-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ww5xBIaOnehKVuKtjJ89dd3dwA/NZjc1CG1SBO3hdTLHXVWXRYgXVgsNGZ/A5/i/ +oFiH9fnOby2gbVjlJYPJw== 0001012870-98-002242.txt : 19980825 0001012870-98-002242.hdr.sgml : 19980825 ACCESSION NUMBER: 0001012870-98-002242 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19980824 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: QUICKTURN DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000914252 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 770159619 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-43785 FILM NUMBER: 98696221 BUSINESS ADDRESS: STREET 1: 55 W TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 951311013 BUSINESS PHONE: 4089146000 MAIL ADDRESS: STREET 1: 55 W TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 95131-1013 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: QUICKTURN DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000914252 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 770159619 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 55 W TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 951311013 BUSINESS PHONE: 4089146000 MAIL ADDRESS: STREET 1: 55 W TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 95131-1013 SC 14D9 1 SCHEDULE 14D-9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- SCHEDULE 14D-9 ---------------- Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934 QUICKTURN DESIGN SYSTEMS, INC. (Name of Subject Company) QUICKTURN DESIGN SYSTEMS, INC. (Name of Person(s) Filing Statement) COMMON STOCK, PAR VALUE $.001 PER SHARE (including the associated preferred stock purchase rights) (Title of Class of Securities) ---------------- 74838E102 (CUSIP Number of Class of Securities) ---------------- KEITH R. LOBO PRESIDENT AND CHIEF EXECUTIVE OFFICER QUICKTURN DESIGN SYSTEMS, INC. 55 W. TRIMBLE ROAD SAN JOSE, CALIFORNIA 95131 (408) 914-6000 (Name, address and telephone number of person authorized to receive notice and communications on behalf of person(s) filing statement) ---------------- COPY TO: LARRY W. SONSINI, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (650) 493-9300 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SECURITY AND SUBJECT COMPANY The name of the subject company is Quickturn Design Systems, Inc., a Delaware corporation (the "Company" or "Quickturn"), and the address of the principal executive offices of the Company is 55 W. Trimble Road, San Jose, California 95131. The title and the class of equity securities to which this statement relates is the Common Stock, par value $.001 per share (the "Common Stock"), of the Company including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Preferred Shares Rights Agreement, dated as of January 10, 1996, as amended, between the Company and BankBoston, N.A. (formerly known as the First National Bank of Boston), as Rights Agent (the "Rights Agreement"). ITEM 2. TENDER OFFER OF THE BIDDER This statement relates to the tender offer disclosed in a Tender Offer Statement on Schedule 14D-1, dated August 12, 1998 (the "Mentor Schedule 14D- 1"), as amended on August 20, 1998, filed with the Securities and Exchange Commission (the "SEC") by MGZ Corp. ("MGZ"), a Delaware corporation and wholly owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Mentor"), relating to an offer by MGZ to purchase all outstanding Shares at a price of $12.125 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in MGZ's Offer to Purchase and related Letter of Transmittal (which together constitute the "Offer"). According to the Mentor Schedule 14D-1, the principal executive offices of each of Mentor and MGZ are located at 8005 S. W. Boeckman Road, Wilsonville, Oregon 97070. ITEM 3. IDENTITY AND BACKGROUND (a) The name and business address of the Company, which is the entity filing this statement, are set forth in Item 1 above. (b) General. Certain information regarding contracts, agreements, arrangements or understandings between the Company and certain of its executive officers, directors and affiliates is set forth in the Company's Notice for Annual Meeting of Stockholders and Proxy Statement dated March 13, 1998, relating to its 1998 Annual Meeting of Stockholders (the "Proxy Statement"), under the headings "Compensation of Directors," "Beneficial Security Ownership of Management and Certain Beneficial Owners," "Executive Officer Compensation" and "Report of the Compensation Committee of the Board of Directors." Such sections of the Proxy Statement are filed as Exhibit 1 hereto and are incorporated herein by reference. To the knowledge of the Company, as of the date hereof, there are no material contracts, agreements, arrangements or understandings, or any actual or potential conflicts of interest between the Company or its affiliates and (1) the Company, its executive officers, directors or affiliates or (2) MGZ, Mentor or their respective executive officers, directors or affiliates, except as described herein or incorporated by reference. Employment Agreement. The Company has an employment agreement dated November 4, 1992 with Keith R. Lobo, the Company's President and Chief Executive Officer, which is terminable by either the Company or Mr. Lobo at any time upon 30 days written notice. Pursuant to such agreement, upon termination of Mr. Lobo's employment, except for certain causes, the Company is obligated to pay Mr. Lobo severance payments equal to six months of his then base salary. Also, upon Mr. Lobo's involuntary termination, except for certain causes, within 12 months after a change of control of the Company, Mr. Lobo's options will be accelerated with respect to that number of shares which would have vested after 24 months of additional employment. Mentor Agreements. In connection with an asset purchase agreement between the Company and Mentor dated February 28, 1992, pursuant to which the Company acquired certain assets from Mentor, the Company granted to Mentor a warrant to purchase shares of Common Stock that may be exercised at a per share price of $30.00 and expires on February 27, 2000 (the "Mentor Warrant"). In addition to the Mentor Warrant, the Company has outstanding a promissory note payable to Mentor dated September 29, 1993 (the "Mentor Note"), 2 pursuant to which the Company agreed to pay Mentor the principal sum of $3,000,000, together with interest on the outstanding principal sum at the rate of 4% in five equal installments of $600,000, the last of which is due and payable on September 30, 1998. The Mentor Note was issued in connection with the early termination of a distribution agreement between Mentor and PiE Design Systems, Inc. ("PiE"), which merged with the Company in June 1993. The Mentor Warrant and the Mentor Note are filed as Exhibits 2 and 3 hereto, respectively, and are incorporated herein by reference. The foregoing descriptions of the Mentor Warrant and the Mentor Note are qualified by reference to such Exhibits. ITEM 4. THE SOLICITATION OR RECOMMENDATION (a) Background and Recommendation. Prior to August 11, 1998, there had been no discussions between the Company and Mentor regarding a potential business combination for more than two years. At approximately 7:00 pm P.D.T. on August 11, 1998, Mr. Raymond Ostby, Chief Financial Officer of the Company, received a telephone call from a Wall Street Journal reporter requesting comment on an advertisement which was scheduled to appear the next morning, commencing the Offer. Mr. Ostby declined to comment. Later that evening, Mr. Glen Antle, Chairman of the board of directors of the Company ("the Board"), was given a letter by Mr. Walden Rhines, Chief Executive Officer and President of Mentor, stating the principal terms of the Offer. Mr. Rhines asked Mr. Antle to accept the Offer. Mr. Antle said that he was not authorized by the Board to accept such an offer, but that he would communicate it to the Company's Board. On August 12, 1998, Mentor and MGZ commenced the Offer. Also on August 12, 1998, Mentor filed preliminary materials with the SEC to solicit agent designations, final materials for which were filed by Mentor on August 20, 1998 (the "Solicitation"). On August 12, 1998, the Company announced, in response to the Offer, that the Company's Board of Directors would study the Offer and make its recommendation to stockholders in due course. The Company urged all its stockholders to take no action with respect to the Offer and any related activities until the Company's Board made its recommendation. The press release announcing the response of the Board is attached hereto as Exhibit 4. The Board held a meeting on each of August 13, 1998 and August 17, 1998. At such meetings, the Board met with senior management of the Company and its financial and legal advisers and considered the Offer and various matters related thereto, including presentations by the Company's senior management and financial advisers, Hambrecht & Quist LLC ("H&Q"), on the terms of the Offer, the Company's financial performance, business strategy and business plan, and certain analyses regarding the foregoing. On August 14, 1998, Mr. Lobo received a telephone call from Mr. Rhines. Mr. Rhines offered to discuss the Offer with Mr. Lobo, including future prospects for key management and employees of the Company. Mr. Lobo stated that he would convey Mr. Rhine's comments to the Company's Board. No further discussions between Mr. Lobo and Mr. Rhine have occurred since that time. On August 21, 1998, the Board held a further meeting, at which the Board again reviewed and considered the Offer and related matters in consultation with its financial and legal advisors. Additional presentations were made by the Company's senior management concerning the Company's business plan, and by H&Q concerning analyses of the Offer. At the conclusion of its presentations, H&Q provided to the Board its opinion that the Offer was inadequate from a financial point of view. After further review by the Board and consideration of the interests of the Company's stockholders, the Board determined that the Offer was inadequate and not in the best interests of the Company's stockholders, that the Offer did not fully reflect the long-term value of the Company, and that stockholder interests would be better served by the Company continuing to pursue its business plan. In particular, the Board determined that the Company's business plan offered the potential for obtaining higher long-term benefits for the Company's stockholders than the Offer. This determination was based on, among other 3 things, the opportunities for business expansion and revenue and earnings growth resulting from recently introduced products and from products under development for use in the electronic design automation market and in other related parts of the market. ACCORDINGLY, THE BOARD RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS REJECT THE OFFER AND NOT TENDER THEIR SHARES PURSUANT TO THE OFFER. A copy of a letter to stockholders communicating the Board's recommendation and a form of press release announcing such recommendation are filed as Exhibits 5 and 6 hereto, respectively, and are incorporated herein by reference. (b) Reasons for the Recommendation. In reaching the conclusions referred to in Item 4(a), the Board took into account numerous factors, including but not limited to the following: (i) The Board's familiarity with the business, financial condition, prospects and business plan of the Company, the nature of the business and markets in which the Company operates and the Board's belief that the Offer does not adequately reflect the long-term opportunities available to the Company in its business and the electronic design automation market. In this regard, the Board particularly considered the following: . The Company's established position as the leading provider of emulation technology and a leader in cycle-based simulation, for the integrated circuit design verification market, as well as its reputation in the industry as a technological leader and innovator in this area. In this regard, the Board noted that the Company has supplied more than 80% of the installed base of emulation systems worldwide. . The Company's prospects for future growth based upon its current and future product plans, including the recently introduced Mercury(TM) Design Verification System, which offers substantially improved performance and ease of use, as well as the Company's additional products and enhancements planned for introduction at appropriate intervals over the next few years. . The Company's proven technical expertise, reflected in an estimated 4,000 completed customer design projects and developed over years of activity in the design verification market. . The Company's expenditures of over $60 million on research and development in the past three years, leading to current and future planned products. . The Company's strong intellectual property position, including 25 issued United States patents, 25 pending United States patent applications and numerous international patents and patent application filings. . The Company's reputation for high-quality worldwide customer service and support resulting in the completion of an estimated 4,000 customer design projects. . The Company's acknowledged strength in the sale and implementation of emulation products. . The Company's acknowledged high-quality manufacturing infrastructure. . Anticipated growth in demand for emulation and cycle-based simulation resulting from continuing substantial increases in semiconductor design complexity. . Current conditions in the Company's business and markets, including the current adverse economic conditions in Asia, which have had a substantial effect upon the Company's recent quarterly financial performance and recent stock price. . The risks and assumptions inherent in achieving the Company's business plan. 4 (ii) The historical trading prices of the Company's Common Stock, including the Board's belief, based in part on the factors referred to above, that the trading price for the Company's Common Stock immediately prior to commencement of the Offer did not fully reflect the long-term value inherent in the Company. In this regard, the Board noted that, as of the Offer, the Offer represented a more than 25% discount from the highest closing price of the Common Stock during the year preceding the Offer and a less than 4% premium over the average of the closing prices of the Common Stock during the same period. (iii) The analyses performed by H&Q concerning, among other things, the Company's historical and projected financial performance and consequent implied valuations of the Company; Mentor's historical financial performance; projected pro forma financial results for Mentor were the Offer to be successful; comparisons of the terms of the Offer, premium and the implied valuation of the Company to those in other comparable transactions; and the trading histories of Mentor and the Company. (iv) The opinion of H&Q to the effect that the consideration to be received by the stockholders in the Offer is inadequate, from a financial point of view, to such holders as of the date of such opinion. (v) The history of extensive patent litigation between the Company and Mentor, which has to date affirmed the validity of the Company's key patents and has resulted, among other things, in the issuance by the United States International Trade Commission (the "ITC") of a Permanent Limited Exclusion Order against Mentor prohibiting Mentor from importing into the United States certain integrated circuit emulation systems, subassemblies and components manufactured by Mentor and its affiliate which infringe the Company's patents; the issuance by the ITC of a Permanent Cease and Desist Order permanently prohibiting Mentor from, among other things, selling, offering for sale or advertising such emulation systems, subassemblies and components in the United States; and the granting by the Federal District Court for the District of Oregon of the Company's motion for a preliminary injunction against Mentor's United States emulation activities. In this regard, the Board noted that the grant of the foregoing motion for a preliminary injunction had been affirmed by the United States Court of Appeals for the Federal Circuit on August 5, 1998 -- seven days prior to Mentor's commencement of the Offer. (vi) The disruptive effect of the Offer on the Company's sales efforts with its customers, as well as on the Company's relationships with its suppliers and employees. (vii) The Board's commitment to acting in the best interests of and protecting the Company's stockholders. (viii) The various circumstances of the Offer and conditions to which the Offer is subject. In view of the wide variety of factors considered in connection with its evaluation of the Offer, the Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its respective determinations. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED Letter Agreement with H&Q. Pursuant to a letter agreement dated August 14, 1998 (the "Letter Agreement"), the Company has retained Hambrecht & Quist LLC ("H&Q") as its exclusive financial advisor with respect to the Offer and the evaluation of strategic alternatives. Pursuant to the Letter Agreement, the Company has agreed to pay H&Q: (1) a non-refundable retainer of $100,000 payable on the date of the Letter Agreement and creditable against any subsequent fees payable under the Letter Agreement; (2) a fee of $750,000 payable on delivery of an initial opinion regarding the fairness or adequacy of the Offer; 5 (3) a fee of $250,000 payable on delivery of each additional fairness opinion rendered in connection with a transaction including the same party or an additional party; (4) in the event the Company enters into an agreement for the sale of the Company, or recommends that the stockholders of the Company tender their shares in connection with a tender offer for 50% or more of the outstanding shares of Common Stock of the Company or recommends that the stockholders of the Company vote in favor of a proposed sale of the Company, or otherwise approves or endorses the sale of the Company, and such sale (a "Consensual Acquisition") of the Company is consummated, a fee, payable at closing, equal to 1.0% of the aggregate consideration received, less any fees previously paid; (5) in the event the Company determines it should remain independent and does not consummate a Consensual Acquisition by May 14, 1999, a fee, payable on May 14, 1999, of $1,000,000, less any fees previously paid; and (6) in the event that the Company is acquired prior to May 14, 1999 in a transaction other than a Consensual Acquisition, then upon consummation of such sale of the Company, a fee, payable at closing, equal to 0.75% of the aggregate consideration received, less any fees previously paid. A "sale" of the Company means any transaction or event or series or combination thereof, other than in the ordinary course of trade or business, whereby directly or indirectly, a majority interest in the Company or its businesses or assets is transferred; such transactions or events to include without limitation a sale or exchange of capital stock or assets (whether in a leveraged acquisition or otherwise), a merger or consolidation, a tender or exchange offer, a recapitalization (including without limitation one or more distributions to stockholders or repurchases or redemptions of shares which in the aggregate constitute greater than 50 percent of the market value of the Company's shares prior to such actions), or any similar transaction or event. Pursuant to the Letter Agreement, the Company agreed to indemnify H&Q against all liability resulting from the performance of H&Q's duties under such agreement, except for liability resulting from the gross negligence or willful misconduct of H&Q. The Company has also agreed to reimburse H&Q periodically for their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of their attorneys arising in connection with any matter referred to in the Letter Agreement. The Letter Agreement also provides that H&Q, if requested by the Board, will, among other things, assist the Company as an agent in contracting, qualifying and negotiating with potential acquirers approved by the Company. The Letter Agreement may be terminated at any time by either party thereto, in which event, H&Q will be entitled to full compensation if any time prior to the expiration of one year after such date of termination the Company consummates a sale of the Company and any compensation earned by it up to the date of the termination, including the reimbursement of all reasonable expenses incurred by H&Q. Other Agreements. The Company also has retained Abernathy MacGregor Frank as a public relations advisor in connection with the Offer and has retained Morrow & Co., Inc. to assist the Company in connection with communications with stockholders and to provide other services in connection with the Offer. The Company will pay Abernathy MacGregor Frank and Morrow & Co., Inc. reasonable and customary fees for their services, reimburse them for their reasonable expenses and provide customary indemnities. Except as described above, neither the Company nor any person acting on its behalf has retained any other person to make solicitations or recommendations to security holders on its behalf concerning the Offer. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES (a) There have been no transactions in the Shares during the past 60 days by the Company or, to the Company's knowledge, by any executive officer, director, affiliate or subsidiary of the Company, except that Glen M. Antle, Chairman of the Board, exercised an option to purchase 50,000 shares of Common Stock on June 8, 1998, at a per share exercise price of $0.64; William A. Hasler, Director, purchased 2,000 shares on the 6 open market on July 24, 1998, at a per share price of approximately $7.84; Tung-sun Tung, Vice President, Research & Development, purchased 1,174 shares of Common Stock under the Company's 1993 Employee Qualified Stock Purchase Plan (the "ESPP") on August 17, 1998, at a per share price of approximately $8.82; Naeem Zafar, Vice President of Marketing, purchased 1,104 shares of Common Stock under the ESPP on August 17, 1998, at a per share price of approximately $8.82; Jeffrey K. Jordan, Vice President, North American Sales, purchased 801 shares of Common Stock under the ESPP on August 17, 1998, at a per share price of approximately $8.82; Christopher J. Tice, Vice President, World-Wide Support Services and COBALT Technology, purchased 578 shares of Common Stock under the ESPP on August 17, 1998, at a per share price of approximately $8.82; and Dugald H. Stewart, Vice President, Manufacturing, purchased 120 shares of Common Stock under the ESPP on August 17, 1998, at a per share price of approximately $8.82. (b) To the Company's knowledge, none of the Company's executive officers, directors, subsidiaries currently intends to tender Shares which are held of record or beneficially owned by them pursuant to the Offer. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY (a) No negotiation is underway or is being undertaken by the Company in response to the Offer which relates to or would result in (1) an extraordinary transaction, such as a merger or reorganization, involving the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the current capitalization or dividend policy of the Company. Notwithstanding the foregoing, the Board may in the future engage in negotiations in response to the Offer that could have one of the effects specified in the preceding paragraph. The Company has determined that disclosure with respect to the parties to, and the possible terms of, any transactions or proposals of the type referred to in the preceding paragraph might jeopardize any discussions or negotiations that the Company may conduct. Accordingly, the Board has adopted a resolution instructing management not to disclose the possible terms of any such transactions or proposals, or the parties thereto, unless and until an agreement in principle relating thereto has been reached or, upon the advice of counsel, as may otherwise be required by law. (b)(i) The Rights Agreement. Effective as of January 10, 1996, the Board declared a dividend payable January 22, 1996 of one Right for each outstanding share of Common Stock of the Company held of record on January 22, 1996. The Rights were issued pursuant to the Rights Agreement referred to in Item 1 above. Each Right entitles its registered holder to purchase from the Company, after the Distribution Date (as hereinafter defined), one one-thousandth of a share of the Company's Series A Participating Preferred Stock at an exercise price of $50.00. Pursuant to the Rights Agreement as originally adopted, the Rights will not become exercisable or transferable or be distributed apart from the Common Stock until the earlier of (i) 10 days (or such later date as may be determined by a majority of the Board of Directors, excluding directors affiliated with the Acquiring Person, (the "Continuing Directors")), following a public announcement that an Acquiring Person has become such, and (ii) 10 days (or such later date as may be determined by a majority of the Continuing Directors) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding Shares. The earlier of such dates is referred to as the "Distribution Date." An Acquiring Person is any person who or which, together with all affiliates or associates of such person, is the beneficial owner of 15% or more of the Shares then outstanding, other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or any subsidiary of the Company or any entity holding Shares for or pursuant to the terms of any such plan. 7 On August 21, 1998, pursuant to the terms of the Rights Agreement, the Board adopted a resolution to defer the occurrence of a Distribution Date, as a result of the Offer, to a date to be determined by the Board. Without such action by the Board, the Distribution Date would have been August 22, 1998 (i.e., the tenth day following the public announcement of the Offer by Mentor and MGZ). In addition, on August 21, 1998, pursuant to the terms of the Rights Agreement, the Board adopted a resolution to amend the Rights Agreement (x) to delete all provisions requiring the concurrence of a majority of Continuing Directors for (1) the redemption or exchange of the Rights at or after the time a person becomes an Acquiring Person or (2) the amendment of the Rights Agreement on or after the Distribution Date, (y) to add a requirement that if a majority of the Company's Board is elected at an annual or special meeting of stockholders, then for a period of 180 days following such election (1) the Rights cannot be redeemed or exchanged and (2) the Rights Agreement cannot be amended, if such redemption, exchange or amendment is reasonably likely to have the purpose or effect of facilitating an acquisition of the Company by a person or entity who proposed, nominated or supported a director of the Company so elected at the annual or special meeting, and (z) to add a clause to the definition of Distribution Date pursuant to which the Board may determine the Distribution Date applicable to Mentor and MGZ in connection with the Offer or any amendment to the Offer or any subsequent tender offer by Mentor or its Affiliates or Associates (each as defined in the Rights Agreement). (b)(ii) Amendment to Bylaws. On August 21, 1998, pursuant to the Company's Certificate and Bylaws, the Board adopted a resolution to amend Section 2.3 of Article II of the Company's Bylaws to read in its entirety as follows: "A special meeting of the stockholders may be called at any time by (i) the board of directors, (ii) the chairman of the board, (iii) the president, (iv) the chief executive officer or (v) subject to the procedures set forth in this Section 2.3, one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. Upon request in writing sent by registered mail to the president or chief executive officer by any stockholder or stockholders entitled to call a special meeting of stockholders pursuant to this Section 2.3, the board of directors shall determine a place and time for such meeting, which time shall be not less than ninety (90) nor more than one hundred (100) days after the receipt and determination of the validity of such request, and a record date for the determination of stockholders entitled to vote at such meeting in the manner set forth in Section 2.12 hereof. Following such receipt and determination, it shall be the duty of the secretary to cause notice to be given to the stockholders entitled to vote at such meeting, in the manner set forth in Section 2.4 hereof, that a meeting will be held at the place and time so determined." (b)(iii) General. Other than as set forth above, there is no transaction, board resolution, agreement in principle or signed contract in response to the tender offer, which relates to or would result in (1) an extraordinary transaction, such as a merger or reorganization, involving the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the current capitalization or dividend policy of the Company. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED Patent Litigation with Mentor. In January 1996, the Company filed a complaint with the International Trade Commission (the "ITC") in Washington, DC, seeking to stop unfair importation of logic emulation systems manufactured by Meta Systems ("Meta"), a French subsidiary of Mentor. In the complaint, the Company alleges that Mentor's hardware logic emulation systems infringe several of the Company's patents. Some of these patents were purchased by the 8 Company from Mentor in 1992 and the Company successfully argued that Mentor could not contest their validity by reason of assignor estoppel, a legal doctrine which prevents the seller of a patent from later asserting that the patent is invalid ("Assignor Estoppel"). The Company sought and received in August 1996 temporary relief from the ITC in the form of Temporary Exclusion and Temporary Cease and Desist Orders. The Federal Circuit Court of Appeals affirmed the ITC's issuance of temporary relief in August 1997. In December 1997, the ITC issued: (1) a Permanent Limited Exclusion Order which permanently prohibits the importation of hardware logic emulation system, subassemblies or components manufactured by Mentor and/or Meta, which infringe the Company's patents and (2) a Permanent Cease and Desist Order permanently prohibiting Mentor from, among other things, selling, offering for sale or advertising the same hardware logic emulation devices. The ITC's two orders remain in effect until April 28, 2009, the latest expiration date of the Company's patents involved in the investigation. The Company is also engaged in a Federal District Court case with Mentor and Meta involving six of the Company's patents. Mentor and Meta are seeking a declaratory judgment of noninfringement, invalidity and unenforceability of the patents in dispute, and the Company has filed counteractions against Mentor and Meta for infringement and threatened infringement of the six patents. Mentor has also claimed in this Federal District Court case that press releases issued by the Company were defamatory and interfered with Mentor's prospective economic relations. In June 1997, Quickturn filed a motion for preliminary injunction, asking the District Court to prohibit Mentor from manufacturing, assembling, marketing, loaning or otherwise distributing emulation products and components in the United States, which products and components infringe certain claims in Quickturn's U.S. Patent No. 5,036,473. The District Court granted the Company's motion for summary judgment of Assignor Estoppel with regard to such patent. On December 20, 1996, the U.S. District Court in Oregon granted Quickturn's motion for a preliminary injunction against Mentor's domestic emulation activities. The Federal Circuit Court of Appeals affirmed the Oregon District Court's decision on August 5, 1998, both with regard to the preliminary injunction and the Assignor Estoppel. The Oregon action is currently set for trial in December 1998. In November 1996, Aptix Corporation ("Aptix") filed a suit against the Company in the U.S. District Court, the Northern District of California, alleging, among other things, various antitrust violations based on Quickturn's acquisition of patents and technology from Mentor, Quickturn's acquisition of PiE and purported threats by Quickturn to sue Aptix for patent infringement. Quickturn has moved for summary judgment in its favor with regards to these allegations. A hearing on these matters was held on August 4, 1998. Quickturn is awaiting a decision. In August 1997, a preliminary injunction sought by Mentor's German subsidiary, Mentor Graphics (Deutschland) GmbH, was issued by a regional court in Munich, enjoining agents of the Company from making certain statements concerning U.S. litigation matters between the Company and Mentor. In May 1998, the Munich District Court set aside the preliminary injunction based on the failure of Mentor's German subsidiary to advance its case within the six- month statutory limitation. In October 1997, the Company filed a complaint alleging infringement of the German part of the Company's European Patent No. 0 437 491 B1 against Mentor Graphics (Deutschland) GmbH, in the District Court of Dusseldorf. The main court hearing for this matter is set for March 1999. In February 1998, Aptix and Meta filed a lawsuit against the Company, in the U.S. District Court for the Northern District of California, alleging infringement of a U.S. patent owned by Aptix Corporation and licensed to Meta. Litigation Concerning the Offer. On August 12, 1998, Mentor and MGZ filed a complaint (the "Mentor Delaware Complaint") against the Company and the Board in the Court of Chancery of the State of Delaware seeking, among other things, an order (i) declaring that failure to redeem the Rights or to render the Rights inapplicable to the Offer and the proposed merger or failure to approve the Offer and the proposed merger would constitute a breach of the Board's fiduciary 9 duties under Delaware law, (ii) invalidating the Rights or compelling the Board to redeem the Rights or render the Rights inapplicable to the Offer and the proposed merger, (iii) declaring that failure to approve the Offer and the proposed merger for purposes of Section 203 of Delaware Law would constitute a breach of the Board's fiduciary duties under Delaware law, (iv) compelling the Company Board to approve the Offer and the proposed merger for purposes of Section 203 of Delaware Law, (v) enjoining the Board from taking any actions designed to impede or which have the effect of impeding the Offer, the Solicitation or the proposed merger and declaring that any such actions would constitute a breach of the Board's fiduciary duties under Delaware law, (vi) enjoining the Board from taking any actions to impede, or refuse to recognize the validity of, Mentor's call of a special meeting, provided that Mentor has obtained agent designations from Company stockholders holding not less than 10% of the outstanding Shares of the Company and (vii) enjoining the Board from taking any action to cause the Company to become subject to Section 2115 of the California General Corporation Law. The Mentor Delaware Complaint is filed as Exhibit 7 hereto and is incorporated herein by reference. The foregoing description is qualified by reference to such Exhibit. Also on August 12, 1998, Mentor and MGZ filed a complaint (the "Mentor Federal Complaint") against the Company in the United States District Court for the District of Delaware seeking, among other things, a declaratory judgment that Mentor and MGZ have disclosed all information required by, and are otherwise in full compliance with, the Exchange Act and any other federal securities laws, rules and regulations deemed applicable to the Offer and the Solicitation. The Mentor Federal Complaint is filed as Exhibit 8 hereto and is incorporated herein by reference. The foregoing description is qualified by reference to such Exhibit. On August 13, 1998, Howard Shapiro filed a purported class action suit on behalf of individual plaintiffs (the "Shapiro Complaint") against the Company and the Board in the Court of Chancery in the State of Delaware. The complaint alleges, among other things, that the defendants have breached their fiduciary duties to the Company's stockholders by failing to maximize stockholder value. The complaint seeks, among other things, to compel the defendants to carry out their fiduciary duties and to cooperate with any person or entity having a bona fide interest in proposing any transaction which would maximize stockholder value. A copy of the Shapiro Complaint is filed as Exhibit 9 hereto and is incorporated herein by reference. The foregoing description is qualified by reference to such Exhibit. Antitrust Matters. On August 20, 1998, the Company received from MGZ written notice (the "MGZ Letter") that Mentor filed a premerger notification form (the "Premerger Form") with the Federal Trade Commission (the "FTC") and the Department of Justice (the "DOJ") under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") on or about August 20, 1998. The purpose of the Premerger Form is to give the FTC and the DOJ notice of the merger Mentor proposes to effect with the Company if the Offer is consummated. The Company is required to file its own Premerger Form no later than 10:00 a.m. E.S.T. on August 31, 1998. The applicable waiting period under the HSR Act will expire on September 4, 1998, unless terminated early or extended by the FTC or the DOJ. The MGZ Letter is filed as Exhibit 10 hereto and is incorporated herein by reference. The foregoing description is qualified by reference to such Exhibit. 10 ITEM 9. MATERIALS TO BE FILED AS EXHIBITS Exhibit 1 The "Compensation of Directors," "Beneficial Security Ownership of Management and Certain Beneficial Owners," "Executive Officer Compensation" and "Report of the Compensation Committee of the Board of Directors" sections of the Proxy Statement. Exhibit 2 Warrant granted by the Company to Mentor dated February 28, 1992. Exhibit 3 Company unsecured subordinated promissory note dated September 29, 1983. Exhibit 4 Press Release of the Company dated August 12, 1998. Exhibit 5* Letter to Stockholders regarding Board's recommendation dated August 24, 1998. Exhibit 6 Press Release of the Company announcing the Board's recommendation dated August 24, 1998. Exhibit 7 Complaint in MENTOR GRAPHICS CORPORATION AND MGZ CORP. V. QUICKTURN DESIGN SYSTEMS, ET AL., C.A. No. 16584NC, filed in the Court of Chancery of the State of Delaware on August 12, 1998. Exhibit 8 Complaint in MENTOR GRAPHICS CORPORATION AND MGZ CORP. V. QUICKTURN DESIGN SYSTEMS, No. 98-423, filed in the United States District Court for the District of Delaware on August 12, 1998. Exhibit 9 Complaint in HOWARD SHAPIRO V. GLEN M. ANTLE, ET AL., C.A. No. 16588NC, filed in the Court of Chancery of the State of Delaware on August 13, 1998. Exhibit 10 Letter from MGZ to the Company dated August 20, 1998 regarding the Hart-Scott-Rodino Premerger Notification Form filed by Mentor on or about August 20, 1998.
- -------- * Included in materials mailed to stockholders of the Company. 11 SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: August 24, 1998 QUICKTURN DESIGN SYSTEMS, INC. By:/s/ Keith R. Lobo ---------------------------------- Keith R. Lobo President and Chief Executive Officer 12 EX-1 2 COMPENSATION OF DIRECTORS EXHIBIT 1 --------- COMPENSATION OF DIRECTORS Directors who are employees of the Company do not receive additional compensation for their services as directors of the Company. However, nonemployee members of the Board of Directors receive an annual cash retainer of $12,000 and an annual committee membership stipend of $1,500 for each committee of the Board of Directors on which such director serves. In addition, nonemployee directors participate in the Company's 1994 Outside Director Stock Option Plan (the "Director Plan"). The Director Plan was adopted by the Board of Directors in January 1994 and was approved by the stockholders in May 1994. The Director Plan provides for an automatic grant of a nonstatutory stock option to purchase 20,000 shares of Common Stock to a nonemployee director on the date of the first meeting on which such individual participates as a director (an "Initial Option"). An Initial Option has a term of ten years and vests monthly over four years. Beginning four years after the grant of an Initial Option to a director, such director is granted an automatic annual option to purchase 3,500 shares of Common Stock, which option has a term of ten years and vests monthly over one year. The exercise price of each option granted equals 100% of the fair market value of the Common Stock, based on the closing sales price of the Common Stock as reported on the Nasdaq National Market on the date of grant. Options granted under the Director Plan must be exercised within three months following the end of the optionee's tenure as a director of the Company or within twelve months after the termination of a director's tenure due to death or disability. The Director Plan is designed to work automatically, without administration; however, to the extent administration is necessary, the Director Plan has been structured so that options granted to nonemployee directors who administer the Company's other employee benefit plans qualify as transactions exempt from Section 16(b) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to Rule 16b-3 promulgated thereunder. BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS The following table sets forth the beneficial ownership of Common Stock as of February 25, 1998 for the following: (i) each person or entity who is known by the Company to own beneficially more than 5% of the outstanding shares of the Common Stock, (ii) each of the Company's current directors, (iii) each of the officers named in the Summary Compensation Table and (iv) all directors and executive officers of the Company as a group.
SHARES PERCENTAGE BENEFICIALLY BENEFICIALLY NAME OWNED(1) OWNED - ------------------------------------------------------------------------------------------- ------------- ------------ PRINCIPAL STOCKHOLDERS Kopp Investment Advisors, Inc.(2)................................................ 2,597,975 14.6% 7701 France Avenue South, Suite 500 Edina, MN 55435 State of Wisconsin Investment Board(2)........................................... 1,149,500 6.5% 121 East Wilson Street Madison, WI 53707 DIRECTORS Glen M. Antle(3)................................................................. 323,282 1.8% Keith R. Lobo(4)................................................................. 473,750 2.6% Richard C. Alberding(5).......................................................... 15,000 * Michael R. D'Amour(6)............................................................ 44,471 * Dr. Yen-Son (Paul) Huang(7)...................................................... 351,425 2.0% Dr. David K. Lam(5).............................................................. 7,917 * NAMED OFFICERS Jeffrey K. Jordan(5)............................................................. 16,271 * Raymond K. Ostby(8).............................................................. 111,142 * Dugald H. Stewart(9)............................................................. 30,166 * Tung-sun Tung(10)................................................................ 69,673 * All directors and executive officers as a group (20 persons)(11)................. 2,710,805 14.4%
- ------------------------ * Less than 1%. (1) The number and percentage of shares beneficially owned is determined under rules of the Securities and Exchange Commission ("SEC"), and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within sixty days of February 25, 1998 through the exercise of any stock option or other right. Unless otherwise indicated in the footnotes, each person has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares shown as beneficially owned. (2) This information was obtained from filings made with the SEC pursuant to Sections 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended. (3) Includes 207,270 shares held by The Antle Family Trust, as to which Mr. Antle shares voting and dispositive power, and 116,012 shares of Common Stock exercisable within sixty days of February 25, 1998. (4) Includes options to purchase 468,750 shares of Common Stock exercisable within sixty days of February 25, 1998. (5) All such shares are subject to options exercisable within sixty days of February 25, 1998. (6) Includes 37,388 shares held by The D'Amour Family Trust, as to which Mr. D'Amour shares voting and dispositive power, and 7,083 shares of Common Stock subject to options exercisable within sixty days of February 25, 1998. (7) Includes 37,548 shares held by The Huang Living Trust, as to which Mr. Huang shares voting and dispositive power, and 28,125 shares of Common Stock subject to options exercisable within sixty days of February 25, 1998. (8) Includes options to purchase 103,042 shares of Common Stock exercisable within sixty days of February 25, 1998. (9) Includes options to purchase 29,896 shares of Common Stock exercisable within sixty days of February 25, 1998. (10) Includes options to purchase 56,760 shares of Common Stock exercisable within sixty days of February 25, 1998. (11) Includes options to purchase 1,117,064 shares of Common Stock exercisable within sixty days of February 25, 1998. EXECUTIVE OFFICER COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth certain information concerning total compensation received by the person serving as Chief Executive Officer and each of the four most highly compensated executive officers during the last fiscal year (the "Named Officers"), for services rendered to the Company in all capacities during the last three fiscal years.
LONG-TERM COMPENSATION AWARDS ----------- ANNUAL COMPENSATION SECURITIES ALL OTHER ------------------------ UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2) - --------------------------------------------------------------------------------------------------------------- Keith R. Lobo................................. 1997 $250,000 $144,000 0 $11,168 PRESIDENT AND CHIEF EXECUTIVE OFFICER 1996 $250,000 $200,000 100,000 $ 6,768 1995 $227,369 $150,000 20,000 $ 3,978 Jeffrey K. Jordan............................. 1997 $227,351(3) $ 17,000 0 $16,400 VICE PRESIDENT, NORTH AMERICAN SALES 1996 $382,499 $ 30,000 25,000 $34,000 1995 $544,567 $ 30,000 10,000 $10,800 Raymond K. Ostby.............................. 1997 $205,000 $ 59,000 0 $ 6,968 VICE PRESIDENT, FINANCE AND ADMINISTRATION, 1996 $190,000 $ 70,000 40,000 $ 6,768 CHIEF FINANCIAL OFFICER AND SECRETARY 1995 $156,667 $ 66,000 0 $ 5,863 Dugald H. Stewart............................. 1997 $205,223 $ 57,000 0 $ 9,073 VICE PRESIDENT, MANUFACTURING 1996 $184,333 $102,000 40,000 $ 8,873 1995 $151,667 $ 56,000 10,000 $ 6,000 Tung-sun Tung................................. 1997 $188,666 $ 40,000 0 $ 9,073 VICE PRESIDENT, RESEARCH & DEVELOPMENT 1996 $174,584 $ 64,000 60,000 $ 8,873 1995 $140,000 $ 36,000 0 $ 6,000
- ------------------------ (1) Includes bonuses earned or accrued with respect to services rendered in the fiscal year indicated, whether or not such bonus was actually paid during such fiscal year. (2) Includes health care premiums and 401(k) contributions. (3) Includes $126,370 from commissions. REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS The Compensation Committee (the "Committee") is responsible for establishing policies and programs which determine the compensation of the Company's executive officers, as well as supervising and making recommendations to the Board on compensation matters generally. The Committee also has exclusive authority to grant stock options to executive officers of the Company under the 1988 Stock Option Plan (the "1988 Plan"), the 1996 Supplemental Stock Plan (the "1996 Plan") and the 1997 Stock Option Plan (the "1997 Plan"). COMPENSATION PHILOSOPHY AND POLICIES The Committee's compensation philosophy is to provide cash and equity incentives to the Company's officers and other employees through programs designed to attract and retain personnel of the highest caliber in order to maintain the Company's competitive position in its market. The Company seeks to motivate its key employees by rewarding superior performance and by joining the interests of employees to those of the stockholders through equity incentives. The Committee seeks to foster teamwork and to motivate high performance through a bonus program which depends upon achievement of corporate performance objectives and, increasingly, individual performance objectives. The Committee's policy is to establish a total compensation program at the beginning of each year which is designed to enhance the Company's ability to meet its financial, technical and other strategic goals for the year, while creating an environment which will attract, retain and motivate highly skilled officers and key employees to promote the success of the Company's business. ELEMENTS OF COMPENSATION Compensation for officers and key employees includes both cash and equity elements. Cash compensation consists of base salary, which is determined on the basis of the level of responsibility, expertise and experience of the employee, taking into account competitive conditions in the industry. In addition, cash performance awards are paid to officers and other key employees up to an established percentage of base salary, subject to meeting all or a portion of targeted objectives. Performance awards are based on achievement of corporate financial goals and discretionary individual performance reviews. Compensation of sales personnel includes two additional components, sales commissions and sales bonuses tied to quarterly and annual targets. Ownership of Common Stock is a key element of executive compensation. Officers and other employees of the Company are eligible to participate in the 1988 Plan, the 1996 Plan, the 1997 Plan and the 1993 Employee Qualified Stock Purchase Plan (the "Purchase Plan"). The 1988 Plan, the 1996 Plan and the 1997 Plan permit the Board of Directors or any committee delegated by the Board to grant stock options to employees on such terms as the Board or its committee may determine. The Committee has sole authority to grant stock options to executive officers of the Company and is currently administering stock option grants to all employees. In determining the size of a stock option grant to a new officer or other key employee, the Committee takes into account equity participation by comparable employees within the Company, external competitive circumstances and other relevant factors. Additional options may be granted to current employees to reward exceptional performance or to provide additional unvested equity incentives. These options typically vest over a four-year period and thus require the employee's continuing efforts on behalf of the Company. The Purchase Plan permits employees to acquire Common Stock through payroll deductions and promotes broad-based equity participation throughout the Company. The Committee believes that it is in the stockholders' interests to link employees' compensation as closely as possible to equity appreciation and thus to share with the employees the benefits of their efforts on behalf of the Company's success. The Company also maintains a 401(k) Plan to provide retirement benefits through tax deferred salary deductions for all its employees. The Company may also make discretionary contributions towards the 401(k) Plan. The Company made contributions of $497,000 to the 401(k) Plan for fiscal 1997. 1997 EXECUTIVE COMPENSATION Executive compensation for fiscal 1997 included base salary and cash performance awards, plus, in the case of sales executives, sales commissions and sales bonuses. Executive officers, like other employees, were eligible for option grants under the 1988 Plan, the 1996 Plan and the 1997 Plan, and to participate in the Purchase Plan. Performance awards for the 1997 fiscal year were based upon achievement by the Company of corporate revenue and profit goals which had been established at the beginning of the year (as to which no payments were made in fiscal 1997) and individual performance goals. Performance awards were paid after the 1997 fiscal year end. CHIEF EXECUTIVE OFFICER COMPENSATION FOR 1997 Keith R. Lobo joined the Company in November 1992. His annual base compensation is set by the Committee in January of each year, after review of salaries paid to chief executives of comparable companies and in light of Mr. Lobo's performance during the prior year. Like all officers, he is eligible to receive options under the 1988 Plan, the 1996 Plan and the 1997 Plan, and to participate in the Purchase Plan. Mr. Lobo received a performance award for fiscal 1997 in the amount of $144,000. Mr. Lobo declined an increase in base compensation for fiscal 1997 over fiscal 1996. SUMMARY The Committee sets policy and administers the Company's cash and equity incentive programs to attract and retain highly skilled executives who will promote the Company's business goals and to incentivize them to achieve goals which will build long-term stockholder value. COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS Richard C. Alberding Glen M. Antle EX-2 3 WARRANT GRANTED BY THE COMPANY EXHIBIT 2 --------- THESE WARRANTS AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THESE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE LAW, AND NO INTEREST IN SUCH WARRANTS MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING THE SECURITIES OR (B) THE COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION AND SUCH OPINION IS IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY AND FROM COUNSEL SATISFACTORY TO THE COMPANY. No. W-2 STOCK PURCHASE WARRANTS TO PURCHASE SHARES OF COMMON STOCK QUICKTURN SYSTEMS, INC. 400,000 WARRANTS THIS IS TO CERTIFY that, for value received, MENTOR GRAPHICS CORPORATION, or its assigns (Holder), is entitled, at any time after February 28, 1992 and not later than 5:00 p.m., Pacific Time on February 27, 2000 (Expiration Date), subject to the provisions of these Warrants, to purchase 400,000 shares of fully paid and nonassessable shares of the Common Stock of QUICKTURN SYSTEMS, INC., a California corporation (Company), at a price of $15.00 per share (the Purchase Price Per Share) (such number of shares and the Purchase Price Per Share being subject to adjustment as provided in these Warrants), upon the surrender of this certificate (with the attached form of Election to Purchase completed and executed by the Holder) and delivery of a check payable to the Company, in the amount of the Purchase Price Per Share multiplied by the number of shares for which these Warrants are being exercised, to the Company at its principal office. Such surrender and payment are referred to as the exercise of these Warrants. All or part of these Warrants may be assigned at any time prior to the Expiration Date. In the case of any assignment, upon request and upon surrender of this certificate to the Company at its principal office with the attached form of Assignment duly completed and executed, the Company will cause to be executed and delivered one or more certificates of like tenor evidencing in the aggregate the number of Warrants to which this certificate relates registered in the name of the person or persons entitled to such certificate upon assignment. At any time prior to the Expiration Date, upon surrender of this certificate to the Company, this certificate may be exchanged, alone or with other certificates of like tenor, for a new certificate or certificates of like tenor evidencing in the aggregate the number of Warrants, to which this Certificate and such other certificates relate, registered in the name of the Holder. The Warrants evidenced by this certificate shall be void and of no effect and the Holder's rights shall cease after 5:00 p.m. Pacific Time on the Expiration Date. For the purpose of these Warrants, the term "Common Stock" shall mean, subject to the provisions of subdivision 2 below, shares of the class designated as Common Stock of the Company at February 28, 1992 or shares of any class or classes resulting from any reclassification or reclassifications of such Common Stock; provided, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. The Warrants evidenced by this certificate are subject to the following additional terms and conditions: 1. In case the Company shall issue any shares of its Common Stock as a stock dividend or subdivide the number of outstanding shares of Common Stock into a greater number of shares, then, in either of such cases, the Purchase Price Per Share in effect at the time of such action shall be proportionately reduced and the number of shares of Common Stock at that time purchasable pursuant to these Warrants shall be proportionately increased; and, conversely, in the event the Company shall contract the number of outstanding shares of Common Stock by combining such shares into a smaller number of shares, then, in such case, the Purchase Price Per Share in effect at the time of such action shall be proportionately increased and the number of shares of Common Stock at that time purchasable pursuant to these Warrants shall be proportionately decreased. Any dividend paid or distributed on the Common Stock in stock of any other class of securities convertible into shares of Common Stock shall be treated as a dividend paid in Common Stock to the extent that shares of Common Stock are issuable upon the conversion. 2. In case the Company shall be recapitalized by reclassifying its outstanding Common Stock, then as a condition of such recapitalization lawful and adequate provision shall be made under which the Holder shall have the right to purchase, upon the terms and conditions specified in these Warrants, in lieu of the shares of Common Stock previously purchasable upon the exercise of these Warrants, the kind and amount of shares of stock and other securities and property receivable upon such recapitalization by the owner of the number of shares of Common Stock which the Holder might have purchased immediately prior to such recapitalization. 3. In case the Company shall consolidate or merge with or convey all or substantially all its property and assets to any other corporation or corporations, then as a condition of such consolidation, merger or conveyance, lawful and adequate provision shall be made in which the Holder shall have the right to purchase, upon the terms and conditions specified in these Warrants, in lieu of the shares of Common Stock previously purchasable upon the exercise of these Warrants, the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger or conveyance by a holder of the number of shares of Common Stock which the Holder might have purchased immediately prior to such consolidation, merger or conveyance. -2- 4. Whenever the Purchase Price Per Share or the kind or amount of securities purchasable under these Warrants shall be adjusted pursuant to any of the provisions of this certificate, the Company shall cause to be sent to the Holder by first-class mail at his address as it appears upon the records of the Company, a certificate setting forth the adjustments in the Purchase Price Per Share and/or in said number of shares, and also setting forth in detail the facts requiring such adjustments including, without limitation, a statement of the consideration received or deemed to have been received by the Company for any additional shares of stock issued by it. 5. The holder of these Warrants shall be entitled to those registration rights set forth in Exhibit G to that certain Asset Purchase Agreement dated February 28, 1992. 6. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of these Warrants. If the exercise of these Warrants would, but for the provisions of this subdivision 6, result in the right to receive a fraction of a share of Common Stock, the Company shall, in lieu thereof, make payment in cash for such fractional interest (computed to the nearest 1/100th of a share) calculated on the basis of the last reported sales price (or bid price if there be no sale) of the Common Stock as reported (i) on any stock exchange designated by the Company on which the Common Stock may be traded, or (ii) by any reputable quotation reporting service, if the Common Stock be not traded on any stock exchange, or (iii) by any dealer in securities dealing in the Common Stock, if such quotations be not reported by any such reporting service, on the day on which the Warrants shall be exercised, or, if none is reported on such date, on the date of the last such reported sale or bid, or (iv) if there is no dealer in securities who is dealing in the Common Stock, at the last sale price of any shares of Common Stock sold by the Company. 7. These Warrants shall not entitle the Holder to any voting rights or any other rights as a shareholder of the Company, or to any other rights except the rights stated in this certificate; and no dividend or interest shall be payable or shall accrue in respect of these Warrants or the shares purchasable hereunder unless, and until, and except to the extent that, these Warrants shall be exercised. WITNESS, the seal of the Company and the signatures of its duly authorized officers. February 28, 1992 QUICKTURN SYSTEMS, INC. /s/ Phil Kaufman By ________________________ Its President /s/ Dennis Favero ___________________________ Its Secretary -3- TO QUICKTURN SYSTEMS, INC.: ELECTION TO PURCHASE The undersigned irrevocably elects to purchase shares of Common Stock issuable upon the exercise of the attached Warrants, and requests that certificates for such shares shall be issued in the name of and delivered to the address of the undersigned, at the address stated below and, if the number of shares shall not be all the shares which may be purchased pursuant to the attached Warrants, that new Warrants evidencing the right to purchase the balance of such shares be registered in the name of, and delivered to, the undersigned at the address set forth below. The undersigned agrees with and represents to the Company that the shares of the Common Stock are acquired for investment and not with a view to, or for sale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended. Payment enclosed in the amount of $_________. Dated:_________ Name of holder of Warrants:__________________________ (please print) Address:_______________________________ _______________________________ Signature:_____________________________ Its_____________________________ ASSIGNMENT For value received ____________________ sells, assigns and transfers unto ____________________ the attached Warrants, together with all right, title and interest in such Warrants, and irrevocably constitutes and appoints ____________________ attorney, to transfer the Warrants on the books of the Company, with full power of substitution in the premises. Dated:________, 199___. Signature:_____________________________ Its:______________________________ EXHIBIT E QUICKTURN SYSTEMS, INC. AUTHORIZED AND ISSUED CAPITAL STOCK As of March ___, 1992 Authorized Capital Stock ------------------------ Common Stock 20,000,000 Series A Preferred Stock 3,500,000 Series B Preferred Stock 1,276,666 Series C Preferred Stock 641,000 Series D Preferred Stock 3,750,000 Outstanding Capital Stock -------------------------- Common Stock 1,515,844 Series A Preferred Stock 3,500,000 Series B Preferred Stock 1,276,666 (1) Series C Preferred Stock 610,000 (2) Series D Preferred Stock 3,560,000 - --------------------- (1) 2,159,864 shares Common Stock on an as-converted basis (2) 1,240,984 shares Common Stock on an as-converted basis Outstanding Warrants -------------------- Underlying Security No. of Shares Exercise Price -------------------------- -------------- -------------- Series C Preferred Stock 31,000 (1) $5.00 - --------------------- (1) 63,066 shares Common Stock on an as-converted basis EXHIBIT F --------- FINANCIAL REPORTS 1. Delivery of Financial Statements. Quickturn shall deliver to Mentor -------------------------------- Graphics as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of Quickturn, an income statement for such fiscal year, a balance sheet of Quickturn as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and audited and certified by independent public accountants of nationally recognized standing selected by Quickturn. 2. Annual Budget, Inspection Rights and Observer Rights. Quickturn ---------------------------------------------------- shall: (a) deliver to Mentor Graphics, within fifteen (15) days of the end of each month, an unaudited income statement for the month and a balance sheet for and as of the end of such month in the form provided to the Board of Directors of Quickturn, together with a letter from Quickturn's management describing in narrative form, operations and material events during the period; (b) deliver to Mentor Graphics, upon request and within forty-five (45) days of the end of each fiscal quarter, a copy of a list of shareholders as of the end of such fiscal quarter, setting forth the name of each shareholder and the number and type of shares held by such shareholder; (c) permit Mentor Graphics, at its expense, to visit and inspect Quickturn's properties, to examine its books of account and records and to discuss Quickturn's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by Mentor Graphics; provided, however, that Quickturn shall not be obligated pursuant to this paragraph to provide access to any information which it reasonably considers to be a trade secret or similar confidential information; (d) provide such other information concerning Quickturn, its business, prospects, finances, employees, officers and directors, upon reasonable request. EX-3 4 UNSECURED SUBORDINATED PROMISSORY NOTE EXHIBIT 3 --------- QUICKTURN DESIGN SYSTEMS, INC. UNSECURED SUBORDINATED PROMISSORY --------------------------------- $3,000,000 Wilsonville, Oregon September 29, 1993 FOR VALUE RECEIVED, Quickturn Design Systems, Inc. a California corporation, whose principal address is 440 Clyde Avenue, Mountain View, California 94043 (the "Company"), promises to pay to Mentor Graphics Corporation, an Oregon corporation, whose principal address is 8005 S.W. Boeckman Road, Wilsonville, Oregon 97007 ("MENTOR GRAPHICS"), the principal sum of Three Million Dollars ($3,000,000), together with interest on the outstanding principal sum at the rate of four percent (4%) per annum. Principal shall be due and payable annually in five equal installments of $600,000 on the 30th day of each September commencing on September 30, 1994. Interest accrued hereon shall be due and payable quarterly in arrears on the last day of each calendar quarter for the calendar quarter then ending, commencing with the calendar quarter ending December 31, 1993. Payment of principal and interest shall be made in lawful money of the United States at Mentor Graphic's principal office or at such other place as Mentor Graphics may from time to time designate in writing. Interest shall be calculated on the basis of a 360-day year and the actual number of days elapsed. The following is a statement of the terms and conditions to which this Note is subject and with respect to which, by acceptance of this Note, the holder hereof agrees: 1. PREPAYMENT ---------- The Company shall have the right to prepay without premium or penalty, at any time, in whole or in part, the unpaid principal and interest due on this Note. 2. SUBORDINATION ------------- The indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all the Company's Senior Indebtedness. "Senior Indebtedness" shall mean the principal of (and premium, if any) and unpaid interest on (i) all indebtedness of the Company or with respect to which the Company is a guarantor, whether outstanding on the date hereof or hereafter created, to banks, insurance companies, lease financing institutions or other -1- lending institutions, regularly engaged in the business of lending money, which is for money borrowed (or purchase of equipment in the case of lease funding) by the Company or a subsidiary of the Company, whether or not secured, and (ii) and amendments, R.R. Donnelley FinancialR.R. Donnelley Financial lending institutions, regularly engaged in the business of lending money, which is for money borrowed (or purchase of equipment in the case of lease funding) by the Company or a subsidiary of the Company, whether or not secured, and (ii) and amendments, modifications, deferrals, increases, renewals or extensions of any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness. Upon any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation, or any other marshalling of the assets and liabilities of the Company or in the event this Note shall be declared due and payable upon the occurrence of an event of default (as specified herein), (i) no amount shall be paid by the Company in respect of the principal of or interest on this Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then outstanding shall be paid in full, and (ii) no claim or proof of claim shall be filed with the Company by or on behalf of the holder of this Note which shall assert any right to receive any payments in respect of the principal of and interest on this Note except subject to the payment in full of the principal of and interest on all of the Senior Indebtedness then outstanding. In the instance of an event of default which has been declared in writing with respect to any Senior Indebtedness, or in the instrument under which it is outstanding, permitting the holder to accelerate the maturity thereof, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, or all Senior Indebtedness shall have been paid in full, (i) the Company shall promptly notify Mentor Graphics in writing of such default and (ii) no payment shall be made in respect of the principal of or interest on this Note, unless within twelve (12) months after the happening of such event of default, the maturity of such Senior Indebtedness shall not have been accelerated. In case cash, securities or other property otherwise payable or deliverable to the holder of this Note shall have been applied to the payment of Senior Indebtedness, then and in each such case, upon the payment in full of all Senior Indebtedness, the holder of this Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive all further payments and distributions made on Senior Indebtedness until all principal of and interest on this Note shall have been paid in full; and no such payments or distributions to the holders of this Note by reason of such subrogation of cash, securities or other property which otherwise would be payable or distributable to the holders of Senior Indebtedness shall, as between the Company and its creditors -2- (other than the holders of Senior Indebtedness), on the one hand, and the holder of this Note, on the other, be deemed to be a payment by the company on account of this NoteR.R. Donnelley FinancialR.R. Donnelley Financial(other than the holders of Senior Indebtedness), on the one hand, and the holder of this Note, on the other, be deemed to be a payment by the Company on account of this Note. Nothing contained in this Section 2 shall impair, as between the Company and the holder of this Note, the obligation of the Company, which is absolute and unconditional, to pay to the holder hereof the principal hereof and interest hereon as and when the same become due and payable, or shall prevent the holder of this Note, upon default under this Note, from exercising all rights, powers and remedies otherwise provided herein or by applicable law, all subject to the rights, if any, of the holders of Senior Indebtedness under this Section 2 to receive cash, securities or other properties otherwise payable or deliverable to the holder of this Note. 3. EVENTS OF DEFAULT ----------------- If one or more of the following events (herein called "EVENTS OF DEFAULT") shall have occurred and be continuing, that is to say: (a) If the Company (i) shall commence any proceeding or other action relating to it in bankruptcy or seek reorganization, dissolution, liquidation, winding- up, or any other relief under the Bankruptcy Code, as amended, or (ii) shall make a general assignment for the benefit of creditors; or (b) If any proceedings are commenced or any other action is taken against the Company in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up, or for any other relief under the Bankruptcy Code, as amended; and any such event continues for ninety (90) days undismissed or undischarged; or (c) If the Company shall default in the performance of any of its obligations under this Note, such default shall have continued unremedied for a period of thirty (30) days and the obligation is not being contested in good faith by appropriate legal proceedings; then the holder of this Note may at any time at such holder's option by written notice to the Company declare the principal amount of and the accrued interest on this Note to be immediately due and payable, and thereupon the same shall become so due and payable; and the Company will reimburse the holder of this Note for its reasonable costs and expenses, including attorneys' fees, incurred in connection with the enforcement of its rights under this Note. Notwithstanding the foregoing, upon the failure of the Company to pay any amount of principal or interest hereunder when due as set forth in the first paragraph of this Note, the holder of -3- this Note shall be entitled to exercise all rights and remedies available to itR.R. Donnelley FinancialR.R. Donnelley Financial this Note shall be entitled to exercise all rights and remedies available to it. 4. WAIVER ------ The waiver by the holder hereof of any breach of or default under any term, covenant or condition contained herein shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of or default under the same or any other such term, covenant or condition. 5. GENERAL PROVISIONS ------------------ (a) Governing Law: This Note shall be governed by and construed in ------------- accordance with the laws of the State of Oregon. (b) Successors and Assigns: The terms of this Note shall be binding upon ---------------------- and inure to the benefit of and be enforceable by the parties hereto and their respective distributees, legal representatives, successors and assigns. IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name this 29th day of September 1993. QUICKTURN DESIGN SYSTEMS, INC. By: /s/ Raymond K. Ostby ---------------------- Title: Vice President ---------------------- AGREED TO AND ACCPETED: MENTOR GRAPHICS CORPORATION By: /s/ Frank S. Delia --------------------- Title: Vice President ------------------ -4- EX-4 5 PRESS RELEASE DATED AUGUST 12, 1998 EXHIBIT 4 --------- PRESS RELEASE QUICKTURN BOARD TO REVIEW MENTOR GRAPHICS' UNSOLICITED TENDER OFFER Advises Shareholders to Take No Action at Present Time SAN JOSE, CA -- August 12, 1998 -- Quickturn Design Systems, Inc. (NASDAQ:QKTN) announced today, in response to Mentor Graphics Corporation's (NASDAQ:MENT) unsolicited tender offer for all outstanding shares of Quickturn, that the Company's board of directors will study the offer and make its recommendation to shareholders in due course. In the meantime, Quickturn urges all its shareholders to take no action with respect to the Mentor Graphics offer and any related activities until Quickturn's board of directors has made its recommendation. Quickturn Design Systems, Inc. is the leading provider of verification products and time-to-market engineering TtME/TM/ services for the design of complex ICs and electronic systems. The company's products are used worldwide by developers of high-performance computing, multimedia, graphics and communications systems. Quickturn is headquartered at 55 W. Trimble Road, San Jose, CA 95131-1013; Telephone: 408/914-6000. For more information, visit the Quickturn Web site at www.quickturn.com or send e-mail to info@quickturn.com. For more information contact: Ray Ostby Quickturn Design Systems, Inc. (408) 914-6633 Abernathy MacGregor Frank Jim MacGregor/Matt Sherman (212) 371-5999 EX-5 6 LETTER TO STOCKHOLDERS DATED AUGUST 24, 1998 EXHIBIT 5 --------- QUICKTURN DESIGN SYSTEMS, INC. 55 W. TRIMBLE ROAD SAN JOSE, CALIFORNIA 95131 August 24, 1998 TO THE STOCKHOLDERS OF QUICKTURN DESIGN SYSTEMS, INC. Dear Stockholder: As you may be aware, Mentor Graphics Corporation ("Mentor") and its wholly- owned subsidiary, MGZ Corp, commenced on August 12, 1998 an unsolicited tender offer (the "Mentor Offer") for all of the Common Stock of Quickturn Design Systems, Inc. ("Quickturn" or the "Company") at $12.125 per share. After careful consideration, Quickturn's Board of Directors has voted to recommend that stockholders reject as inadequate the unsolicited $12.125 per share tender offer by Mentor. YOUR BOARD RECOMMENDS THAT THE STOCKHOLDERS REJECT THE MENTOR OFFER. After careful consideration of the Mentor Offer, your Board determined that the Mentor Offer was inadequate and not in the best interests of the Company's stockholders, that the Mentor Offer did not fully reflect the long-term value of the Company, and that stockholder interests would be better served by the Company continuing to pursue its business plan. In particular, the Board determined that the Company's business plan offered the potential for obtaining higher long-term benefits for the Company's stockholders than the Mentor Offer. This determination was based on, among other things, the opinion of the Company's financial advisers, Hambrecht & Quist LLC, that the Mentor Offer is inadequate and the opportunities for business expansion and revenue and earnings growth resulting from recently introduced products and from products under development for use in the electronic design automation market and in other related parts of the market. The enclosed Schedule 14D-9 describes your Board's decision to reject the Mentor Offer and contains other important information relating to its decision. We urge you to read it carefully. In rejecting the Mentor Offer, we have reaffirmed our continued confidence in the Company's future and our determination that you, our stockholders, be given every opportunity to participate fully in that future. Your Board of Directors and I greatly appreciate your continued support and encouragement. Very truly yours, LOGO /s/ KEITH R. LOBO Keith R. Lobo PRESIDENT AND CHIEF EXECUTIVE OFFICER EX-6 7 PRESS RELEASE OF THE COMPANY DATED AUGUST 24, 1998 EXHIBIT 6 PAGE 1 CONTACTS: QUICKTURN DESIGN SYSTEMS, INC. ABERNATHY MACGREGOR FRANK Joan Powell Pauline Yoshihashi / Matt Sherman Director, Marketing Communications In San Jose 8/24 (408) 914-6000 (408) 914-6701 In New York 8/25 (212) 371-5999 joan@quickturn.com FOR IMMEDIATE RELEASE QUICKTURN DESIGN SYSTEMS BOARD OF DIRECTORS REJECTS MENTOR GRAPHICS' UNSOLICITED OFFER SAN JOSE, CALIF. (August 24, 1998) Quickturn Design Systems, Inc. (Nasdaq: QKTN) today announced that its board of directors rejected an unsolicited tender offer by Mentor Graphics Corporation (Nasdaq: MENT) to purchase all of the outstanding shares of Quickturn for $12.125 per share in cash. The board determined that the Mentor offer is inadequate, does not reflect the inherent value of the company, and is not in the best interests of Quickturn or its stockholders. Accordingly, the Quickturn board recommended Quickturn stockholders not tender their shares to Mentor pursuant to Mentor's offer. "This opportunistic, inadequate offer comes at a moment of weakness for Quickturn's stock price and a moment of desperation for Mentor's design verification strategy," Keith R. Lobo, president and chief executive officer of Quickturn Design Systems, Inc. said. "Weakness for Quickturn's stock price, because of the economic downturn in the Asia/Pacific region and the corresponding slowdown in the region's new electronics product design. Desperation for Mentor's design verification strategy, because we are beating them in the marketplace, and we are beating them in the courts. Mentor's bid implicitly acknowledges the inferiority of their product position." "We are rejecting Mentor's bid because we see, as they do, the potential for renewed growth in our key technologies. As the industry transitions to deep submicron design, increasing chip complexity demands Quickturn's technology and expertise. Assuming even a minimal recovery in the Asia/Pacific region, we are comfortable with industry research projections of 22% annual growth in total emulation revenue through 2001, and 42% annual growth in total high performance simulation revenue, also through 2001," Mr. Lobo said. PAGE 2 "As demand for these products grows, we believe customers will turn to Quickturn. Quickturn is the acknowledged emulation technology and implementation leader. Our new Mercury/TM/ product, which supports design complexities up to 10 million logic gates, has the potential to do for Quickturn in 1999 and 2000 what System Realizer/TM/ did for our company in 1995 and 1996. Among Mercury's numerous innovations is the breakthrough SimServer/TM/ technology, which expands our verification expertise beyond traditional emulation boundaries into a new class of high-performance solutions. We are also working on enhancements to our CoBALT/TM/ product, which will address the verification needs of customers' synchronous designs with complexities in the 8 million to 20 million logic gate range, as well as integration with our high-performance SpeedSim/TM/ cycle-based simulator," Mr. Lobo continued. "Mentor understands the forces that will drive demand for these products, and they understand the scarcity value of Quickturn's position in the industry. We have the patents, we have the installed base, we have the R&D, and we have the people. Others have tried to beat us; they've failed. We believe Quickturn stockholders will find the superior potential of this company amply demonstrated in 1999 and 2000," Mr. Lobo said. In its recommendation to Quickturn stockholders, the board of directors considered, among other things: . Quickturn's established position as the leading provider of emulation technology and a leader in cycle-based simulation, for the integrated circuit design verification market, as well as its reputation in the industry as a technological leader and innovator in this area. In this regard, the board of directors noted that the company has supplied more than 80% of the installed base of emulation systems worldwide; . Quickturn's prospects for future growth based upon its current and future product plan, including the recently introduced Mercury/TM/ Design Verification System, which offers substantially improved performance and ease of use, as well as the company's additional products and enhancements planned for introduction at appropriate intervals over the next few years; . Quickturn's proven technical expertise, reflected in an estimated 4,000 completed customer design projects and developed over years of activity in the design verification market; . Quickturn's expenditures of over $60 million on research and development in the past three years, leading to current and future planned products; . Quickturn's strong intellectual property position, including 25 issued United States patents, 25 pending United States patent applications and numerous international patents and patent application filings; . Quickturn's reputation for high-quality worldwide customer service and support resulting in the completion of an estimated 4,000 customer design projects; . Quickturn's acknowledged strength in the sale and implementation of emulation products; . Quickturn's acknowledged high-quality manufacturing infrastructure; . Anticipated growth in demand for emulation and cycle-based simulation resulting from continuing substantial increases in semiconductor design complexity; . Current conditions in Quickturn's business and markets, including the current adverse economic conditions in Asia, which have had a substantial effect upon the company's recent quarterly financial performance and recent stock price; . The historical trading prices of Quickturn's common stock, including the fact that Mentor's offer is more than 25% below the stock's highest closing price over the last year, and less than 4% above its average closing price during the same period; and . An opinion from the investment banking firm of Hambrecht & Quist LLC that Mentor's offer is inadequate, from a financial point of view, to Quickturn stockholders, as of the date of such opinion, supported by, among other things, analyses performed by H&Q of Quickturn's historical and projected financial performance, PAGE 3 and consequent implied valuations of the company. Quickturn announced today that it is filing with the Securities and Exchange Commission, and will mail to stockholders, a Solicitation/ Recommendation Statement on Schedule 14D-9 setting forth the company's formal recommendation with respect to Mentor's offer. Additional information with respect to the board's decision to recommend that stockholders reject the Mentor offer and the matters considered by the board in reaching such decision is contained in the Schedule 14D-9. In addition, Quickturn announced that its board of directors amended certain provisions of the company's Bylaws and authorized certain amendments to its Preferred Shares Rights Agreement. The amendment to the Bylaws specifies certain procedures concerning the calling of a special meeting of the stockholders by holders representing at least 10 percent of the votes, including that the board shall set a date for such meeting not less than 90 days nor more than 100 days after the receipt of a valid request for a meeting. The proposed amendments to the company's Preferred Shares Rights Agreement remove the so-called "dead-hand" provisions that require the concurrence of continuing directors to undertake certain actions, including redeeming the Rights or amending the Rights Agreement in the event of a change of control of the board. The proposed amendments also provide that the Rights cannot be redeemed or exchanged and the Rights Agreement cannot be amended for a period of 180 days following an annual or special meeting in which a majority of the board is elected, if such redemption, exchange or amendment is reasonably likely to facilitate a change in control transaction with certain acquirors. Quickturn Design Systems, Inc. is the leading provider of verification products and time-to-market engineering (TtME/TM/) services for the design of complex integrated circuit and electronic systems. The company's products are used worldwide by developers of high-performance computing, multimedia, graphics and communications systems. Quickturn is headquartered at 55 W. Trimble Road, San Jose, CA 95131-1013; Telephone: 408/914-6000. For more information, visit the Quickturn Web site at www.quickturn.com or send e-mail to info@quickturn.com. # # # Quickturn, the Quickturn logo, Mercury, SimServer, SpeedSim, System Realizer and CoBALT are registered trademarks or trademarks of Quickturn Design Systems, Inc. EX-7 8 COMPLAINT FOR DECLARATORY EXHIBIT 7 --------- IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY MENTOR GRAPHICS CORPORATION, an ) Civil Action No. 16584 NC Oregon corporation, and MGZ CORP., a ) Delaware corporation, ) ) Plaintiffs, ) ) v. ) ) QUICKTURN DESIGN SYSTEMS, INC., a ) Delaware corporation, KEITH R. LOBO, ) GLEN M. ANTLE, RICHARD C. ) ALBERDING, MICHAEL R. D'AMOUR, ) YEN-SON (PAUL) HUANG, DR. DAVID K. ) LAM, WILLIAM A. HASLER and ) CHARLES D. KISSNER, Defendants. --------------------------------------- COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF --------------------- Plaintiffs Mentor Graphics Corporation ("Mentor Graphics") and MGZ Corp. ("Purchaser") for their complaint against defendants Quickturn Design Systems, Inc. ("Quickturn"), Keith R. Lobo, Glen M. Antle, Richard C. Alberding, Michael R. D'Amour, Yen-Son (Paul) Huang, Dr. David K. Lam, William A. Hasler, and Charles D. Kissner ("Director Defendants") allege, upon knowledge as to themselves and their own acts and upon information and belief as to all other matters, as follows: Summary of this Action ---------------------- 1. Earlier today, plaintiff Purchaser commenced a fully-financed, non- coercive, non-discriminatory, all-cash, all-shares tender offer for outstanding shares of Quickturn common stock that are not already owned by Mentor Graphics or Purchaser (the "Tender Offer"). Mentor Graphics also is filing today with the Securities and Exchange Commission (the "SEC") preliminary materials u to solicit agent designation to call a special meeting of Quickturn's stockholders to replace the current members of Quickturn's Board of Directors. This action seeks declaratory and injunctive relief requiring Quickturn to dismantle its takeover defenses, including its "poison pill," and enjoining Quickturn from amending Quickturn's bylaws or taking any other action to thwart the stockholder franchise or to frustrate the efforts of Quickturn's stockholders to call a special meeting and to replace Quickturn's Board of Directors in order to facilitate the Tender Offer. 2. Quickturn stockholders whose shares are purchased by Purchaser in the Tender Offer will receive $12.125 per share in cash, representing a 51.61/16 premium above the average closing PAGO of Quickturn's stock on the Nasdaq National Market on August 11, 1998, the last full trading day before the first public announcement of Purchaser's commencement of the Tender Offer. The Tender Offer is the initial step in a two-step transaction pursuant to which Purchaser proposes to acquire all of the a shares of Quickturn stock. If successful, the Tender Offer will be followed by a merger or similar business combination with Purchaser or another direct or indirect subsidiary of Mentor Graphics (the "Proposed Merger," and together with the Tender Offer, the "Proposed Acquisition"). Pursuant to the Proposed Merger, it is currently anticipated that each then outstanding share of Quickturn (other then shares owned by Mentor Graphics or any of its subsidiaries or shares held in the treasury of Quickturn) would be converted into the right to receive an amount in cash equal to the price paid in the Tender Offer. 3. In January 1996, the Board of Directors of Quickturn (the "Quickturn Board") adopted a stockholder rights plan (the "Rights Plan"), commonly known as a "poison pill," which is designed to thwart any acquisition of Quickturn that does not have the approval of the Quickturn Board. The Rights Plan provides the Quickturn Board with the power to prevent summarily the consummation of the fully-financed, all-cash, all-shares, non-coercive. non-discriminatory Tender -2- Offer. The Rights Plan was adopted without the approval of Quickturn's stockholders and, if it remains in effect and applicable to the Tender Offer, it will restrict the right of Quickturn's stockholders to decide whether to accept a premium offer for their shares and will impose an insurmountable obstacle to Purchaser's consummation of the Tender Offer. Moreover, the Quickturn Board will be able to prevent Mentor Graphics and Purchaser from consummating the Proposed Merger for at least three years unless the Board exempts the Tender Offer from restrictions imposed by Section 203 of the Delaware General Corporation Law ("Section 203"). 4. The Tender Offer is conditioned upon, among other things, (i) the redemption or inapplicability of the Rights Plan; (ii) the exemption of the Tender Offer from Section 203 and (iii) there being validly tendered and not withdrawn prior to the expiration of the Tender Offer that number of Quickturn shares which, when combined with the Quickturn shares owned by Mentor Graphics, Purchaser and their affiliates, represent a majority of the outstanding Quickturn Shares on a fully diluted basis. By failing to take action to satisfy the conditions to the Tender Offer, the individual members of the Quickturn Board have breached their fiduciary duties owed to Quickturn's stockholders under Delaware law. Quickturn's stockholders, including Mentor Graphics and Purchaser, will be irreparably harmed absent relief from this Court. The Parties ----------- 5. Plaintiff Mentor Graphics is a Oregon corporation with its principal executive offices in Wilsonville, Oregon. Mentor Graphics manufactures, markets and supports software and hardware Electronic Design Automation ("EDA") products and provides related services which enable engineers to design, analyze, simulate, model, implement and verify the components of electronic systems. Mentor Graphics is the beneficial owner of more than three percent of the outstanding shares of Quickturn common stock. -3- 6. Plaintiff Purchaser is a newly incorporated Delaware corporation and a wholly-owned subsidiary of Mentor Graphics with its principal executive offices in Wilsonville, Oregon. Purchaser is the record owner of 100 shares of Quickturn common stock. 7. Defendant Quickturn is a Delaware corporation with its principal executive offices in San Jose, California. According to its most recent Form 10-K, Quickturn "designs, manufactures, sells and supports products that verify the design of integrated circuits ('ICs') and electronic systems." 8. Defendant Keith R. Lobo has been President, Chief Executive Officer and a director of Quickturn since November 1992. 9. Defendants Glen M. Antle, Richard C. Alberding, Michael R. D'Amour, Yen-Son (Paul) Huang, Dr. David K. Lam, William A. Hassler and Charles D. Kissner are directors of Quickturn. The Director Defendants, as directors of Quickturn, owe fiduciary duties of loyalty and care to Quickturn's stockholders. FACTUAL BACKGROUND ------------------ A. The Quickturn Rights Plan ------------------------- 10. On or about January 10, 1996, the Quickturn Board approved the adoption of the Rights Plan and declared a dividend of one Preferred Share purchase right (a "Right") for each share of Quickturn stock outstanding as of the close of business on January 22, 1996. The Rights arc distributed and become exercisable for one one-thousandth share of Quickturn's Series A Participating Preferred Stork (the "Series A Preferred") at a price of $50 on the close of business ten days after the earlier of (i) the first date of public announcement that any person (other than Quickturn, any subsidiary of Quickturn or any employee benefit plan of Quickturn or any subsidiary of Quickturn) has acquired or obtained the right to acquire beneficial ownership of 15% or more of Quickturn's common stock (an "Acquiring Person"), or (ii) the publication pursuant to Rule 14-d-2(a) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") of a tender or exchange offer which, if successful, would result in the beneficial acquisition by any person of 15% or more of -4- Quickturn's' common stock (the earlier of (i) and (ii) being referred to as the "Distribution Date"). The Rights expire on January 10, 2006, unless earlier redeemed or exchanged by Quickturn. 11. The primary purpose of the Rights Plan is not to enable the purchase of the Series A Preferred at the greatly inflated price of $50 for each one- thousandth share, but to allow the holder of the Right, under certain circumstances to purchase shares of Quickturn's or an acquiror's common stork at a deep discount. If and when a person becomes an Acquiring Person, all Rights other than those held by the Acquiring Person "flip-in" and each right becomes exercisable for shares of Quickturn common stock equivalent in value to twice the exercise price of the Right. Thus, for the exercise price of $50, the holder of a Right may purchase Quickturn common stock having a market value of $100. If and when Quickturn engages in a merger or a sale of 50% or more of its assets, the Rights "flip-over" and become exercisable for shares of the acquiror's common stock at the same deep discount price of two for the price of one. Thus, stockholders have no economic incentive to exercise the Rights until a person triggers the "flip-in" and/or "flip-over" provisions by becoming an Acquiring Person. 12. The Rights are not exercisable for shares of Quickturn's common stock if, prior to any person becoming an Acquiring Person, the Quickturn Board declares that the tender or exchange offer is a "Permitted Offer." A Permitted Offer is a tender or exchange offer, issued pursuant to Section 14(d) of the Exchange Act, made when "Continuing Directors" are in office, and determined to be, in the opinion of a majority of Continuing Directors, "both adequate and otherwise in the best -5- interests of the Company and its stockholders (taking into account all factors that such Continuing Directors deem relevant)." 13. The Quickturn Board may redeem the Rights, at a redemption price of $.01 per Right, any time prior to the close of business on the earlier of (i) the tenth day following the date of public announcement of the fact that an Acquiring Person has become such, or (ii) January 10, 2006; provided, however, that once a stockholder becomes an Acquiring Person, the Rights may be redeemed by the Quickturn Board only if Continuing Directors remain on the Board and the redemption is approved by a majority of the Continuing Directors. Continuing Directors are (i) persons serving on the Quickturn Board prior to the date of the adoption of the Rights Agreement who are not associated or affiliated with an Acquiring Person, or (ii) persons nominated or elected to the Quickturn Board with the approval of the majority of the Continuing Directors after the date of the adoption of Rights Plan who are not associated or affiliated with an Acquiring Person. 14. Purchaser's acceptance of shares tendered pursuant to its Tender Offer will result in it becoming an Acquiring Person, will make the Rights exercisable for shares of Quickturn's common stock at a discount of 50% of their market value, will make the Tender Offer economically infeasible for Purchaser to accomplish, and will deprive Quickturn's stockholders of the ability to tender their shares unless the Quickturn Board redeems the Rights or exempts Purchaser's Tender Offer from the triggering provisions of the Rights Plan by declaring that the Tender Offer is a "Permitted Offer." B. The Delaware Business Combination Statute ----------------------------------------- 15. Section 203 of the Delaware General Corporation Law, entitled "Business Combinations with Interested Stockholders," applies to any Delaware corporation that has not opted out of the statute's coverage. Quickturn has not opted out of the statute's coverage. -6- 16. Section 203 was designed to impede coercive and inadequate tender and exchange offers. Section 203 provides that if a person acquires 15% or more of a corporation's voting stock (thereby becoming an "interested stockholder"), such interested stockholder may not engage in a "business combination" with the corporation (defined to include a merger or consolidation) for three years after becoming an interested stockholder, unless: (i) prior to the 15% acquisition, the board of directors has approved either the acquisition resulting in the stockholder becoming an interested stockholder or the business combination; (ii) the interested stockholder acquires 85% of the corporation's voting stock in the same transaction in which it crosses the 15% threshold; or (iii) on or subsequent to the date of the 15% acquisition, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders (and not by written consent) by the affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the interested stockholder. 17. Application of Section 203 to the Proposed Acquisition will delay the Proposed Merger for at least three years. Accordingly, three years of the substantial benefits of the Proposed Acquisition will be forever lost. Additionally, any number of events could occur within those three years that would prevent the Proposed Merger altogether. C. The "Quasi-California Corporation" Statute ------------------------------------------ 18. Section 2115 ("Section 2115") of the California General Corporation Law (the "CGCL") provides that if a foreign corporation has (i) more than one- half of the average of the corporation's property, payroll and sales in California, and (ii) more than half of its outstanding securities held by persons with California addresses, then such foreign corporation shall be subject to certain enumerated provisions of the CGCL, as set forth in Section 2115(b), to the exclusion of the law of the jurisdiction in which the corporation is incorporated. Corporations with these -7- characteristics and, thus, subject to the specified provisions of the CGCL, are commonly referred to as "quasi-California" corporations. For the purpose of determining whether a foreign corporation is a "quasi-California" corporation, Section 2115(a) provides that any securities held int he names of broker- dealers, nominees for broker-dealers, banks, associations, or other entities holding securities in a nominee name or otherwise on behalf of a beneficial owner shall not be considered outstanding, unless the foreign corporation requests such nominee holders to certify the number of shares held by beneficial owners and the addresses of beneficial owners for whom securities are held. 19. Exempt from classification as a "quasi-California" corporation pursuant to Section 2115(c) are corporations "with outstanding securities designated as qualified for trading as a national market security on [NASDAQ] if the corporation has at least 800 holders of its equity securities as of the record date of its most recent annual meeting of shareholder." Upon information and belief, plaintiffs believe that Quickturn has at least 800 stockholders and, as a corporation with outstanding securities qualified for trading on NASDAQ as a national market security, would not be a "quasi-California" corporation and would not be subject to the provisions of the CGCL identified in Section 2115(b). Such provisions include, but are not limited to: a. Section 303, which restricts the ability of stockholders to remove directors without cause; b. Section 708, which provides stockholders a right to cumulative voting in the election of directors; c. Section 710, which permits supermajority voting requirements; d. Section 1101, which imposes limitations on mergers; and -8- e. Chapter 12, which applies to all transactions termed "reorganizations" as defined in the CGCL, which includes mergers and/or acquisitions financed by the exchange of equity securities. 20. If Quickturn were to qualify as a "quasi-California" corporation, application of the enumerated provisions of the CGCL would hamper and delay the consummation of the Proposed Acquisition. For example, Section 1101(e) prohibits a majority stockholder holding more than 50% but less than 90% of the outstanding shares of a quasi-California corporation from consummating a cash- out merger. 21. While plaintiffs believe that Quickturn is not currently a "quasi- California" corporation, the Quickturn Board could undertake one of several transactions which would increase its percentage of stock held by California residents and/or decrease its total number of stockholders, thereby removing Quickturn from the exemption provided by Section 2115(c) and transforming Quickturn into a "quasi-California" corporation. Such actions would interfere with the consummation of the Proposed Acquisition despite the benefits of the transactions to the Quickturn stockholders. D. The Response to the Proposed Acquisition ---------------------------------------- 22. Despite the clear-cut and significant economic benefits for the Quickturn stockholders, Quickturn, by the Chairman of the Quickturn Board, Glen M. Antle ("Antle"), has indicated that Quickturn will not accept the Proposed Acquisition. 23. On August 11, 1998, Dr. Walden C. Rhines ("Rhines"), Mentor Graphics' Chief Executive Officer, met with Antle. At this meeting, Rhines presented Mentor Graphics' proposal to acquire Quickturn. Rhines also delivered a letter to Antle outlining Mentor Graphics' proposal to acquire all outstanding shares of Quickturn common stock at a price of $12.125 per share in a -9- negotiated transaction. Rhines further advised Antle that Mentor Graphics' proposal was not subject to any financing conditions. Rhines also advised Antle that, depending on the results of Mentor Graphics' due diligence review of Quickturn, Mentor Graphics would consider offering more value for the outstanding shares of Quickturn. While Antle stated that he would communicate the offer to the Quickturn Board, he stated that he was unwilling to accept the offer or to cause Quickturn to remove its takeover defense or to cause Quickturn to refrain from taking actions to prevent the consummation of the Tender Offer. E. Mentor Graphics' Solicitation Of Agent Designations To Call A Special Meeting And To Replace Quickturn's Board Of Directors --------------------------------------------------------------- 24. In light of Quickturn's unwillingness to accept Mentor Graphics' proposal, the current Quickturn Board cannot be expected to facilitate the Proposed Acquisition, but can be expected to maintain Quickturn's anti-takeover devices and to actively oppose the Proposed Acquisition. because Quickturn has declined to accept the substantial benefits of the Proposed Acquisition, Mentor Graphics has been forced to take its offer directly to the Quickturn stockholders by soliciting agent designations and by causing Purchaser to commence the Tender Offer. 25. Mentor Graphics is filing today with the SEC preliminary soliciation materials in connection with its solicitation of agent designations from Quickturn's stockholders to call a special meeting of the Quickturn stockholders for the purpose of replacing the Director Defendants with individuals nominated by Mentor Graphics. If elected, the Mentor Graphics nominees intend, subject to their fiduciary duties, to redeem the Rights (or amend the Rights Plan to make the Rights inapplicable to the Tender Offer and the Proposed Merger), approve the Tender Offer and the Proposed Merger under Section 203, and take such other actions as may be required to facilitate the prompt consummation of the Proposed Acquisition. -10- 26. Mentor Graphics is in the course of soliciting agent designations to call a special meeting of Quickturn's stockholders to occur approximately 45 days after the call of the meeting is delivered to Quickturn (the "Special Meeting"). Section 2.3 of Quickturn's bylaws provides that [a] special meeting of the stockholders may be called at any time by . . . one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting." In accordance with Quickturn's bylaws, Mentor Graphics believes that (i) a special meeting may be called by the holders of not less than 10% of the Quickturn shares on the date the agent designations are delivered to Quickturn; (ii) the stockholders calling the meeting, not the Board, have the right to fix the date and time of the Special Meeting, (iii) agent designations shall remain in effect until revoked or unless the person executing such agent designation is not the record holder of Quickturn shares on the date the Special Meeting is called; and (iv) absent prior action by the Quickturn Board, the record date for the Special Meeting shall be the date next preceding the date on which the designated agents give notice of the Special Meeting. 27. In furtherance of the solicitation of agent designations to call the Special Meeting, Purchaser is demanding that Quickturn produce a list of its stockholders and related stocklist materials. 28. The efforts by Mentor Graphics and Purchaser to convene the Special Meeting of Quickturn's stockholders comply with Delaware law and Quickturn's bylaws as they presently exist. These bylaw provisions, with which Mentor Graphics has complied fully and with which it will continue to comply, authorize the holders of ten percent of Quickturn's common stock to call a special meeting. 29. Mentor Graphics believes that (i) the date for determining stockholders entitled to call the Special Meeting and to submit agent designations in connection therewith shall be the date -11- that the Special meeting is actually called, and (ii) the stockholders, not the Company Board, have the right to fix the date and time of the Special Meeting and give notice thereof. Therefore, following receipt of the requisite number of agent designations, the designated agents will call the Special Meeting, fix the date and time of the Special Meeting and give notice of the Special Meeting. 30. Mentor Graphics intends also to solicit proxies for the Special Meeting so that, upon proposals by Mentor Graphics, the Director Defendants may be removed from the Quickturn Board, the authorized number of Quickturn directors may be reduced from eight to five, and five individuals nominated by Mentor Graphics may be elected to the Quickturn board of directors. At the Special Meeting, Quickturn's stockholders also will be presented with a proposal by Mentor graphics to repeal bylaws adopted subsequent to March 30, 1998 -- the last bylaws filed as an exhibit to Quickturn's Form 10-K for the year ended December 31, 1997, filed with the Securities and Exchange Commission on March 30, 1998 and prior to the adoption of any bylaw proposals presented at the Special Meeting. 31. Mentor Graphics believes that, in the absence of inequitable conduct by Quickturn, Quickturn's stockholders will act to call the Special meeting and, at such meeting, will replace Quickturn's current directors with Mentor Graphics' nominees and, if necessary, will take other actions designed to negate inequitable conduct by the Quickturn Board undertaken to impede the Proposed Acquisition. 32. Because Mentor Graphics' solicitation of agent designations and solicitation of proxies in reliance on Quickturn's current bylaws threaten the incumbency of Quickturn's Board of Directors, Mentor Graphics believes that Quickturn may seek to impose a constrained interpretation of the current bylaws or purport to amend the bylaws in order to delay the Special Meeting or -12- frustrate the ability of Quickturn's stockholders to exercise their voting rights. Any determinations by Quickturn that Mentor graphics has not complied with Quickturn's existing bylaws would lack a good faith basis. Any amendments to Quickturn's bylaws or other manipulations of corporate machinery having the effect of hindering the ability of Quickturn's stockholders to exercise their rights as they currently exist would serve no legitimate purpose and would clearly constitute unlawful entrenchment by the Director Defendants in violation of their fiduciary duties under Delaware law. IRREPARABLE INJURY ------------------ 33. The unlawful actions of Quickturn, including its failure to accept the Proposed Acquisition, its failure to redeem the Rights Plan and its failure to exempt the Tender Offer from Section 203, are preventing its stockholders from receiving the benefits of the Proposed Acquisition and are thereby causing and will cause Quickturn's stockholders irreparable harm. Unless the Quickturn Board is restrained by this Court, the substantial benefits of the Proposed Acquisition may be forever lost. The injury to Mentor Graphics and Purchaser will not be compensable in money damages and plaintiffs have no adequate remedy at law. COUNT 1 ------- (Breach of Fiduciary Duty; The Rights Plan) ----------------------------------------- 34. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 33 as if fully set forth herein. 35. The Director Defendants owe Quickturn's stockholders the highest duties of care, loyalty and good faith. 36. In light of the superior value offered to Quickturn stockholders by the Proposed Acquisition, there is no legitimate reason for the Quickturn Board to retain the Rights Plan. The -13- Director Defendants' failure to redeem the Rights or to render the Rights Plan inapplicable to the Proposed Acquisition deprive Quickturn's stockholders of the right to maximize their wealth by selling their Quickturn shares at the premium price offered by the Proposed Acquisition. 37. The Director Defendants' failure to redeem the Rights or to render the Rights Plan inapplicable to the Proposed Acquisition has no economic justification, serves no legitimate purpose, and is not a reasonable response to the Tender Offer and/or the Proposed Merger, which pose no threat to the interests of Quickturn's stockholders or to Quickturn's corporate policy and effectiveness. As such, the actions of the Director Defendants are in breach of the fiduciary duties the Director Defendants owe to Quickturn's stockholders under applicable Delaware law. 38. Mentor Graphics and Purchaser have no adequate remedy at law. COUNT II -------- (Breach of Fiduciary Duty: Section 203) -------------------------------------- 39. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 38 as if fully set forth herein. 40. The Director Defendants owe Quickturn's stockholders the highest duties of care, loyalty and good faith. 41. The Board of Directors of Quickturn is empowered by Section 203 to render the statute inapplicable to the Proposed Acquisition by approving the Tender Offer. 42. In light of the superior value offered to Quickturn stockholders by the Proposed Acquisition, there is no legitimate reason for the Quickturn Board of Directors to fail to approve the Tender Offer or to fail to take any other steps necessary to render Section 203 inapplicable to the Proposed Acquisition. Such failures only have the effect of withholding from Quickturn -14- stockholders the right to maximize their wealth by selling their Quickturn shares at the premium price offered by the Proposed Acquisition. 43. The Director Defendants' failure to approve the Tender Offer or otherwise render Section 203 inapplicable to the Proposed Acquisition have no economic justification, serve no legitimate purpose, and are not reasonable responses to the Proposed Acquisition, which poses no threat to the interests of Quickturn's stockholders or to Quickturn's corporate policy and effectiveness. As such, the actions of the Director Defendants are in breach of the fiduciary duties the Director Defendants owe to Quickturn's stockholders under applicable Delaware law. 44. Mentor Graphics and Purchaser have no adequate remedy at law. COUNT III --------- (Declaratory and Injunctive Relief: Section 2115 of the ------------------------------------------------------- California General Corporation Law) ---------------------------------- 45. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 44 as if fully set forth herein. 46. The Director Defendants owe Quickturn's stockholders the highest duties of care, loyalty and good faith. 47. The Tender Offer is non-coercive and non-discriminatory, it is fair to Quickturn stockholders, it poses no threat to Quickturn's corporate policy and effectiveness, and it represents a substantial premium over the market price of Quickturn common stock prior to the public announcement of the Tender Offer. 48. Any action which would bring Quickturn within the provision of Section 2115 of the California General Corporation Law and thereby hinder and/or delay the consummation of the Proposed Acquisition would be a breach of the Director Defendants' fiduciary duties to Quickturn's stockholders. -15- 49. Mentor Graphics and Purchaser have no adequate remedy at law. COUNT IV -------- (Declaratory and Injunctive Relief: Anti-Takeover Devices) --------------------------------------------------------- 50. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 49 as if fully set forth herein. 51. The Director Defendants owe Quickturn's stockholders the highest duties of care, loyalty and good faith. 52. The Tender Offer is non-coercive and non-discriminatory, it is fair to Quickturn's stockholders, it poses no threat to Quickturn's corporate policy and effectiveness, and it represents a substantial premium over the market price of Quickturn common stock prior to the public announcement of the Tender Offer. 53. Adoption of any defensive measures against the Tender Offer, the Proposed Merger, Mentor Graphics' solicitation of agent designations, Mentor Graphics' solicitation of proxies, or that would prevent a future board of directors from exercising its fiduciary duties -- including, but not limited to, amendments to the Rights Plan, amendments to Quickturn's bylaws, pursuit of alternative transactions with substantial break-up fees and/or lock-ups, "White Knight" stock issuances, changes to licensing agreements, or executive compensation arrangements with substantial payments triggered by a change in control -- would itself be a breach of the Director Defendants' fiduciary duties to Quickturn stockholders. 54. Mentor Graphics and Purchaser have no adequate remedy at law. -16- COUNT V ------- (Declaratory and Injunctive Relief: The Call of Special Meeting) --------------------------------------------------------------- 55. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 54 as if fully set forth herein. 56. The Director Defendants owe Quickturn's stockholders the highest duties of care, loyalty and good faith. 57. Mentor Graphics' solicitation of agent designations to call the Special Meeting complies and will comply with Quickturn's bylaws as currently enacted. Mentor Graphics' disclosures regarding the agent designations, which are being filed today with the SEC, are complete and accurate. Any action by Quickturn to eliminate or hinder the procedure for or ability of its stockholders to call the Special Meeting, or to dispute Mentor Graphics' method of determining whether it has obtained sufficient unrevoked agent designations to call the Special Meeting, or to affect the selected date of the call, or to refuse to recognize the date of the call, or to fail to recognize the fix of the date and time of the Special Meeting set forth in the call, or to interfere with Mentor Graphics giving notice of the Special meeting, or to impede consideration by Quickturn's stockholders at the Special Meeting of Mentor Graphics' proposals would impermissibly impede and/or delay Quickturn's stockholders from exercising their rights. Any such action would delay and/or thwart the exercise of stockholder voting rights without compelling justification and would thereby cause irreparable harm. 58. Mentor Graphics and Purchaser have no adequate remedy at law. -17- COUNT VI -------- (Declaratory and Injunctive Relief: Nomination of Directors) ----------------------------------------------------------- 59. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 58 as if fully set forth herein. 60. The Director Defendants owe Quickturn's stockholders the highest duties of care, loyalty and good faith. 61. Mentor Graphics' actions to provide proper notice of its intent to nominate directors for election at the Special Meeting called by Quickturn's stockholders and Mentor Graphics' solicitation of proxies in connection with such election will comply with Quickturn's bylaws as currently enacted. Any action by Quickturn to hinder the ability of Mentor Graphics to propose its nominees at the Special Meeting, including, but not limited to, any actions to amend the notification procedures, would impermissibly impede and/or delay Quickturn's stockholders from exercising their rights. Moreover, any action to negate the effectiveness of Mentor Graphics' upcoming properly delivered notification of its stockholder proposals and its director nominees would eviscerate the ability of Quickturn's stockholders to change the composition of the Quickturn Board at the Special Meeting. There cannot possibly be compelling justification for any such action which would guarantee that the incumbent Board could always and continuously frustrate the purposes of and/or delay a special meeting with the effect of preventing the election of stockholder-nominated directors. Any such action would delay and/or thwart the exercise of stockholder voting rights without compelling justification and would thereby cause irreparable harm. 62. Mentor Graphics and Purchaser have no adequate remedy at law. WHEREFORE, plaintiffs respectfully request that this Court: -18- a. declare that the Director Defendants have breached their fiduciary obligations to Quickturn stockholders under Delaware law by failing to redeem the Rights in response to the Tender Offer; b. compel Quickturn and its Director Defendants to redeem the Rights or to render the Rights Plan inapplicable to the Proposed Acquisition; c. declare that the Director Defendants have breached their fiduciary obligations to Quickturn stockholders under Delaware law by failing to render Section 203 inapplicable to the Proposed Acquisition; d. compel the Director Defendants to approve the Proposed Acquisition for purposes of Section 203 and enjoin them from taking any action to enforce or apply Section 203 that would impede, thwart, frustrate or interfere with the Proposed Acquisition; e. temporarily, preliminarily and permanently enjoin Quickturn, its employees, agents and all persons acting on its behalf or in concert with it from taking any action with respect to the Rights Plan, except to redeem the Rights or render the Rights Plan inapplicable to the Tender Offer, and from adopting any other Rights Plan or other measures, or taking any other action designed to impede, or which has the effect of impeding, the Tender Offer or the efforts of Mentor Graphics to acquire control of Quickturn; f. declare that the taking of any action to bring Quickturn within the provisions of Section 2115 of the California General Corporation Law, thereby impeding, thwarting, frustrating or interfering with the Proposed Acquisition, constitutes a breach of the Director Defendants' fiduciary duties; g. enjoin Quickturn and the Director Defendants from taking any action which would bring Quickturn within the provisions of Section 2115 of the California General Corporation -19- Law and thereby have the effect of impeding, thwarting, frustrating or interfering with the Proposed Acquisition; h. temporarily, preliminarily and permanently enjoin defendants, their affiliates, subsidiaries, officers, directors and all others acting in concert with them or on their behalf from bringing any action concerning the Rights Plan, Section 203, or Section 2115 in any other court; i. declare that the adoption of any measure that has the effect of impeding, thwarting, frustrating or interfering with the Tender Offer, the Proposed Merger, Mentor Graphics' solicitation of agent designations, Mentor Graphics' call of the Special Meeting, Mentor Graphics' notice of the Special Meeting, Mentor Graphics' notification of its director nominees, or Mentor Graphics' solicitation of proxies, or Mentor Graphics' nomination of directors or presentation of proposals at the Special Meeting constitutes a breach of the Director Defendants' fiduciary duties; j. enjoin Quickturn and the Director Defendants from adopting any measure that has the effect of impeding, thwarting, frustrating or interfering with the Tender Offer, the Proposed Merger, Mentor Graphics' solicitation of agent designations, Mentor Graphics' call of the Special Meeting, Mentor graphics' notice of the Special Meeting, Mentor Graphics' notification of its director nominees, Mentor Graphics' solicitation of proxies, or Mentor Graphics' nomination of directors or presentation of Proposals at the Special Meeting; k. enjoin Quickturn and the Director Defendants from taking any action to delay, impede, postpone or thwart the voting or other rights of Quickturn's stockholders in connection with the Special Meeting or otherwise; l. compel Quickturn and the Director Defendants to recognize the ability of Quickturn's stockholders, holding on the date of the call of the Special Meeting shares entitled to cast not less than ten percent of votes at such Special Meeting, to call and provide notice of a Special -20- Meeting at the date and time set forth in the call and for the purposes set forth in the call and notice of the Special Meeting; m. declare that the date for determining stockholders entitled to call the Special Meeting and to submit Agent Designations in connection therewith shall be the date that the Special Meeting is actually called and that agent designations shall remain valid until revoked upon notice to Mentor Graphics or unless the person executing the agent designation is not the holder of Quickturn common shares on the date the Special Meeting is called; n. declare that Mentor Graphics' and Purchaser's disclosures in connection with its solicitation of agency designations and proxies for the Special Meeting are complete and accurate; o. award plaintiffs their cost and disbursements in this action, including reasonably attorneys' and experts' fees; and p. grant plaintiffs such other and further relief as this Court may deem just and proper. -21- /s/ Kevin G. Abrams by CG Dearlove ------------------------------------------ Kevin G. Abrams Thomas A. Beck OF COUNSEL: Catherine G. Dearlove Holly June Stiefel Christopher L. Kaufman Thad J. Bracegirdle David A. York Richards, Layton & Finger Latham & Watkins One Rodney Square 75 Willow Road P.O. Box 551 Menlo Park, CA 94025 Wilmington, DE 19899 (650) 328-4600 (302) 658-6541 Attorneys for Plaintiffs Fredric J. Zepp Latham & Watkins 505 Montgomery Street San Francisco, CA 94111 (415) 391-0600 H. Steven Wilson Latham & Watkins 2100, 701 B Street San Diego, CA 92101-8197 (619) 236-1234 Dated: August 12, 1998 -22- EX-8 9 COMPLAINT - US DISTRICT COURT EXHIBIT 8 --------- IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE MENTOR GRAPHICS CORPORATION and ) No. 98-423 MGZ CORP., ) ) Plaintiffs, ) ) v. ) ) QUICKTURN DESIGN SYSTEMS, INC., ) ) Defendant. ) COMPLAINT --------- Plaintiffs Mentor Graphics Corporation ("Mentor Graphics") and MGZ Corp. ("Purchaser") file this action seeking declaratory relief arising out of Purchaser's offer to purchase shares of common stock of defendant Quickturn Design Systems, Inc. ("Quickturn"). JURISDICTION AND VENUE ---------------------- 1. This Court has jurisdiction over this action pursuant to 15 U.S.C. (S) 78aa, 28 U.S.C. (S) 133l(a) and 28 U.S.C. (S) 1337(a). 2. Venue in this Court is proper pursuant to 15 U.S.C. (S) 78aa and 28 U.S.C. (S) 1391(b). THE PARTIES ----------- 3. Plaintiff Mentor Graphics is a corporation incorporated under the laws of the State of Oregon having its principal executive offices in Wilsonville, Oregon. Mentor Graphics manufactures, markets and supports software and hardware Electronic Design Automation ("EDA") products and provides related services which enable engineers to design, analyze, simulate, model, implement and verify the components of electronic systems. Purchaser, a wholly-owned subsidiary of Mentor Graphics and a Delaware corporation, was formed to acquire all of the outstanding shares of Quickturn through the tender offer and merger proposal described below. Mentor Graphics is the beneficial owner of more than three percent of the outstanding shares of Quickturn common stock and Purchaser is the record owner of 100 shares of Quickturn common stock. 4. Defendant Quickturn is a corporation incorporated under the laws of the State of Delaware having its principal executive offices in San Jose, California. According to its most recent Form 10-K, Quickturn "designs, manufactures, sells and supports products that verify the design of integrated circuits ('ICs') and electronic systems." 5. Quickturn's common stock is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. (S) 781(b), and is listed and traded on the Nasdaq National Market. THE TENDER OFFER ---------------- 6. Purchaser commenced today a fully-financed, non-coercive, non- discriminatory, all-cash, all-shares tender offer for outstanding shares of Quickturn common stock that are not already owned by Mentor Graphics or Purchaser (the "Tender Offer"). In connection with the commencement of the Tender Offer, Mentor Graphics issued today a press release summarizing the terms of the Tender Offer (the "Press Release"), and a summary advertisement of the Tender Offer was published in the August 12, 1998 national edition of The Wall -------- Street Journal (the "Summary Advertisement"). - -------------- 7. Quickturn stockholders whose shares are purchased by Purchaser in the Tender Offer will receive $12.125 per share in cash, representing a 51.6% premium above the average closing price of Quickturn's stock on the Nasdaq National Market on August 11, 1998, the last full trading day before the first public announcement of Mentor Graphics' commencement of the Tender Offer. The Tender Offer is conditioned upon, among other things, (i) the redemption or inapplicability of Quickturn's stockholder rights plan, (ii) the exemption of the Tender Offer from Section 203 of the -2- Delaware General Corporation Law ("Section 203"), and (iii) the tender and purchase of sufficient Quickturn shares to give Mentor Graphics and Purchaser a majority of the outstanding Quickturn shares on a fully diluted basis. 8. The Tender Offer is the initial step in a two-step transaction pursuant to which Mentor Graphics proposes to acquire all of the outstanding shares of Quickturn stock. If successful, the Tender Offer will be followed by a merger or similar business combination with Purchaser or a direct or indirect subsidiary of Mentor Graphics (the "Proposed Merger," and together with the Tender Offer, the "Proposed Acquisition"). Pursuant to the Proposed Merger, it is currently anticipated that each then outstanding share of Quickturn (other than shares owned by Mentor Graphics or any of its subsidiaries or shares held in the treasury of Quickturn) would be converted into the right to receive an amount in cash equal to the price paid in the Tender Offer. 9. In January 1996, the Board of Directors of Quickturn adopted a stockholder rights plan (the "Rights Plan"), commonly known as a "poison pill," which is designed to thwart any acquisition of Quickturn that does not have the approval of Quickturn's Board. The Rights Plan provides the Quickturn Board with the power to prevent summarily the consummation of even an all-cash, all- shares, non-coercive, non-discriminatory tender offer by imposing a severe economic penalty (in the form of massive dilution) on a potential acquiror. The Rights Plan was adopted without approval of Quickturn's stockholders and, if it remains in effect and applicable to the Tender Offer, it will restrict the right of Quickturn's stockholders to decide whether to accept Purchaser's premium offer for their shares. 10. Moreover, Quickturn's Board may be able to prevent Mentor Graphics from consummating the Proposed Merger for at least three years unless the Board exempts the Tender Offer from restrictions imposed by Section 203, Delaware's Business Combination Statute. Section -3- 203, which applies to any Delaware corporation that has not opted out of its coverage, provides that if a person acquires 15% or more of a corporation's voting stock (thereby becoming an "interested stockholder"), such interested stockholder may not engage in a "business combination" with the corporation (defined to include a merger or consolidation) for three years after becoming an interested stockholder, unless: (i) prior to the 15% acquisition, the board of directors has approved either the acquisition resulting in the stockholder becoming an interested stockholder or the business combination; (ii) the interested stockholder acquires 85% of the corporation's voting stock in the same transaction in which it crosses the 15% threshold; or (iii) on or subsequent to the date of the 15% acquisition, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders (and not by written consent) by the affirmative vote of at least 66% of the outstanding voting stock which is not owned by the interested stockholder. Quickturn is subject to Section 203 and has chosen not to opt-out of the statute's coverage. 11. The Tender Offer is, and will continue to be, in full compliance with all applicable federal laws and regulations governing tender offers, i.e., the ---- provisions of the Williams Act, embodied in Sections 14(d) and 14(e) of the Exchange Act, 15 U.S.C. (S)(S) 78n(d) and (e), and the rules and regulations promulgated thereunder by the Securities and Exchange Commission ("SEC"). In accordance with the Exchange Act and the rules and regulations promulgated thereunder by the SEC, Purchaser commenced the Tender Offer by the publication of the Summary Advertisement in today's Wall Street Journal. In connection with ------------------- the Tender Offer and in accordance with the Exchange Act and the rules and regulations promulgated thereunder by the SEC, Purchaser is filing today a Schedule 14D-1 with the SEC (the "Schedule 14D-1") pursuant to Section 14(d)(1) of the Exchange Act and Rule l4d-3 promulgated thereunder, 17 C.F.R. (S) 240.I4d-3. -4- 12. Section 14(d) of the Exchange Act, 15 U.S.C. (S) 78n(d), and the rules and regulations promulgated thereunder by the SEC, require that any person or entity making a tender offer for beneficial ownership of more than five percent of a class of registered equity securities file and disclose certain specified information with respect to the tender offer. Any such bidder must disclose, among other things, its identity and background, past contacts, transactions or negotiations between the bidder and the company in whom the bidder seeks to acquire stock, the source and amount of funds needed for the tender offer, and any plans the bidder may have to change the capitalization, corporate structure or business of the company whose stock it seeks to acquire. 13. In addition, Section 14(e) of the Exchange Act, 15 U.S.C. (S) 78n(e), makes it "unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statement made, in light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practice in connection with any tender offer." Purchaser has complied fully with the Exchange Act and all rules and regulations promulgated thereunder. 14. In connection with the Tender Offer, Purchaser is in the process of disseminating to Quickturn's stockholders an offer to purchase containing all material information required by applicable law to be disclosed (the "Offer to Purchase"). Among other matters, the Offer to Purchase discloses: a. the solicitation of agent designations being undertaken by Mentor Graphics to call a special meeting of Quickturn stockholders, as more fully described below; -5- b. the matters to be considered at the special meeting, including the removal of all current members of the Quickturn Board of Directors, an amendment of the Quickturn bylaws to reduce the size of the Quickturn Board to five directors, and the election of five persons nominated by Mentor Graphics to the Quickturn Board, as more fully described below; and c. pending patent litigation between Mentor Graphics and Quickturn, and information regarding the potential damages Quickturn may recover from such litigation. 15. Despite the significant benefits of the Tender Offer for the Quickturn stockholders, Quickturn has refused to accept the Mentor Graphics offer. Quickturn's efforts will, in all likelihood, also include the commencement of baseless litigation against plaintiffs under the provisions of the federal securities laws regulating the solicitation of agency designations, the solicitation of proxies, tender offers and acquisition efforts. QUICKTURN REJECTS THE MENTOR GRAPHICS OFFER ------------------------------------------- 16. On August 11, 1998, Dr. Walden C. Rhines ("Rhines"), Mentor Graphics' Chief Executive Officer and President, met with Glen M. Antle ("Antle"), the Chairman of the Quickturn Board. At this meeting, Rhines presented Mentor Graphics' proposal to acquire Quickturn. Rhines delivered a letter to Antle outlining Mentor Graphics' proposal to acquire all outstanding shares of Quickturn common stock at a price of $12.125 per share in a negotiated transaction. Rhines further advised Antle that Mentor Graphics' proposal was not subject to any financing conditions. Rhines also advised Antle that, depending on the results of Mentor Graphics' due diligence review of Quickturn, Mentor Graphics would consider offering more value for the outstanding shares of Quickturn. While Antle stated that he would communicate the proposal to the Quickturn Board, he -6- stated that he was unwilling to accept the offer or to cause Quickturn to remove its takeover defenses or to cause Quickturn to refrain from taking actions to prevent the consummation of the Tender Offer. 17. In light of Quickturn's failure to accept Mentor Graphics' acquisition proposal, the current Quickturn Board cannot be expected to facilitate the Proposed Acquisition, but instead can be expected to maintain Quickturn's anti- takeover devices and to actively oppose the Proposed Acquisition. Because Quickturn failed to accept the substantial benefits of the Proposed Acquisition, Mentor Graphics is taking its offer directly to the Quickturn stockholders. THE AGENT SOLICITATION ---------------------- 18. In furtherance of the Proposed Acquisition, Mentor Graphics publicly disclosed today its intention to solicit agent designations from Quickturn's stockholders to appoint designated agents with the power to call a special meeting of the Quickturn stockholders (the "Agent Solicitation"). Section 2.3 of Quickturn's bylaws provides that "[a] special meeting of the stockholders may be called at any time by . . . one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting." The purpose of the Agent Solicitation to call a special meeting of the Quickturn stockholders (the "Special Meeting") is to allow the Quickturn stockholders to remove all current members of Quickturn's Board of Directors, to reduce the authorized number of Quickturn directors to five, to elect to the Quickturn Board five individuals nominated by Mentor Graphics, and to repeal any recent or subsequent amendments to the Quickturn bylaws. If elected, Mentor Graphics' nominees intend to, subject to their fiduciary duties, (i) redeem the Rights Plan (or amend the Rights Plan to make it inapplicable to the Proposed Acquisition), (ii) approve the Tender Offer under Section 203, and (iii) take such other actions as may be required to expedite the prompt consummation of the Proposed Acquisition. -7- 19. Section 14(a) of the Exchange Act, 15 U.S.C. (S) 78n(a), and the rules and regulations promulgated thereunder by the SEC, require that a person soliciting an authorization with respect to any registered security file and disclose certain specific information with respect to the solicitation. Any such solicitor must disclose, among other things, its identity, the date, time and place of the meeting at which the proposed action will be taken, and any substantial interest of the solicitor in the matters to be acted upon. In addition, Rule 14a-9, 17 C.F.R. (S) 240.14a-9, promulgated by the SEC under Section 14(a) of the Exchange Act, provides that "[n]o solicitation subject to this regulation shall be made ... containing any statement of which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading." 20. Mentor Graphics' preliminary agent solicitation materials relating to the call of the Special Meeting are being filed today with the SEC (the "Agent Solicitation Materials"). Mentor Graphics believes the Agent Solicitation Materials are in full compliance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder by the SEC, including Rule 14a-9. Mentor Graphics is in the process of disseminating to Quickturn's stockholders the Agent Solicitation Materials containing all material information required by applicable law to be disclosed. The preliminary Agent Solicitation Materials disclose, among other things: a. the requirement that, for the Special Meeting to be held, agent designations in favor of calling the Special Meeting must be executed by the holders of not less than 10% of all the shares entitled to vote at such meeting; -8- b. Mentor Graphics' belief that (i) a special meeting may be called by the holders of not less than 10% of the Quickturn shares on the date the agent designations are delivered to Quickturn, (ii) the stockholders calling the Special Meeting, not the Quickturn Board, have the right to fix the date and time of the Special Meeting, (iii) agent designations shall remain in effect until revoked or unless the person executing such agent designation is not the record holder of Quickturn shares on the date the Special Meeting is called, and (iv) absent prior action by the Quickturn Board, the record date for the Special Meeting shall be the date next preceding the date on which the designated agents give notice of the Special Meeting; c. Mentor Graphics' intent, upon receipt of the requisite number of agent designations, to call the Special Meeting, fix the date and time of the Special Meeting, and give notice of the Special Meeting; d. the belief of Mentor Graphics that its efforts to convene the Special Meeting comply with Delaware law and Quickturn's bylaws as they presently exist; and e. Mentor Graphics' intent, if the Special Meeting is called and held, to ask Quickturn stockholders to (i) remove the current members of the Board of Directors of Quickturn, (ii) amend Quickturn's bylaws to reduce the authorized number of directors to five, (iii) elect Mentor Graphics' five nominees to the Quickturn Board, and (iv) repeal any provisions of the Quickturn bylaws adopted by the incumbent Quickturn Board subsequent to the last public filing of the bylaws. 21. In furtherance of Mentor Graphics' solicitation of agent designations, Purchaser is demanding that Quickturn produce a list of its stockholders and related stocklist materials. DECLARATORY RELIEF ------------------ 22. The Declaratory Judgment Act, 28 U.S.C. (S) 2201, provides that "[i]n a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an -9- appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration." Plaintiffs are entitled to a declaratory judgment that the Schedule 14D-1 and all exhibits thereto, and the Agent Solicitation Materials, are proper and comply with all applicable securities laws, rules and regulations. 23. Although the Proposed Acquisition is fairly and attractively priced, Plaintiffs reasonably expect that Quickturn will thwart or delay plaintiffs' lawful attempts to consummate the Tender Offer. Plaintiffs believe Quickturn will seek to delay and defeat the Tender Offer through efforts including the filing of a meritless suit claiming that public disclosures and filings made by plaintiffs in conjunction with the Tender Offer and the Agent Solicitation violate applicable federal securities laws and regulations. Thus, there is a substantial controversy between parties having adverse interests which is of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. 24. In the absence of declaratory relief, plaintiffs will suffer irreparable harm. As evidenced by the course of action that Quickturn has pursued to date and the actions taken generally by companies that receive unsolicited acquisition proposals, Quickturn will likely defend against the Proposed Acquisition and the Agent Solicitation by, among other things, filing false claims designed to delay or defeat the Proposed Acquisition and the Agent Solicitation. A declaratory judgment that the disclosures in the Schedule 14D- 1, the Offer to Purchase and the Agent Solicitation Materials comply with all applicable federal laws will serve the purpose of adjudicating the interests of the parties, resolving any complaints concerning the propriety of the Tender Offer or the Agent Solicitation under federal law, and permitting an otherwise lawful transaction to proceed. -10- 25. Plaintiffs therefore request pursuant to the Declaratory Judgment Act, 28 U.S.C. (S)(S) 2201 and 2202, that this Court enter a declaratory judgment that the public disclosures and documents filed with the SEC by plaintiffs and which are being disseminated to Quickturn stockholders in connection with the Tender Offer and the Agent Solicitation comply fully with all applicable provisions of law. WHEREFORE, Plaintiffs respectfully request that this Court: a. declare that plaintiffs have disclosed all information required by, and are otherwise in all respects in compliance with, all applicable laws and other obligations, including, without limitation, Sections 14(a), 14(d) and 14(e) of the Exchange Act and any other federal securities laws, rules or regulations deemed or claimed to be applicable to the Schedule 14D-1, the Tender Offer, the Agent Solicitation or the Agent Solicitation Materials; b. award plaintiffs their costs and disbursements in this action, including reasonable attorneys' fees; and c. grant plaintiffs such other and further relief as this Court may deem just and proper. -11- /s/ Kevin G. Abrams / by T.J. Bracegirdle Of Counsel: _________________________________________ Kevin G. Abrams (ID #2375) Christopher L. Kaufman Thomas A. Beck (ID #2086) David A. York Catherine G. Dearlove (ID #3328) Latham & Watkins Holly June Stiefel (ID #3594) 75 Willow Road Thad J. Bracegirdle (ID #3691) Menlo Park, CA 94025 Richards, Layton & Finger (650) 328-4600 One Rodney Square P.O. Box 551 Fredric J. Zepp Wilmington, DE 19899 Latham & Watkins (302) 658-6541 505 Montgomery Street Attorneys for Plaintiffs San Francisco, CA 94111 (415) 391-0600 H. Steven Wilson Latham & Watkins 2100, 701 B Street San Diego, CA 92101-8197 (619) 236-1234 Dated: August 12, 1998 -12- EX-9 10 CLASS ACTION COMPLAINT EXHIBIT 9 --------- IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ------------------------------------------ : HOWARD SHAPIRO, : CIVIL ACTION NO. 16588NC : Plaintiff, : : - against - : : GLEN M. ANTLE, KEITH R. LOBO, RICHARD C. : ALBERDING, MICHAEL R. D'AMOUR, YEN-SON : HUANG, DAVID K. LAM, WILLIAM A. HASSLER, : CHARLES D. KISSNER and QUICKTURN DESIGN : SYSTEMS, INC., : : Defendants. : - ------------------------------------------ : CLASS ACTION COMPLAINT ---------------------- Plaintiff, by his attorneys, Rosenthal, Monhait, Gross & Goddess, P.A., for his complaint against defendants, alleges upon information and belief, except for paragraph 2 hereof, which is alleged upon knowledge as follows: 1. Plaintiff brings this action pursuant to Rule 23 of the Rules of the Court of Chancery on his behalf and as a class action on behalf of all persons, other than defendants and those in privity with them, who own the common stock of Quickturn Design Systems, Inc. ("Quickturn" or the "Company"). 2. Plaintiff has been the owner of the common stock of the Company since prior to the events described below and continuously to date. 3. Defendant Quickturn is a corporation duly organized and existing under the laws of the State of Delaware. The Company designs, manufactures, markets and supports system level verification solutions for the design of integrated circuits and electronic systems. 4. Defendant Glen M. Antle is and was at all relevant times the Chairman of the Board and a director of Quickturn. 5. Defendant Keith R. Lobo is and was at all relevant times Chief Executive Officer, President and a director of Quickturn. 6. Defendants Richard C. Alberding, Michael R. D'Amour, Yen-Son Huang, David K. Lam, William A. Hassler and Charles D. Kissner are and were at all relevant times directors of Quickturn. 7. The Individual Defendants named in paragraphs 4 through 6 are in a fiduciary relationship with the plaintiff and the other public stockholders of Quickturn and owe them the highest obligations of good faith, due care, candor and fair dealing. CLASS ACTION ALLEGATIONS ------------------------ 8. Plaintiff brings this action on his own behalf and as a class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all security holders of the Company (except the defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of the defendants) and their successors in interest, who are or will be threatened with injury arising from defendants' actions as more fully described herein. 9. This action is properly maintainable as a class action. 10. The class is so numerous that joinder of all members is impracticable. As of April 30, 1998, there were approximately 17.8 million shares of Quickturn common stock outstanding, owned by shareholders located throughout the country. 11. There are questions of law and fact which are common to the class, including the following: (a) whether defendants have breached their fiduciary and other common -2- law duties owed by them to plaintiff and the members of the class; (b) whether defendants are unlawfully impeding a takeover attempt and improperly seeking to entrench themselves in their own positions at the expense of the public shareholders of Quickturn; (c) whether defendants' actions hereinafter described, constitute a breach of their fiduciary duties in response to a legitimate, fully-financed offer to acquire the Company; and (d) whether the class is entitled to injunctive relief or damages as a result of the wrongful conduct committed by defendants. 12. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of the plaintiff are typical of the claims of other members of the class and plaintiff has the same interests as the other members of the class. Plaintiff will fairly and adequately represent the class. 13. Defendants have acted in a manner which affects plaintiff and all members of the class, thereby making appropriate injunctive relief and/or corresponding declaratory relief with respect to the class a whole. 14. The prosecution of separate actions by individual members of the class would create a risk of inconsistent or varying adjudications with respect to individual members of the class, which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the class which would, as a practical matter, be dispositive of the interests of other members or substantially impair or impede their ability to protect their interests. SUBSTANTIVE ALLEGATIONS ----------------------- 15. On or about August 12, 1998, Mentor Graphics Corp. ("Mentor") announced that through a wholly-owned subsidiary, MGZ Corp., it had offered to purchase all -3- the outstanding shares of Quickturn's common stock that it did not already own (approximately 97% of the outstanding shares) for $12.125 per share in cash. The total value of the proposed transaction was approximately $216 million. In response to this announcement, the price of Quickturn common stock soared over $3.00 per share (or 38%), from its August 11, 1998 closing price of $8.00 per share to $11.03125 per share. 16. Mentor's President and Chief Executive Officer, Dr. Walden Rhines ("Rhines") presented the offer to defendant Antle at an August 11 late-night meeting. Rhines stated that Mentor would consider increasing its offer based on a due diligence review, if Quickturn permitted one. Antle stated only that he would communicate the offer to the Quickturn board. 17. Commenting on the proposed transaction, Rhines said in a telephone interview that while the proposed transaction would eliminate an existing patent battle between the companies, which would result in savings of $12 million in legal fees alone, the deal made sense independent of the litigation. Although Mentor and Quickturn have discussed merging in the past, they could never reach an agreement, he said. 18. "We think this is something that is just plain good for the shareholders and the companies," Rhines said. "I think the joining of the two companies would have tremendous benefits in eliminating customer uncertainty," he said. 19. The Individual Defendants have refused to permit Mentor to commence due diligence and to negotiate with Mentor in order to protect their own substantial salaries and perquisites, and to entrench themselves in their positions of authority and control with the Company. Instead of fulfilling their fiduciary duties to the public shareholders of Quickturn by -4- immediately beginning negotiations with Mentor to maximize shareholder value, defendants have adopted a course of delay in order to protect their own interests. 20. Defendants' conduct has deprived and will continue to deprive the Company's public shareholders of the very substantial premium (over 50%) which Mentor is prepared to pay or the enhanced premium which further negotiation could secure. 21. Moreover, defendants have refused to take those steps necessary to ensure that the Company's shareholders will receive maximum value for their shares of Quickturn stock. Defendants have refused to seriously consider the pending Mentor offer, and have not announced their intention to conduct an active auction or to establish an open bidding process in order to maximize shareholder value in selling the Company. 22. The Mentor offer is a fully-financed, non-coercive, all-cash, all-shares tender offer. It does not present a threat to Quickturn or its stockholders. Even to the extent it may be deemed a threat, defendants' failure to respond positively by permitting due diligence or commencing discussions with Mentor is unreasonable in the circumstances. 23. As a result of the actions of the Individual Defendants, plaintiff and the other members of the class have been and will be damaged in that they have not and will not receive their fair proportion of the value of Quickturn's assets and businesses and/or have been and will be prevented from obtaining a fair and adequate price for their shares of Quickturn's common stock. 24. By reason of all of the foregoing, each defendant herein has willfully participated in unfair dealing toward the plaintiff and the other members of the class in breach of the fiduciary duties owed by each of them to the class. -5- 25. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the class, and will succeed in their plan to entrench themselves and deprive the class of the opportunity to maximize the value of their Quickturn holdings either in a transaction with Mentor or some other bona fide offer offeror, all to the irreparable harm of the --------- class. 26. Plaintiff and the class have no adequate remedy at law. WHEREFORE, plaintiff demands judgment as follows: A. declaring this to be a proper class action; B. ordering the Individual Defendants to carry out their fiduciary duties to plaintiff and the other members of the class by announcing their intention to: 1) cooperate fully with any person or entity, having a bona ---- fide interest in proposing any transaction which would maximize shareholder - ---- value, including, but not limited to, a buyout or takeover of the Company by Mentor; 2) undertake an appropriate evaluation of Quickturn's worth as a merger/acquisition candidate; 3) take all appropriate steps to enhance Quickturn's value and attractiveness as a merger/acquisition candidate; 4) take all appropriate steps to effectively expose Quickturn to the marketplace in an effort to create an active auction for Quickturn; 5) act independently so that the interests of Quickturn's public stockholders will be protected; and -6- 6) adequately ensure that no conflicts of interest exist between the Individual Defendants' interest and their fiduciary obligation to maximize stockholder value or, if such conflicts exist, to ensure that all conflicts are resolved in the best interests of Quickturn's public stockholders; C. ordering the Individual Defendants, jointly and severally, to account to plaintiff and the class for all damages suffered and to be suffered by them as a result of the acts and transactions alleged herein; D. preliminarily and permanently enjoining defendants from proceeding with any action that will entrench the Individual Defendants to the detriment of maximizing the value to the Company's public shareholders; E. awarding plaintiff the costs and disbursements of this action, including a reasonable allowance for plaintiff's attorneys' and experts' fees; and -7- F. granting such other and further relief as may be just and proper in the premises. ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By: /s/ Norman M. Monhait -------------------------------- Suite 1401, Mellon Bank Center P.O. Box 1070 Wilmington, Delaware 19899-1070 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: BERNSTEIN LIEBHARD & LIFSHITZ 274 Madison Avenue New York, New York 10016 (212) 779-1414 August 13, 1998 -8- EX-10 11 LETTER FROM MGZ TO THE COMPANY EXHIBIT 10 ---------- MGZ CORP. 8005 S.W. BOECKMAN ROAD WILSONVILLE, OR 97070 August 20, 1998 BY FACSIMILE - ------------ Quickturn Design Systems, Inc. 55 W. Trimble Road San Jose, California 95131 Attention: Glen M. Antle Dear Mr. Antle: Pursuant to Section 803.5(a)(1) of the Rules of the Federal Trade Commission (the "Commission") under Section 7A of the Clayton Act as added by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Act"), you are hereby notified as follows: 1. The acquiring person is MGZ Corp., the ultimate parent entity of which is Mentor Graphics Corporation. 2. MGZ Corp. intends to acquire voting securities of Quickturn Design Systems, Inc. 3. MGZ Corp. has commenced a cash tender offer to acquire 100% of the outstanding shares of common stock, par value $.001 per share, of Quickturn Design Systems, Inc., including the associated preferred stock purchase rights. 4. The foregoing acquisition may be subject to the Act and Mentor Graphics Corporation is filing notification under the Act with the Commission and the Assistant Attorney General in charge of the Antitrust Division of the United States Department of Justice (the "Assistant Attorney General"). 5. It is anticipated that such notification will be received by the Commission and the Assistant Attorney General on August 20, 1998. 6. The person within which Quickturn Design Systems, Inc. is included may be required to file notification under the Act. Very truly yours, MGZ Corp. /s/ Gregory K. Hinckley ------------------------------- By: Gregory K. Hinckley Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----