opinion
of the Company's financial advisers, Hambrecht & Quist LLC, that the Mentor
Offer is inadequate and 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.
The enclosed Schedule 14D-9 describes your Board's decision to reject the
Mentor Offer and contains other important information relating to its
decision. We urge you to read it carefully.
In rejecting the Mentor Offer, we have reaffirmed our continued confidence
in the Company's future and our determination that you, our stockholders, be
given every opportunity to participate fully in that future. Your Board of
Directors and I greatly appreciate your continued support and encouragement.
Very truly yours,
LOGO
/s/ KEITH R. LOBO
Keith R. Lobo
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
<PAGE>
EXHIBIT 6
PAGE 1
CONTACTS:
QUICKTURN DESIGN SYSTEMS, INC. ABERNATHY MACGREGOR FRANK
Joan Powell Pauline Yoshihashi / Matt Sherman
Director, Marketing Communications In San Jose 8/24 (408) 914-6000
(408) 914-6701 In New York 8/25 (212) 371-5999
[email protected]
FOR IMMEDIATE RELEASE
QUICKTURN DESIGN SYSTEMS BOARD OF DIRECTORS
REJECTS MENTOR GRAPHICS' UNSOLICITED OFFER
SAN JOSE, CALIF. (August 24, 1998) Quickturn Design Systems, Inc. (Nasdaq:
QKTN) today announced that its board of directors rejected an unsolicited tender
offer by Mentor Graphics Corporation (Nasdaq: MENT) to purchase all of the
outstanding shares of Quickturn for $12.125 per share in cash. The board
determined that the Mentor offer is inadequate, does not reflect the inherent
value of the company, and is not in the best interests of Quickturn or its
stockholders. Accordingly, the Quickturn board recommended Quickturn
stockholders not tender their shares to Mentor pursuant to Mentor's offer.
"This opportunistic, inadequate offer comes at a moment of weakness for
Quickturn's stock price and a moment of desperation for Mentor's design
verification strategy," Keith R. Lobo, president and chief executive officer
of Quickturn Design Systems, Inc. said. "Weakness for Quickturn's stock price,
because of the economic downturn in the Asia/Pacific region and the
corresponding slowdown in the region's new electronics product design.
Desperation for Mentor's design verification strategy, because we are beating
them in the marketplace, and we are beating them in the courts. Mentor's bid
implicitly acknowledges the inferiority of their product position."
"We are rejecting Mentor's bid because we see, as they do, the potential
for renewed growth in our key technologies. As the industry transitions to
deep submicron design, increasing chip complexity demands Quickturn's
technology and expertise. Assuming even a minimal recovery in the Asia/Pacific
region, we are comfortable with industry research projections of 22% annual
growth in total emulation revenue through 2001, and 42% annual growth in total
high performance simulation revenue, also through 2001," Mr. Lobo said.
<PAGE>
PAGE 2
"As demand for these products grows, we believe customers will turn to
Quickturn. Quickturn is the acknowledged emulation technology and
implementation leader. Our new Mercury/TM/ product, which supports design
complexities up to 10 million logic gates, has the potential to do for
Quickturn in 1999 and 2000 what System Realizer/TM/ did for our company in
1995 and 1996. Among Mercury's numerous innovations is the breakthrough
SimServer/TM/ technology, which expands our verification expertise beyond
traditional emulation boundaries into a new class of high-performance
solutions. We are also working on enhancements to our CoBALT/TM/ product,
which will address the verification needs of customers' synchronous
designs with complexities in the 8 million to 20 million logic gate range, as
well as integration with our high-performance SpeedSim/TM/ cycle-based
simulator," Mr. Lobo continued.
"Mentor understands the forces that will drive demand for these
products, and they understand the scarcity value of Quickturn's position in
the industry. We have the patents, we have the installed base, we have the
R&D, and we have the people. Others have tried to beat us; they've failed. We
believe Quickturn stockholders will find the superior potential of this
company amply demonstrated in 1999 and 2000," Mr. Lobo said.
In its recommendation to Quickturn stockholders, the board of directors
considered, among other things:
. Quickturn'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 of directors noted that the company has supplied more
than 80% of the installed base of emulation systems worldwide;
. Quickturn's prospects for future growth based upon its current and
future product plan, 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;
. Quickturn'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;
. Quickturn's expenditures of over $60 million on research and development
in the past three years, leading to current and future planned products;
. Quickturn'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;
. Quickturn's reputation for high-quality worldwide customer service and
support resulting in the completion of an estimated 4,000 customer design
projects;
. Quickturn's acknowledged strength in the sale and implementation of
emulation products;
. Quickturn'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 Quickturn'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 historical trading prices of Quickturn's common stock, including the
fact that Mentor's offer is more than 25% below the stock's highest
closing price over the last year, and less than 4% above its average
closing price during the same period; and
. An opinion from the investment banking firm of Hambrecht & Quist LLC that
Mentor's offer is inadequate, from a financial point of view, to Quickturn
stockholders, as of the date of such opinion, supported by, among other
things, analyses performed by H&Q of Quickturn's historical and projected
financial performance,
<PAGE>
PAGE 3
and consequent implied valuations of the company.
Quickturn announced today that it is filing with the Securities and
Exchange Commission, and will mail to stockholders, a Solicitation/
Recommendation Statement on Schedule 14D-9 setting forth the company's formal
recommendation with respect to Mentor's offer. Additional information with
respect to the board's decision to recommend that stockholders reject the
Mentor offer and the matters considered by the board in reaching such decision
is contained in the Schedule 14D-9.
In addition, Quickturn announced that its board of directors amended
certain provisions of the company's Bylaws and authorized certain amendments
to its Preferred Shares Rights Agreement. The amendment to the Bylaws
specifies certain procedures concerning the calling of a special meeting of
the stockholders by holders representing at least 10 percent of the votes,
including that the board shall set a date for such meeting not less than 90
days nor more than 100 days after the receipt of a valid request for a
meeting.
The proposed amendments to the company's Preferred Shares Rights
Agreement remove the so-called "dead-hand" provisions that require the
concurrence of continuing directors to undertake certain actions, including
redeeming the Rights or amending the Rights Agreement in the event of a change
of control of the board. The proposed amendments also provide that the Rights
cannot be redeemed or exchanged and the Rights Agreement cannot be amended for
a period of 180 days following an annual or special meeting in which a
majority of the board is elected, if such redemption, exchange or amendment is
reasonably likely to facilitate a change in control transaction with certain
acquirors.
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 circuit 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].
# # #
Quickturn, the Quickturn logo, Mercury, SimServer, SpeedSim, System Realizer
and CoBALT are registered trademarks or trademarks of Quickturn Design
Systems, Inc.
<PAGE>
EXHIBIT 7
---------
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MENTOR GRAPHICS CORPORATION, an ) Civil Action No. 16584 NC
Oregon corporation, and MGZ CORP., a )
Delaware corporation, )
)
Plaintiffs, )
)
v. )
)
QUICKTURN DESIGN SYSTEMS, INC., a )
Delaware corporation, 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,
Defendants.
---------------------------------------
COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF
---------------------
Plaintiffs Mentor Graphics Corporation ("Mentor Graphics") and MGZ Corp.
("Purchaser") for their complaint against defendants 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 ("Director Defendants") allege, upon knowledge as to
themselves and their own acts and upon information and belief as to all other
matters, as follows:
Summary of this Action
----------------------
1. Earlier today, plaintiff Purchaser commenced a fully-financed, non-
coercive, non-discriminatory, all-cash, all-shares tender offer for outstanding
shares of Quickturn common stock that are not already owned by Mentor Graphics
or Purchaser (the "Tender Offer"). Mentor Graphics also is filing today with the
Securities and Exchange Commission (the "SEC") preliminary materials
u
<PAGE>
to solicit agent designation to call a special meeting of Quickturn's
stockholders to replace the current members of Quickturn's Board of Directors.
This action seeks declaratory and injunctive relief requiring Quickturn to
dismantle its takeover defenses, including its "poison pill," and enjoining
Quickturn from amending Quickturn's bylaws or taking any other action to thwart
the stockholder franchise or to frustrate the efforts of Quickturn's
stockholders to call a special meeting and to replace Quickturn's Board of
Directors in order to facilitate the Tender Offer.
2. Quickturn stockholders whose shares are purchased by Purchaser in the
Tender Offer will receive $12.125 per share in cash, representing a 51.61/16
premium above the average closing PAGO of Quickturn's stock on the Nasdaq
National Market on August 11, 1998, the last full trading day before the first
public announcement of Purchaser's commencement of the Tender Offer. The Tender
Offer is the initial step in a two-step transaction pursuant to which Purchaser
proposes to acquire all of the a shares of Quickturn stock. If successful, the
Tender Offer will be followed by a merger or similar business combination with
Purchaser or another direct or indirect subsidiary of Mentor Graphics (the
"Proposed Merger," and together with the Tender Offer, the "Proposed
Acquisition"). Pursuant to the Proposed Merger, it is currently anticipated that
each then outstanding share of Quickturn (other then shares owned by Mentor
Graphics or any of its subsidiaries or shares held in the treasury of Quickturn)
would be converted into the right to receive an amount in cash equal to the
price paid in the Tender Offer.
3. In January 1996, the Board of Directors of Quickturn (the "Quickturn
Board") adopted a stockholder rights plan (the "Rights Plan"), commonly known as
a "poison pill," which is designed to thwart any acquisition of Quickturn that
does not have the approval of the Quickturn Board. The Rights Plan provides the
Quickturn Board with the power to prevent summarily the consummation of the
fully-financed, all-cash, all-shares, non-coercive. non-discriminatory Tender
-2-
<PAGE>
Offer. The Rights Plan was adopted without the approval of Quickturn's
stockholders and, if it remains in effect and applicable to the Tender Offer, it
will restrict the right of Quickturn's stockholders to decide whether to accept
a premium offer for their shares and will impose an insurmountable obstacle to
Purchaser's consummation of the Tender Offer. Moreover, the Quickturn Board will
be able to prevent Mentor Graphics and Purchaser from consummating the Proposed
Merger for at least three years unless the Board exempts the Tender Offer from
restrictions imposed by Section 203 of the Delaware General Corporation Law
("Section 203").
4. The Tender Offer is conditioned upon, among other things, (i) the
redemption or inapplicability of the Rights Plan; (ii) the exemption of the
Tender Offer from Section 203 and (iii) there being validly tendered and not
withdrawn prior to the expiration of the Tender Offer that number of Quickturn
shares which, when combined with the Quickturn shares owned by Mentor Graphics,
Purchaser and their affiliates, represent a majority of the outstanding
Quickturn Shares on a fully diluted basis. By failing to take action to satisfy
the conditions to the Tender Offer, the individual members of the Quickturn
Board have breached their fiduciary duties owed to Quickturn's stockholders
under Delaware law. Quickturn's stockholders, including Mentor Graphics and
Purchaser, will be irreparably harmed absent relief from this Court.
The Parties
-----------
5. Plaintiff Mentor Graphics is a Oregon corporation with its principal
executive offices in Wilsonville, Oregon. Mentor Graphics 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 Graphics is the beneficial owner of more than three percent of the
outstanding shares of Quickturn common stock.
-3-
<PAGE>
6. Plaintiff Purchaser is a newly incorporated Delaware corporation and a
wholly-owned subsidiary of Mentor Graphics with its principal executive offices
in Wilsonville, Oregon. Purchaser is the record owner of 100 shares of
Quickturn common stock.
7. Defendant Quickturn is a Delaware corporation with its principal
executive offices in San Jose, California. According to its most recent Form
10-K, Quickturn "designs, manufactures, sells and supports products that verify
the design of integrated circuits ('ICs') and electronic systems."
8. Defendant Keith R. Lobo has been President, Chief Executive Officer
and a director of Quickturn since November 1992.
9. Defendants Glen M. Antle, Richard C. Alberding, Michael R. D'Amour,
Yen-Son (Paul) Huang, Dr. David K. Lam, William A. Hassler and Charles D.
Kissner are directors of Quickturn. The Director Defendants, as directors of
Quickturn, owe fiduciary duties of loyalty and care to Quickturn's stockholders.
FACTUAL BACKGROUND
------------------
A. The Quickturn Rights Plan
-------------------------
10. On or about January 10, 1996, the Quickturn Board approved the
adoption of the Rights Plan and declared a dividend of one Preferred Share
purchase right (a "Right") for each share of Quickturn stock outstanding as of
the close of business on January 22, 1996. The Rights arc distributed and
become exercisable for one one-thousandth share of Quickturn's Series A
Participating Preferred Stork (the "Series A Preferred") at a price of $50 on
the close of business ten days after the earlier of (i) the first date of public
announcement that any person (other than Quickturn, any subsidiary of Quickturn
or any employee benefit plan of Quickturn or any subsidiary of Quickturn) has
acquired or obtained the right to acquire beneficial ownership of 15% or more of
Quickturn's common stock (an "Acquiring Person"), or (ii) the publication
pursuant to Rule 14-d-2(a) promulgated under the Securities Exchange Act of 1934
(the "Exchange Act") of a tender or exchange offer which, if successful, would
result in the beneficial acquisition by any person of 15% or more of
-4-
<PAGE>
Quickturn's' common stock (the earlier of (i) and (ii) being referred to as the
"Distribution Date"). The Rights expire on January 10, 2006, unless earlier
redeemed or exchanged by Quickturn.
11. The primary purpose of the Rights Plan is not to enable the purchase
of the Series A Preferred at the greatly inflated price of $50 for each one-
thousandth share, but to allow the holder of the Right, under certain
circumstances to purchase shares of Quickturn's or an acquiror's common stork at
a deep discount. If and when a person becomes an Acquiring Person, all Rights
other than those held by the Acquiring Person "flip-in" and each right becomes
exercisable for shares of Quickturn common stock equivalent in value to twice
the exercise price of the Right. Thus, for the exercise price of $50, the holder
of a Right may purchase Quickturn common stock having a market value of $100. If
and when Quickturn engages in a merger or a sale of 50% or more of its assets,
the Rights "flip-over" and become exercisable for shares of the acquiror's
common stock at the same deep discount price of two for the price of one. Thus,
stockholders have no economic incentive to exercise the Rights until a person
triggers the "flip-in" and/or "flip-over" provisions by becoming an Acquiring
Person.
12. The Rights are not exercisable for shares of Quickturn's common stock
if, prior to any person becoming an Acquiring Person, the Quickturn Board
declares that the tender or exchange offer is a "Permitted Offer." A Permitted
Offer is a tender or exchange offer, issued pursuant to Section 14(d) of the
Exchange Act, made when "Continuing Directors" are in office, and determined to
be, in the opinion of a majority of Continuing Directors, "both adequate and
otherwise in the best
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<PAGE>
interests of the Company and its stockholders (taking into account all factors
that such Continuing Directors deem relevant)."
13. The Quickturn Board may redeem the Rights, at a redemption price of
$.01 per Right, any time prior to the close of business on the earlier of (i)
the tenth day following the date of public announcement of the fact that an
Acquiring Person has become such, or (ii) January 10, 2006; provided, however,
that once a stockholder becomes an Acquiring Person, the Rights may be redeemed
by the Quickturn Board only if Continuing Directors remain on the Board and the
redemption is approved by a majority of the Continuing Directors. Continuing
Directors are (i) persons serving on the Quickturn Board prior to the date of
the adoption of the Rights Agreement who are not associated or affiliated with
an Acquiring Person, or (ii) persons nominated or elected to the Quickturn Board
with the approval of the majority of the Continuing Directors after the date of
the adoption of Rights Plan who are not associated or affiliated with an
Acquiring Person.
14. Purchaser's acceptance of shares tendered pursuant to its Tender Offer
will result in it becoming an Acquiring Person, will make the Rights exercisable
for shares of Quickturn's common stock at a discount of 50% of their market
value, will make the Tender Offer economically infeasible for Purchaser to
accomplish, and will deprive Quickturn's stockholders of the ability to tender
their shares unless the Quickturn Board redeems the Rights or exempts
Purchaser's Tender Offer from the triggering provisions of the Rights Plan by
declaring that the Tender Offer is a "Permitted Offer."
B. The Delaware Business Combination Statute
-----------------------------------------
15. Section 203 of the Delaware General Corporation Law, entitled
"Business Combinations with Interested Stockholders," applies to any Delaware
corporation that has not opted out of the statute's coverage. Quickturn has not
opted out of the statute's coverage.
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<PAGE>
16. Section 203 was designed to impede coercive and inadequate tender and
exchange offers. Section 203 provides that if a person acquires 15% or more of a
corporation's voting stock (thereby becoming an "interested stockholder"), such
interested stockholder may not engage in a "business combination" with the
corporation (defined to include a merger or consolidation) for three years after
becoming an interested stockholder, unless: (i) prior to the 15% acquisition,
the board of directors has approved either the acquisition resulting in the
stockholder becoming an interested stockholder or the business combination; (ii)
the interested stockholder acquires 85% of the corporation's voting stock in the
same transaction in which it crosses the 15% threshold; or (iii) on or
subsequent to the date of the 15% acquisition, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of the stockholders (and not by written consent) by the affirmative vote
of at least 66-2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
17. Application of Section 203 to the Proposed Acquisition will delay the
Proposed Merger for at least three years. Accordingly, three years of the
substantial benefits of the Proposed Acquisition will be forever lost.
Additionally, any number of events could occur within those three years that
would prevent the Proposed Merger altogether.
C. The "Quasi-California Corporation" Statute
------------------------------------------
18. Section 2115 ("Section 2115") of the California General Corporation
Law (the "CGCL") provides that if a foreign corporation has (i) more than one-
half of the average of the corporation's property, payroll and sales in
California, and (ii) more than half of its outstanding securities held by
persons with California addresses, then such foreign corporation shall be
subject to certain enumerated provisions of the CGCL, as set forth in Section
2115(b), to the exclusion of the law of the jurisdiction in which the
corporation is incorporated. Corporations with these
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<PAGE>
characteristics and, thus, subject to the specified provisions of the CGCL, are
commonly referred to as "quasi-California" corporations. For the purpose of
determining whether a foreign corporation is a "quasi-California" corporation,
Section 2115(a) provides that any securities held int he names of broker-
dealers, nominees for broker-dealers, banks, associations, or other entities
holding securities in a nominee name or otherwise on behalf of a beneficial
owner shall not be considered outstanding, unless the foreign corporation
requests such nominee holders to certify the number of shares held by beneficial
owners and the addresses of beneficial owners for whom securities are held.
19. Exempt from classification as a "quasi-California" corporation
pursuant to Section 2115(c) are corporations "with outstanding securities
designated as qualified for trading as a national market security on [NASDAQ] if
the corporation has at least 800 holders of its equity securities as of the
record date of its most recent annual meeting of shareholder." Upon information
and belief, plaintiffs believe that Quickturn has at least 800 stockholders and,
as a corporation with outstanding securities qualified for trading on NASDAQ as
a national market security, would not be a "quasi-California" corporation and
would not be subject to the provisions of the CGCL identified in Section
2115(b). Such provisions include, but are not limited to:
a. Section 303, which restricts the ability of stockholders to
remove directors without cause;
b. Section 708, which provides stockholders a right to cumulative
voting in the election of directors;
c. Section 710, which permits supermajority voting requirements;
d. Section 1101, which imposes limitations on mergers; and
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<PAGE>
e. Chapter 12, which applies to all transactions termed
"reorganizations" as defined in the CGCL, which includes mergers and/or
acquisitions financed by the exchange of equity securities.
20. If Quickturn were to qualify as a "quasi-California" corporation,
application of the enumerated provisions of the CGCL would hamper and delay the
consummation of the Proposed Acquisition. For example, Section 1101(e)
prohibits a majority stockholder holding more than 50% but less than 90% of the
outstanding shares of a quasi-California corporation from consummating a cash-
out merger.
21. While plaintiffs believe that Quickturn is not currently a "quasi-
California" corporation, the Quickturn Board could undertake one of several
transactions which would increase its percentage of stock held by California
residents and/or decrease its total number of stockholders, thereby removing
Quickturn from the exemption provided by Section 2115(c) and transforming
Quickturn into a "quasi-California" corporation. Such actions would interfere
with the consummation of the Proposed Acquisition despite the benefits of the
transactions to the Quickturn stockholders.
D. The Response to the Proposed Acquisition
----------------------------------------
22. Despite the clear-cut and significant economic benefits for the
Quickturn stockholders, Quickturn, by the Chairman of the Quickturn Board, Glen
M. Antle ("Antle"), has indicated that Quickturn will not accept the Proposed
Acquisition.
23. On August 11, 1998, Dr. Walden C. Rhines ("Rhines"), Mentor Graphics'
Chief Executive Officer, met with Antle. At this meeting, Rhines presented
Mentor Graphics' proposal to acquire Quickturn. Rhines also delivered a letter
to Antle outlining Mentor Graphics' proposal to acquire all outstanding shares
of Quickturn common stock at a price of $12.125 per share in a
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<PAGE>
negotiated transaction. Rhines further advised Antle that Mentor Graphics'
proposal was not subject to any financing conditions. Rhines also advised Antle
that, depending on the results of Mentor Graphics' due diligence review of
Quickturn, Mentor Graphics would consider offering more value for the
outstanding shares of Quickturn. While Antle stated that he would communicate
the offer to the Quickturn Board, he stated that he was unwilling to accept the
offer or to cause Quickturn to remove its takeover defense or to cause Quickturn
to refrain from taking actions to prevent the consummation of the Tender Offer.
E. Mentor Graphics' Solicitation Of Agent Designations To Call
A Special Meeting And To Replace Quickturn's Board Of Directors
---------------------------------------------------------------
24. In light of Quickturn's unwillingness to accept Mentor Graphics'
proposal, the current Quickturn Board cannot be expected to facilitate the
Proposed Acquisition, but can be expected to maintain Quickturn's anti-takeover
devices and to actively oppose the Proposed Acquisition. because Quickturn has
declined to accept the substantial benefits of the Proposed Acquisition, Mentor
Graphics has been forced to take its offer directly to the Quickturn
stockholders by soliciting agent designations and by causing Purchaser to
commence the Tender Offer.
25. Mentor Graphics is filing today with the SEC preliminary soliciation
materials in connection with its solicitation of agent designations from
Quickturn's stockholders to call a special meeting of the Quickturn stockholders
for the purpose of replacing the Director Defendants with individuals nominated
by Mentor Graphics. If elected, the Mentor Graphics nominees intend, subject to
their fiduciary duties, to redeem the Rights (or amend the Rights Plan to make
the Rights inapplicable to the Tender Offer and the Proposed Merger), approve
the Tender Offer and the Proposed Merger under Section 203, and take such other
actions as may be required to facilitate the prompt consummation of the Proposed
Acquisition.
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<PAGE>
26. Mentor Graphics is in the course of soliciting agent designations to
call a special meeting of Quickturn's stockholders to occur approximately 45
days after the call of the meeting is delivered to Quickturn (the "Special
Meeting"). Section 2.3 of Quickturn's bylaws provides that [a] special meeting
of the stockholders may be called at any time by . . . one or more stockholders
holding shares in the aggregate entitled to cast not less than ten percent (10%)
of the votes at that meeting." In accordance with Quickturn's bylaws, Mentor
Graphics believes that (i) a special meeting may be called by the holders of not
less than 10% of the Quickturn shares on the date the agent designations are
delivered to Quickturn; (ii) the stockholders calling the meeting, not the
Board, have the right to fix the date and time of the Special Meeting, (iii)
agent designations shall remain in effect until revoked or unless the person
executing such agent designation is not the record holder of Quickturn shares on
the date the Special Meeting is called; and (iv) absent prior action by the
Quickturn Board, the record date for the Special Meeting shall be the date next
preceding the date on which the designated agents give notice of the Special
Meeting.
27. In furtherance of the solicitation of agent designations to call the
Special Meeting, Purchaser is demanding that Quickturn produce a list of its
stockholders and related stocklist materials.
28. The efforts by Mentor Graphics and Purchaser to convene the Special
Meeting of Quickturn's stockholders comply with Delaware law and Quickturn's
bylaws as they presently exist. These bylaw provisions, with which Mentor
Graphics has complied fully and with which it will continue to comply, authorize
the holders of ten percent of Quickturn's common stock to call a special
meeting.
29. Mentor Graphics believes that (i) the date for determining
stockholders entitled to call the Special Meeting and to submit agent
designations in connection therewith shall be the date
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<PAGE>
that the Special meeting is actually called, and (ii) the stockholders, not the
Company Board, have the right to fix the date and time of the Special Meeting
and give notice thereof. Therefore, following receipt of the requisite number of
agent designations, the designated agents will call the Special Meeting, fix the
date and time of the Special Meeting and give notice of the Special Meeting.
30. Mentor Graphics intends also to solicit proxies for the Special Meeting
so that, upon proposals by Mentor Graphics, the Director Defendants may be
removed from the Quickturn Board, the authorized number of Quickturn directors
may be reduced from eight to five, and five individuals nominated by Mentor
Graphics may be elected to the Quickturn board of directors. At the Special
Meeting, Quickturn's stockholders also will be presented with a proposal by
Mentor graphics to repeal bylaws adopted subsequent to March 30, 1998 -- the
last bylaws filed as an exhibit to Quickturn's Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange Commission on March
30, 1998 and prior to the adoption of any bylaw proposals presented at the
Special Meeting.
31. Mentor Graphics believes that, in the absence of inequitable conduct
by Quickturn, Quickturn's stockholders will act to call the Special meeting and,
at such meeting, will replace Quickturn's current directors with Mentor
Graphics' nominees and, if necessary, will take other actions designed to negate
inequitable conduct by the Quickturn Board undertaken to impede the Proposed
Acquisition.
32. Because Mentor Graphics' solicitation of agent designations and
solicitation of proxies in reliance on Quickturn's current bylaws threaten the
incumbency of Quickturn's Board of Directors, Mentor Graphics believes that
Quickturn may seek to impose a constrained interpretation of the current bylaws
or purport to amend the bylaws in order to delay the Special Meeting or
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<PAGE>
frustrate the ability of Quickturn's stockholders to exercise their voting
rights. Any determinations by Quickturn that Mentor graphics has not complied
with Quickturn's existing bylaws would lack a good faith basis. Any amendments
to Quickturn's bylaws or other manipulations of corporate machinery having the
effect of hindering the ability of Quickturn's stockholders to exercise their
rights as they currently exist would serve no legitimate purpose and would
clearly constitute unlawful entrenchment by the Director Defendants in violation
of their fiduciary duties under Delaware law.
IRREPARABLE INJURY
------------------
33. The unlawful actions of Quickturn, including its failure to accept the
Proposed Acquisition, its failure to redeem the Rights Plan and its failure to
exempt the Tender Offer from Section 203, are preventing its stockholders from
receiving the benefits of the Proposed Acquisition and are thereby causing and
will cause Quickturn's stockholders irreparable harm. Unless the Quickturn Board
is restrained by this Court, the substantial benefits of the Proposed
Acquisition may be forever lost. The injury to Mentor Graphics and Purchaser
will not be compensable in money damages and plaintiffs have no adequate remedy
at law.
COUNT 1
-------
(Breach of Fiduciary Duty; The Rights Plan)
-----------------------------------------
34. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 33 as if fully set forth herein.
35. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
36. In light of the superior value offered to Quickturn stockholders by
the Proposed Acquisition, there is no legitimate reason for the Quickturn Board
to retain the Rights Plan. The
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<PAGE>
Director Defendants' failure to redeem the Rights or to render the Rights Plan
inapplicable to the Proposed Acquisition deprive Quickturn's stockholders of the
right to maximize their wealth by selling their Quickturn shares at the premium
price offered by the Proposed Acquisition.
37. The Director Defendants' failure to redeem the Rights or to render the
Rights Plan inapplicable to the Proposed Acquisition has no economic
justification, serves no legitimate purpose, and is not a reasonable response to
the Tender Offer and/or the Proposed Merger, which pose no threat to the
interests of Quickturn's stockholders or to Quickturn's corporate policy and
effectiveness. As such, the actions of the Director Defendants are in breach of
the fiduciary duties the Director Defendants owe to Quickturn's stockholders
under applicable Delaware law.
38. Mentor Graphics and Purchaser have no adequate remedy at law.
COUNT II
--------
(Breach of Fiduciary Duty: Section 203)
--------------------------------------
39. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 38 as if fully set forth herein.
40. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
41. The Board of Directors of Quickturn is empowered by Section 203 to
render the statute inapplicable to the Proposed Acquisition by approving the
Tender Offer.
42. In light of the superior value offered to Quickturn stockholders by
the Proposed Acquisition, there is no legitimate reason for the Quickturn Board
of Directors to fail to approve the Tender Offer or to fail to take any other
steps necessary to render Section 203 inapplicable to the Proposed Acquisition.
Such failures only have the effect of withholding from Quickturn
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<PAGE>
stockholders the right to maximize their wealth by selling their Quickturn
shares at the premium price offered by the Proposed Acquisition.
43. The Director Defendants' failure to approve the Tender Offer or
otherwise render Section 203 inapplicable to the Proposed Acquisition have no
economic justification, serve no legitimate purpose, and are not reasonable
responses to the Proposed Acquisition, which poses no threat to the interests of
Quickturn's stockholders or to Quickturn's corporate policy and effectiveness.
As such, the actions of the Director Defendants are in breach of the fiduciary
duties the Director Defendants owe to Quickturn's stockholders under applicable
Delaware law.
44. Mentor Graphics and Purchaser have no adequate remedy at law.
COUNT III
---------
(Declaratory and Injunctive Relief: Section 2115 of the
-------------------------------------------------------
California General Corporation Law)
----------------------------------
45. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 44 as if fully set forth herein.
46. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
47. The Tender Offer is non-coercive and non-discriminatory, it is fair to
Quickturn stockholders, it poses no threat to Quickturn's corporate policy and
effectiveness, and it represents a substantial premium over the market price of
Quickturn common stock prior to the public announcement of the Tender Offer.
48. Any action which would bring Quickturn within the provision of Section
2115 of the California General Corporation Law and thereby hinder and/or delay
the consummation of the Proposed Acquisition would be a breach of the Director
Defendants' fiduciary duties to Quickturn's stockholders.
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<PAGE>
49. Mentor Graphics and Purchaser have no adequate remedy at law.
COUNT IV
--------
(Declaratory and Injunctive Relief: Anti-Takeover Devices)
---------------------------------------------------------
50. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 49 as if fully set forth herein.
51. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
52. The Tender Offer is non-coercive and non-discriminatory, it is fair to
Quickturn's stockholders, it poses no threat to Quickturn's corporate policy and
effectiveness, and it represents a substantial premium over the market price of
Quickturn common stock prior to the public announcement of the Tender Offer.
53. Adoption of any defensive measures against the Tender Offer, the
Proposed Merger, Mentor Graphics' solicitation of agent designations, Mentor
Graphics' solicitation of proxies, or that would prevent a future board of
directors from exercising its fiduciary duties -- including, but not limited to,
amendments to the Rights Plan, amendments to Quickturn's bylaws, pursuit of
alternative transactions with substantial break-up fees and/or lock-ups, "White
Knight" stock issuances, changes to licensing agreements, or executive
compensation arrangements with substantial payments triggered by a change in
control -- would itself be a breach of the Director Defendants' fiduciary duties
to Quickturn stockholders.
54. Mentor Graphics and Purchaser have no adequate remedy at law.
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<PAGE>
COUNT V
-------
(Declaratory and Injunctive Relief: The Call of Special Meeting)
---------------------------------------------------------------
55. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 54 as if fully set forth herein.
56. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
57. Mentor Graphics' solicitation of agent designations to call the
Special Meeting complies and will comply with Quickturn's bylaws as currently
enacted. Mentor Graphics' disclosures regarding the agent designations, which
are being filed today with the SEC, are complete and accurate. Any action by
Quickturn to eliminate or hinder the procedure for or ability of its
stockholders to call the Special Meeting, or to dispute Mentor Graphics' method
of determining whether it has obtained sufficient unrevoked agent designations
to call the Special Meeting, or to affect the selected date of the call, or to
refuse to recognize the date of the call, or to fail to recognize the fix of the
date and time of the Special Meeting set forth in the call, or to interfere with
Mentor Graphics giving notice of the Special meeting, or to impede consideration
by Quickturn's stockholders at the Special Meeting of Mentor Graphics' proposals
would impermissibly impede and/or delay Quickturn's stockholders from exercising
their rights. Any such action would delay and/or thwart the exercise of
stockholder voting rights without compelling justification and would thereby
cause irreparable harm.
58. Mentor Graphics and Purchaser have no adequate remedy at law.
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<PAGE>
COUNT VI
--------
(Declaratory and Injunctive Relief: Nomination of Directors)
-----------------------------------------------------------
59. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 58 as if fully set forth herein.
60. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
61. Mentor Graphics' actions to provide proper notice of its intent to
nominate directors for election at the Special Meeting called by Quickturn's
stockholders and Mentor Graphics' solicitation of proxies in connection with
such election will comply with Quickturn's bylaws as currently enacted. Any
action by Quickturn to hinder the ability of Mentor Graphics to propose its
nominees at the Special Meeting, including, but not limited to, any actions to
amend the notification procedures, would impermissibly impede and/or delay
Quickturn's stockholders from exercising their rights. Moreover, any action to
negate the effectiveness of Mentor Graphics' upcoming properly delivered
notification of its stockholder proposals and its director nominees would
eviscerate the ability of Quickturn's stockholders to change the composition of
the Quickturn Board at the Special Meeting. There cannot possibly be compelling
justification for any such action which would guarantee that the incumbent Board
could always and continuously frustrate the purposes of and/or delay a special
meeting with the effect of preventing the election of stockholder-nominated
directors. Any such action would delay and/or thwart the exercise of
stockholder voting rights without compelling justification and would thereby
cause irreparable harm.
62. Mentor Graphics and Purchaser have no adequate remedy at law.
WHEREFORE, plaintiffs respectfully request that this Court:
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<PAGE>
a. declare that the Director Defendants have breached their
fiduciary obligations to Quickturn stockholders under Delaware law by failing to
redeem the Rights in response to the Tender Offer;
b. compel Quickturn and its Director Defendants to redeem the Rights
or to render the Rights Plan inapplicable to the Proposed Acquisition;
c. declare that the Director Defendants have breached their
fiduciary obligations to Quickturn stockholders under Delaware law by failing to
render Section 203 inapplicable to the Proposed Acquisition;
d. compel the Director Defendants to approve the Proposed
Acquisition for purposes of Section 203 and enjoin them from taking any action
to enforce or apply Section 203 that would impede, thwart, frustrate or
interfere with the Proposed Acquisition;
e. temporarily, preliminarily and permanently enjoin Quickturn, its
employees, agents and all persons acting on its behalf or in concert with it
from taking any action with respect to the Rights Plan, except to redeem the
Rights or render the Rights Plan inapplicable to the Tender Offer, and from
adopting any other Rights Plan or other measures, or taking any other action
designed to impede, or which has the effect of impeding, the Tender Offer or the
efforts of Mentor Graphics to acquire control of Quickturn;
f. declare that the taking of any action to bring Quickturn within
the provisions of Section 2115 of the California General Corporation Law,
thereby impeding, thwarting, frustrating or interfering with the Proposed
Acquisition, constitutes a breach of the Director Defendants' fiduciary duties;
g. enjoin Quickturn and the Director Defendants from taking any
action which would bring Quickturn within the provisions of Section 2115 of the
California General Corporation
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<PAGE>
Law and thereby have the effect of impeding, thwarting, frustrating or
interfering with the Proposed Acquisition;
h. temporarily, preliminarily and permanently enjoin defendants,
their affiliates, subsidiaries, officers, directors and all others acting in
concert with them or on their behalf from bringing any action concerning the
Rights Plan, Section 203, or Section 2115 in any other court;
i. declare that the adoption of any measure that has the effect of
impeding, thwarting, frustrating or interfering with the Tender Offer, the
Proposed Merger, Mentor Graphics' solicitation of agent designations, Mentor
Graphics' call of the Special Meeting, Mentor Graphics' notice of the Special
Meeting, Mentor Graphics' notification of its director nominees, or Mentor
Graphics' solicitation of proxies, or Mentor Graphics' nomination of directors
or presentation of proposals at the Special Meeting constitutes a breach of the
Director Defendants' fiduciary duties;
j. enjoin Quickturn and the Director Defendants from adopting any
measure that has the effect of impeding, thwarting, frustrating or interfering
with the Tender Offer, the Proposed Merger, Mentor Graphics' solicitation of
agent designations, Mentor Graphics' call of the Special Meeting, Mentor
graphics' notice of the Special Meeting, Mentor Graphics' notification of its
director nominees, Mentor Graphics' solicitation of proxies, or Mentor Graphics'
nomination of directors or presentation of Proposals at the Special Meeting;
k. enjoin Quickturn and the Director Defendants from taking any
action to delay, impede, postpone or thwart the voting or other rights of
Quickturn's stockholders in connection with the Special Meeting or otherwise;
l. compel Quickturn and the Director Defendants to recognize the
ability of Quickturn's stockholders, holding on the date of the call of the
Special Meeting shares entitled to cast not less than ten percent of votes at
such Special Meeting, to call and provide notice of a Special
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<PAGE>
Meeting at the date and time set forth in the call and for the purposes set
forth in the call and notice of the Special Meeting;
m. declare that the date for determining stockholders entitled to
call the Special Meeting and to submit Agent Designations in connection
therewith shall be the date that the Special Meeting is actually called and that
agent designations shall remain valid until revoked upon notice to Mentor
Graphics or unless the person executing the agent designation is not the holder
of Quickturn common shares on the date the Special Meeting is called;
n. declare that Mentor Graphics' and Purchaser's disclosures in
connection with its solicitation of agency designations and proxies for the
Special Meeting are complete and accurate;
o. award plaintiffs their cost and disbursements in this action,
including reasonably attorneys' and experts' fees; and
p. grant plaintiffs such other and further relief as this Court may
deem just and proper.
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<PAGE>
/s/ Kevin G. Abrams by CG Dearlove
------------------------------------------
Kevin G. Abrams
Thomas A. Beck
OF COUNSEL: Catherine G. Dearlove
Holly June Stiefel
Christopher L. Kaufman Thad J. Bracegirdle
David A. York Richards, Layton & Finger
Latham & Watkins One Rodney Square
75 Willow Road P.O. Box 551
Menlo Park, CA 94025 Wilmington, DE 19899
(650) 328-4600 (302) 658-6541
Attorneys for Plaintiffs
Fredric J. Zepp
Latham & Watkins
505 Montgomery Street
San Francisco, CA 94111
(415) 391-0600
H. Steven Wilson
Latham & Watkins
2100, 701 B Street
San Diego, CA 92101-8197
(619) 236-1234
Dated: August 12, 1998
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<PAGE>
EXHIBIT 8
---------
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MENTOR GRAPHICS CORPORATION and ) No. 98-423
MGZ CORP., )
)
Plaintiffs, )
)
v. )
)
QUICKTURN DESIGN SYSTEMS, INC., )
)
Defendant. )
COMPLAINT
---------
Plaintiffs Mentor Graphics Corporation ("Mentor Graphics") and MGZ Corp.
("Purchaser") file this action seeking declaratory relief arising out of
Purchaser's offer to purchase shares of common stock of defendant Quickturn
Design Systems, Inc. ("Quickturn").
JURISDICTION AND VENUE
----------------------
1. This Court has jurisdiction over this action pursuant to 15 U.S.C. (S)
78aa, 28 U.S.C. (S) 133l(a) and 28 U.S.C. (S) 1337(a).
2. Venue in this Court is proper pursuant to 15 U.S.C. (S) 78aa and 28
U.S.C. (S) 1391(b).
THE PARTIES
-----------
3. Plaintiff Mentor Graphics is a corporation incorporated under the laws
of the State of Oregon having its principal executive offices in Wilsonville,
Oregon. Mentor Graphics 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. Purchaser, a wholly-owned
subsidiary of Mentor Graphics and a Delaware corporation, was formed to acquire
all of the outstanding shares of Quickturn through the tender offer and merger
proposal described below. Mentor Graphics is the
<PAGE>
beneficial owner of more than three percent of the outstanding shares of
Quickturn common stock and Purchaser is the record owner of 100 shares of
Quickturn common stock.
4. Defendant Quickturn is a corporation incorporated under the laws of
the State of Delaware having its principal executive offices in San Jose,
California. According to its most recent Form 10-K, Quickturn "designs,
manufactures, sells and supports products that verify the design of integrated
circuits ('ICs') and electronic systems."
5. Quickturn's common stock is registered pursuant to Section 12(b) of
the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. (S) 781(b),
and is listed and traded on the Nasdaq National Market.
THE TENDER OFFER
----------------
6. Purchaser commenced today a fully-financed, non-coercive, non-
discriminatory, all-cash, all-shares tender offer for outstanding shares of
Quickturn common stock that are not already owned by Mentor Graphics or
Purchaser (the "Tender Offer"). In connection with the commencement of the
Tender Offer, Mentor Graphics issued today a press release summarizing the terms
of the Tender Offer (the "Press Release"), and a summary advertisement of the
Tender Offer was published in the August 12, 1998 national edition of The Wall
--------
Street Journal (the "Summary Advertisement").
- --------------
7. Quickturn stockholders whose shares are purchased by Purchaser in the
Tender Offer will receive $12.125 per share in cash, representing a 51.6%
premium above the average closing price of Quickturn's stock on the Nasdaq
National Market on August 11, 1998, the last full trading day before the first
public announcement of Mentor Graphics' commencement of the Tender Offer. The
Tender Offer is conditioned upon, among other things, (i) the redemption or
inapplicability of Quickturn's stockholder rights plan, (ii) the exemption of
the Tender Offer from Section 203 of the
-2-
<PAGE>
Delaware General Corporation Law ("Section 203"), and (iii) the tender and
purchase of sufficient Quickturn shares to give Mentor Graphics and Purchaser a
majority of the outstanding Quickturn shares on a fully diluted basis.
8. The Tender Offer is the initial step in a two-step transaction
pursuant to which Mentor Graphics proposes to acquire all of the outstanding
shares of Quickturn stock. If successful, the Tender Offer will be followed by
a merger or similar business combination with Purchaser or a direct or indirect
subsidiary of Mentor Graphics (the "Proposed Merger," and together with the
Tender Offer, the "Proposed Acquisition"). Pursuant to the Proposed Merger, it
is currently anticipated that each then outstanding share of Quickturn (other
than shares owned by Mentor Graphics or any of its subsidiaries or shares held
in the treasury of Quickturn) would be converted into the right to receive an
amount in cash equal to the price paid in the Tender Offer.
9. In January 1996, the Board of Directors of Quickturn adopted a
stockholder rights plan (the "Rights Plan"), commonly known as a "poison pill,"
which is designed to thwart any acquisition of Quickturn that does not have the
approval of Quickturn's Board. The Rights Plan provides the Quickturn Board
with the power to prevent summarily the consummation of even an all-cash, all-
shares, non-coercive, non-discriminatory tender offer by imposing a severe
economic penalty (in the form of massive dilution) on a potential acquiror. The
Rights Plan was adopted without approval of Quickturn's stockholders and, if it
remains in effect and applicable to the Tender Offer, it will restrict the right
of Quickturn's stockholders to decide whether to accept Purchaser's premium
offer for their shares.
10. Moreover, Quickturn's Board may be able to prevent Mentor Graphics
from consummating the Proposed Merger for at least three years unless the Board
exempts the Tender Offer from restrictions imposed by Section 203, Delaware's
Business Combination Statute. Section
-3-
<PAGE>
203, which applies to any Delaware corporation that has not opted out of its
coverage, provides that if a person acquires 15% or more of a corporation's
voting stock (thereby becoming an "interested stockholder"), such interested
stockholder may not engage in a "business combination" with the corporation
(defined to include a merger or consolidation) for three years after becoming an
interested stockholder, unless: (i) prior to the 15% acquisition, the board of
directors has approved either the acquisition resulting in the stockholder
becoming an interested stockholder or the business combination; (ii) the
interested stockholder acquires 85% of the corporation's voting stock in the
same transaction in which it crosses the 15% threshold; or (iii) on or
subsequent to the date of the 15% acquisition, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of the stockholders (and not by written consent) by the affirmative vote
of at least 66% of the outstanding voting stock which is not owned by the
interested stockholder. Quickturn is subject to Section 203 and has chosen not
to opt-out of the statute's coverage.
11. The Tender Offer is, and will continue to be, in full compliance with
all applicable federal laws and regulations governing tender offers, i.e., the
----
provisions of the Williams Act, embodied in Sections 14(d) and 14(e) of the
Exchange Act, 15 U.S.C. (S)(S) 78n(d) and (e), and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission ("SEC"). In
accordance with the Exchange Act and the rules and regulations promulgated
thereunder by the SEC, Purchaser commenced the Tender Offer by the publication
of the Summary Advertisement in today's Wall Street Journal. In connection with
-------------------
the Tender Offer and in accordance with the Exchange Act and the rules and
regulations promulgated thereunder by the SEC, Purchaser is filing today a
Schedule 14D-1 with the SEC (the "Schedule 14D-1") pursuant to Section 14(d)(1)
of the Exchange Act and Rule l4d-3 promulgated thereunder, 17 C.F.R.
(S) 240.I4d-3.
-4-
<PAGE>
12. Section 14(d) of the Exchange Act, 15 U.S.C. (S) 78n(d), and the rules
and regulations promulgated thereunder by the SEC, require that any person or
entity making a tender offer for beneficial ownership of more than five percent
of a class of registered equity securities file and disclose certain specified
information with respect to the tender offer. Any such bidder must disclose,
among other things, its identity and background, past contacts, transactions or
negotiations between the bidder and the company in whom the bidder seeks to
acquire stock, the source and amount of funds needed for the tender offer, and
any plans the bidder may have to change the capitalization, corporate structure
or business of the company whose stock it seeks to acquire.
13. In addition, Section 14(e) of the Exchange Act, 15 U.S.C. (S) 78n(e),
makes it "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." Purchaser has complied fully with the
Exchange Act and all rules and regulations promulgated thereunder.
14. In connection with the Tender Offer, Purchaser is in the process of
disseminating to Quickturn's stockholders an offer to purchase containing all
material information required by applicable law to be disclosed (the "Offer to
Purchase"). Among other matters, the Offer to Purchase discloses:
a. the solicitation of agent designations being undertaken by Mentor
Graphics to call a special meeting of Quickturn stockholders, as more fully
described below;
-5-
<PAGE>
b. the matters to be considered at the special meeting, including
the removal of all current members of the Quickturn Board of Directors, an
amendment of the Quickturn bylaws to reduce the size of the Quickturn Board to
five directors, and the election of five persons nominated by Mentor Graphics to
the Quickturn Board, as more fully described below; and
c. pending patent litigation between Mentor Graphics and Quickturn,
and information regarding the potential damages Quickturn may recover from such
litigation.
15. Despite the significant benefits of the Tender Offer for the Quickturn
stockholders, Quickturn has refused to accept the Mentor Graphics offer.
Quickturn's efforts will, in all likelihood, also include the commencement of
baseless litigation against plaintiffs under the provisions of the federal
securities laws regulating the solicitation of agency designations, the
solicitation of proxies, tender offers and acquisition efforts.
QUICKTURN REJECTS THE MENTOR GRAPHICS OFFER
-------------------------------------------
16. On August 11, 1998, Dr. Walden C. Rhines ("Rhines"), Mentor Graphics'
Chief Executive Officer and President, met with Glen M. Antle ("Antle"), the
Chairman of the Quickturn Board. At this meeting, Rhines presented Mentor
Graphics' proposal to acquire Quickturn. Rhines delivered a letter to Antle
outlining Mentor Graphics' proposal to acquire all outstanding shares of
Quickturn common stock at a price of $12.125 per share in a negotiated
transaction. Rhines further advised Antle that Mentor Graphics' proposal was not
subject to any financing conditions. Rhines also advised Antle that, depending
on the results of Mentor Graphics' due diligence review of Quickturn, Mentor
Graphics would consider offering more value for the outstanding shares of
Quickturn. While Antle stated that he would communicate the proposal to the
Quickturn Board, he
-6-
<PAGE>
stated that he was unwilling to accept the offer or to cause Quickturn to remove
its takeover defenses or to cause Quickturn to refrain from taking actions to
prevent the consummation of the Tender Offer.
17. In light of Quickturn's failure to accept Mentor Graphics' acquisition
proposal, the current Quickturn Board cannot be expected to facilitate the
Proposed Acquisition, but instead can be expected to maintain Quickturn's anti-
takeover devices and to actively oppose the Proposed Acquisition. Because
Quickturn failed to accept the substantial benefits of the Proposed Acquisition,
Mentor Graphics is taking its offer directly to the Quickturn stockholders.
THE AGENT SOLICITATION
----------------------
18. In furtherance of the Proposed Acquisition, Mentor Graphics publicly
disclosed today its intention to solicit agent designations from Quickturn's
stockholders to appoint designated agents with the power to call a special
meeting of the Quickturn stockholders (the "Agent Solicitation"). Section 2.3
of Quickturn's bylaws provides that "[a] special meeting of the stockholders may
be called at any time by . . . one or more stockholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at that
meeting." The purpose of the Agent Solicitation to call a special meeting of
the Quickturn stockholders (the "Special Meeting") is to allow the Quickturn
stockholders to remove all current members of Quickturn's Board of Directors, to
reduce the authorized number of Quickturn directors to five, to elect to the
Quickturn Board five individuals nominated by Mentor Graphics, and to repeal any
recent or subsequent amendments to the Quickturn bylaws. If elected, Mentor
Graphics' nominees intend to, subject to their fiduciary duties, (i) redeem the
Rights Plan (or amend the Rights Plan to make it inapplicable to the Proposed
Acquisition), (ii) approve the Tender Offer under Section 203, and (iii) take
such other actions as may be required to expedite the prompt consummation of the
Proposed Acquisition.
-7-
<PAGE>
19. Section 14(a) of the Exchange Act, 15 U.S.C. (S) 78n(a), and the rules
and regulations promulgated thereunder by the SEC, require that a person
soliciting an authorization with respect to any registered security file and
disclose certain specific information with respect to the solicitation. Any
such solicitor must disclose, among other things, its identity, the date, time
and place of the meeting at which the proposed action will be taken, and any
substantial interest of the solicitor in the matters to be acted upon. In
addition, Rule 14a-9, 17 C.F.R. (S) 240.14a-9, promulgated by the SEC under
Section 14(a) of the Exchange Act, provides that "[n]o solicitation subject to
this regulation shall be made ... containing any statement of which, at the time
and in the light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading."
20. Mentor Graphics' preliminary agent solicitation materials relating to
the call of the Special Meeting are being filed today with the SEC (the "Agent
Solicitation Materials"). Mentor Graphics believes the 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.
Mentor Graphics is in the process of disseminating to Quickturn's stockholders
the Agent Solicitation Materials containing all material information required by
applicable law to be disclosed. The preliminary Agent Solicitation Materials
disclose, among other things:
a. the requirement that, for the Special Meeting to be held, agent
designations in favor of calling the Special Meeting must be executed by the
holders of not less than 10% of all the shares entitled to vote at such meeting;
-8-
<PAGE>
b. Mentor Graphics' belief that (i) a special meeting may be called
by the holders of not less than 10% of the Quickturn shares on the date the
agent designations are delivered to Quickturn, (ii) the stockholders calling the
Special Meeting, not the Quickturn Board, have the right to fix the date and
time of the Special Meeting, (iii) agent designations shall remain in effect
until revoked or unless the person executing such agent designation is not the
record holder of Quickturn shares on the date the Special Meeting is called, and
(iv) absent prior action by the Quickturn Board, the record date for the Special
Meeting shall be the date next preceding the date on which the designated agents
give notice of the Special Meeting;
c. Mentor Graphics' intent, upon receipt of the requisite number of
agent designations, to call the Special Meeting, fix the date and time of the
Special Meeting, and give notice of the Special Meeting;
d. the belief of Mentor Graphics that its efforts to convene the
Special Meeting comply with Delaware law and Quickturn's bylaws as they
presently exist; and
e. Mentor Graphics' intent, if the Special Meeting is called and
held, to ask Quickturn stockholders to (i) remove the current members of the
Board of Directors of Quickturn, (ii) amend Quickturn's bylaws to reduce the
authorized number of directors to five, (iii) elect Mentor Graphics' five
nominees to the Quickturn Board, and (iv) repeal any provisions of the Quickturn
bylaws adopted by the incumbent Quickturn Board subsequent to the last public
filing of the bylaws.
21. In furtherance of Mentor Graphics' solicitation of agent designations,
Purchaser is demanding that Quickturn produce a list of its stockholders and
related stocklist materials.
DECLARATORY RELIEF
------------------
22. The Declaratory Judgment Act, 28 U.S.C. (S) 2201, provides that "[i]n
a case of actual controversy within its jurisdiction, ... any court of the
United States, upon the filing of an
-9-
<PAGE>
appropriate pleading, may declare the rights and other legal relations of any
interested party seeking such declaration." Plaintiffs are entitled to a
declaratory judgment that the Schedule 14D-1 and all exhibits thereto, and the
Agent Solicitation Materials, are proper and comply with all applicable
securities laws, rules and regulations.
23. Although the Proposed Acquisition is fairly and attractively priced,
Plaintiffs reasonably expect that Quickturn will thwart or delay plaintiffs'
lawful attempts to consummate the Tender Offer. Plaintiffs believe Quickturn
will seek to delay and defeat the Tender Offer through efforts including the
filing of a meritless suit claiming that public disclosures and filings made by
plaintiffs in conjunction with the Tender Offer and the Agent Solicitation
violate applicable federal securities laws and regulations. Thus, there is a
substantial controversy between parties having adverse interests which is of
sufficient immediacy and reality to warrant the issuance of a declaratory
judgment.
24. In the absence of declaratory relief, plaintiffs will suffer
irreparable harm. As evidenced by the course of action that Quickturn has
pursued to date and the actions taken generally by companies that receive
unsolicited acquisition proposals, Quickturn will likely defend against the
Proposed Acquisition and the Agent Solicitation by, among other things, filing
false claims designed to delay or defeat the Proposed Acquisition and the Agent
Solicitation. A declaratory judgment that the disclosures in the Schedule 14D-
1, the Offer to Purchase and the Agent Solicitation Materials comply with all
applicable federal laws will serve the purpose of adjudicating the interests of
the parties, resolving any complaints concerning the propriety of the Tender
Offer or the Agent Solicitation under federal law, and permitting an otherwise
lawful transaction to proceed.
-10-
<PAGE>
25. Plaintiffs therefore request pursuant to the Declaratory Judgment Act,
28 U.S.C. (S)(S) 2201 and 2202, that this Court enter a declaratory judgment
that the public disclosures and documents filed with the SEC by plaintiffs and
which are being disseminated to Quickturn stockholders in connection with the
Tender Offer and the Agent Solicitation comply fully with all applicable
provisions of law.
WHEREFORE, Plaintiffs respectfully request that this Court:
a. declare that plaintiffs have disclosed all information required
by, and are otherwise in all respects in compliance with, all applicable laws
and other obligations, including, without limitation, Sections 14(a), 14(d) and
14(e) of the Exchange Act and any other federal securities laws, rules or
regulations deemed or claimed to be applicable to the Schedule 14D-1, the Tender
Offer, the Agent Solicitation or the Agent Solicitation Materials;
b. award plaintiffs their costs and disbursements in this action,
including reasonable attorneys' fees; and
c. grant plaintiffs such other and further relief as this Court may
deem just and proper.
-11-
<PAGE>
/s/ Kevin G. Abrams / by T.J. Bracegirdle
Of Counsel: _________________________________________
Kevin G. Abrams (ID #2375)
Christopher L. Kaufman Thomas A. Beck (ID #2086)
David A. York Catherine G. Dearlove (ID #3328)
Latham & Watkins Holly June Stiefel (ID #3594)
75 Willow Road Thad J. Bracegirdle (ID #3691)
Menlo Park, CA 94025 Richards, Layton & Finger
(650) 328-4600 One Rodney Square
P.O. Box 551
Fredric J. Zepp Wilmington, DE 19899
Latham & Watkins (302) 658-6541
505 Montgomery Street Attorneys for Plaintiffs
San Francisco, CA 94111
(415) 391-0600
H. Steven Wilson
Latham & Watkins
2100, 701 B Street
San Diego, CA 92101-8197
(619) 236-1234
Dated: August 12, 1998
-12-
<PAGE>
EXHIBIT 9
---------
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ------------------------------------------ :
HOWARD SHAPIRO, : CIVIL ACTION NO. 16588NC
:
Plaintiff, :
:
- against - :
:
GLEN M. ANTLE, KEITH R. LOBO, RICHARD C. :
ALBERDING, MICHAEL R. D'AMOUR, YEN-SON :
HUANG, DAVID K. LAM, WILLIAM A. HASSLER, :
CHARLES D. KISSNER and QUICKTURN DESIGN :
SYSTEMS, INC., :
:
Defendants. :
- ------------------------------------------ :
CLASS ACTION COMPLAINT
----------------------
Plaintiff, by his attorneys, Rosenthal, Monhait, Gross & Goddess,
P.A., for his complaint against defendants, alleges upon information and belief,
except for paragraph 2 hereof, which is alleged upon knowledge as follows:
1. Plaintiff brings this action pursuant to Rule 23 of the Rules of
the Court of Chancery on his behalf and as a class action on behalf of all
persons, other than defendants and those in privity with them, who own the
common stock of Quickturn Design Systems, Inc. ("Quickturn" or the "Company").
2. Plaintiff has been the owner of the common stock of the Company
since prior to the events described below and continuously to date.
3. Defendant Quickturn is a corporation duly organized and existing
under the laws of the State of Delaware. The Company designs, manufactures,
markets and supports system level verification solutions for the design of
integrated circuits and electronic systems.
<PAGE>
4. Defendant Glen M. Antle is and was at all relevant times the
Chairman of the Board and a director of Quickturn.
5. Defendant Keith R. Lobo is and was at all relevant times Chief
Executive Officer, President and a director of Quickturn.
6. Defendants Richard C. Alberding, Michael R. D'Amour, Yen-Son
Huang, David K. Lam, William A. Hassler and Charles D. Kissner are and were at
all relevant times directors of Quickturn.
7. The Individual Defendants named in paragraphs 4 through 6 are in
a fiduciary relationship with the plaintiff and the other public stockholders of
Quickturn and owe them the highest obligations of good faith, due care, candor
and fair dealing.
CLASS ACTION ALLEGATIONS
------------------------
8. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all security holders of the Company (except the defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any of the defendants) and their successors in interest, who are or will be
threatened with injury arising from defendants' actions as more fully described
herein.
9. This action is properly maintainable as a class action.
10. The class is so numerous that joinder of all members is
impracticable. As of April 30, 1998, there were approximately 17.8 million
shares of Quickturn common stock outstanding, owned by shareholders located
throughout the country.
11. There are questions of law and fact which are common to the
class, including the following: (a) whether defendants have breached their
fiduciary and other common
-2-
<PAGE>
law duties owed by them to plaintiff and the members of the class; (b) whether
defendants are unlawfully impeding a takeover attempt and improperly seeking to
entrench themselves in their own positions at the expense of the public
shareholders of Quickturn; (c) whether defendants' actions hereinafter
described, constitute a breach of their fiduciary duties in response to a
legitimate, fully-financed offer to acquire the Company; and (d) whether the
class is entitled to injunctive relief or damages as a result of the wrongful
conduct committed by defendants.
12. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of the plaintiff are typical of the claims of other members of the class and
plaintiff has the same interests as the other members of the class. Plaintiff
will fairly and adequately represent the class.
13. Defendants have acted in a manner which affects plaintiff and all
members of the class, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the class a whole.
14. The prosecution of separate actions by individual members of the
class would create a risk of inconsistent or varying adjudications with respect
to individual members of the class, which would establish incompatible standards
of conduct for defendants, or adjudications with respect to individual members
of the class which would, as a practical matter, be dispositive of the interests
of other members or substantially impair or impede their ability to protect
their interests.
SUBSTANTIVE ALLEGATIONS
-----------------------
15. On or about August 12, 1998, Mentor Graphics Corp. ("Mentor")
announced that through a wholly-owned subsidiary, MGZ Corp., it had offered to
purchase all
-3-
<PAGE>
the outstanding shares of Quickturn's common stock that it did not already own
(approximately 97% of the outstanding shares) for $12.125 per share in cash. The
total value of the proposed transaction was approximately $216 million. In
response to this announcement, the price of Quickturn common stock soared over
$3.00 per share (or 38%), from its August 11, 1998 closing price of $8.00 per
share to $11.03125 per share.
16. Mentor's President and Chief Executive Officer, Dr. Walden Rhines
("Rhines") presented the offer to defendant Antle at an August 11 late-night
meeting. Rhines stated that Mentor would consider increasing its offer based on
a due diligence review, if Quickturn permitted one. Antle stated only that he
would communicate the offer to the Quickturn board.
17. Commenting on the proposed transaction, Rhines said in a
telephone interview that while the proposed transaction would eliminate an
existing patent battle between the companies, which would result in savings of
$12 million in legal fees alone, the deal made sense independent of the
litigation. Although Mentor and Quickturn have discussed merging in the past,
they could never reach an agreement, he said.
18. "We think this is something that is just plain good for the
shareholders and the companies," Rhines said. "I think the joining of the two
companies would have tremendous benefits in eliminating customer uncertainty,"
he said.
19. The Individual Defendants have refused to permit Mentor to
commence due diligence and to negotiate with Mentor in order to protect their
own substantial salaries and perquisites, and to entrench themselves in their
positions of authority and control with the Company. Instead of fulfilling
their fiduciary duties to the public shareholders of Quickturn by
-4-
<PAGE>
immediately beginning negotiations with Mentor to maximize shareholder value,
defendants have adopted a course of delay in order to protect their own
interests.
20. Defendants' conduct has deprived and will continue to deprive the
Company's public shareholders of the very substantial premium (over 50%) which
Mentor is prepared to pay or the enhanced premium which further negotiation
could secure.
21. Moreover, defendants have refused to take those steps necessary
to ensure that the Company's shareholders will receive maximum value for their
shares of Quickturn stock. Defendants have refused to seriously consider the
pending Mentor offer, and have not announced their intention to conduct an
active auction or to establish an open bidding process in order to maximize
shareholder value in selling the Company.
22. The Mentor offer is a fully-financed, non-coercive, all-cash,
all-shares tender offer. It does not present a threat to Quickturn or its
stockholders. Even to the extent it may be deemed a threat, defendants' failure
to respond positively by permitting due diligence or commencing discussions with
Mentor is unreasonable in the circumstances.
23. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
Quickturn's assets and businesses and/or have been and will be prevented from
obtaining a fair and adequate price for their shares of Quickturn's common
stock.
24. By reason of all of the foregoing, each defendant herein has
willfully participated in unfair dealing toward the plaintiff and the other
members of the class in breach of the fiduciary duties owed by each of them to
the class.
-5-
<PAGE>
25. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the class, and will succeed in
their plan to entrench themselves and deprive the class of the opportunity to
maximize the value of their Quickturn holdings either in a transaction with
Mentor or some other bona fide offer offeror, all to the irreparable harm of the
---------
class.
26. Plaintiff and the class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the Individual Defendants to carry out their fiduciary
duties to plaintiff and the other members of the class by announcing their
intention to:
1) cooperate fully with any person or entity, having a bona
----
fide interest in proposing any transaction which would maximize shareholder
- ----
value, including, but not limited to, a buyout or takeover of the Company by
Mentor;
2) undertake an appropriate evaluation of Quickturn's worth as
a merger/acquisition candidate;
3) take all appropriate steps to enhance Quickturn's value and
attractiveness as a merger/acquisition candidate;
4) take all appropriate steps to effectively expose Quickturn
to the marketplace in an effort to create an active auction for Quickturn;
5) act independently so that the interests of Quickturn's
public stockholders will be protected; and
-6-
<PAGE>
6) adequately ensure that no conflicts of interest exist
between the Individual Defendants' interest and their fiduciary obligation to
maximize stockholder value or, if such conflicts exist, to ensure that all
conflicts are resolved in the best interests of Quickturn's public stockholders;
C. ordering the Individual Defendants, jointly and severally, to
account to plaintiff and the class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
D. preliminarily and permanently enjoining defendants from
proceeding with any action that will entrench the Individual Defendants to the
detriment of maximizing the value to the Company's public shareholders;
E. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
-7-
<PAGE>
F. granting such other and further relief as may be just and proper
in the premises.
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By: /s/ Norman M. Monhait
--------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19899-1070
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
New York, New York 10016
(212) 779-1414
August 13, 1998
-8-
<PAGE>
EXHIBIT 10
----------
MGZ CORP.
8005 S.W. BOECKMAN ROAD
WILSONVILLE, OR 97070
August 20, 1998
BY FACSIMILE
- ------------
Quickturn Design Systems, Inc.
55 W. Trimble Road
San Jose, California 95131
Attention: Glen M. Antle
Dear Mr. Antle:
Pursuant to Section 803.5(a)(1) of the Rules of the Federal Trade
Commission (the "Commission") under Section 7A of the Clayton Act as added by
Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"Act"), you are hereby notified as follows:
1. The acquiring person is MGZ Corp., the ultimate parent entity of
which is Mentor Graphics Corporation.
2. MGZ Corp. intends to acquire voting securities of Quickturn
Design Systems, Inc.
3. MGZ Corp. has commenced a cash tender offer to acquire 100% of
the outstanding shares of common stock, par value $.001 per share, of Quickturn
Design Systems, Inc., including the associated preferred stock purchase rights.
4. The foregoing acquisition may be subject to the Act and Mentor
Graphics Corporation is filing notification under the Act with the Commission
and the Assistant Attorney General in charge of the Antitrust Division of the
United States Department of Justice (the "Assistant Attorney General").
<PAGE>
5. It is anticipated that such notification will be received by the
Commission and the Assistant Attorney General on August 20, 1998.
6. The person within which Quickturn Design Systems, Inc. is
included may be required to file notification under the Act.
Very truly yours,
MGZ Corp.
/s/ Gregory K. Hinckley
-------------------------------
By: Gregory K. Hinckley
Chief Financial Officer and Secretary
