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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
(AMENDMENT NO. 33)
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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
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
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INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") originally filed on August 24, 1998, by Quickturn Design Systems,
Inc., a Delaware corporation (the "Company" or "Quickturn"), relates to an
offer by MGZ Corp., a Delaware corporation ("MGZ") and a wholly owned
subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Mentor"),
to purchase the outstanding shares of the common stock, par value $.001 per
share (including the associated preferred stock purchase rights), of the
Company. All capitalized terms used herein without definition have the
respective meanings set forth in the Schedule 14D-9.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
The response to Item 7 is hereby amended by adding the following after the
final paragraph of Item 7:
On January 4, 1999, the Board approved an amendment to the Merger Agreement
to provide that each stockholder of the Company will receive Cadence common
stock with a value of $15.00 per share at the time of the closing of the
Merger. A copy of Amendment No. 2 to the Agreement and Plan of Merger is filed
as Exhibit 67 hereto and is incorporated herein by reference. On January 5,
1999, Cadence and the Company issued a press release announcing the amendment
of the Merger Agreement. A copy of the press release is filed as Exhibit 68
hereto and is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The response to Item 8 is hereby amended by adding the following to the end
of the section entitled "Litigation Concerning the Offer":
On December 28, 1998, Mentor and MGZ filed a Motion for Leave to File Fourth
Amended Complaint with the United States District Court for the District of
Delaware. A copy of the Fourth Amended Complaint is attached hereto as Exhibit
69 and is incorporated herein by reference.
On December 31, 1998, the Supreme Court of the State of Delaware issued an
opinion regarding the Company's appeal of the December 3, 1998 (as amended
December 7, 1998) decision of the Court of Chancery of the State of Delaware,
a copy of which is filed as Exhibit 70 hereto and incorporated herein by
reference.
The response to Item 8 is hereby amended by adding the following to the end
of the section entitled "Proxy Solicitation":
On January 5, 1999 the Company sent a press release and a second addendum to
the Company's proxy statement to all stockholders of record as of November 10,
1998. A copy of the press release is filed as Exhibit 68 hereto and
incorporated herein by reference. A copy of the second addendum is filed as
Exhibit 71 hereto and incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The response to Item 9 is hereby amended by the addition of the following
new exhibits:
<TABLE>
<C> <S>
Exhibit 67 Amendment No. 2 to the Agreement and Plan of Merger.
Exhibit 68 Press Release of the Company and Cadence dated January 5, 1999.
Exhibit 69 Fourth Amended Complaint filed with the United States District
Court for the District of Delaware.
Exhibit 70 Opinion of the Supreme Court of the State of Delaware dated
December 31, 1998.
Exhibit 71 Second Addendum to Proxy Statement dated January 5, 1999.
</TABLE>
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
<TABLE>
<C> <S>
Dated: January 5, 1999 QUICKTURN DESIGN SYSTEMS, INC.
</TABLE>
/s/ Keith R. Lobo
By: _________________________________
Keith R. Lobo
President and Chief Executive
Officer
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EXHIBIT 67
AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER (this
"Amendment"), dated as of January 4, 1999, is entered into by and among
Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), Cadence
Design Systems, Inc., a Delaware corporation ("Parent"), and CDSI Acquisition,
Inc., a Delaware corporation and a wholly owned subsidiary of Parent
("Acquisition"). Capitalized terms used herein but not defined herein shall
have the meanings set forth in the Merger Agreement (defined below).
WHEREAS, (i) the Company, Parent and Acquisition have previously
entered into that certain Agreement and Plan of Merger, dated as of December 8,
1998, as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of
December 16, 1998 (the "Merger Agreement"), and (ii) the Company, Parent and
Acquisition have determined that it is advisable to amend the terms of the
Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the Company, Parent and Acquisition hereby agree as follows:
ARTICLE 1
AMENDMENTS TO THE MERGER AGREEMENT
1.1. Section 1.8(b) of the Merger Agreement is hereby amended and
restated to read in its entirety as follows:
"(b) The Exchange Ratio shall be (i) $15.00 divided by (ii) the average
closing price of one share of Parent Common Stock (as reported on the NYSE
Composite Transactions reporting system) during the five trading days
immediately preceding the second business day prior to the Closing Date."
ARTICLE 2
MISCELLANEOUS
2.1. Affirmation. All terms of the Merger Agreement not expressly
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amended in this Amendment remain unmodified and in full force and effect.
2.2. Entire Agreement. The Merger Agreement, as amended by this
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Amendment (including the Company Disclosure Schedule), constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all other
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prior agreements and understandings both written and oral between the parties
with respect to the subject matter hereof.
2.3. Validity. If any provision of this Amendment or the Merger
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Agreement, the application thereof to any person or circumstance is held invalid
or unenforceable, the remainder of this Amendment and the Merger Agreement and
the application of such provision to other persons or circumstances shall not be
affected thereby and to such end the provisions of this Amendment and the Merger
Agreement are agreed to be severable.
2.4. Governing Law. This Amendment shall be governed by and
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construed in accordance with the laws of the State of Delaware without regard to
the principles of conflicts of law thereof.
2.5. Descriptive Headings. The descriptive headings herein are
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inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Amendment.
2.6. Personal Liability. This Amendment shall not create or be
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deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of the Company or Parent or Acquisition or
any officer, director, employee, agent, representative or investor of any party
hereto.
2.7. Counterparts. This Amendment may be executed in one or more
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counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
(Remainder of page intentionally left blank)
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IN WITNESS WHEREOF, each of the parties has caused this Amendment to
be duly executed on its behalf as of the day and year first above written.
CADENCE DESIGN SYSTEMS, INC.
By: /s/H. Raymond Bingham
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Name: H. Raymond Bingham
Title: Executive Vice President and
Chief Financial Officer
QUICKTURN DESIGN SYSTEMS, INC.
By: /s/Keith R. Lobo
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Name: Keith R. Lobo
Title: President and Chief Executive Officer
CDSI ACQUISITION, INC.
By: /s/H. Raymond Bingham
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Name: H. Raymond Bingham
Title: Executive Vice President and
Chief Financial Officer
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Exhibit 68
FOR IMMEDIATE RELEASE
CADENCE RAISES PURCHASE PRICE FOR QUICKTURN
TO $15 PER SHARE
Cadence Rejects Auction by Proposed Mentor Nominees to Quickturn Board
SAN JOSE, Calif. -- January 5, 1999 -- Cadence Design Systems, Inc.
(NYSE:CDN) and Quickturn Design Systems, Inc. (NASDAQ:QKTN) today announced
that they have amended their merger agreement to increase from $14 to $15 the
amount of Cadence stock that Quickturn stockholders will receive for each
Quickturn share.
"We increased our price to end the uncertainty and clarify a confusing
situation for Quickturn stockholders," said Jack Harding, president and CEO of
Cadence. "This is a firm agreement for 100% of Quickturn's stock. We have
absolutely no interest in taking part in an auction conducted by Mentor's
nominees to the Quickturn board."
Further, Cadence cautioned that completion of the merger transaction with
Quickturn will be severely imperiled if Quickturn stockholders vote to replace
Quickturn's current board of directors with Mentor's nominees at the special
meeting of Quickturn stockholders on Friday, January 8, 1999. Mentor has
stated that if its nominees are elected, it wants to conduct a due diligence
examination of non-public Quickturn information. Any such sharing of non-
public information would involve a breach, or require termination, of the
Quickturn/Cadence merger agreement.
Under such circumstances, Mentor may also be in a position to block any
pooling of interests transaction, including the proposed merger with Cadence.
Obtaining pooling of interests accounting treatment is an expressed condition
of the Cadence/Quickturn transaction.
"There is great risk to our merger if Mentor's nominees are elected," added
Harding. "We will not proceed with Quickturn if a pooling of interests is
blocked or if Quickturn is forced to share confidential information with
Mentor -- its fiercest competitor."
Keith R. Lobo, president and CEO of Quickturn, said: "We strongly urge
Quickturn stockholders to vote against Mentor's effort to remove our board. If
Mentor's slate of directors is elected, Quickturn could well lose the
opportunity to join Cadence in a transaction that provides our stockholders
superior value in the short term and tremendous potential upside in the long
term."
Lobo added, "Mentor is simply trying to gain control of Quickturn through
the back door. Mentor has only offered to purchase less than 15 percent of the
stock, has made no commitment to purchase the remaining 15.4 million shares
outstanding, and has provided insufficient assurances regarding its ability to
finance such an additional purchase."
As previously announced, the boards of Cadence and Quickturn unanimously
approved a definitive merger agreement under which Cadence will acquire 100
percent of Quickturn's outstanding common stock in a tax-free, stock-for-stock
transaction. As a result of the merger, Quickturn will become a wholly-owned
subsidiary of Cadence. Cadence stock will be valued for purposes of the
exchange based upon the closing prices for Cadence stock on the NYSE during a
five-day trading period ending three days prior to the merger. Cadence said
that it expects the transaction to be accretive to earnings in 1999.
The Quickturn board of directors opposes the Mentor proposals and urges
stockholders to (a) vote AGAINST the Mentor proposals by signing, dating, and
returning the Quickturn BLUE proxy card, and (b) discard any gold-striped
proxy card sent to stockholders by Mentor. Stockholders may direct questions
to Morrow & Co., Inc. at (800) 662-5200.
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Attached to this release is a preliminary proxy statement filed pursuant to
Schedule 14(a) of the Securities Exchange Act of 1934 by Cadence Design
Systems, Inc. The proxy statement contains additional information on the
matters described herein.
ABOUT CADENCE
Cadence Design Systems, Inc. provides comprehensive services and software
for the product development requirements of the world's leading electronics
companies. Cadence is the largest supplier of software products, consulting
services, and design services used to accelerate and manage the design of
semiconductors, computer systems, networking and telecommunications equipment,
consumer electronics, and a variety of other electronic-based products. With
more than 4,000 employees and 1997 annual sales of $916 million, Cadence has
sales offices, design centers, and research facilities around the world. The
company is headquartered in San Jose, Calif. and traded on the New York Stock
Exchange under the symbol CDN. More information about the company, its
products and services may be obtained from the World Wide Web at
http://www.cadence.com.
ABOUT QUICKTURN
Quickturn Design Systems, Inc. is a leading provider of verification
hardware and time-to-market engineering (TtMETM) 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 in San Jose, Calif. For
more information, visit the Quickturn Web site at http://www.quickturn.com or
send e-mail to [email protected].
This release contains forward-looking statements based on current
expectations or beliefs as well as a number of assumptions about future
events, and that are subject to factors and uncertainties that could cause
actual results to differ materially from those described in the forward-
looking statements. The reader is cautioned not to put undue reliance on these
forward-looking statements, which are not a guarantee of future performance
and are subject to a number of uncertainties and other factors, many of which
are outside the control of Cadence and Quickturn. The forward-looking
statements in this release address a variety of subjects including, for
example, the expected date of closing of the acquisition, the transaction
being accretive to earnings in 1999, and the potential benefits of the merger.
The following factors, among others, could cause actual results to differ
materially from those described in these forward-looking statements: the risk
that Quickturn's business will not be successfully integrated with Cadence's
business; costs associated with the merger; the inability to obtain the
approval of Quickturn's shareholders; matters arising in connection with the
parties' efforts to comply with applicable regulatory requirements relating to
the transaction; and increased competition and technological changes in the
industry in which Cadence and Quickturn compete. For a detailed discussion of
these and other cautionary statements, please refer to Cadence's and
Quickturn's filings with the Securities and Exchange Commission, including
their respective Annual Reports on Form 10-K for the year ended December 31,
1997 and their respective Quarterly Reports on Form 10-Q for the quarter ended
September 30, 1998.
Cadence and the Cadence logo are registered trademarks of Cadence Design
Systems, Inc. All other brands or product names are the property of their
respective holders.
CONTACTS
For Cadence Design Systems, Inc.
Ray Bingham--(408) 944-7503 (Investors)
Laurie Stanley--(408) 428-5019
or
Robert Mead--Gavin Anderson & Co.- (212) 373-0226
For Quickturn Design Systems, Inc.
Ray Ostby--(408) 914-6000
or
Pauline Yoshihashi--Abernathy MacGregor Frank--(213) 630-6550
Matt Sherman- Abernathy MacGregor Frank--(212) 371-5999
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PRELIMINARY PROXY STATEMENT
-SUBJECT TO COMPLETION-
PRELIMINARY COPY
PROXY STATEMENT
OF
CADENCE DESIGN SYSTEMS, INC.
IN OPPOSITION TO THE SOLICITATION OF
MENTOR GRAPHICS CORPORATION AND
MGZ CORP.
SPECIAL MEETING OF STOCKHOLDERS
JANUARY 8, 1999
Cadence Design Systems, Inc. may engage in activities constituting a
solicitation under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including discussions with certain holders of outstanding
shares of the common stock, $0.001 par value ("Quickturn Common Stock"), of
Quickturn Design Systems, Inc. ("Quickturn"), a Delaware corporation, in
connection with the Special Meeting of Stockholders of Quickturn, to be held
at 8:00 a.m., PST, on January 8, 1999, at the offices of Wilson Sonsini
Goodrich & Rosati at 650 Page Mill Road, Palo Alto, California, and at any
adjournment, postponement or continuation thereof (the "Special Meeting"). The
phone number at that location is (650) 493-9300.
This Proxy Statement (the "Proxy Statement") will be furnished to holders of
Quickturn Common Stock as necessary to comply with the Exchange Act.
THIS SOLICITATION IS BEING MADE BY CADENCE DESIGN SYSTEMS, INC.
This Proxy Statement is furnished by Cadence Design Systems, Inc.
("Cadence") in opposition to the solicitation by Mentor Graphics Corporation,
an Oregon corporation ("Mentor"), and MGZ Corp., a Delaware corporation and a
wholly-owned subsidiary of Mentor ("MGZ"), pursuant to a Proxy Statement of
Mentor and MGZ dated September 11, 1998, as amended, to the extent valid, or
any subsequent proxy statement of Mentor and/or MGZ (in either case, the
"Mentor Proxy Statement"), of proxies to be used at the Special Meeting. This
Proxy Statement is first being sent or delivered on January 5, 1999 to certain
stockholders of record of Quickturn as of the Record Date (as defined below).
Quickturn has entered into an Agreement and Plan of Merger (the "Merger
Agreement") dated as of December 8, 1998, as amended on December 16, 1998 and
January 4, 1999, with Cadence and a wholly-owned subsidiary of Cadence.
Pursuant to such agreement, it is proposed that Quickturn will merge with a
wholly-owned subsidiary of Cadence in a tax-free, stock-for-stock transaction,
and the stockholders of Quickturn will receive Cadence common stock with a
value of $15.00 per share at the time of closing of the merger. Quickturn has
also entered into a Stock Option Agreement dated as of December 8, 1998 with
Cadence, pursuant to which Quickturn issued Cadence an option to purchase
approximately 19.9% of the outstanding Quickturn Common Stock at $14.00 per
share, which option will become exercisable under certain conditions discussed
below. These agreements are currently the subject of litigation between
Quickturn and Cadence, on the one hand, and Mentor on the other, and between
Quickturn and certain of its stockholders. For a further discussion of the
Delaware litigation referred to above, the other litigation between Quickturn
and Mentor or relating to the unsolicited tender offer by MGZ to purchase
Quickturn Common Stock, as revised, or the proposed transaction between
Quickturn and Cadence and the litigation relating thereto, see Quickturn's
various filings with the Securities and Exchange Commission (the "SEC"),
including sections entitled "Certain Legal Proceedings" in Quickturn's
Schedules 14D-9 and 14A.
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GENERAL/REVOCABILITY OF PROXY
As described in the Quickturn Proxy Statement, any stockholder who has given
a gold proxy to Mentor in connection with the Mentor Proxy Statement may revoke
it at any time before it is voted by delivering to Quickturn, c/o Morrow & Co.,
Inc., a duly executed BLUE Proxy Card from Quickturn bearing a date LATER than
the proxy delivered to Mentor. Proxies may also be revoked at any time prior to
voting by (i) delivering to Quickturn, c/o Morrow & Co., Inc., a written
notice, bearing a later date than the proxy, stating that the proxy is revoked
(such revocation may be in any form, but must be signed and dated and must
clearly express your intention to revoke your previously executed proxy), (ii)
signing and delivering prior to the vote at the Special Meeting a proxy with
respect to the same shares and bearing a date later than the date of the proxy
being revoked, or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not, by itself, constitute a
revocation of your proxy). Revocations of proxies and other instruments
revoking proxies may be delivered to Quickturn by fax or by mail (using the
envelope provided with Quickturn Proxy Statement), to Morrow & Co., Inc., 445
Park Avenue, New York, New York, 10022, Fax: (212) 754-8362.
Only holders of Quickturn Common Stock of record at the close of business on
November 10, 1998 (the "Record Date") are entitled to vote at the Special
Meeting. On the Record Date, 18,088,298 shares of Quickturn Common Stock were
outstanding. Each share of Quickturn Common Stock is entitled to one vote on
the matters to be considered at the Special Meeting.
BACKGROUND
UNSOLICITED TENDER OFFER FOR QUICKTURN
On August 12, 1998, MGZ initiated an unsolicited tender offer to purchase all
outstanding shares of Quickturn Common Stock for $12.125 per share. The tender
offer is currently scheduled to remain open to Quickturn stockholders until
January 11, 1999.
On December 28, 1998, Mentor announced that it was reducing the number of
shares being sought in its unsolicited tender offer all shares of Quickturn
Common Stock to 2,100,000 shares and increasing its offering price for such
reduced number of shares to $14.00 cash per share from $12.125 cash per share
(the "Reduced Offer"). Mentor stated that the Reduced Offer, if successfully
consummated and when combined with Mentor's current holdings, would result in
Mentor holding approximately 14.9% of the outstanding shares of Quickturn
Common Stock.
On December 28, 1998, Quickturn's Board of Directors (the "Quickturn Board")
met with its financial and legal advisors to consider the Reduced Offer.
On December 29, 1998, the Quickturn Board met again with its financial and
legal advisors to consider the Reduced Offer and, at the conclusion of such
meeting, determined that the Reduced Offer is not in the best interests of
Quickturn and its stockholders. As described in Quickturn's Schedule 14D-9,
Amendment No. 32, filed with the SEC on December 30, 1998, in determining that
the Reduced Offer is not in the best interests of Quickturn and its
stockholders, and in making its recommendation that Quickturn stockholders
reject the Reduced Offer, the Quickturn Board considered the following reasons
and factors:
. The Quickturn Board determined that the Reduced Offer, which is limited
to an offer to purchase 2,100,000 shares, purports to be part of a
process pursuant to which Mentor proposes to undertake a "proposed
second-step merger." As expressed in its announcement of the Reduced
Offer, Mentor's proposal for a second-step merger is highly conditional
in nature. The Quickturn Board noted that these conditions include,
among other things, a legal ruling invalidating certain provisions of
the Merger Agreement, the negotiation of a merger agreement between
Quickturn and Mentor and completion of due diligence. The Quickturn
Board believes that these conditions are highly unlikely to be
satisfied.
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. The Quickturn Board noted that Mentor did not state that it has
sufficient financing to complete its second-step merger, and the
Quickturn Board believes it is not at all certain that Mentor can
finance a transaction to acquire all of Quickturn's outstanding stock
and fulfill other commitments required under the Merger Agreement.
Accordingly, the Quickturn Board determined that there was significant
uncertainty concerning whether a second-step merger with Mentor could
occur, as well as what the consideration in such a transaction would be.
. The Quickturn Board determined that the Reduced Offer could interfere
with or threaten Quickturn's proposed transaction with Cadence, which
the Quickturn Board determined again to be in the best interests of
Quickturn stockholders. The Quickturn Board noted that the Reduced Offer
purported to be a first step of a multi-step transaction that conflicts
with the proposed combination with Cadence.
. The Quickturn Board noted that Mentor's ownership of 14.9% of the
Quickturn Common Stock, as well as its obtaining control of the
Quickturn Board, could raise serious concerns about Quickturn's ability
to engage in any "pooling-of-interests" transaction, including the
proposed combination with Cadence.
. The Quickturn Board continues to believes that, even assuming Mentor
could make a firm offer to acquire all of the Quickturn Common Stock at
a price consistent with its conditional proposal, the strategic
combination with Cadence provides substantial and superior short- and
long-term value for Quickturn, its stockholders, employees and
customers. In particular, the Quickturn Board continues to believe that
the Cadence transaction offers substantial strategic benefits to
Quickturn which far exceed the consideration proposed by Mentor.
. The Quickturn Board considered potential antitrust issues raised by the
Cadence transaction. In this regard, the Quickturn Board continues to
believe that the transaction does not raise significant antitrust
issues.
. The Quickturn Board considered the potential harm to Quickturn, as well
as Quickturn's employees and customers, if Mentor were to become a 14.9%
stockholder of Quickturn. In this regard, given the litigation and
competition between Quickturn and Mentor, the Quickturn Board considered
the potential negative impact on Quickturn if Mentor were to become a
large stockholder of Quickturn.
The Quickturn Board of Directors unanimously recommended that Quickturn
stockholders reject the revised unsolicited proposal by Mentor to acquire a
14.9% stake in Quickturn. The Quickturn Board continues to recommend that
stockholders not tender their shares to Mentor, and urges Quickturn
stockholders who may have tendered to withdraw their shares.
WHY CADENCE OPPOSES THE MENTOR OFFER AND THE MENTOR PROPOSALS
As the Quickturn Board has stated, the combination of Quickturn with Cadence
will enable Quickturn stockholders to enjoy the benefits of Cadence's proven
business strategy, strong balance sheet and excellent track record in
acquiring and integrating companies. Cadence feels very strongly about the
advantages of combining the complementary product offerings, development
efforts and marketing strengths of Cadence with those of Quickturn. Cadence
believes the proposed merger is truly a strategic combination in which the
whole will be greater than the sum of the parts.
Despite Quickturn's proposed strategic merger with Cadence, Mentor persists
in soliciting your vote to replace the Quickturn Board with its own handpicked
slate of director nominees and in making the Reduced Offer. The Quickturn
Board has determined that Mentor's Reduced Offer is inadequate and that
Mentor's proposal is not in the best interests of Quickturn and its
stockholders.
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CERTAIN INFORMATION ABOUT CADENCE/INTEREST OF
CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
AND RELATED ADDITIONAL INFORMATION
Cadence is a corporation organized under the laws of the State of Delaware.
Its business address is 2655 Seely Avenue, San Jose, California 95134. The
principal business of Cadence is the development, manufacture and sale of
electronic design automation software technology and provision of professional
services in connection therewith.
On December 8, 1998, Quickturn, Cadence and CDSI Acquisition, Inc., a
Delaware corporation and wholly-owned subsidiary of Cadence ("Acquisition"),
entered into the Merger Agreement, pursuant to which (upon satisfaction or
waiver of certain conditions) Acquisition will be merged with and into
Quickturn (the "Merger") and Quickturn will become the surviving corporation
and a wholly-owned subsidiary of Cadence. Each of the shares of Quickturn
Common Stock (excluding any in treasury or held by Cadence or any of its
subsidiaries) issued and outstanding (together with the associated preferred
share purchase rights issued under Quickturn's Preferred Shares Rights
Agreement, dated as of January 10, 1996, between Quickturn and BankBoston,
N.A., as rights agent, as amended) will be converted into shares of common
stock of Cadence (with the appropriate number of Cadence's preferred stock
purchase rights as provided in Cadence's Rights Agreement, dated as of
February 9, 1996, between Cadence and Harris Trust and Savings Bank, as rights
agent, whether or not such rights shall still be attached to such shares). On
January 4, 1999, the Merger Agreement was amended to reflect an increase in
the value of the shares of common stock of Cadence to be received by holders
of Quickturn Common Stock to $15.00 per share. Quickturn and Cadence also
entered into a Stock Option Agreement granting Cadence an option (the
"Option") to purchase up to 19.99% of the outstanding Quickturn Common Stock.
As a result, Cadence is the beneficial owner of 3,619,100 shares of Quickturn
Common Stock, or 19.99% of the shares outstanding, based upon 18,095,580
shares of Quickturn Common Stock outstanding as of November 30, 1998 (as
represented by Quickturn in the Merger Agreement) and assuming exercise of the
Option.
The Option is exercisable only upon the occurrence of certain events,
including, without limitation: (1) a recommendation by Quickturn's Board of
Directors to its stockholders of a Superior Proposal (as defined in the Merger
Agreement), (2) the withdrawal by Quickturn's Board of Directors of its
approval of the Merger, (3) the failure of Quickturn to use all reasonable
efforts to convene a stockholders' meeting to vote on the Merger, (4) in
certain circumstances, the failure to obtain stockholder approval after a duly
convened meeting, or (5) following termination of the Merger Agreement for
certain specified reasons, an agreement between Quickturn and a third party
relating to certain business combinations with a third party or a third
party's acquisition of certain assets of Quickturn. In addition, under certain
circumstances, including any person's acquisition of thirty percent (30%) or
more of the outstanding Quickturn Common Stock or a written definitive
agreement between Quickturn and a third party for certain business
combinations prior to the expiration date of the Option, Cadence may require
Quickturn to cancel the option and pay a cancellation amount. In some
instances, Quickturn may require Cadence to sell to Quickturn any shares of
Quickturn Common Stock received by Cadence upon exercise of the Option.
Cadence is limited in the total payments it may receive in connection with its
exercise of the Option to $14.075 million, minus any amounts it receives
(other than for expense reimbursements) upon termination of the Merger
Agreement. Cadence does not know of any event that has occurred as of the date
hereof that would allow Cadence to exercise its Option.
The Option Agreement will expire upon the earlier of (i) the Effective Time
of the Merger (as defined in the Merger Agreement) and (ii) the twelve (12)
month anniversary of the termination of the Merger Agreement in accordance
with the terms thereof.
In the past, Cadence has been a customer of Quickturn in the ordinary course
and has entered into arms-length purchase agreements with Quickturn for
products and services. Cadence does not believe such agreements, individually
or in the aggregate, to constitute material agreements of Cadence.
Except as described herein, neither Cadence, nor to Cadence's knowledge, any
of its associates, (i) has engaged in or has a direct or indirect interest in
any transaction or series of transactions since the beginning of
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Quickturn's last fiscal year or in any currently proposed transaction, to
which Quickturn or any of its subsidiaries is a party where the amount
involved was in excess of $60,000, (ii) is the beneficial or record owner of
any securities of Quickturn or any parent or subsidiary thereof, (iii) is the
record owner of any securities of Quickturn of which it may not be deemed to
be the beneficial owner, (iv) has been within the past year, a party to any
contract, arrangement or understanding with any person with respect to any
securities of Quickturn or (v) has any agreement or understanding with respect
to future employment by Quickturn or any arrangement or understanding with
respect to any future transactions to which Quickturn will or may be a party.
In connection with the execution of the Merger Agreement, Cadence entered
into employment agreements with Quickturn's President, Keith R. Lobo, and
certain other Quickturn employees (the "Employees"). Each employment agreement
commences at the consummation of the Merger for a term of eighteen months (the
"Employment Period"). During the Employment Period, Mr. Lobo and each of the
other Employees will serve the surviving corporation in a capacity
functionally equivalent to his current position with Quickturn and will be
entitled to an annual base salary and bonus (based on a percentage of base
salary) specified in the employment agreement. In addition to his cash
compensation, each Employee will be entitled to receive certain options to
purchase shares of Cadence Common Stock pursuant to his employment agreement.
The employment agreements further provide that, upon termination of the
Employee's employment with the Surviving Corporation at any time before the
one year anniversary of the consummation of the Merger, the Employee's
compensation will be determined solely in accordance with the applicable
Quickturn retention plan. Between such one year anniversary and the date that
is 18 months following the consummation of the Merger, termination of any
Employee without cause (as defined in the employment agreements), or voluntary
termination by the Employee as a result of a reduction in base pay, reduction
in title or a material change in such Employee's job responsibilities, or
because of his relocation to more than 35 miles from his work location
immediately prior to the Merger, entitles such Employee to a cash payment
equal to the Employee's base salary for the remainder of the Employment
Period. Upon termination at any time during the Employment Period, the Cadence
stock options granted to the terminated Employee during the Employment Period
will cease to vest and all other employee medical, dental and other benefits
will terminate, except as otherwise required under the applicable Quickturn
retention plan.
Each Employee has also agreed not to compete with the surviving corporation
before the later of (i) the eighteen month anniversary of the consummation of
the Merger and (ii) such Employee's termination of employment with the
surviving corporation. In addition, until one year after termination of his
employment, the Employee may solicit neither Cadence's nor the surviving
corporation's employees nor their clients or customers, nor may such Employee:
(x) use any Cadence or Quickturn trade secret or proprietary information, (y)
interfere or attempt to interfere with the surviving corporation's or
Cadence's relationship with its customers or clients, or (z) solicit the
business of any client or customer of Cadence or the surviving corporation.
Cadence has filed a registration statement on Form S-4 and related exhibits
with the SEC under the Securities Act of 1933, as amended (the "Securities
Act"). This registration statement on From S-4 also includes a proxy statement
of Quickturn regarding a special meeting of the Quickturn stockholders to
approve the Merger with Cadence. The registration statement contains
additional information about Cadence and the Merger. The registration
statement and its exhibits may be inspected without charge at the office of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be
obtained from the SEC at prescribed rates. In addition, Cadence files annual,
quarterly and special reports, proxy statements and other information with the
SEC. Any document Cadence files with the SEC may be read and copied at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 (1-800-732-0330) for
further information on the public reference rooms. Copies of these materials
may also be obtained from the public reference section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC also
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC (http://www.sec.gov). Reports and other information filed with the SEC by
Cadence may be copied at the office of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
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<PAGE>
VOTE REQUIRED
As described in the Quickturn Proxy Statement, each stockholder is entitled
to one vote for each share of Quickturn Common Stock held. Stockholders do not
have the right to cumulate votes in the election of directors. In connection
with the Removal Proposal (as defined in the Quickturn Proxy Statement),
pursuant to Section 141(k) of the Delaware General Corporation Law (the
"DGCL") and Section 3.16 of the Quickturn Bylaws, the removal of directors
requires the affirmative vote of a majority of all shares of Quickturn Common
Stock outstanding and entitled to vote on the election of directors.
Accordingly, abstentions and broker non-votes will have the same effect as
votes cast against the Removal Proposal. In connection with the Election
Proposal (as defined in the Quickturn Proxy Statement), pursuant to Section
216 of the DGCL, directors will be elected by a plurality of the votes cast by
stockholders at the Special Meeting. Since votes are cast in favor of or
withheld from each nominee, abstentions and broker non-votes will have no
effect on the outcome of the Election Proposal. The Bylaw Amendment Proposal
and the Bylaw Repeal Proposal (each as defined in the Quickturn Proxy
Statement and collectively, the "Bylaw Proposals") each require the
affirmative vote of a majority of the shares of Quickturn Common Stock present
in person or represented by proxy and entitled to vote at the Special Meeting.
Accordingly, assuming a quorum is present at the Special Meeting, abstentions
have the same effect as votes cast against the Bylaw Proposals, while broker
non-votes are not included in the total number of votes cast on a Bylaw
Proposal and therefore will not be counted for determining whether the Bylaw
Proposal has been approved.
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SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 1, 1998 (unless otherwise
indicated), to the knowledge of Cadence and based on a review of publicly
available information, (i) each person or entity who is known by Cadence to
own beneficially more than 5% of the outstanding shares of Quickturn Common
Stock; (ii) each of Quickturn's current directors; (iii) each of the named
Executive Officers (as defined in Item 402(a)(3) of Regulation S-K of the
Exchange Act); and (iv) all directors and executive officers of Quickturn as a
group.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OWNED
- ------------------------------------ ------------------- ------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS
Kopp Investment Advisors, Inc.(2)
7701 France Avenue South, Suite 500
Edina, MN 55435............................. 2,597,975 14.4%
State of Wisconsin Investment Board(2)
P.O. Box 7842
Madison, WI 53707........................... 2,101,500 11.6%
DIRECTORS
Glen M. Antle(3)............................. 325,782 1.8%
Keith R. Lobo(4)............................. 438,750 2.4%
Richard C. Alberding(5)...................... 17,500 *
Michael R. D'Amour(6)........................ 40,970 *
Dr. Yen-Son (Paul) Huang(7).................. 354,550 2.0%
Dr. David K. Lam(5).......................... 10,417 *
William A. Hasler(8)......................... 3,667 *
Charles D. Kissner(5)........................ 1,667 *
NAMED EXECUTIVE OFFICERS (9)
Jeffrey K. Jordan(10)........................ 1,134 *
Raymond K. Ostby(11)......................... 102,767 *
Dugald H. Stewart(12)........................ 7,390 *
Tung-sun Tung(13)............................ 34,655 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP
(16 persons) (14)............................ 1,792,816 9.5%
</TABLE>
- --------
* Less than 1%.
(1) The number and percentage of shares beneficially owned is determined
under rules of the SEC, and the information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual has
sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within sixty days of September 1,
1998 through the exercise of any stock option or other right. Unless
otherwise indicated in the footnotes, to Cadence's knowledge, 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 by such stockholder with
the SEC pursuant to Sections 13(d) or 13(g) of the Exchange Act.
(3) Includes 257,270 shares held by The Antle Family Trust, as to which Mr.
Antle shares voting and dispositive power, and 68,512 shares of Quickturn
Common Stock exercisable within sixty days of September 1, 1998.
(4) Includes options to purchase 433,750 shares of Quickturn Common Stock
exercisable within sixty days of September 1, 1998.
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<PAGE>
(5) All such shares are subject to options exercisable within sixty days of
September 1, 1998.
(6) Includes 31,388 shares held by The D'Amour Family Trust, as to which Mr.
D'Amour shares voting and dispositive power, and 4,583 shares of
Quickturn Common Stock subject to options exercisable within sixty days
of September 1, 1998.
(7) Includes 37,548 shares held by The Huang Living Trust, as to which Mr.
Huang shares voting and dispositive power, and 31,250 shares of Quickturn
Common Stock subject to options exercisable within sixty days of
September 1, 1998.
(8) Includes options to purchase 1,667 shares of Quickturn Common Stock
exercisable within sixty days of September 1, 1998.
(9) Keith R. Lobo is also President and Chief Executive Officer of Quickturn
and is listed above under the heading "Directors."
(10) Includes options to purchase 333 shares of Quickturn Common Stock
exercisable within sixty days of September 1, 1998.
(11) Includes options to purchase 94,667 shares of Quickturn Common Stock
exercisable within sixty days of September 1, 1998.
(12) Includes options to purchase 7,000 shares of Quickturn Common Stock
exercisable within sixty days of September 1, 1998.
(13) Includes options to purchase 20,568 shares of Quickturn Common Stock
exercisable within sixty days of September 1, 1998.
(14) Includes options to purchase 747,164 shares of Quickturn Common Stock
exercisable within sixty days of September 1, 1998.
SECURITY OWNERSHIP BY CADENCE
See "Certain Information About Cadence" for information regarding Cadence's
beneficial ownership of Quickturn Common Stock.
There have been no purchases and sales of Quickturn Common Stock by Cadence
within the last two years.
SOLICITATION EXPENSES AND PROCEDURES
Cadence intends to communicate with Quickturn Stockholders by mail,
telephone, facsimile and other electronic means utilizing its officers,
employees and agents. No such persons shall receive compensation for making
such communications. Cadence expects that this Proxy Statement will be mailed
on January 5, 1999 to Quickturn Stockholders of record as of the Record Date
by Morrow & Co., Inc. (which has been retained by Quickturn to assist
Quickturn in connection with its solicitations relating to the meeting) as
part of a distribution by Quickturn to such stockholders. Neither Morrow &
Co., Inc. nor Quickturn is receiving any payment from Cadence for such
distribution.
Cadence anticipates that a total of less than $50,000 will be spent in
communicating with Quickturn Stockholders. To date, Cadence has incurred no
expenses in communicating with Quickturn Stockholders. Actual expenditures may
vary materially from the estimate, however, as many of the expenditures cannot
be readily predicted. Except as noted in the preceding paragraph, the entire
expense of preparing, assembling, printing and mailing this Proxy Statement
and any other related materials and the cost of communicating with Quickturn
Stockholders will be borne by Cadence. Cadence does not intend to request
reimbursement from Quickturn for these expenses.
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<PAGE>
QUICKTURN STOCKHOLDER PROPOSALS
Quickturn will hold a 1999 Annual Meeting of Stockholders only if the Merger
is not consummated before the time of such meeting. In the event that such a
meeting is held, any proposals of Quickturn Stockholders intended to be
presented at the 1999 Annual Meeting must be received by the secretary of
Quickturn no later than , 1999 in order to be considered for
inclusion in the Quickturn proxy materials relating to such meeting. Any
proposal from a Quickturn Stockholder that is submitted outside the processes
of Rule 14a-8 under the Exchange Act and that therefore will not be included
in proxy materials to be sent to Quickturn Stockholders by Quickturn, must be
received by the secretary of Quickturn not later than 90 days prior nor
earlier than 120 days prior to the date of such meeting (unless less than 100
days' notice or prior public disclosure of the date of such meeting is given
or made to Quickturn Stockholders, in which case a stockholder proposal must
be received no later than the close of business on the 10th day following the
date on which Quickturn's notice was mailed or public disclosure was made with
respect to such meeting) in order to be considered timely received under
Quickturn's By-Laws.
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<PAGE>
Exhibit 69
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MENTOR GRAPHICS CORPORATION NO. 98-473 RRM
and MGZ CORP.,
Plaintiffs,
v.
QUICKTURN DESIGN SYSTEMS, INC.;
CADENCE DESIGN SYSTEMS, INC., a
Delaware corporation; JACK HARDING,
an individual; KEITH LOBO, an
individual,
Defendants.
QUICKTURN DESIGN SYSTEMS, INC.,
Counterclaimant,
v.
MENTOR GRAPHICS CORPORATION
and MGZ CORP.,
Counterdefendants.
- ------------------------------------------------------
FOURTH AMENDED COMPLAINT
Pursuant to Rule 15(a) of the Federal Rules of Civil Procedure,
plaintiffs Mentor Graphics Corporation ("Mentor") and MGZ Corp. ("Purchaser")
file this Fourth Amended Complaint seeking declaratory and injunctive relief
arising out of Purchaser's offer to purchase shares of stock of defendant
Quickturn Design Systems, Inc. ("Quickturn").
INTRODUCTION
1. Mentor and Purchaser (collectively "plaintiffs") have filed this
fourth amended complaint to seek immediate injunctive relief against
Quickturn's latest and most egregious
<PAGE>
efforts to use concealment and non-disclosure to prevent Mentor from
participating in the sale of Quickturn. Although Quickturn began negotiating
with Cadence Design Systems, Inc. ("Cadence") at least as early as December 3,
1998, Quickturn failed to disclose the negotiations even though (i) it had
earlier disclosed that it was NOT negotiating with anyone, (ii) it filed three
separate amendments to its Schedule 14D-9 and proxy statements between
December 3 and 8, 1998; and (iii) the federal securities laws specifically
require disclosure of such negotiations. The obvious purpose of Quickturn's
concealment was to advance its "Just say 'No' to Mentor" strategy by ensuring
that Mentor would not be alerted to the bidding contest before Quickturn
hastily signed a merger agreement with Cadence, inhibiting all competitive
bids through huge "break up" fees and draconian "no shop" provisions. Indeed,
although Quickturn invited Mentor to submit a higher bid, and stated that it
would be acceptable for Mentor to respond by December 9, Quickturn never told
Mentor that it was negotiating with a third party, and then signed the Cadence
merger agreement less than 24 hours before Mentor's bid was due to be
submitted. As soon as the Cadence deal was signed, the CEO's of Quickturn and
Cadence, defendants Keith Lobo and Jack Harding, gave an interview to an
industry publication in which they admitted that the January 8 Special Meeting
of Quickturn stockholders will be referendum on the Cadence deal, and then
systematically solicited support from Quickturn's stockholders by asserting
that Mentor would need "psychiatric counseling," would "flirt with bankruptcy"
and would "decimate half the company" if Mentor attempted to submit a higher
bid.
2. Contrary to the statements of defendants Lobo and Harding,
Purchaser has increased its offering price for shares of Quickturn to $14 -
plus a portion of any breakup fees that are invalidated - and reduced the
number of shares sought to 2.1 million, the maximum that plaintiffs can
purchase without triggering Quickturn's poison pill. To ensure a level playing
2
<PAGE>
field and restore the status quo, the Court should issue immediate injunctive
relief. Defendants have admitted conduct that violates several provisions of the
securities laws, including Sections 14(a), 14(d) and 14(e) of the Exchange Act;
the resulting irreparable injuries to Mentor and other Quickturn stockholders
can only be remedied by an order that invalidates the Cadence merger agreement
and nullifies all proxies obtained by Quickturn without timely and complete
disclosure.
JURISDICTION AND VENUE
3. The Court has jurisdiction over this action pursuant to 15 U.S.C.
Section 78aa, 28 U.S.C. Section 1331 and 28 U.S.C. Section 1337(a).
4. Venue is proper pursuant to 15 U.S.C. Section 78aa and 28 U.S.C.
Section 1391(b).
THE PARTIES
5. Mentor is an Oregon corporation with its principal executive
offices in Wilsonville, Oregon. Purchaser, a wholly-owned subsidiary of Mentor
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 is the beneficial owner of more than three percent of the
outstanding shares of Quickturn common stock; Purchaser is the record owner of
100 shares of Quickturn common stock.
6. Defendant Quickturn is a Delaware corporation with its principal
executive offices in San Jose, California. Defendant Keith Lobo is a
California resident, and the president and chief executive officer of
Quickturn.
7. Defendant Cadence Design Systems, Inc. ("Cadence") is a Delaware
corporation with its principal executive offices in San Jose, California.
Defendant Jack Harding is a California resident, and the president and chief
executive officer of Cadence.
3
<PAGE>
8. 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. Section
78L(b), and is listed and traded on the Nasdaq National Market.
THE TENDER OFFER
9. On August 12, 1998, Purchaser commenced a fully-financed, non-
coercive, non-discriminatory, all-cash tender offer for all outstanding shares
of Quickturn common stock that are not already owned by Mentor or Purchaser
(the "Tender Offer"). 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. Sections 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 SEC's rules
and regulations, Purchaser commenced the Tender Offer by publishing a summary
advertisement in the August 12, 1998 WALL STREET JOURNAL, and Purchaser filed
on August 12, 1998 a Schedule 14D-1 with the SEC pursuant to Section 14(d)(1)
of the Exchange Act and Rule 14d-3 promulgated thereunder, 17 C.F.R. Section
240.14d-3. Purchaser has regularly updated and clarified its disclosures with
respect to the Tender Offer by filing timely and proper amendments to its
Schedule 14D-1.
THE AGENT DESIGNATION SOLICITATION
10. In furtherance of the Proposed Acquisition and pursuant to
Quickturn's bylaws, Mentor publicly disclosed on August 12, 1998 its intention
to solicit agent designations from holders of ten percent or more of
Quickturn's shares to appoint designated agents with the power to call a
special meeting of the Quickturn stockholders (the "Agent Solicitation"). The
purpose of the Agent Solicitation to call a special meeting of the Quickturn
stockholders (the "Special
4
<PAGE>
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, and to repeal any recent or subsequent amendments to the Quickturn
bylaws.
11. Mentor's preliminary agent solicitation materials relating to the
call of the Special Meeting were filed on August 12, 1998 with the SEC. On
August 20, 1998, Mentor Graphics filed with the SEC definitive agent
solicitation materials relating to the call of the Special Meeting (the "Agent
Solicitation Materials"). Mentor has regularly updated and clarified the Agent
Solicitation Materials by filing timely and proper amendments and other
materials with the SEC.
QUICKTURN'S REJECTION OF THE MENTOR GRAPHICS OFFER
12. On August 24, 1998, without communicating with any representative
of Mentor to discuss the Proposed Acquisition, Quickturn announced that on
August 21, 1998, the Quickturn Board had rejected the Proposed Acquisition on
the grounds that the Board considered the Tender Offer to be inadequate, not
reflective of the long-term value of Quickturn and not in the best interests
of Quickturn or its stockholders. The Board further announced that it had
determined that Quickturn's business plan offered the potential for obtaining
higher long-term benefits for Quickturn's stockholders than the Tender Offer.
13. In an effort to defeat the Tender Offer and delay the Special
Meeting, the Quickturn Board adopted an amended bylaw purporting to grant the
Board power to delay any special meeting called by stockholders for 90 to 100
days (the "Bylaw Amendment"). The Board also adopted an amendment to
Quickturn's "poison pill" defense purporting to bar any newly-elected board
from redeeming Quickturn's poison pill for six months to facilitate an
5
<PAGE>
acquisition by a person who sponsored the election of the new board members (the
"Deferred Redemption Provision," or "DRP"). Mentor and Purchaser promptly
challenged the Bylaw Amendment and the DRP (collectively, the "Defensive
Measures") in Delaware Chancery Court (the "Chancery Court Action").
QUICKTURN'S SCHEDULE 14D-9 FILING
14. On August 24, 1998, Quickturn filed a Schedule 14D-9 with the SEC
in response to the Tender Offer (the "Schedule 14D-9"). Among other things,
Quickturn's Schedule 14D-9 stated:
No negotiation is underway or is being undertaken by [Quickturn]
in response to the [Tender] Offer which relates to or would result
in (1) an extraordinary transaction, such as a merger or
reorganization, involving [Quickturn] or any of its subsidiaries;
(2) a purchase, sale or transfer of a material amount of assets by
[Quickturn] or any of its subsidiaries; (3) a tender offer for or
other acquisition of securities by or of [Quickturn]; or (4) any
material change in the current capitalization or dividend policy
of [Quickturn].
Quickturn's Schedule 14D-9 further stated that Mentor's Tender Offer "does not
adequately reflect the long-term opportunities available to the Company in its
business and the electronic design automation market," and that the Tender Offer
"did not fully reflect the long-term value inherent in the Company."
15. Between August 24 and December 2, 1998, Quickturn regularly filed
amendments to its Schedule 14D-9 that urged stockholders to reject the Tender
Offer on the ground that it was inadequate and that greater value could be
realized by pursuing Quickturn's business plan. During this period, Quickturn
never amended its initial disclosure stating that it was not involved in any
negotiations with any third party or Mentor regarding an acquisition or
merger. In fact, Quickturn's repeated statements that its strategy was to
pursue its business plan led any reasonable investor to believe that no
negotiations would occur.
6
<PAGE>
PROXY SOLICITATIONS FOR THE SPECIAL MEETING
16. On September 11, 1998, Mentor delivered to Quickturn agent
designations executed by holders of 17 percent of Quickturn's outstanding
common stock and called for the Special Meeting of stockholders to be held on
October 29, 1998. On October 1, relying on the Bylaw Amendment, Quickturn's
Board set the meeting date for January 8, 1999.
17. On September 11, 1998, Mentor filed with the SEC a definitive
proxy statement and disseminated to stockholders materials relating to the
Special Meeting (the "Mentor Proxy Statement"). The Mentor Proxy Statement
discloses, among other things, the proposals Mentor intends to present for
consideration at the Special Meeting: (i) to remove the entire Quickturn
Board; (ii) to amend Quickturn's bylaws to reduce the authorized number of
directors to five, (iii) to elect Mentor's five nominees to the Quickturn
Board, and (iv) to repeal any provisions of the Quickturn bylaws adopted by
the incumbent Quickturn Board subsequent to May 30, 1998. Mentor has regularly
updated and clarified the Mentor Proxy Statement by filing timely and proper
amendments and other materials with the SEC.
18. On September 21, 1998, Quickturn filed with the SEC a definitive
proxy statement and disseminated to stockholders materials relating to the
Special Meeting (the "Quickturn Proxy Statement"). The Quickturn Proxy
Statement described Mentor's offer as "inadequate and not in the best
interests of the Company," and stated "that stockholder interests would be
better served by the Company continuing to pursue its business plan." Between
September 21 and December 2, 1998, Quickturn regularly filed amendments to
Quickturn's Proxy Statement that urged stockholders to vote against Mentor's
nominees on the ground that the Quickturn stockholders would best be served by
remaining independent. For example, Quickturn's proxy materials filed on
October 2 told stockholders, "READ WHAT THE
7
<PAGE>
EXPERTS ARE SAYING . . . QUICKTURN'S STAND-ALONE RETURN POTENTIAL OVER THE
LONG-TERM SIGNIFICANTLY EXCEEDS THE PRICE BEING OFFERED BY MENTOR." Likewise, in
proxy materials filed October 19, Quickturn told stockholders that they should
oppose Mentor' nominees to "PARTICIPATE IN QUICKTURN'S BRIGHT FUTURE." Quickturn
also said, "Your Board's rejection of Mentor's offer affirms its continued
confidence in Quickturn's future and its determination that stockholders should
be given every opportunity to participate fully in that future."
MENTOR'S VICTORY IN THE CHANCERY ACTION
19. Following an expedited trial on the merits of the Chancery Court
Action, the Court issued an opinion dated December 2, 1998 finding that the
Quickturn directors had breached their fiduciary duties to Quickturn's
stockholders in adopting the Deferred Redemption Provision. The Court of
Chancery upheld the Bylaw Amendment and issued an order scheduling the Special
Meeting for January 8, 1999. Quickturn appealed the decision to the Delaware
Supreme Court. By the time the Court of Chancery filed its opinion,
Quickturn's stockholders indicated their lack of confidence in Quickturn's
management by tendering shares aggregating more than 50% of the outstanding
Quickturn shares into Mentor's Tender Offer.
QUICKTURN'S RESPONSES TO MENTOR'S VICTORY
20. According to Cadence's Form S-4 filing with the SEC on December
23, 1998, Quickturn attempted to interest Cadence in "rescuing" Quickturn from
the Mentor Tender Offer as early as September 1, 1998, but Cadence said it was
not interested. Following the completion of the trial on the Chancery Court
Action, Quickturn again solicited Cadence's interest in an acquisition, and
succeeded in arranging a meeting of the companies' top executives for December
1, 1998.
8
<PAGE>
21. Following the ruling in the Chancery Court Action on December 2,
1998, Quickturn's efforts intensified. Cadence's Form S-4 admits that
defendants Lobo and Harding "discussed the broad outlines of a possible
combination of Quickturn and Cadence" as early as December 3, 1998. That same
day, Quickturn filed amendment no. 23 to its Schedule 14D-9. The amendment
said nothing about the acquisition negotiations; instead, it described the
outcome of the Chancery Court Action and announced Quickturn's intent to
appeal the ruling invalidating the DRP. Quickturn further stated, "The
Quickturn Board continues to strongly recommend that stockholders vote
Quickturn's BLUE proxy card, and not support Mentor's attempt to take over
Quickturn at what the Board believes is an opportunistic, inadequate price.
The Quickturn Board continues to urge shareholders not to tender their shares
and not to vote Mentor's gold proxy card." Quickturn filed an amendment to its
proxy materials containing the same statements.
22. On December 4, Quickturn and Cadence executed a confidentiality
and standstill agreement, commenced due diligence, and began to discuss
documentation for the acquisition. That same day, Quickturn filed amendment
no. 24 to its Schedule 14D-9. Once again, the amendment said nothing about the
acquisition negotiations; it only disclosed the opinion of the Court of
Chancery. Quickturn filed a similar amendment to its proxy materials.
23. By December 8, Quickturn and Cadence had completed their due
diligence, and the Cadence Board had approved a merger proposal; Quickturn's
Board received Cadence's proposal on the evening of December 8 and accepted it
within hours. That same day, Quickturn had filed amendment no. 25 to its
Schedule 14D-9. The amendment disclosed no contact with Cadence, much less the
imminent conclusion of the Cadence merger negotiations; instead it stated only
that the Delaware Supreme Court had scheduled argument on Quickturn's appeal
for
9
<PAGE>
December 29, 1998, and asserted that the prosecution of the appeal would be in
the best interest of stockholders. Quickturn filed a similar amendment to its
proxy materials.
24. None of Quickturn's filings with the SEC between December 3 and 8
even hinted that Quickturn had abandoned its strategy of remaining independent
and following its long-term business plan. None of these filings updated
Quickturn's original disclosure stating that Quickturn was NOT negotiating
with any third party concerning an acquisition or merger.
QUICKTURN'S EFFORT TO EXCLUDE
MENTOR FROM THE SALES PROCESS
25. Since August 12, 1998, Mentor has repeatedly requested that
Quickturn negotiate with Mentor. Quickturn steadfastly rejected Mentor's
overtures.
26. On December 6, 1998, Quickturn's Chairman, Glen Antle, spoke with
Mentor's Chairman, Walden Rhines. During the evening of December 8, 1998,
Larry Sonsini, Quickturn's primary outside counsel, told Christopher Kaufman,
Mentor's primary outside counsel, that if Mentor wished to raise its bid, it
should begin consideration of a higher proposal. Instead of encouraging Mentor
to present immediately a higher bid because the Board was about to approve a
third party's acquisition proposal, Mr. Sonsini attempted to discourage a
higher bid and stated that Mentor would not be allowed to conduct due
diligence. Mr. Kaufman informed Mr. Sonsini that Mentor would respond on
December 9, 1998 to Quickturn's invitation to consider submitting a higher
proposal. That same day, Quickturn's investment banker, Hambrecht & Quist
("H&Q"), contacted Salomon Smith Barney ("Salomon"), Mentor's investment
banker. H&Q told Salomon that if Mentor wished to raise its bid, it should
begin consideration of a higher proposal. Salomon told H&Q that Mentor would
respond to Quickturn by 5:00 p.m. on December 9, 1998, and H&Q confirmed that
responding in that time frame would be acceptable. In none of these
conversations did Quickturn's representatives advise Mentor's representatives
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that the Quickturn Board was considering a sale of the Company, that Quickturn
was negotiating with another bidder, that Quickturn had granted due diligence to
another bidder, that Mentor should put forward its best bid, that there was a
deadline for Mentor to submit a higher offer, or that the Quickturn Board was
meeting on December 8, 1998 to approve a merger agreement with Cadence or any
other third party.
QUICKTURN'S SWEETHEART DEAL WITH CADENCE
27. Before the opening of business on December 9, Quickturn surprised
Mentor and the stock market by announcing that it had agreed to be acquired by
Cadence in a merger transaction (the "Cadence Merger"). In amendment no. 26 to
its Schedule 14D-9, Quickturn purported to explain the reasons for the
proposed Cadence deal:
The Board's decision to enter into the Merger Agreement was based
on the Board's review and consideration of the interests of the
Company's stockholders and all other factors permitted by
applicable law, including the interests of the Company's
employees, suppliers, creditors and customers, and the Company's
long and short-term strategic objectives.
28. Quickturn's amendment no. 26 further stated that the Board
"considered a presentation by, and the advice and views" of H&Q, and that H&Q
had rendered an opinion that, "subject to the qualifications and limitations
set forth in such opinion, the consideration to be received by stockholders of
the Company pursuant to the Merger is fair from a financial point of view."
Quickturn did not, however, disclose the opinion itself, the analysis
underlying the opinion, or any of "the qualifications and limitations"
referenced in amendment no. 26. Similarly, Quickturn did not disclose any
information concerning the background of the Cadence Merger or the history of
Quickturn's negotiations with Cadence; instead, the amendment stated only that
the lengthy and complex Agreement and Plan of Merger (the "Cadence Merger
Agreement") was approved by the Quickturn Board on December 8.
11
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29. Quickturn's amendment no. 26 did not disclose any contacts with
Mentor, nor Quickturn's deliberate efforts to exclude Mentor from the sale
process. Specifically, the amendment did not disclose that Quickturn belatedly
invited Mentor submit a higher proposal on December 8; that Mentor informed
Quickturn that it would respond before 5:00 p.m. on December 9; that H&Q
assured Salomon that this timing was acceptable; and that Quickturn
nevertheless accepted the Cadence Merger on the evening of December 8, less
than 24 hours before Mentor was scheduled to submit its higher offer.
30. Quickturn's amendment no. 26 did disclose the terms of the Cadence
Merger Agreement, which will chill competing bids and transfer to Cadence,
rather than Quickturn's stockholders, a huge portion of the increased
consideration in any higher bid. The Cadence Merger Agreement grants Cadence
(i) a stock option lockup to purchase shares representing 19.9% of Quickturn's
common stock on a fully-diluted basis at $14.00 per share, capped at a total
benefit to Cadence of $14,075,000 (the "Lockup Option"); (ii) a termination
fee of $10,557,000 (the "Termination Fee"); and (iii) an expense reimbursement
fee of $3,500,000 (the "Expense Reimbursement Fee," together with the
Termination Fee and Lockup Option, the "Breakup Fees"). The maximum Breakup
Fees represent 6.9% of the aggregate Cadence Merger price of $253 million and
9% of the transaction price net of cash on Quickturn's balance sheet. The
Cadence Merger Agreement also subjects Quickturn to a highly-restrictive "no-
shop" provision (the "No-Shop Clause") that not only purports to prevent
Quickturn and its representatives from making any effort to obtain a superior
transaction, but allows Cadence to prevail merely by matching any higher
offer; the practical effect of the No-Shop Clause is to simultaneously deter
competing proposals and to remove any incentive for Cadence to bid
competitively.
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31. On December 15, 1998, plaintiffs filed a second complaint in the
Delaware Chancery Court challenging the decision of the Quickturn Board to
enter into the Cadence Merger Agreement and to accept the Breakup Fees and the
No-Shop Clause as a breach of the Board's fiduciary duties.
THE IMPROPER EFFORTS OF HARDING AND LOBO
TO INFLUENCE VOTING AT THE SPECIAL MEETING
32. Concurrently with the announcement of the Cadence Merger, the
merger partners' CEO's, defendants Harding and Lobo, gave interviews to a
widely read industry publication entitled "Electronic Engineering Times." The
interview was published over the Internet and to wire services on December 10,
1998, and in print December 14, 1998. The comments of Lobo and Harding in the
interview were not designed to publicize the Cadence Merger, but were instead
calculated to attack Mentor and to solicit stockholder support for Quickturn
at the January 8 Special Meeting. Indeed, Harding admitted that the vote at
the Special Meeting will "effectively be a mandate, yes or no, for our Both
Harding and Lobo attempted to dissuade stockholders from voting their proxies
for the Mentor slate of nominees.
According to the article, Harding said:
Mentor executives could use "psychiatric counseling" if they
choose to try and top Cadence's bid. "The first offer was half of
their business to get a company they were going to rip heart and
soul out of," he said. "If they raise the bid another $75 million,
they're unlikely to raise the cash, and now they're into issuing
stock and flirting with a bankruptcy situation."
"I think we're doing them a favor," said Harding.
"We're giving them a graceful out to a bad decision that's dragged
on too long."
According to the article, Lobo:
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expressed confidence shareholders will take a tax-free $14 per-
share offer over a taxable $12.125 per-share bid, especially since
Cadence is a company with "enormous demonstrated growth." Mentor,
he said, would have to "decimate half the company" to buy
Quickturn.
MENTOR'S REVISED TENDER OFFER
33. On December 28, 1998, Purchaser announced an increase in its
offering price in the Tender Offer to $14.00 cash per share and a reduction in
the number of shares being sought to 2,100,000. Together with the shares
already owned by plaintiffs, the revised Tender Offer would result in
plaintiffs owning a total of 14.9% of Quickturn's outstanding stock, the
maximum amount that can be acquired without triggering Quickturn's poison
pill. Mentor plans to seek to negotiate a merger agreement with Quickturn to
acquire the balance of the shares at the same cash price paid in the revised
Tender Offer. Mentor further stands ready to consider increasing its offer
price and the price to be paid in a negotiated merger if negotiation and due
diligence demonstrate greater value. In the event Mentor is successful in
invalidating all or any portion of the break-up fees under the Cadence Merger
Agreement and Mentor can negotiate a merger agreement with Quickturn, Mentor
intends to pay all Quickturn stockholders whose shares are converted under the
merger an amount per share equal to a portion of the break-up fees. The
revised Mentor Tender Offer is no longer subject to the satisfaction of the
Minimum Condition, the Section 203 Condition, the HSR Condition or the Rights
Condition described in the initial offer to purchase issued in connection with
the Tender Offer.
34. The Special Meeting is still scheduled for January 8, 1999. If
Mentor's nominees are elected as directors of Quickturn, Mentor would
encourage the nominees to, subject to their fiduciary duties as directors
under applicable law and in accordance with Quickturn's rights under the
Cadence Merger Agreement, (i) seek to auction Quickturn to the highest bidder;
(ii)
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allow any bidder, including Mentor, promptly to conduct a due diligence review
of Quickturn; and (iii) seek to execute a merger agreement with the highest
bidder. Mentor anticipates that any such merger agreement could be executed
within 30 days of the nominees being elected as directors of Quickturn.
COUNT I
(For Violation of Section 14(d) of the Exchange Act,
Rule 14d-9 promulgated thereunder and Schedule 14D-9)
35. Plaintiffs repeat and reallege the above paragraphs as if set
forth herein.
36. Rule 14d-9, 17 C.F.R. Section 240.14d-9, promulgated by the SEC
pursuant to Section 14(d) of the Exchange Act, requires the target company to
file with the SEC a Schedule 14D-9 containing certain information, including,
among other things, the nature of the target company's solicitation or
recommendation in response to a tender offer, particularized reasons for the
solicitation or recommendation, and recent transactions in respect of the
target company's securities by the target company or by its officers and
directors.
37. Item 7 of Schedule 14D-9 (17 C.F.R. Section 240.14d-101) requires
particularized disclosure regarding any negotiations between the target and
any third party with respect to a merger or other extraordinary transaction:
CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY. (a)
If the person filing this statement is the subject company, state
whether or not any negotiation is being undertaken or is underway
by the subject company 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 subject company or any subsidiary of
the subject company;
(2) A purchase, sale or transfer of a material amount of
assets by the subject company or any subsidiary of the subject
company;
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(3) A tender offer for or other acquisition of securities
by or of the subject company; or
(4) Any material change in the present capitalization or
dividend policy of the subject company.
Instruction: If no agreement in principle has yet been
reached, the possible terms of any transaction or the parties
thereto need not be disclosed if in the opinion of the Board of
Directors of the subject company such disclosure would jeopardize
continuation of such negotiations. In such event, disclosure that
negotiations are being undertaken or are underway and are in the
preliminary stages will be sufficient.
(b) Describe any transaction, board resolution, agreement
in principle, or a signed contract in response to the tender
offer, other than one described pursuant to Item 3(b) of this
statement, which relates to or would result in one or more of the
matters referred to in Item 7(a)(1), (2), (3) or (4).
In addition, Item 8 of Schedule 14D-9, 17 C.F.R. Section 240.14d-101, requires
Quickturn to "[f]urnish such additional information, if any, as may be necessary
to make the required statements, in light of the circumstances under which they
are made, not materially misleading."
38. In violation of Section 14(d) of the Exchange Act, Rule 14d-9
promulgated thereunder, and Schedule 14D-9, Quickturn's Schedule 14D-9
amendments filed with the SEC and disseminated to stockholders prior to
December 9, 1998 (including at least amendment nos. 23-25), contain the
following material misstatements and omissions:
- They failed to disclose Quickturn's reversal of its
position that it would be in the best interest of
stockholders for Quickturn to remain independent and to
pursue its long-term business plan.
- They failed to disclose that Quickturn had made contact
with Cadence, had given Cadence due diligence, and had
begun to negotiate regarding an acquisition by Cadence.
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- They failed to disclose that Mentor was mislead and shut
out of the bidding in favor of Cadence.
39. In violation of Section 14(d) of the Exchange Act, Rule 14d-9
promulgated thereunder, and Schedule 14D-9, Quickturn's Schedule 14D-9
amendment no. 26 filed with the SEC and disseminated to stockholders on
December 9, 1998 contains the following material misstatements and omissions:
- It failed to provide full disclosure regarding the reasons
of Quickturn and its Board for accepting the Cadence
Merger.
- It stated that H&Q had opined that the Cadence Merger would
be "fair from a financial point of view" to Quickturn
stockholders, but failed to disclose the opinion itself, or
"the qualifications and limitations" on H&Q's opinion.
Moreover, given H&Q's earlier opinion that Mentor's $12.125
offer was inadequate even though its was within or above
the artificially inflated ranges contained in H&Q's
analyses in August, 1998, Quickturn violated the letter and
spirit of Item 8 of Schedule 14D-9 by failing to disclose
the analysis underlying H&Q's conclusion that Cadence's $14
bid -- only 15 percent higher than Mentor's bid -- was
"fair".
40. The misstatements and omissions described above are intentionally
materially misleading because Quickturn refuses to include in its disclosures
information necessary to make the information selectively disclosed not
misleading. Such a course of conduct not only violates Section 14(d) of the
Exchange Act, Rule 14d-9 and Schedule 14D-9 promulgated thereunder, but is
intentionally designed to confuse and mislead Quickturn shareholders.
Quickturn's
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inequitable conduct violates public policy and will, unless enjoined, cause
irreparable injury to Mentor and other Quickturn stockholders.
41. By reason of the foregoing, plaintiffs, all other Quickturn
stockholders and the investing public have been and are being irreparably harmed
because they are being deprived of, and/or mislead as to, material information
required to be publicly, accurately and fully disclosed by Quickturn under
applicable law, and Quickturn stockholders and the investing public are being
mislead by materially false information disseminated by Quickturn.
42. Plaintiffs have been further irreparably harmed because
Quickturn's failure timely to disclose its negotiations with Cadence denied
plaintiffs the opportunity to make a competing bid. Unless enjoined, the
Breakup Fees and No-Shop Clause of the Cadence Merger Agreement will
substantially impair plaintiffs' ability to make a competing bid for
Quickturn.
43. Plaintiffs have no adequate remedy at law.
COUNT II
(For Violation of Section 14(e) of the Exchange Act)
44. Plaintiffs repeat and reallege the above paragraphs above as if
set forth herein.
45. Section 14(e) of the Exchange Act, 15 U.S.C. Section 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."
46. Quickturn's actions since August 12, 1998 demonstrate that it will
pursue any means at its disposal to avoid being acquired by Mentor, even if
this requires Quickturn to ignore its disclosure obligations and to harm
Quickturn's stockholders and the investing public.
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Quickturn failed to disclose its discussions with Cadence, even though it filed
three amendments to its Schedule 14D-9 between December 3 and 8, 1998, because
Quickturn knew that any such disclosure would prompt Mentor to submit a
competing bid and likely force Quickturn to accept Mentor's acquisition
proposal.
47. In violation of Section 14(e) of the Exchange Act, Quickturn
failed to timely disclose that Quickturn had reversed its position that it
would be in the best interest of stockholders for Quickturn to remain
independent and to pursue its long-term business plan; that Quickturn had made
contact with Cadence, had given Cadence due diligence, and had begun to
negotiate regarding an acquisition by Cadence; and that Mentor was mislead and
shut out of the bidding in favor of Cadence.
48. In violation of Section 14(e) of the Exchange Act, Quickturn
stated that H&Q had opined that the Cadence Merger would be "fair from a
financial point of view" to Quickturn stockholders, but failed to disclose the
analysis underlying the opinion, or "the qualifications and limitations" on
H&Q's opinion. On information and belief, disclosure of the analysis
underlying H&Q's opinion that Cadence's $14 per share offer is "fair" would
reveal that the opinion is irreconcilable with H&Q's earlier opinion that
Mentor's $12.125 bid was inadequate, or that H&Q had no reasonable basis for
its earlier opinion that Mentor's bid was inadequate.
49. Quickturn's disclosure is intentionally materially misleading
because Quickturn refuses to include in its disclosures information necessary
to make the information selectively disclosed not misleading. This course of
conduct not only violates Section 14(e) of the Exchange Act, but is
intentionally designated to confuse and mislead Quickturn shareholders.
Quickturn's inequitable conduct violates public policy and will, unless
enjoined, cause irreparable injury to Mentor and other Quickturn stockholders.
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50. Plaintiffs, all other Quickturn stockholders and the investing
public have been and are being irreparably harmed because they are being
deprived of, and/or mislead as to, material information required to be
publicly, accurately and fully disclosed by Quickturn under applicable law,
and Quickturn stockholders and the investing public are being mislead by
materially false information disseminated by Quickturn.
51. Plaintiffs have been further irreparably harmed because
Quickturn's failure timely to disclose its negotiations with Cadence denied
plaintiffs the opportunity to make a competing bid. The Breakup Fees and No-
Shop Clause of the Cadence Merger Agreement will substantially impair
plaintiffs' ability to make a competing bid for Quickturn.
52. Plaintiffs have no adequate remedy at law.
COUNT III
(For Violation of Exchange Act Section 14(a) and Rule 14a-9
Promulgated Thereunder)
53. Plaintiffs repeat and reallege the above paragraphs as if set
forth herein.
54. Section 14(a) of the Exchange Act, 15 U.S.C. Section 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. Section 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
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communication with respect to the solicitation of a proxy for the same
meeting or subject matter which has become false or misleading."
55. In violation of Section 14(a) and Rule 14a-9 promulgated
thereunder, Quickturn's amendments to its proxy statements filed with the SEC
and disseminated to stockholders on December 3, 4 and 8, 1998, contained the
following material misstatements and omissions.
- They failed to disclose Quickturn's reversal of its
position that it would be in the best interest of
stockholders for the company to remain independent and to
pursue its long-term business plan.
- They failed to disclose that Quickturn had made contact
with Cadence, had given Cadence due diligence, and had
begun to negotiate with respect to an acquisition.
- They failed to disclose that Mentor had been mislead and
shut out of the bidding in favor of Cadence.
56. In violation of Section 14(a) and Rule 14a-9 promulgated
thereunder, Quickturn's amendment to its proxy materials filed on December 9,
1998 contained the following material misstatements and omissions.
- It failed to disclose adequately how the Cadence Merger
would benefit stockholders.
- It stated that H&Q had opined that the Cadence Merger would
be "fair from a financial point of view" to Quickturn
stockholders, but failed to disclose "the qualifications
and limitations" on H&Q's opinion. Moreover, given H&Q's
earlier opinion that Mentor's $12.125 offer was inadequate
even though its was within or above the artificially
inflated ranges contained in H&Q's analysis in August,
1998, Quickturn was
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required to disclose the analyses underlying H&Q's
conclusion that Cadence's $14 bid -- only 15 percent higher
than Mentor's bid -- was "fair".
57. In addition, Quickturn, Cadence, Lobo and Harding made the
statements referred to in paragraph 32 above with the intention and design to
solicit proxies for the Special Meeting of Quickturn stockholders set for
January 8, 1999, and to influence the outcome of the Special Meeting. These
statements were published over the Internet and to wire services on or about
December 10, 1998, and in print on or about December 14, 1998. These
statements were made with the intent and knowledge that they be published and
disseminated widely to stockholders.
58. The statements described above are intentionally materially
misleading because Quickturn refuses to include in its disclosures information
necessary to make the information selectively disclosed not misleading. This a
course of conduct not only violates Section 14(a) of the Exchange Act and Rule
14a-9 promulgated thereunder but is intentionally designed to confuse and
mislead Quickturn shareholders. Quickturn's inequitable conduct violates
public policy and will, unless enjoined, cause irreparable injury to Mentor
and other Quickturn stockholders.
59. Plaintiffs, other Quickturn stockholders and the investing public
have been and are being irreparably harmed because they are being deprived of,
and/or mislead as to, material information required to be publicly, accurately
and fully disclosed by Quickturn under applicable law, and Quickturn
stockholders and the investing public are being mislead by materially false
information disseminated by Quickturn.
60. Unless injunctive relief issues, plaintiffs will be irreparably
harmed because defendants' materially misleading statements will have a
substantial impact on the voting at the
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Special Meeting, with the result of substantially impairing plaintiffs' ability
to elect the directors they favor.
61. Plaintiffs have no adequate remedy at law.
COUNT IV
(For Declaratory Relief)
62. Plaintiffs repeat and reallege the above paragraphs as if set
forth herein.
63. The Declaratory Judgment Act, 28 U.S.C. Section 2201, provides
that "[i]n a case of actual controversy within its jurisdiction, . . . any
court of the United States, upon the filing of an 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
their Schedule 14D-1 filings and all amendments thereto, the Agent
Solicitation Materials and all amendments thereto, and the Mentor Proxy
Statement and all amendments thereto (collectively, "Mentor's SEC Filings")
are proper and comply with all applicable securities laws, rules and
regulations.
64. Although the Proposed Acquisition is fairly and attractively
priced, Quickturn has acted to thwart and delay plaintiffs' lawful attempts to
consummate the Tender Offer. Quickturn's efforts to delay and defeat the
Tender Offer include the filing of a meritless cross-complaint and amendments
thereto claiming that public disclosures and filings made by plaintiffs in
conjunction with the Tender Offer, the Agent Solicitation and the Special
Meeting 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.
65. 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 has defended,
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and likely will continue to defend, against the Proposed Acquisition, the Agent
Solicitation and the Special Meeting by, among other things, filing false claims
designed to delay or defeat the Proposed Acquisition, the Agent Solicitation and
the Special Meeting. A declaratory judgment that the disclosures in the Mentor
SEC Filings 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, the Agent Solicitation or the Special Meeting
under federal law, and permitting an otherwise lawful transaction to proceed.
66. Plaintiffs therefore request pursuant to the Declaratory Judgment
Act, 28 U.S.C. Sections 2201 and 2202, that this Court enter a declaratory
judgment that the Mentor SEC Filings (and similar filings in the future)
comply fully with all applicable provisions of law.
WHEREFORE, plaintiffs respectfully request that this Court:
a. declare that Quickturn has violated Sections 14(a), 14(d) and
14(e) of the Exchange Act and Rule 14d-9, and that Cadence, Lobo and Harding
have violated Section 14(a) and Rule 14a-9;
b. compel Quickturn to comply with the requirements of the
Exchange Act and the rules promulgated thereunder, and compel Quickturn to
file immediately an amended Schedule 14D-9 which is complete and accurate and
which corrects the misleading and untrue statements in its Schedule 14D-9;
c. preliminarily and permanently enjoin defendants and their
agents, employees and anyone acting on its behalf, from making any false or
misleading statements with respect to the Tender Offer;
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d. compel defendants and their agents, employees and anyone acting
on its behalf to correct their deceptive statements, and to order them to make
no such deceptive statements in the future;
e. enjoin the performance and enforcement of the Cadence Merger
Agreement, including the Lockup Option, the Breakup Fees and the No-Shop
Provisions, and all related agreements;
f. declare void all proxies transmitted to Quickturn (including
revocations of proxies previously granted to Mentor) between the date
Quickturn commenced negotiations with Cadence and the date which is ten
business days after Quickturn makes corrective disclosures;
g. 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 Mentor SEC Filings, as
well as any other related materials or similar materials filed in the future;
h. award plaintiffs their costs and disbursements in this action,
including reasonable attorneys' fees; and
i. grant plaintiffs such other and further relief as this Court
may deem just and proper.
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Of Counsel:
-------------------------------
Kevin G. Abrams (ID #2375)
Fredric J. Zepp Thomas A. Beck (ID #2086)
Heidi E. Klein Lisa A. Schmidt (#3019)
Latham & Watkins J. Travis Laster (ID #3514)
505 Montgomery Street Leanne J. Reese (ID #3690)
San Francisco, CA 94111 Richards, Layton & Finger
(415) 391-0600 One Rodney Square
P. O. Box 551
Marc W. Rappel Wilmington, DE 19899
Latham & Watkins (302) 658-6541
633 West Fifth Street, Ste 4000 Attorneys for Plaintiffs
Los Angeles, CA 90071
(213) 485-1234
Dated: December 28, 1998
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Exhibit 70
IN THE SUPREME COURT OF THE STATE OF DELAWARE
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 below, ) No. 511, 1998
Appellants, )
)
v. ) Court Below: Court of Chancery
) of the State of Delaware,
HOWARD SHAPIRO, ) in and for New Castle County
) C.A. No. 16588
Plaintiff Below, )
Appellee. )
_______________________________
)
)
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 below, ) No. 512, 1998
Appellants, )
)
v. ) Court Below: Court of Chancery
) of the State of Delaware,
) in and for New Castle County
<PAGE>
MENTOR GRAPHICS CORPORATION, ) C.A. No. 16584
an Oregon corporation, and )
MGZ CORP., a Delaware )
corporation, )
)
Plaintiffs Below, )
Appellees, )
Submitted: December 29, 1998
Decided: December 31, 1998
Before WALSH, HOLLAND and HARTNETT, Justices
Upon appeal from the Court of Chancery. AFFIRMED.
Kenneth J. Nachbar, Esquire, William M. Lafferty, Esquire, and Donna L.
Culver, Esquire, of Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware;
and James A. DiBoise, Esquire and David J. Berger, Esquire (argued), of
Wilson, Sonsini, Goodrich & Rosati, P.C., Palo Alto, California, attorneys for
appellants.
Kevin G. Abrams, Esquire (argued), Thomas A. Beck, Esquire, Lisa A.
Schmidt, Esquire, J. Travis Laster, Esquire, Dominick Gattuso, Esquire, and
Michael K. Reilly, Esquire, of Richards, Layton & Finger, Wilmington,
Delaware; Fredric J. Zepp, Esquire, of Latham & Watkins, San Francisco,
California, and Marc W. Rappel, Esquire, of Latham & Watkins, Los Angeles,
California; attorneys for appellees, Mentor Graphics Corporation and MGZ
Corporation.
Joseph A. Rosenthal, Esquire, and Norman M. Monhait, Esquire, of Rosenthal,
Monhait, Gross & Goddess, P.A., Wilmington, Delaware; and Stanley Bernstein,
Esquire and Abraham I. Katsman, Esquire, of Bernstein, Liebhard & Lifshitz,
LLP, New York, New York, for appellee, Howard Shapiro.
HOLLAND, Justice:
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This is an expedited appeal from a final judgment entered by the Court of
Chancery. The dispute arises out of an ongoing effort by Mentor Graphics
Corporation ( "Mentor"), a hostile bidder, to acquire Quickturn Design
Systems, Inc. ("Quickturn"), the target company. The plaintiffs-appellees are
Mentor/1/ and an unaffiliated stockholder of Quickturn. The named defendants-
appellants are Quickturn and its directors.
In response to Mentor's tender offer and proxy contest to replace the
Quickturn board of directors, as part of Mentor's effort to acquire Quickturn,
the Quickturn board enacted two defensive measures. First, it amended the
Quickturn shareholder rights plan ("Rights Plan") by adopting a "no hand"
feature of limited duration (the "Delayed Redemption Provision" or "DRP").
Second, the Quickturn board amended the corporation's bylaws to delay the
holding of any special stockholders meeting requested by stockholders for 90
to 100 days after the validity of the request is determined (the "Amendment"
or "ByLaw Amendment").
Mentor filed actions for declarative and injunctive relief in the Court
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/1/ Mentor and MGZ Corp., a wholly owned Mentor subsidiary specially
created as a vehicle to acquire Quickturn, are referred to collectively as
"Mentor." Unless otherwise indicated, Mentor and Howard Shapiro, the
shareholder plaintiff in Court of Chancery Civil Action No. 16588, are
referred to collectively as "Mentor."
3
<PAGE>
of Chancery challenging the legality of both defensive responses by
Quickturn's board. The Court of Chancery conducted a trial on the merits. It
determined that the By-Law Amendment is valid. It also concluded, however,
that the DRP is invalid on fiduciary duty grounds.
In this appeal, Quickturn argues that the Court of Chancery erred in
finding that Quickturn's directors breached their fiduciary duty by adopting
the Delayed Redemption Provision. We have concluded that, as a matter of
Delaware law, the Delayed Redemption Provision was invalid. Therefore, on that
alternative basis, the judgment of the Court of Chancery is affirmed.
STATEMENT OF FACTS/2/
THE PARTIES
Mentor (the hostile bidder) is an Oregon corporation, headquartered in
Wilsonville, Oregon, whose shares are publicly traded on the NASDAQ national
market system. Mentor manufactures, markets, and supports electronic design
automation ("EDA") software and hardware. It also provides related services that
enable engineers to design, analyze, simulate,
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/2/ Given the expedited nature of the appeal, this Court has relied
almost verbatim on the excellent recitation of facts set forth in the Court
of Chancery's opinion. Mentor Graphics Corp. v. Quickturn Design Systems, et
al., Del. Ch., C.A. No. 16584, Jacobs, V.C. (Dec. 7, 1998) .
4
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model, implement, and verify the components of electronic systems. Mentor
markets its products primarily for large firms in the communications,
computer, semiconductor, consumer electronics, aerospace, and transportation
industries.
Quickturn, the target company, is a Delaware corporation, headquartered in
San Jose, California. Quickturn has 17,922,518 outstanding shares of common
stock/3/ that are publicly traded on the NASDAQ national market system.
Quickturn invented, and was the first company to successfully market, logic
emulation technology, which is used to verify the design of complex silicon
chips and electronics systems. Quickturn is currently the market leader in the
emulation business, controlling an estimated 60% of the worldwide emulation
market and an even higher percentage of the United States market. Quickturn
maintains the largest intellectual property portfolio in the industry, which
includes approximately twenty-nine logic emulation patents issued in the
United States, and numerous other patents issued in foreign jurisdictions.
Quickturn's customers include the world's leading technology companies, among
them Intel, IBM, Sun Microsystems,
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/3/ As of July 30, 1998.
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Texas Instruments, Hitachi, Fujitsu, Siemens, and NEC.
Quickturn's board of directors consists of eight members, all but one
of whom are outside, independent directors. All have distinguished careers and
significant technological experience./4/ Collectively, the board has more than
30 years of experience in the EDA industry and owns one million shares (about
5%) of Quickturn's common stock.
Since 1989, Quickturn has historically been a growth company, having
experienced increases in earnings and revenues during the past seven years.
Those favorable trends were reflected in Quickturn's stock prices, which reached
a high of $15.75 during the first quarter of 1998, and generally traded in the
$15.875 to $21.25 range during the year preceding Mentor's hostile
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/4/ The Quickturn board includes Messrs. Glen Antle (President and
Chairman of Quickturn's board of directors); Michael D'Amour (Quickturn's
founding CEO and chairman through 1993, and Executive Vice President for
research and development and head of international sales until he left Quickturn
management in 1995); Dean William A. Hasler (a former Vice chairman and partner
of KPMG Peat Marwick; a former Dean of the Haas Graduate School of Business at
the University of California, Berkeley, a position he held until 1998; and
currently a technology and business advisor); Keith Lobo (Quickturn's President
and CEO); Charles D. Kissner (currently CEO and Chairman of the Board of Digital
Microwave Corporation, a telecommunications company, and a former President,
CEO, and director for Aristacom International, Inc.; also a former AT&T
executive); Richard Alberding (a management consultant for high technology
companies; and who currently serves on the board of directors of several
technology companies); Dr. David Lam (former Vice President at Wyse Technology,
former President and CEO of Expert Edge, Inc., and currently a technology and
business advisor in the semiconductor equipment industry and Chairman of the
David Lam Group); Dr. Yen-Son (Paul) Huang (a co-founder and President of PiE
and, following PiE's merger with Quickturn in 1993, Executive Vice President of
Quickturn until June 1997. Since then, Dr. Huang has served Quickturn only as a
director).
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bid.
Since the spring of 1998, Quickturn's earnings, revenue growth, and stock
price levels have declined, largely because of the downturn in the
semiconductor industry and more specifically in the Asian semiconductor
market. Historically, 30%-35% of Quickturn's annual sales (approximately $ 35
million) had come from Asia, but in 1998, Quickturn's Asian sales declined
dramatically with the downturn of the Asian market./5/ Management has
projected that the negative impact of the Asian market upon Quickturn's sales
should begin reversing itself sometime between the second half of 1998 and
early 1999.
QUICKTURN-MENTOR PATENT LITIGATION
Since 1996, Mentor and Quickturn have been engaged in patent litigation
that has resulted in Mentor being barred from competing in the United States
emulation market. Because its products have been adjudicated to infringe upon
Quickturn's patents, Mentor currently stands enjoined from selling,
manufacturing, or marketing its emulation products in the United
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/5/ By the summer of 1998, Quickturn's stock price had declined to
$6 per share. On August 11, 1998, the closing price was $8.00. It was in this
"trough" period that Mentor, which had designs upon Quickturn since the fall
of 1997, saw an opportunity to acquire Quickturn for an advantageous price.
7
<PAGE>
States. Thus, Mentor is excluded from an unquestionably significant market for
emulation products.
The origin of the patent controversy was Mentor's sale of its hardware
emulation assets, including its patents, to Quickturn in 1992. Later, Mentor
reentered the emulation business when it acquired a French company called Meta
Systems ("Meta") and began to market Meta's products in the United States in
December 1995. Quickturn reacted by commencing a proceeding before the
International Trade Commission ("ITC") claiming that Meta and Mentor were
infringing Quickturn's patents./6/ In August 1996, the ITC issued an order
prohibiting Mentor from importing, selling, distributing, advertising, or
soliciting in the United States, any products manufactured by Meta. That
preliminary order was affirmed by the Federal Circuit Court of Appeals in
August 1997./7/ In December 1997, the ITC issued a Permanent Exclusion
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/6/ See In the Matter of Certain Hardware Logic Emulation Systems and
Components Thereof, Inv. No. 337-TA-383, Notice of Investigation, 61 Fed. Reg.
9486 (ITC March 8, 1996).
/7/ See In the Matter of Certain Hardware Logic Emulation Systems and
Components Thereof, Inv. No. 337-TA-383, Notice of Commission Decision Not to
Modify or Vacate an Initial Determination Granting Temporary Relief, and
Issuance of a Temporary Limited Exclusion Order and a Temporary Cease and Desist
Order, Subject to Posting of Bond By Complainant (ITC Aug. 5, 1996) ("ITC
Temporary Orders"), aff'd, Mentor Graphics Corp. v. U.S. Int'l Trade Commission,
No. 97-1106, 1997, U.S. App., LEXIS 21646 (Fed. Cir. Aug. 15, 1997).
(continued...)
8
<PAGE>
Order prohibiting Mentor from importing, selling, marketing, advertising, or
soliciting in the United States, until at least April 28, 2009, any of the
emulation products manufactured by Meta outside the United States./8/
At present, the only remaining patent litigation is pending in the
Oregon Federal District Court. Quickturn is asserting a patent infringement
damage claim that, Quickturn contends, is worth approximately $225 million.
Mentor contends that Quickturn's claim is worth only $5.2 million or even less.
MENTOR'S INTEREST IN ACQUIRING QUICKTURN
Mentor began exploring the possibility of acquiring Quickturn. If
Mentor owned Quickturn, it would also own the patents, and would be in a
position to "unenforce" them by seeking to vacate Quickturn's injunctive
orders against Mentor in the patent litigation. The exploration process began
when Mr. Bernd Braune, a Mentor senior executive, retained Arthur
- -------------------------
/7/(...continued)
Mentor was also sanctioned more than $400,000 in that proceeding for
advancing defenses "based on inaccurate and misleading evidence" thereby
"needlessly increasing the cost of litigation" as a result of its continuing
practice of "bad faith discovery." In the Matter of Certain Hardware Logic
Emulation Systems, ALJ Order No. 96, Inv. No. 337-TA-383, 1997 ITC LEXIS 288
at *97 (ITC July 31, 1996).
/8/ In the Matter of Certain Hardware Logic Emulation Systems and
Components Thereof, Inv. No. 337-TA-383, Notice of Issuance of a Permanent
Limited Exclusion Order and a Permanent Cease and Desist Order (ITC Dec. 3,
1997) ("ITC Permanent Orders")
9
<PAGE>
Andersen ("Andersen") to advise Mentor how it could successfully compete in the
emulation market. The result was a report Andersen issued in October 1997,
entitled "PROJECT VELOCITY"/9/ and "Strategic Alternatives Analysis." The
Andersen report identified several advantages and benefits Mentor would enjoy
if it acquired Quickturn./10/
In December 1997, Mentor retained Salomon Smith Barney ("Salomon") to
act as its financial advisor in connection with a possible acquisition of
Quickturn. Salomon prepared an extensive study which it reviewed with Mentor's
senior executives in early 1998. The Salomon study concluded that although a
Quickturn acquisition could provide substantial value for Mentor, Mentor could
not afford to acquire Quickturn at the then-prevailing market price levels.
Ultimately, Mentor decided not to attempt an acquisition of Quickturn during the
first half of 1998.
After Quickturn's stock price began to decline in May 1998, however,
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/9/ Andersen used "Project Velocity" and "Cyclone" as code names for
the study and Quickturn, respectively.
/10/ These included: (i) eliminating the time and expense associated
with litigation; (ii) creating synergy from combining two companies with
complementary core competencies; (iii) reducing customer confusion over
product availability, which in turn would accelerate sales; and (iv)
eliminating the threat of a large competitor moving into the emulation
market. Mentor has utilized these reasons in public statements in which it
attempted to explain why its bid made sense.
10
<PAGE>
Gregory Hinckley, Mentor's Executive Vice President, told Dr. Walden Rhines,
Mentor's Chairman, that "the market outlook being very weak due to the Asian
crisis made it a good opportunity" to try acquiring Quickturn for a cheap
price. Mr. Hinckley then assembled Mentor's financial and legal advisors,
proxy solicitors, and others, and began a three month process that culminated
in Mentor's August 12, 1998 tender offer.
MENTOR TENDER OFFER AND PROXY CONTEST
On August 12, 1998, Mentor announced an unsolicited cash tender offer for
all outstanding common shares of Quickturn at $12.125 per share, a price
representing an approximate 50% premium over Quickturn's immediate pre-offer
price, and a 20% discount from Quickturn's February 1998 stock price levels.
Mentor's tender offer, once consummated, would be followed by a second step
merger in which Quickturn's nontendering stockholders would receive, in cash,
the same $12.125 per share tender offer price.
Mentor also announced its intent to solicit proxies to replace the
board at a special meeting. Relying upon Quickturn's then-applicable by-law
provision governing the call of special stockholders meetings, Mentor began
soliciting agent designations from Quickturn stockholders to satisfy the
by-
11
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law's stock ownership requirements to call such a meeting./11/
QUICKTURN BOARD MEETINGS
Under the Williams Act, Quickturn was required to inform its
shareholders of its response to Mentor's offer no later than ten business days
after the offer was commenced. During that ten day period, the Quickturn board
met three times, on August 13, 17, and 21, 1998. During each of those meetings,
it considered Mentor's offer and ultimately decided how to respond.
The Quickturn board first met on August 13, 1998, the day after Mentor
publicly announced its bid. All board members attended the meeting, for the
purpose of evaluating Mentor's tender offer. The meeting lasted for several
hours. Before or during the meeting, each board member received a package that
included (i) Mentor's press release announcing the unsolicited offer; (ii)
Quickturn's press release announcing its board's review of Mentor's offer; (iii)
Dr. Rhines's August 11 letter to Mr. Antle; (iv) the complaints filed by Mentor
against Quickturn and its directors; and (v) copies of
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/11/ The applicable by-law (Article II, Section 2.3) authorized a
call of a special stockholders meeting by shareholders holding at least 10%
of Quickturn's shares. In their agent solicitation, Mentor informed Quickturn
stockholders that Mentor intended to call a special meeting approximately 45
days after it received sufficient agent designations to satisfy the 10%
requirement under the original by-law. The solicitation also disclosed
Mentor's intent to set the date for the special meeting, and to set the
record date and give formal notice of that meeting.
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Quickturn's then-current Rights Plan and by-laws.
The Quickturn board first discussed retaining a team of financial advisors
to assist it in evaluating Mentor's offer and the company's strategic
alternatives. The board discussed the importance of selecting a qualified
investment bank, and considered several investment banking firms. Aside from
Hambrecht & Quist ("H&Q"), Quickturn's long-time investment banker, other
firms that the board considered included Goldman Sachs & Co. and Morgan
Stanley Dean Witter. Ultimately, the board selected H&Q, because the board
believed that H&Q had the most experience with the EDA industry in general and
with Quickturn in particular./12/
During the balance of the meeting, the board discussed for
approximately one or two hours (a) the status, terms, and conditions of Mentor's
offer; (b) the status of Quickturn's patent litigation with Mentor; (c) the
applicable rules and regulations that would govern the board's response to the
offer required by the Securities Exchange Act of 1934 (the "34 Act"); (d) the
board's fiduciary duties to Quickturn and its shareholders in a tender
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/12/ Apparently, the board had already decided to retain Quickturn's
outside counsel, Wilson, Sonsini, Goodrich & Rosati, as its legal advisors.
Larry Sonsini, Esquire, a senior partner of that firm, is shown on the minutes
of all three board meetings as "Secretary of the Meeting," and appears to have
authored those minutes in that capacity.
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<PAGE>
offer context; (e) the scope of defensive measures available to the
corporation if the board decided that the offer was not in the best interests
of the company or its stockholders; (f) Quickturn's then-current Rights Plan
and special stockholders meeting by-law provisions; (g) the need for a federal
antitrust filing; and (h) the potential effect of Mentor's offer on
Quickturn's employees. The board also instructed management and H&Q to prepare
analyses to assist the directors in evaluating Mentor's offer, and scheduled
two board meetings, August 17, and August 21, 1998.
The Quickturn board next met on August 17, 1998. That meeting centered
around financial presentations by management and by H&Q. Mr. Keith Lobo,
Quickturn's President and CEO, presented a Medium Term Strategic Plan, which
was a "top down" estimate detailing the economic outlook and the company's
future sales, income prospects and future plans (the "Medium Term Plan"). The
Medium Term Plan contained an optimistic (30%) revenue growth projection for
the period 1998-2000./13/ After management made its presentation, H&Q supplied
its valuation of Quickturn, which relied upon a "base case" that assumed
management's 30% revenue
- -------------------------
/13/ The Court of Chancery concluded that the Quickturn board had
grounds to anticipate that the company could "turn around" in a year and
perform at the projected revenue levels.
14
<PAGE>
growth projection. On that basis, H&Q presented various "standalone"
valuations based on various techniques, including a discounted cash flow
("DCF") analysis. Finally, the directors discussed possible defensive measure
but took no action at that time.
The Quickturn board held its third and final meeting in response to
Mentor's offer on August 21, 1998. Again, the directors received extensive
materials and a further detailed analysis performed by H&Q. The focal point of
that analysis was a chart entitled "Summary of Implied Valuation." That chart
compared Mentor's tender offer price to the Quickturn valuation ranges
generated by H&Q's application of five different methodologies./14/ The chart
showed that Quickturn's value under all but one of those methodologies was
higher than Mentor's $12.125 tender offer price.
QUICKTURN'S BOARD REJECTS MENTOR'S OFFER AS INADEQUATE
After hearing the presentations, the Quickturn board concluded that
Mentor's offer was inadequate, and decided to recommend that Quickturn
shareholders reject Mentor's offer. The directors based their decision upon:
- -----------------------
/14/ The five methodologies and the respective price ranges were:
Historical Trading Range ($6.13- $21.63); Comparable Public Companies
($2.55-$15.61); Comparable M&A Transactions ($6.00- $31.36); Comparable Premiums
Paid ($9.54-$10.72); and Discounted Cash Flow Analysis ($11.88- $57.87).
15
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(a) H&Q's report; (b) the fact that Quickturn was experiencing a temporary
trough in its business, which was reflected in its stock price; (c) the
company's leadership in technology and patents and resulting market share; (d)
the likely growth in Quickturn's markets (most notably, the Asian market) and
the strength of Quickturn's new products (specifically, its Mercury product);
(e) the potential value of the patent litigation with Mentor; and (f) the
problems for Quickturn's customers, employees, and technology if the two
companies were combined as the result of a hostile takeover.
QUICKTURN'S DEFENSIVE MEASURES
At the August 21 board meeting, the Quickturn board adopted two defensive
measures in response to Mentor's hostile takeover bid. First, the board
amended Article II, Section 2.3 of Quickturn's by-laws, which permitted
stockholders holding 10% or more of Quickturn's stock to call a special
stockholders meeting. The By-Law Amendment provides that if any such special
meeting is requested by shareholders, the corporation (Quickturn) would fix
the record date for, and determine the time and place of, that special
meeting, which must take place not less than 90 days nor more than 100 days
after the receipt and determination of the validity of the shareholders'
request.
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<PAGE>
Second, the board amended Quickturn's shareholder Rights Plan by
eliminating its "dead hand" feature and replacing it with the Deferred
Redemption Provision, under which no newly elected board could redeem the
Rights Plan for six months after taking office, if the purpose or effect of
the redemption would be to facilitate a transaction with an "Interested
Person" (one who proposed, nominated or financially supported the election of
the new directors to the board)./15/ Mentor would be an Interested Person.
The effect of the By-Law Amendment would be to delay a shareholder
called special meeting for at least three months. The effect of the DRP would be
to delay the ability of a newly-elected, Mentor-nominated board to redeem the
Rights Plan or "poison pill" for six months, in any transaction with an
Interested Person. Thus, the combined effect of the two defensive measures
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/15/ The amended Rights Plan pertinently provides that: "[I]n the event
that a majority of the Board of Directors of the Company is elected by
stockholder action at an annual or special meeting of stockholders, then until
the 180th day following the effectiveness of such election (including any
postponement or adjournment thereof), the Rights shall not be redeemed if such
redemption is reasonably likely to have the purpose or effect of facilitating a
Transaction with an Interested Person."
An "Interested Person" is defined under the amended Rights Plan as "any
Person who (i) is or will become an Acquiring Person if such Transaction were to
be consummated or an Affiliate or Associate of such a Person, and (ii) is, or
directly or indirectly proposed, nominated or financially supported, a director
of [Quickturn] in office at the time of consideration of such Transaction who
was elected at an annual or special meeting of stockholders."
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would be to delay any acquisition of Quickturn by Mentor for at least nine
months.
PROCEDURAL HISTORY
Mentor filed this action in the Court of Chancery on August 12, 1998,
seeking a declaratory judgment that Quickturn's newly adopted takeover
defenses are invalid and an injunction requiring the Quickturn board to
dismantle those defenses. After expedited briefing and oral argument, the
Court of Chancery denied Quickturn's case dispositive pre-trial motion on
October 9, 1998./16/ A trial was held on October 19, 20, 23, 26 and 28, 1998.
Thereafter, the parties submitted post-trial briefs on an expedited schedule.
During the course of the litigation in the Court of Chancery, the
Quickturn board, relying upon the By-Law Amendment, noticed the special meeting
requested by Mentor for January 8, 1999 -- 71 days after the October 1, 1998
meeting date originally noticed by Mentor./17/ After the trial, Mentor
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/16/ Mentor Graphics Corp. v. Quickturn Design Systems, et al., Del.
Ch., C.A. No. 16584, Jacobs, V.C. (Oct. 9, 1998).
/17/ Mentor later renoticed the special meeting date to November 24,
1998, anticipating that the Court of Chancery would issue its decision before
that time. After the Court of Chancery informed the parties that it would be
unable to issue a decision by November 24, Mentor agreed that its meeting
would be convened and then immediately adjourned to a later date.
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announced in Amendments to its Schedule 14A-1 that were filed with the
Securities and Exchange Commission, that it had received tenders of Quickturn
shares which, together with the shares that Mentor already owned, represented
over 51% of Quickturn's outstanding stock.
QUICKTURN BY-LAW AMENDMENT
At the time Mentor commenced its tender offer and proxy contest,
Quickturn's by-laws authorized shareholders holding at least 10% of
Quickturn's voting stock to call a special meeting of stockholders. The then-
applicable by-law, Article II, Section 2.3, read thusly:
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) one or more
shareholders holding shares in the aggregate entitled to cast not less
than ten percent (10%) of the votes at that meeting.
At the August 21, 1998 board meeting, the Quickturn board amended
Section 2.3 in response to the Mentor bid, to read 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
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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 time and place so determined.
The Court of Chancery found that the Quickturn board amended the By-Law
because (i) the original Section 2.3 was incomplete: it did not explicitly state
who would be responsible for determining the time, place, and record date for
the meeting and (ii) the original by-law language arguably would have allowed a
hostile bidder holding the requisite percentage of shares to call a special
stockholders meeting on minimal notice and stampede the shareholders into making
a decision without time to become adequately informed.
The Court of Chancery concluded that the By-Law Amendment responded to
those concerns by explicitly making the Quickturn board responsible for fixing
the time, place, record date and notice of the special meeting and by mandating
a 90 to 100 day period of delay for holding the meeting after the validity of
the shareholder's meeting request is determined.
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<PAGE>
That specific delay period was chosen to make Section 2.3 parallel to, and
congruent with, Quickturn's "advance notice" by-law, which contained a similar
90 to 100 day minimum advance notice period.
The only By-Law Amendment-related issue that the Court of Chancery decided
was whether the Amendment, standing alone, fell outside any range of
potentially reasonable responses and, therefore, constituted a
disproportionate response to the threat posed by the Mentor tender offer and
proxy contest. Among the factors the Court of Chancery considered were whether
the challenged defensive response "is a statutorily authorized form of
business decision that a board of directors may routinely make in a non-
takeover context,"/18/ and whether the response "was limited and corresponded
in degree or magnitude to the degree or magnitude of the threat."/19/
The Court of Chancery concluded that the Quickturn board's adoption of
the By-Law Amendment did not violate the fiduciary principles embodied
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/18/ Unitrin, Inc. v. American General Corp., Del. Supr., 651 A.2d
1361, 1389 (1995); Unocal Corp. v. Mesa Petroleum Co., Del. Supr., 493 A.2d
946, 958 (1985); Cheff v. Mathes, Del. Supr., 199 A.2d 548, 554 (1964).
/19/ Unitrin, Inc. V. American General Corp., 651 A.2d at 1389.
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in UNOCAL and its progeny./20/ Although the Delayed Redemption Provision and
the By-Law Amendment were enacted as a concerted defensive response to
Mentor's hostile takeover efforts, Mentor did not file a cross-appeal
challenging the Court of Chancery's decision upholding the validity of
Quickturn's amendment to its by-laws. Consequently, the Court of Chancery's
ruling on the By-Law Amendment is not at issue in this appeal and has become
final.
QUICKTURN'S DELAYED REDEMPTION PROVISION
At the time Mentor commenced its bid, Quickturn had in place a Rights
Plan that contained a so-called "dead hand" provision. That provision had a
limited "continuing director" feature that became operative only if an insurgent
that owned more than 15% of Quickturn's common stock successfully waged a
proxy contest to replace a majority of the board. In that event, only the
"continuing directors" (those directors in office at the time the poison pill
was adopted) could redeem the rights.
During the same August 21, 1998 meeting at which it amended the
- --------------------------
/20/ The Court of Chancery noted, however, that its "conclusion
should not be regarded as a pronouncement that a by-law mandated 90 to 100
delay interval between the request for and the holding of a
shareholder-initiated special meeting is invariably reasonable as a matter of
law." Mentor Graphics Corp. v. Quickturn Design Systems, et al., Del. Ch.,
C.A. No. 16584, Jacobs, V.C., slip op. at 43 (Dec. 7, 1998).
22
<PAGE>
special meeting by-law, the Quickturn board also amended the Rights Plan to
eliminate its "continuing director" feature, and to substitute a "no hand" or
"delayed redemption provision" into its Rights Plan. The Delayed Redemption
Provision provides that, if a majority of the directors are replaced by
stockholder action, the newly elected board cannot redeem the rights for six
months if the purpose or effect of the redemption would be to facilitate a
transaction with an "Interested Person."/21/
It is undisputed that the DRP would prevent Mentor's slate, if elected
as the new board majority, from redeeming the Rights Plan for six months
following their election, because a redemption would be "reasonably likely to
have the purpose or effect of facilitating a Transaction" with Mentor, a party
that "directly or indirectly proposed, nominated or financially supported" the
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/21/ The "no hand" or Delayed Redemption Provision is found in a new
Section 23(b) of the Rights Plan, which states:
(b) Notwithstanding the provisions of Section 23(a), in the
event that a majority of the Board of Directors of the Company is
elected by stockholder action at an annual or special meeting of
stockholders, then until the 180th day following the effectiveness of
such election (including any postponement or adjournment thereof), the
Rights shall not be redeemed if such redemption is reasonably likely to
have the purpose or effect of facilitating a Transaction with an
Interested Person.
Substantially similar provisions were added to Sections 24 ("Exchange") and 27
("Supplements and Amendments") of the Rights Plan.
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<PAGE>
election of the new board. Consequently, by adopting the DRP, the Quickturn
board built into the process a six month delay period in addition to the 90 to
100 day delay mandated by the By-Law Amendment.
COURT OF CHANCERY
INVALIDATES DELAYED REDEMPTION PROVISION
When the board of a Delaware corporation takes action to resist a
hostile bid for control, the board of directors' defensive actions are
subjected to "enhanced" judicial scrutiny./22/ For a target board's actions
to be entitled to business judgment rule protection, the target board must
first establish that it had reasonable grounds to believe that the hostile
bid constituted a threat to corporate policy and effectiveness; and second,
that the defensive measures adopted were "proportionate," that is, reasonable
in relation to the threat that the board reasonably perceived./23/ The
Delayed Redemption Provision was reviewed by the Court of Chancery pursuant
to that standard.
The Court of Chancery found: "the evidence, viewed as a whole, shows
that the perceived threat that led the Quickturn board to adopt the DRP,
- --------------------
/22/ Unocal Corp. v. Mesa Petroleum Co., Del. Supr., 493 A.2d 946, 955
(1985).
/23/ Id.; See also Unitrin, Inc. v. American General Corp., Del. Supr.,
651 A.2d 1361, 1372 (1995); Paramount Communications, Inc. v. Time, Inc., Del.
Supr., 571 A.2d 1140, 1152 (1990).
24
<PAGE>
was the concern that Quickturn shareholders might mistakenly, in ignorance of
Quickturn's true value, accept Mentor's inadequate offer, and elect a new
board that would prematurely sell the company before the new board could
adequately inform itself of Quickturn's fair value and before the shareholders
could consider other options."/24/ The Court of Chancery concluded that
Mentor's combined tender offer and proxy contest amounted to substantive
coercion./25/ Having concluded that the Quickturn board reasonably perceived a
cognizable threat, the Court of Chancery then examined whether the board's
response -- the Delayed Redemption Provision -- was proportionate in relation
to that threat.
In assessing a challenge to defensive measures taken by a target
board in response to an attempted hostile takeover, enhanced judicial
scrutiny requires an evaluation of the board's justification for each
contested defensive measure and its concomitant results./26/ The Court of
Chancery found that the Quickturn board's "justification or rationale for
adopting the Delayed
- ------------------
/24/ Mentor Graphics Corp. v. Quickturn Design Systems, et al., Del.
Ch., C.A. No. 16584, Jacobs, V.C., slip op. at 50 (Dec. 7, 1998).
/25/ Unitrin, Inc. v. American General Corp., 651 A.2d at 1387.
/26/ Id.
25
<PAGE>
Redemption Provision was to force ANY newly elected board to take sufficient
time to become familiar with Quickturn and its value, and to provide
shareholders the opportunity to consider alternatives, before selling
Quickturn to ANY acquiror."/27/ The Court of Chancery concluded that the
Delayed Redemption Provision could not pass the proportionality test.
Therefore, the Court of Chancery held that "the DRP cannot survive scrutiny
under Unocal and must be declared invalid."/28/
DELAYED REDEMPTION PROVISION
VIOLATES FUNDAMENTAL DELAWARE LAW
In this appeal, Mentor argues that the judgment of the Court of Chancery,
should be affirmed because the Delayed Redemption Provision is invalid as a
matter of Delaware law. According to Mentor, the Delayed Redemption Provision,
like the "dead hand" feature in the Rights Plan that was held to be invalid in
Toll Brothers,/29/ will impermissibly deprive any newly elected board
- ------------------
/27/ Mentor Graphics Corp. v. Quickturn Design Systems, et al., del.
Ch., C.A. No. 16584, Jacobs, V.C., slip op. at 64 (Dec. 7, 1998).
/28/ Id.
/29/ Carmody v. Toll Brothers, Inc., Del. Ch., C.A. No. 15983, Jacobs,
V.C. (July 24, 1998) ("Toll Brothers"). See Bank of New York Co., Inc. v. Irving
Bank Corp., N.Y. Sup. Ct., 528 N.Y.S.2d 482 (1988). See Also Shawn C. Lese,
Note: Preventing Control From the Grave: A Proposal for Judicial Treatment of
Dead Hand Provisions in Poison Pills, 96 Colum. L. Rev. 2175 (1996); Jeffrey N.
Gordon, "Just Say Never?" (continued...)
26
<PAGE>
of both its statutory authority to manage the corporation under 8 DEL. C.
Section 141(a) and its concomitant fiduciary duty pursuant to that statutory
mandate. We agree.
Our analysis of the Delayed Redemption Provision in the Quickturn Rights
Plan is guided by the prior precedents of this Court with regard to a board of
directors authority to adopt a Rights Plan or "poison pill." In Moran, this
Court held that the "inherent powers of the Board conferred by 8 Del. C.
Section 141(a) concerning the management of the corporation's 'business and
affairs' provides the Board additional authority upon which to enact the
Rights Plan."/30/ Consequently, this Court upheld the adoption of the Rights
Plan in Moran as a legitimate exercise of business judgment by the board of
directors./31/ In doing so, however, this Court also held "the rights plan is
not
- --------------------
/29/(...continued)
Poison Pills, Dead Hand Pills, and Shareholder Adopted By-Laws: An Essay for
Warren Buffett, 19 Cardozo L. Rev. 511 (1997). Cf. Invacare Corp. v.
Healthdyne Technologies, Inc., N.D. Ga., 968 F. Supp. 1578 (1997) (applying
Georgia law).
/30/ Moran v. Household International. Inc., Del. Supr., 500 A.2d 1346,
1353 (1985), citing Unocal Corp. v. Mesa Petroleum Co., Del. Supr., 493 A.2d
946, 953 (1985).
/31/ Id.
27
<PAGE>
absolute":/32/
When the Household Board of Directors is faced with a tender offer and
a request to redeem the Rights [Plan], they will not be able to
arbitrarily reject the offer. They will be held to the same fiduciary
standards any other board of directors would be held to in deciding to
adopt a defensive mechanism, the same standards as they were held to in
originally approving the Rights Plan./33/
In Moran, this Court held that the "ultimate response to an actual takeover bid
must be judged by the Directors' actions at the time and nothing we say relieves
them of their fundamental duties to the corporation and its shareholders."/34/
Consequently, we concluded that the use of the Rights Plan would be evaluated
when and if the issue arises./35/
One of the most basic tenets of Delaware corporate law is that the
board of directors has the ultimate responsibility for managing the business
and affairs of a corporation./36/ Section 141(a) requires that any limitation
on the
- --------------------
/32/ Id. at 1354
/33/ Id.; See also Unocal Corp. v. Mesa Petroleum Co., 493 A.2d at
954-55, 958.
/34/ Moran v. Household International, Inc., 490 A.2d at 1357.
/35/ Id.
/36/ 8 Del. C. Section 141(a). See Mills Acquisition Co. v. MacMillan,
Inc., Del. Supr., 559 A.2d 1261, 1280 (1989).
28
<PAGE>
board's authority be set out in the certificate of incorporation./37/
The Quickturn certificate of incorporation contains no provision purporting,
to limit the authority of the board in any way. The Delayed Redemption
Provision, however, would prevent a newly elected board of directors from
completely discharging its fundamental management duties to the corporation
and its stockholders for six months. While the Delayed Redemption Provision
limits the board of directors' authority in only one respect, the suspension
of the Rights Plan, it nonetheless restricts the board's power in an area of
fundamental importance to the shareholders -- negotiating a possible sale of
the corporation. Therefore, we hold that the Delayed Redemption Provision is
invalid under Section 141(a), which confers upon any newly elected board of
directors full power to manage and direct the business and affairs of a
Delaware corporation./38/
In discharging the statutory mandate of Section 141(a), the directors
- ---------------------
/37/ 8 Del. C. Section 141(a) states: "The business and affairs of
every corporation organized under this chapter shall be managed by or under
the direction of a board of directors, except as may be otherwise provided in
this chapter or in its certificate of incorporation. If any such provision is
made in the certificate of incorporation, the powers and duties conferred or
imposed upon the board of directors by this chapter shall be exercised or
performed to such extent and by such Person or persons as shall be provided
in the certificate of incorporation."
/38/ 8 Del. C. Section 141(a). See, e.g., Paramount Communications,
Inc. v. QVC Network, Inc., Del. Supr., 637 A.2d 34, 41-42 (1994).
29
<PAGE>
have a fiduciary duty to the corporation and its shareholders./39/ This
unremitting obligation extends equally to board conduct in a contest for
corporate control./40/ The Delayed Redemption Provision prevents a newly elected
board of directors from completely discharging its fiduciary duties to protect
fully the interests of Quickturn and its stockholders./41/
This Court has recently observed that "although the fiduciary duty
of a Delaware director is unremitting, the exact course of conduct that must
be charted to properly discharge that responsibility will change in the
specific context of the action the director is taking with regard to either
the corporation or its shareholders."/42/ This Court has held "[t]o the
extent that a contract, or a provision thereof, purports to require a board
to act or not act in such a fashion as to limit the exercise of fiduciary
duties, it is invalid and
- -------------------------
/39/ Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., Del. Supr.,
506 A.2d 173, 179 (1986); Aronson v. Lewis, Del. Supr., 473 A.2d 805, 811
(1984); Guth v. Loft, Inc., Del. Supr., 23 Del. Ch. 2, 5 A.2d 503, 510 (1939).
/40/ Mills Acquisition Co. v. MacMillan, Inc., Del. Supr., 559 A.2d
1261, 1280 (1989); Smith v. Van Gorkom, Del. Supr., 488 A.2d 858, 872-73
(1985).
/41/ See Moran v. Household International, Inc., 500 A.2d at 1354.
/42/ Malone v. Brincat, Del. Supr., ______ A.2d ______ (1998).
30
<PAGE>
unenforceable."/43/ The Delayed Redemption Provision "tends to limit in a
substantial way the freedom of [newly elected] directors' decisions on matters
of management policy."/44/ Therefore, "it violates the duty of each [newly
elected]director to exercise his own best judgment on matters coming before
the board."/45/
In this case, the Quickturn board was confronted by a determined bidder
that sought to acquire the company at a price the Quickturn board concluded was
inadequate. Such situations are common in corporate takeover efforts./46/ In
Revlon, this Court held that no defensive measure can be sustained when it
represents a breach of the directors' fiduciary duty. A fortiori, no defensive
measure can be sustained which would require a new board of directors to breach
its fiduciary duty. In that regard, we note Mentor
- -----------------------
/43/ See Paramount Communications, Inc. v. QVC Network, Inc., 637
A.2d at 51 (emphasis added). See, e.g., Mills Acquisition Co. v. MacMillan,
Inc., 559 A.2d at 1281 (holding that a "board of directors . . . may not
avoid its active and direct duty of oversight in a matter as significant as
the sale of corporate control"); Grimes v. Donald, Del. Ch., C.A. No. 13358,
slip op. at 17, Allen, C. (Jan. 11, 1995, revised Jan. 19, 1995), aff'd, Del.
Supr., 673 A.2d 1207 (1996) ("[t]he board may not either formally or
effectively abdicate its statutory power and its fiduciary duty to manage or
direct the management of the business and affairs of this corporation").
/44/ Abercrombie v. Davies, Del. Ch., 123 A.2d 893, 899 (1956),
rev'd on other grounds, Del. Supr., 130 A.2d 338 (1957).
/45/ Id.
/46/ Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d at
185.
31
<PAGE>
has properly acknowledged that in the event its slate of directors are
elected, those newly elected directors will be required to discharge their
unremitting fiduciary duty to manage the corporation for the benefit of
Quickturn and its stockholders./47/
CONCLUSION
The Delayed Redemption Provision would prevent a new Quickturn board
of directors from managing the corporation by redeeming the Rights Plan to
facilitate a transaction that would serve the stockholders' best interests,
even under circumstances where the board would be required to do so because
of its fiduciary duty to the Quickturn stockholders. Because the Delayed
Redemption Provision impermissibly circumscribes the board's statutory power
under Section 141(a) and the directors' ability to fulfill their concomitant
fiduciary duties, we hold that the Delayed Redemption Provision is invalid.
On that alternative basis, the judgment of the Court of Chancery is AFFIRMED.
- ---------------------
/47/ Malone v. Brincat, Del. Supr., _____ A.2d _____ (1998).
32
<PAGE>
EXHIBIT 71
QUICKTURN DESIGN SYSTEMS, INC.
55 WEST TRIMBLE ROAD
SAN JOSE, CALIFORNIA 95131
----------------
SPECIAL MEETING OF STOCKHOLDERS
----------------
SECOND ADDENDUM TO PROXY STATEMENT
BY
THE BOARD OF DIRECTORS OF QUICKTURN DESIGN SYSTEMS, INC.
SOLICITING PROXIES IN OPPOSITION TO THE
SOLICITATION OF PROXIES BY MENTOR GRAPHICS CORPORATION AND MGZ CORP.
----------------
This Second Addendum to Proxy Statement is furnished by the Board of
Directors of Quickturn Design Systems, Inc., a Delaware corporation (the
"Company"), to the holders of outstanding shares of the Company's Common
Stock, $0.001 par value, in connection with the Board's solicitation of
proxies in opposition to the solicitation (the "Mentor solicitation") by
Mentor Graphics Corporation, an Oregon corporation ("Mentor"), and MGZ Corp.,
a Delaware corporation and a wholly owned subsidiary of Mentor ("MGZ"),
pursuant to a Proxy Statement of Mentor and MGZ dated September 11, 1998, to
the extent valid, or any subsequent proxy statement of Mentor and/or MGZ (in
either case, the "Mentor Proxy Statement"), of proxies to be used at a special
meeting of stockholders of the Company called by Mentor and any adjournments
and postponements thereof (the "Special Meeting").
The Special Meeting will be held at 8:00 a.m., PST, on January 8, 1999 at
the offices of Wilson Sonsini Goodrich & Rosati at 650 Page Mill Road, Palo
Alto, California. The phone number at that location is (650) 493-9300. The
record date for the Special Meeting is November 10, 1998 (the "Record Date").
This Second Addendum is first being sent or given on January 5, 1999 to all
stockholders of record of the Company as of the Record Date. Capitalized terms
not otherwise defined herein have the meanings ascribed to them in the Proxy
Statement of the Board of Directors of Quickturn dated September 21, 1998 (the
"September Proxy Statement").
On January 4, 1999, the Company and Cadence Design Systems, Inc., a Delaware
corporation ("Cadence") entered into an amendment to the Agreement and Plan of
Merger dated as of December 8, 1998 between the Company, Cadence, and a wholly
owned subsidiary of Cadence. Pursuant to such agreement, as amended, it is
proposed that the Company will merge with a wholly-owned subsidiary of Cadence
in a tax-free stock-for-stock transaction, and the stockholders of the Company
will receive Cadence common stock with a value of $15.00 per share at the time
of closing. All other terms of the agreement remain in full force and effect.
For a further discussion of the proposed transaction between the Company and
Cadence Design Systems, Inc., see the Company's various filings with the
Securities and Exchange Commission, including Schedules 14D-9 and 14A.
AS FURTHER DESCRIBED IN THE SEPTEMBER PROXY STATEMENT, THE QUICKTURN BOARD
OF DIRECTORS HAS DETERMINED THAT THE MENTOR OFFER IS INADEQUATE AND NOT IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS. THE BOARD OF DIRECTORS OPPOSES
THE MENTOR PROPOSALS AND URGES YOU TO (A) SIGN, DATE AND RETURN THE ENCLOSED
BLUE PROXY CARD TO VOTE AGAINST THE MENTOR PROPOSALS AND (B) DISCARD ANY GOLD
STRIPED PROXY CARD SENT TO YOU BY MENTOR AND MGZ.
WHETHER OR NOT YOU HAVE PREVIOUSLY EXECUTED A GOLD STRIPED PROXY CARD, THE
BOARD OF DIRECTORS URGES YOU TO SIGN, DATE, AND DELIVER THE ENCLOSED BLUE
PROXY CARD AS PROMPTLY AS POSSIBLE, BY FAX OR BY MAIL (USING THE ENCLOSED
ENVELOPE), TO MORROW & CO., INC., 445 PARK AVENUE, NEW YORK, NEW YORK, 10022,
FAX: (212) 754-8300.
<PAGE>
IF YOU HAVE PREVIOUSLY SIGNED AND RETURNED A GOLD STRIPED PROXY CARD TO
MENTOR AND MGZ, YOU HAVE EVERY RIGHT TO CHANGE YOUR MIND. WHETHER OR NOT YOU
SIGNED THE GOLD STRIPED PROXY CARD SENT TO YOU BY MENTOR AND MGZ, THIS BOARD
OF DIRECTORS URGES YOU TO REJECT THE MENTOR PROPOSALS BY SIGNING, DATING AND
RETURNING THE ENCLOSED BLUE PROXY CARD BY FAX OR IN THE POSTAGE-PAID ENVELOPE
PROVIDED. REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR PROXY IS IMPORTANT.
PLEASE ACT TODAY.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE, WE
URGE YOU TO CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND DIRECT HIM OR
HER TO REVOKE ANY GOLD STRIPED PROXY CARDS THAT MAY HAVE BEEN CAST AND TO
EXECUTE AND RETURN A BLUE PROXY CARD ON YOUR BEHALF.
If you have any questions concerning the Company's solicitation of BLUE
Proxy Cards, or Mentor and MGZ's solicitation of gold striped proxy cards,
please contact our information agent:
MORROW & CO., INC.
445 PARK AVENUE
NEW YORK, NEW YORK 10022
OR
CALL TOLL-FREE: (800) 662-5200
FAX: (212) 754-8300
By Order of the Board of Directors
By: /s/ Keith R. Lobo
__________________________________
Keith R. Lobo
President and Chief Executive
Officer
San Jose, California
January 5, 1999
